Title: Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A.
Citation: N/A
Docket Number: 
State: new-jersey
Issuer: new-jersey Supreme Court
Date: June 4, 2019

Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A. Annotate this Case Justia Opinion Summary In April 2007, Sun Life Assurance Company of Canada received an application for a $5 million insurance policy on the life of Nancy Bergman. The application listed a trust as the sole owner and beneficiary of the policy. Bergman’s grandson signed as trustee; the other members of the trust were all investors, and all strangers to Bergman. The investors paid most if not all of the policy’s premiums. Sun Life issued the policy. About five weeks after the policy was issued, the grandson resigned as trustee and appointed the investors as successor co-trustees. The trust agreement was amended so that most of the policy’s benefits would go to the investors, who were also empowered to sell the policy. More than two years later, the trust sold the policy and the investors received nearly all of the proceeds from the sale. Wells Fargo Bank, N.A. eventually obtained the policy in a bankruptcy settlement and continued to pay the premiums. After Bergman passed away in 2014, Wells Fargo sought to collect the policy’s death benefit. Sun Life investigated the claim, uncovered discrepancies, and declined to pay. Instead, Sun Life sought a declaratory judgment that the policy was void ab initio, or from the beginning. Wells Fargo counterclaimed for breach of contract and sought the policy’s $5 million face value; if the court voided the policy, Wells Fargo sought a refund of the premiums it paid. The United States District Court for the District of New Jersey partially granted Sun Life’s motion for summary judgment, finding New Jersey law applied and concluded “that this was a STOLI [(stranger-originated life insurance)] transaction lacking insurable interest in violation of [the State’s] public policy. . . . As such, it should be declared void ab initio.” The court also granted Wells Fargo’s motion to recover its premium payments, reasoning that “Wells Fargo is not to blame for the fraud here” and that “[a]llowing Sun Life to retain the premiums would be a windfall to the company.” Both parties appealed. Finding no dispositive New Jersey case law, the United States Court of Appeals for the Third Circuit certified two questions of law to the New Jersey Supreme Court regarding the Sun Life policy. In response to the certified questions, the Supreme Court found that STOLI policies were against public policy and void ab initio. The Court also noted that a party may be entitled to a refund of premium payments depending on the circumstances. “Among other relevant factors, courts should consider a later purchaser’s participation in and knowledge of the original illicit scheme.” Read more Want to stay in the know about new opinions from the Supreme Court of New Jersey? Sign up for free summaries delivered directly to your inbox. Learn More › You already receive new opinion summaries from Supreme Court of New Jersey. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here . SYLLABUSThis syllabus is not part of the Court’s opinion. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Court. In the interest of brevity, portions of an opinion may not have been summarized. Sun Life Assurance Company of Canada v. Wells Fargo Bank, N.A. (A-49-17) (080669)Argued January 29, 2019 -- Decided June 4, 2019RABNER, C.J., writing for the Court. In New Jersey and elsewhere, no one can procure insurance on a stranger’s life and receive the benefits of the policy. Betting on a human life in that way, with the hope that the person will die soon, not only raises moral concerns but also invites foul play. For those reasons, state law allows a policy to be procured only if the benefits are payable to someone with an “insurable interest” in the person whose life is insured. N.J.S.A. 17B:24-1.1(b). In April 2007, Sun Life Assurance Company of Canada received an application for a $5 million insurance policy on the life of Nancy Bergman. The application listed a trust as the sole owner and beneficiary of the policy. Ms. Bergman’s grandson signed as trustee. The other members of the trust were all investors, and all strangers to Ms. Bergman. The investors paid most if not all of the policy’s premiums. Sun Life received an inspection report that listed Ms. Bergman’s annual income as more than $600,000 and her overall net worth at $9.235 million. In reality, her income was about $3000 a month, and her estate was later valued at between $100,000 and $250,000. Although Ms. Bergman represented that she had no other life insurance policies, five policies were taken out on her life in 2007, for a total of $37 million. Sun Life issued the policy on July 13, 2007. At the time, the trust was the sole owner and beneficiary. The policy had an incontestability clause that barred Sun Life from challenging the policy -- other than for non-payment of premiums -- after it had been “in force during the lifetime of the Insured” for two years. About five weeks after the policy was issued, the grandson resigned as trustee and appointed the investors as successor co-trustees. The trust agreement was amended so that most of the policy’s benefits would go to the investors, who were also empowered to sell the policy. More than two years later, the trust sold the policy and the investors received nearly all of the proceeds from the sale. Wells Fargo Bank, N.A. eventually obtained the policy in a bankruptcy settlement and continued to pay the premiums. 