On May 28, 2009, the Sixth Circuit Court of Appeals handed down a decision in Wuliger v. Manufacturers Life Insurance Co., No. 08-3342 (6th Cir., May 28, 2009), holding that under Ohio law when a life insurance policy is void due to fraud, the insurer is not required to return premiums paid.

This action was brought by the appointed receiver for Liberte Capital Group (Liberte), a defunct corporation in the business of purchasing life insurance policies and marketing viatical settlements. It is undisputed that the corporation was a cover for a fraudulent scheme to dupe investors and third parties.

The receiver sought declaratory judgment and rescission of three life insurance policies issued by Manufacturers Life Insurance Company (Manufacturers Life). The receiver requested that the policies be declared void ab initio and that the premiums paid be refunded with interest. The receiver requested this remedy despite Manufacturers Life’s lack of knowledge of the fraud and the undisputed fact that Manufacturers Life fully performed its obligations under the life insurance policies at issue.

In a previous related case, the Sixth Circuit Court of Appeals ruled that the receiver lacked standing to bring actions on behalf of the Liberte investors. Even though the receiver in Wuliger brought his action on behalf of investors, the District Court nevertheless found that the receiver had standing to assert his claims against Manufacturers Life. More interestingly, the District Court also ruled that the paid premiums are recoverable with interest. Notwithstanding prior Ohio case law holding that only the insurer may raise the defense of lack of insurable interest, the District Court also held that the receiver could raise the issue of insurable interest and that the policies were void ab initio and subject to rescission.

A more detailed summary of this case is available at: http://www.bricker.com/legalservices/industry/insurance/stoli/cases/case3.asp.

The full text of this case is available at: http://www.bricker.com/legalservices/industry/insurance/09a0187.pdf.

Cases involving STOLI transactions are currently being heard all across the country with mixed results. For more information about those decisions, please visit the Bricker & Eckler STOLI Resource Center at: http://www.bricker.com/legalservices/industry/insurance/stoli/