The insurer has succeeded: the court has decided (or the parties have agreed) that the insurance policy is void due to misrepresentation or lack of insurable interest. But which party is entitled to the premiums paid? That question, most courts find, is one of fact not readily susceptible to determination as a matter of law. For example, the Southern District of Florida recently reversed its earlier grant of summary judgment awarding premiums to an insurer due to new evidence indicating that the insurer may have had knowledge of the STOLI scheme prior to accepting additional premium. The court found that the investor was entitled to a trial on the disputed factual issues.
Similarly, the Northern District of Illinois issued two opinions in the last two months, the first ordering additional discovery about retention of premiums. The second, Penn Mut. Life Ins. Co. v. GreatBanc Trust, found that the court could not make a determination either way: the court could not order return of premium or that the insurer retain the premium – it was required to leave the parties “where they put themselves,” dropping the case like a “hot potato.”
Conversely, the District of Rhode Island granted summary judgment in favor of an insurer recently, finding as a matter of law that the policy had been procured by fraud and the insurer was innocent, and so it was entitled to the premiums.
The lesson: evidence sufficient to persuade a court that a policy is STOLI may not convince the court that the insurer should retain the premiums paid. This is often due to issues such as waiver, unclean hands, or estoppel, which are not at issue in determining the merits, but are when determining which party is entitled to the premiums paid.