1 After Nancy Bergman passed away in 2014, Wells Fargo sought to collect the policy’s death benefit. Sun Life investigated the claim, uncovered the discrepancies noted above, and declined to pay. Instead, Sun Life sought a declaratory judgment that the policy was void ab initio, or from the beginning. Wells Fargo counterclaimed for breach of contract and sought the policy’s $5 million face value; if the court voided the policy, Wells Fargo sought a refund of the premiums it paid. The United States District Court for the District of New Jersey partially granted Sun Life’s motion for summary judgment. The court found that New Jersey law applied and concluded “that this was a STOLI [(stranger-originated life insurance)] transaction lacking insurable interest in violation of [the State’s] public policy. . . . As such, it should be declared void ab initio.” The court also granted Wells Fargo’s motion to recover its premium payments, reasoning that “Wells Fargo is not to blame for the fraud here” and that “[a]llowing Sun Life to retain the premiums would be a windfall to the company.” Both parties appealed. Finding no dispositive New Jersey case law, the United States Court of Appeals for the Third Circuit certified two questions of law to this Court: 1. Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio? 2. If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?HELD: The Court answers both parts of the first certified question in the affirmative: a life insurance policy procured with the intent to benefit persons without an insurable interest in the life of the insured does violate the public policy of New Jersey, and such a policy is void at the outset. In response to the second question, a party may be entitled to a refund of premium payments it made on the policy, depending on the circumstances.1. The Court reviews the history of wagering concerns associated with life insurance and the development of the insurable interest requirement in response to those concerns. In New Jersey, the Legislature adopted the current insurable interest requirement in 1968. The Legislature expressly imposed an insurable interest requirement and thus superseded dated case law holding that a policy could be valid without an insurable interest. N.J.S.A. 17B:24-1.1(a) outlines situations in which an individual has an insurable interest, as well as circumstances under which a corporation or a nonprofit or charitable entity has an insurable interest in the lives of its employees, officers, or others. Critical to the questions presented in this case, section (b) of N.J.S.A. 17B:24-1.1 bars procurement of a life insurance policy payable to someone who lacks an insurable interest in the life of the insured. (pp. 8-13) 2 2. Just as all New Jersey insurance policies must be based on an insurable interest, they must also contain an incontestability clause. See N.J.S.A. 17B:25-4 (“There shall be a provision that the policy . . . shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue.”). Incontestability clauses, however, are not a bar to all defenses. A majority of courts have held that the lack of an insurable interest can be asserted as a defense even after a policy has become incontestable. As the Delaware Supreme Court has explained, “if a life insurance policy lacks an insurable interest at inception, it is void ab initio because it violates . . . clear public policy against wagering. It follows, therefore, that if no insurance policy ever legally came into effect, then neither did any of its provisions, including the statutorily required incontestability clause.” PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059, 1067-68 (Del. 2011). (pp. 14-16)3. Although life insurance policies must be payable to a person with an insurable interest when they are procured, policies can be sold later on -- including to individuals who would not have been able to buy the policy originally because they lacked an insurable interest. In New Jersey, life insurance policies may be sold subject to the regulatory scheme outlined in the Viatical Settlements Act, N.J.S.A. 17B:30B-1 to -17. Aside from limited exceptions, the law bars policyholders from entering into a viatical or life settlement contract -- and thus transferring the policy benefit to a stranger -- for two years from the date the policy was issued. N.J.S.A. 17B:30B-10(a). STOLI policies are a subset of life settlements in which a life settlement broker persuades a senior citizen to take out a life insurance policy for a cash payment or some other current benefit arranged with a life settlement company. Generally, an investor funds a STOLI policy from the outset, which makes it possible to obtain a policy with a high face value. STOLI arrangements thus present a significant legal problem: the investors have no insurable interest in the life of the insured. As a result, the transactions pose questions in light of New Jersey’s policy against wagering, which finds