On September 22, the Florida Supreme Court in Wells Fargo Bank NA v. Pruco Life Insurance Co., No. SC15-382 (Fla. Sept. 22, 2016) denied Pruco Life Insurance Company’s challenge to the validity of an insurance policy purchased under a stranger-originated life insurance (STOLI) scheme because the policy’s two-year contestability clause had expired.

In Pruco Life Ins. Co. v. Wells Fargo Bank, N.A. v. U.S. Bank, N.A., 780 F.3d 1327 (11th Cir. 2015), the U.S. Court of Appeals for the Eleventh Circuit considered two unrelated federal lawsuits dealing with the validity of STOLI policies sold to elderly Floridians. In both lawsuits, life policies were issued by Pruco Life after the brokers allegedly provided fraudulent information, inflating the policyholders’ wealth to secure larger policy coverage amounts. The life policies were then sold to third parties and later acquired by Wells Fargo Bank and U.S. Bank. Pruco Life did not contest the validity of the policies within the two-year contestability period. The parties disagreed whether there was an insurable interest at the inception of the disputed policies as required by Fla. Stat. § 627.404.

Wells Fargo was appealing a final judgment for Pruco Life invalidating a policy on the life of Arlene Berger. Pruco Life appealed the other suit involving U.S. Bank, seeking reinstatement of its claim to invalidate policies taken on the life of Rosalind Guild.

The Eleventh Circuit asked the Florida Supreme Court to determine which of two Florida laws controlled the disputes: Fla. Stat. § 627.455, which gives insurers two years to contest a policy, or Fla. Stat. § 627.404, which requires the existence of an “insurable interest” when a policy is created.

The Eleventh Circuit certified the following two questions to the Florida Supreme Court:

1. Can a party challenge an insurance policy as being void ab initio for lack of the insurable interest required by Fla. Stat. § 627.404 if that challenge is made after expiration of the two-year contestability period mandated by Fla. Stat. § 627.455? 
2. Assuming that a party can do so, does Fla. Stat. § 627.404 require that an individual with the required insurable interest also procure the insurance policy in good faith?

Pruco Life Ins. Co. v. Wells Fargo Bank, N.A., 780 F.3d 1327, 1336 (11th Cir. 2015).

The Florida Supreme Court restated the question it answered as follows:

Can a party challenge the validity of a life insurance policy after the
two-year contestability period established by section 627.455 because
of its creation through a STOLI scheme?

Wells Fargo Bank NA v. Pruco Life Insurance Co., No. SC15-382, *9 (Fla. Sept. 22, 2016).

Florida’s highest court answered the question in the negative, holding that a party cannot challenge the validity of a life insurance policy created through a STOLI scheme after expiration of the two-year contestability period. The court reasoned that because the policies at issue had the insurable interest required by § 627.404(1) at their inception, they become incontestable two years after their issuance under the plain language of § 627.455.

The Florida Supreme Court noted that the two-year contestability statute had certain exceptions (e.g., nonpayment of premiums), but an insurance policy based on a STOLI scheme was not one of them. The court concluded that adding a STOLI exception to the contestability statute was a policy decision that should be decided by the Florida legislature.