expression in the State Constitution and in statutory provisions. (pp. 16-22)4. The first part of question one asks whether “a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate[s] the public policy of New Jersey.” Consider a policy that strangers financed or caused to be procured for Mary’s life. When the policy is issued, Mary’s daughter is the named beneficiary or the trustee of an irrevocable trust that owns the policy. The trust thus has an insurable interest at the time the contract for the policy is made. But the strangers actually have a side agreement with Mary or her daughter to transfer control of the trust, the beneficial interest in the policy, or ownership of the policy, at a later time. In short, the outside investors who funded the policy effectively control it from the start. It would elevate form over substance to suggest that the policy satisfies the insurable interest requirement. The policy is a cover for a wager on Mary’s life by a stranger. It therefore violates public policy. STOLIs commonly involve life insurance policies procured and financed by investors -- strangers -- who have no insurable interest in the 3 life of the insured yet, from the outset, are the ultimate intended beneficiaries of the policy. That type of arrangement runs afoul of New Jersey’s insurable interest requirement and counters the principle underlying the requirement: the individual with an insurable interest must have an interest in the continued life of the insured rather than in his early death. The Court explains why, contrary to Wells Fargo’s assertions, sections (c) and (d) of the insurable interest statute do not call for a different result and notes that an incontestability provision does not bar a challenge to a STOLI policy. (pp. 23-28)5. Imagine Mary’s daughter procured the above policy, paid the premiums for a few months, and then transferred her role as trustee, or the ownership or beneficial interest in the policy, to strangers in exchange for reimbursement and compensation. Suppose as well that Mary’s daughter intended to do so from the start. That arrangement likewise might be little more than a cover for a wager on Mary’s life, and it raises questions about the manner in which the policy was procured. A number of considerations could affect the validity of the policy: the nature and timing of any discussions between the purchaser and the strangers; the reasons for the transfer; and the amount of time the policy was held; among other factors. Courts cannot devise a bright-line rule for the type of transaction this second hypothetical presents. The area is best addressed by the Legislature and the Division of Banking and Insurance (DOBI). (pp. 28-30)6. Thirty states have enacted anti-STOLI legislation to date. Two model acts have been designed to stop STOLIs. Anti-STOLI legislation has been proposed multiple times in New Jersey. From 2009 through 2014, ten bills were introduced. None were passed or enacted. Despite suggestions by Wells Fargo, it is difficult to discern the Legislature’s intent from bills it has not passed. (pp. 30-32)7. According to DOBI, absent an insurable interest, a life insurance policy is a “pure gamble” in violation of N.J.S.A. 17B:24-1.1 and “the anti-gambling provisions of both the New Jersey Constitution and New Jersey statutes.” DOBI’s views are entitled to considerable weight in this area, which falls within its field of expertise. (pp. 32-33)8. The Court reviews cases from other jurisdictions that have considered similar questions. Notably, three jurisdictions that found that STOLI policies passed muster under the states’ then-existing laws -- all three have since adopted anti-STOLI legislation -- interpreted statutory provisions that either limited the duration of an insurable interest requirement to when the policy took effect or explicitly permitted the immediate transfer of policies. New Jersey statutory law does not permit the immediate transfer of a life insurance policy to people or entities that lack an insurable interest. (pp. 33-41)9. The Court stresses that it does not suggest that life settlements in general are contrary to public policy. Valid life insurance policies are assets that can be sold. An established secondary market exists for the sale of valid policies -- at least two years after they are issued or earlier in certain cases -- to investors who lack an insurable interest. (pp. 41-42) 4 10. The first certified question poses a supplemental inquiry: If the policy procured violates New Jersey’s public policy, is it void ab initio? When an insurance policy violates public policy, it is as though the policy never came into existence. The policy would be void from the outset. (pp. 42-43)11. The second certified question asks, “If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy?” The traditional rule -- that courts leave the parties to a void contract as they are rather than assist an illegal contract -- has evolved over time. Under the more modern view, equitable factors can be considered to determine the proper remedy. The Court reviews several decisions in which such factors were considered by courts assessing STOLI policies and observes that the fact-sensitive approach adopted in those cases is sound. To decide the appropriate remedy, trial courts should develop a record and balance the relevant equitable factors. Those factors include a party’s level of culpability, its participation in or knowledge of the illicit scheme, and its failure to notice red flags. Depending on the circumstances, a party may be entitled to a refund of premium payments it made on a void STOLI policy, particularly a later purchaser who was not involved in any illicit conduct. The Court notes that the District Court considered equitable principles and fashioned a compromise award but does not comment on the award itself. (pp. 43-48)JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in CHIEF JUSTICE RABNER’s opinion. JUSTICE ALBIN did not participate. 5 SUPREME COURT OF NEW JERSEY A- 49 September Term 2017 080669 Sun Life Assurance Company of Canada, Plaintiff-Respondent, v. Wells Fargo Bank, N.A., as Securities Intermediary, Defendant-Appellant. On certification of questions of law from the United States Court of Appeals for the Third Circuit. Argued Decided January 29, 2019 June 4, 2019Julius A. Rousseau, III, of the New York and North Carolina bars, admitted pro hac vice, argued the cause for appellant (Arent Fox, attorneys; Julius A. Rousseau, III, and Eric Biderman, on the briefs).Charles J. Vinicombe argued the cause for respondent (Cozen O’Connor, attorneys; Charles J. Vinicombe, Michael J. Miller, and Sarah E. Kalman, on the briefs).Raymond R. Chance, III, Assistant Attorney General, argued the cause for amicus curiae State of New Jersey Department of Banking and Insurance (Gurbir S. Grewal, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; and James A. Carey, Jr., 1 Deputy Attorney General, and Adam B. Masef, Deputy Attorney General, on the brief). Joseph D. Jean submitted a brief on behalf of amicus curiae Institutional Longevity Markets Association (Pillsbury Winthrop Shaw Pittman, attorneys). Michael M. Rosensaft submitted a brief on behalf of amicus curiae Life Insurance Settlement Association (Katten Muchin Rosenman, attorneys). CHIEF JUSTICE RABNER delivered the opinion of the Court. In New Jersey and elsewhere, no one can procure a life insurance policyon a stranger’s life and receive the benefits of the policy. Betting on a humanlife in that way, with the hope that the person will die soon, not only raisesmoral concerns but also invites foul play. For those reasons, state law allows apolicy to be procured only if the benefits are payable to someone with an“insurable interest” in the person whose life is insured. N.J.S.A. 17B:24- -1.1(b). The beneficiary can be the insured herself, a close relative, a person,corporation, or charity with certain financial ties to the insured, or selectothers. N.J.S.A. 17B:24-1.1(a). This case arises out of certified questions of law from the United StatesCourt of Appeals for the Third Circuit. We consider whether the swift transferof control over a life insurance policy and its benefit, from a named 2 beneficiary who had an insurable interest to investors who did not, satisfiesNew Jersey’s insurable interest requirement. Here, a group of investors paid for a life insurance policy through atrust. The insured was a stranger to them. When the policy was issued, theinsured’s grandson was the beneficiary. About five weeks later, the trust wasamended and the strangers who invested in the policy became its beneficiaries.In short, the insurable interest requirement appeared to have been satisfied atthe moment the policy was purchased, but the plan from the start was totransfer the benefits to strangers soon after the policy was issued. The policy in question is known as a “STOLI” -- a stranger-originatedlife insurance policy. Because such policies can be predatory and may involvefraud, other states have adopted legislation that bars them. We now considerSTOLI policies as a matter of first impression. We find that STOLI policies run afoul of New Jersey’s insurable interestrequirement and are against public policy. It would elevate form oversubstance to conclude that feigned compliance with the insurable intereststatute -- as technically exists at the outset of a STOLI transaction -- satisfiesthe law. Such an approach would upend the very protections the statute wasdesigned to confer and would effectively allow strangers to wager on humanlives. 3 In response to the certified questions, we find that STOLI policies areagainst public policy and are void ab initio, that is, from the beginning. Wealso note that a party may be entitled to a refund of premium paymentsdepending on the circumstances. Among other relevant factors, courts shouldconsider a later purchaser’s participation in and knowledge of the originalillicit scheme. I. We draw the following facts from the opinions of the Third Circuit andthe United States District Court for the District of New Jersey. A. In April 2007, Sun Life Assurance Company of Canada received anapplication for a $5 million insurance policy on the life of Nancy Bergman.The application listed the Nancy Bergman Irrevocable Trust dated 4/6/2007 asthe sole owner and beneficiary of the policy. Nancy Bergman signed theapplication as the grantor of the trust, and her grandson, Nachman Bergman,signed as trustee. The trust had four additional members. All of them wereinvestors, and all were strangers to Ms. Bergman. The investors depositedmoney into the trust account to pay most if not all of the policy’s premiums.The original trust agreement provided that any proceeds of the policy would bepaid to Nachman Bergman. 4 Ms. Bergman was a retired middle school teacher. Sun Life received aninspection report that listed her annual income as more than $600,000 and heroverall net worth at $9.235 million. In reality, her income was about $3000 amonth from Social Security and a pension, and her estate was later valued atbetween $100,000 and $250,000. Although Ms. Bergman represented that she had no other life insurancepolicies, five policies were taken out on her life in 2007 from variousinsurance companies, including Sun Life, for a total of $37 million. Sun Life issued the $5 million policy in question on July 13, 2007. Atthe time, the trust was the sole owner and beneficiary. The policy had anincontestability clause that barred Sun Life from challenging the policy --other than for non-payment of premiums -- after it had been “in force duringthe lifetime of the Insured” for two years. On August 21, 2007, about five weeks after the policy was issued,Nachman Bergman resigned as trustee and appointed the four investors assuccessor co-trustees. The trust agreement was amended so that most of thepolicy’s benefits would go to the investors; they were also empowered to sellthe policy on their own. More than two years later, in December 2009, the trust sold the policy toSLG Life Settlements, LLC, for $700,000. The investors received nearly all of 5 the proceeds from the sale. Afterward, a company named LTAP acquired thepolicy for a brief period, and Wells Fargo Bank, N.A. obtained it in abankruptcy settlement in or about 2011. Wells Fargo continued to pay thepremiums. It claims to have paid $1,928,726 through a combination of directpremium payments and loans to LTAP to pay premiums. B. After Nancy Bergman passed away in 2014 at age 89, Wells Fargosought to collect the policy’s death benefit. Sun Life investigated the claim,uncovered the discrepancies noted above, and declined to pay. Instead, SunLife filed an action in the District Court and sought a declaratory judgmentthat the policy was void ab initio as part of a STOLI scheme. Wells Fargocounterclaimed for breach of contract and sought the policy’s $5 million facevalue; if the court voided the policy, Wells Fargo sought a refund of thepremiums it paid and funded. The District Court partially granted Sun Life’s motion for summaryjudgment. The court found that New Jersey law applied and concluded “thatthis was a STOLI transaction lacking insurable interest in violation of [theState’s] public policy. . . . As such, it should be declared void ab initio.” Thecourt also granted Wells Fargo’s motion to recover its premium payments.The court reasoned that “Wells Fargo is not to blame for the fraud here” and 6 that “[a]llowing Sun Life to retain the premiums would be a windfall to thecompany.” Wells Fargo appealed the determination that the policy was void, andSun Life cross-appealed the order to refund the premiums. The Third Circuit noted that “[n]o New Jersey state court hasconsidered” the issues at the heart of this case: “whether STOLI arrangementsviolate the public policy of New Jersey, and if they do, whether the affectedinsurance policies are rendered void ab initio.” The circuit court also observedthat “[i]f the Policy is declared void ab initio, then the nature of the remedyavailable to the parties is another unresolved question of New Jersey law.” To resolve those “difficult question[s] of New Jersey public policy” andlaw, the Third Circuit certified two questions of law to this Court: (1) Does a life insurance policy that is procured with the intent to benefit persons without an insurable interest in the life of the insured violate the public policy of New Jersey, and if so, is that policy void ab initio? (2) If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the illegal conduct, entitled to a refund of any premium payments that they made on the policy? We accepted both questions pursuant to Rule 2:12A-5. 236 N.J. 581(2018). We also granted leave to appear as amici curiae to the Department of 7 Banking and Insurance (DOBI), the Institutional Longevity MarketsAssociation (ILMA), and the Life Insurance Settlement Association (LISA). II. To provide context for the discussion that follows, we review at theoutset certain relevant statutes and concepts. A. Life insurance is “[a]n agreement between an insurance company and thepolicyholder to pay a specified amount to a designated beneficiary on theinsured’s death.” Black’s Law Dictionary 1010 (9th ed. 2009); see also N.J.S.A. 17B:17-3. The Life and Health Insurance Code, at Title 17B of theNew Jersey Statutes, regulates this area of law today.1 Life insurance has been around for more than 500 years. From itsearliest days, there have been concerns about who can purchase a policy on thelife of another. See Geoffrey Clark, Betting on Lives: The Culture of LifeInsurance in England, 1695-1775 13-14 (1999). In 1419, for example, theVenetian Senate outlawed wagers on the Pope’s life and nullified manyspeculative bets about “how long the reigning pope would live.” Id. at 14.Elsewhere in Europe in the fifteenth through seventeenth centuries, “[t]he1 States have the authority to regulate insurance under the McCarran-Ferguson Act. 15 U.S.C. § 1012; see also Johnson & Johnson v. Dir., Div. of Taxation, 30 N.J. Tax 479, 494 (2018). 8 frequent association of life insurance with gambling and other disreputablepractices prompted governments to prohibit its practice without exception.”Id. at 14-15. In England, life insurance “was legally unrestricted [until] well into theeighteenth century.” Id. at 17. By then, it had “bec[o]me so much a mode ofgambling (for people took the liberty of insuring any one’s life, withouthesitation, whether connected with him, or not, . . . ) that it at last became asubject of Parliamentary discussion.” Id. at 22 (quoting James Allan Park, ASystem of the Law of Marine Insurances 490 (1787)). From those discussions,“the first appreciable regulation of life insurance” emerged, along with theconcept that the policyholder must have “a financial interest (a so-called'insurable interest’) in [the] life or event” to be insured. Ibid. Section One ofthe Life Assurance Act of 1774 provided that no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person, or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering. [ 14 Geo. 3 (1774 c. 48), https://www.legislation. gov.uk/apgb/Geo3/14/48?view=plain.]A contract without an insurable interest would be “null and void.” Ibid. “Thegoal of the 1774 Act . . . was to allow people to get the benefits of life 9 insurance while eliminating the betting on human life it encouraged.” SusanLorde Martin, Life Settlements: The Death Wish Industry, 64 Syracuse L.Rev. 91, 94-95 (2014). The same limitation -- the insurable interest requirement -- was adoptedin the United States as well. See Peter Nash Swisher, The Insurable InterestRequirement for Life Insurance: A Critical Reassessment, 53 Drake L. Rev.477, 482-83 (2005). By the nineteenth century, even in states where insurableinterest statutes had not yet been enacted, “in most cases either the Englishstatutes [were] considered as operative, or the older common law [was]followed.” Conn. Mut. Life Ins. Co. v. Schaefer, 94 U.S. 457 , 460 (1877). Asa result, the Supreme Court explained, “[a] man cannot take out insurance onthe life of a total stranger, nor on that of one who is not so connected with himas to make the continuance of the life a matter of some real interest to him.”Ibid. The existence of an insurable interest distinguished valid life insurancepolicies from “mere wager policies.” Ibid. The Court later addressed thecomplexity and importance of the requirement in Warnock v. Davis, 104 U.S. 775 , 779 (1882). As the Court explained, [i]t is not easy to define with precision what will in all cases constitute an insurable interest, so as to take the contract out of the class of wager policies. . . . But in all cases there must be a reasonable ground, founded 10 upon the relations of the parties to each other, either pecuniary or of blood or affinity, to expect some benefit or advantage from the continuance of the life of the assured. Otherwise the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such policies have a tendency to create a desire for the event. They are, therefore, independently of any statute on the subject, condemned, as being against public policy. [Ibid. (emphases added).] In New Jersey, the Legislature adopted the current insurable interestrequirement in 1968. L. 1968, c. 318, § 1. More than a century earlier, thepre-1948 New Jersey Supreme Court 2 opined that a policy would be validwithout such an interest, Trenton Mut. Life & Fire Ins. Co. v. Johnson, 24 N.J.L. 576, 584 (Sup. Ct. 1854), even though it found the policyholder didhave an insurable interest in the life of the insured, id. at 582, 586-87.Because New Jersey did not have a statute similar to England’s Life AssuranceAct of 1774, the court based its decision on its view of the common law. Thecourt found no insurable interest requirement under the common law. Id. at583-84. The United States Supreme Court, however, reached a different 2 Prior to the 1948 Constitution, the New Jersey Supreme Court was an intermediate appellate court; its rulings were subject to review by the Court of Errors and Appeals, the State’s highest court at the time. Carla Vivian Bello & Arthur T. Vanderbilt II, New Jersey’s Judicial Revolution: A Political Miracle 32 (1997); William M. Clevenger, The Courts of New Jersey: Their Origin, Composition and Jurisdiction 29-32 (1903). 11 conclusion in 1877. See Schaefer, 94 U.S. at 460 (noting that “the law ofEngland prior to the Revolution of 1688” was that policies without aninsurable interest were “void, as against public policy”). The current statutory scheme appears at N.J.S.A. 17B:24-1.1. TheLegislature expressly imposed an insurable interest requirement and thussuperseded dated case law like Johnson. See United States v. Texas, 507 U.S. 529 , 534 (1993) (noting that a statute can “abrogate a common-law principle”if it “'speak[s] directly’ to the question addressed by the common law”(quoting Mobil Oil Corp. v. Higginbotham, 436 U.S. 618 , 625 (1978))); seealso Fu v. Fu, 160 N.J. 108, 121 (1999). N.J.S.A. 17B:24-1.1(a) outlines three situations in which an individualhas an insurable interest: (1) An individual has an insurable interest in his own life, health and bodily safety. (2) An individual has an insurable interest in the life, health and bodily safety of another individual if he has an expectation of pecuniary advantage through the continued life, health and bodily safety of that individual and consequent loss by reason of his death or disability. (3) An individual has an insurable interest in the life, health and bodily safety of another individual to whom he is closely related by blood or by law and in whom he has a substantial interest engendered by love and affection. An individual liable for the support of a child 12 or former wife or husband may procure a policy of insurance on that child or former wife or husband.The statute also specifies circumstances under which a corporation, N.J.S.A.17B:24-1.1(a)(4), or a nonprofit or charitable entity, id. § (a)(5), has aninsurable interest in the lives of its employees, officers, or others. Critical to the questions presented in this case, section (b) of N.J.S.A.17B:24-1.1 bars procurement of a life insurance policy payable to someonewho lacks an insurable interest in the life of the insured: No person shall procure or cause to be procured any insurance contract upon the life, health or bodily safety of another individual unless the benefits under that contract are payable to the individual insured or his personal representative, or to a person having, at the time when that contract was made, an insurable interest in the individual insured. Sections (c) and (d) of N.J.S.A. 17B:24-1.1 address violations of theinsurable interest statute from different perspectives. Specifically, N.J.S.A.17B:24-1.1(c) allows “the individual insured, or his executor or administrator”to “maintain an action to recover” any benefits paid “under any contract madein violation of” the insurable interest requirement. And N.J.S.A. 17B:24- -1.1(d) protects an insurer’s good faith reliance “upon all statements,declarations and representations made by an applicant for insurance relating tothe insurable interest of the applicant.” No published opinions by this Court orthe Appellate Division interpret New Jersey’s insurable interest statute. 13 B. Just as all New Jersey insurance policies must be based on an insurableinterest, they must also contain an incontestability clause. See N.J.S.A.17B:25-4 (“There shall be a provision that the policy . . . shall beincontestable, except for nonpayment of premiums, after it has been in forceduring the lifetime of the insured for a period of 2 years from its date ofissue.”). Forty-three states require incontestability clauses in life insurancepolicies, and they are “found in almost all policies.” 2 Harnett & Lesnick, TheLaw of Life and Health Insurance § 5.07 (Matthew Bender, rev. ed. 2018).New Jersey was in line with standard industry practice when it adopted a two-year period after which policies cannot be contested except for nonpayment ofpremiums. See id. § 5.07(2); see also N.J.S.A. 17B:25-4. Like statutes of limitations, incontestability clauses create incentives forinsurers to challenge questionable policies in a timely manner, rather thancontinue to collect premiums and complain “only when called upon to pay.”See Harrison v. Provident Relief Ass’n of Wash., D.C., 126 S.E. 696, 701 (Va.1925); see also 17 Couch on Insurance § 240:5 (3d ed. 2018). Incontestability clauses, however, are not a bar to all defenses. See 2Harnett & Lesnick § 5.07(5) (cataloguing common defenses and decisions onboth sides of the incontestability issue). For example, “it has generally been 14 held that an insurance policy violative of public policy or good morals cannotbe enforced simply because the incontestability period has run.” Tulipano v.U.S. Life Ins. Co., 57 N.J. Super. 269, 277 (App. Div. 1959) (collecting cases);see also Martin, Life Settlements, 64 Syracuse L. Rev. at 104 (“[T]heDelaware Supreme Court, and a majority of other courts that have decidedcases on the inviolability of incontestability clauses, held that theincontestability period is contingent on the existence of a valid contract.”(footnote omitted)). A majority of courts have held that the lack of an insurable interest canbe asserted as a defense even after a policy has become incontestable. See,e.g., PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059, 1067-68 (Del. 2011); Beard v. Am. Agency Life Ins. Co., 550 A.2d 677, 691 (Md.1988); see also 17 Couch on Insurance § 240:82 (“The majority ofjurisdictions follow the view that an incontestable clause does not prohibitinsurers from resisting payment on the ground that the policy was issued toone having no insurable interest -- such a defense may be raised despite thefact that the period of contestability has expired.”); 8 New Appleman onInsurance Law Library Edition § 83.09 (2018) (“Nearly every jurisdiction thathas addressed the issue holds that a policy lacking an insurable interest is void 15 and is not rendered valid by an incontestability provision.”). As the DelawareSupreme Court has explained, if a life insurance policy lacks an insurable interest at inception, it is void ab initio because it violates Delaware’s clear public policy against wagering. It follows, therefore, that if no insurance policy ever legally came into effect, then neither did any of its provisions, including the statutorily required incontestability clause. . . . As a result, the incontestability provision does not bar an insurer from asserting a claim on the basis of a lack of insurable interest. [Price Dawe, 28 A.3d at 1067-68 (footnotes omitted).] C. Although life insurance policies must be payable to a person with aninsurable interest when they are procured, policies can be sold later on --including to individuals who would not have been able to buy the policyoriginally because they lacked an insurable interest. As Justice Oliver WendellHolmes, Jr., wrote in Grigsby v. Russell, 222 U.S. 149 , 156 (1911), “[s]o far asreasonable safety permits, it is desirable to give to life policies the ordinarycharacteristics of property. . . . To deny the right to sell except to personshaving [an insurable] interest is to diminish appreciably the value of thecontract in the owner’s hands.” In New Jersey, life insurance policies may be sold subject to theregulatory scheme outlined in the Viatical Settlements Act, N.J.S.A. 17B:30B- 16 1 to -17. In general, a viatical settlement is “[a] transaction in which aterminally or chronically ill person sells the benefits of a life-insurance policyto a third party” at a discounted value “in return for a lump-sum cashpayment.” Black’s Law Dictionary 1497 (9th ed. 2009). The seller or insuredis called the “viator.” Ibid. “The viatical settlements industry was born in the 1980s in response tothe AIDS crisis.” Life Partners, Inc. v. Morrison, 484 F.3d 284, 287 (4th Cir.2007). Particularly in the early days of the crisis, when “victims usually diedwithin months of diagnosis,” many AIDS sufferers needed money fortreatment. Ibid. Because of their short life expectancies, “investors werewilling to purchase . . . life insurance policies.” Ibid. The market for viaticalsettlements later expanded to include policies for the elderly and people withdiseases other than AIDS. Id. at 287-88. The imbalance in power between people in desperate need of funds andmore sophisticated investors willing to buy life insurance policies led to theregulation of viatical settlements. See id. at 288. The New Jersey Legislaturepassed a viatical settlements law in 1999, L. 1999, c. 211, “to protectparticularly vulnerable persons from aggressive or fraudulent business tactics,”Governor’s Statement on Signing S. 1515 (Sept. 17, 1999). The Legislaturerepealed the law in 2005 and replaced it with “a broader regulatory scheme” -- 17 the Viatical Settlements Act, L. 2005, c. 229. See Sponsor’s Statement to S.1940 37 (Oct. 4, 2004). The Act defines a “viatical settlement contract” as a written agreement establishing the terms under which compensation or anything of value will be paid, which compensation or value is less than the expected death benefit of the policy, in return for the viator’s assignment, transfer, sale, devise or bequest of the death benefit or ownership of any portion of the policy. . . . A viatical settlement contract includes an agreement with a viator to transfer ownership or change the beneficiary designation at a later date regardless of the date that compensation is paid to the viator. [N.J.S.A. 17B:30B-2.]The definition also includes financing agreements but expressly excludes“written agreement[s] between a viator and a person having an insurableinterest in the insured’s life.” Ibid. A key provision of the Act limits the potential for abuse. Aside fromlimited exceptions, the law bars policyholders from entering into a viaticalsettlement contract -- and thus transferring the policy benefit to a stranger --for two years from the date the policy was issued. N.J.S.A. 17B:30B-10(a).The statute reads as follows: a. It is a violation of this act for any person to enter into a viatical settlement contract within a two-year period commencing with the date of issuance of the insurance policy unless the viator certifies [that] . . . : 18 (1) The policy was issued upon the viator’s exercise of conversion rights arising out of a group or individual life insurance policy. . . ; (2) The viator submits independent evidence to the viatical settlement provider that within the two-year period: (a) the viator or insured was terminally ill or chronically ill; or (b) the viator or insured disposed of his ownership interests in a closely held corporation [subject to certain limitations]; or (c) both. [Ibid.]Thus, under section 10(a), a policyholder may not “assign[], transfer, s[ell],devise or beque[ath] . . . the death benefit or ownership of any portion of thepolicy” to someone without an insurable interest in the life of the insured, N.J.S.A. 17B:30B-2, for a period of two years, unless the policyholderexercised conversion rights, id. § 10(a)(1), or the policyholder or insured wasterminally or chronically ill, disposed of ownership interests in a closely heldcorporation, or both, id. § 10(a)(2). Over time, and as the market expanded, “the industry changed its nameand description from 'viatical settlements’ to 'life settlements.’” Susan LordeMartin, Betting on the Lives of Strangers: Life Settlements, STOLI, andSecuritization, 13 U. Pa. J. Bus. L. 173, 185-87 (2010). STOLI policies --once again, short for stranger-originated life insurance policies -- are a subsetof life settlements. 19 In a traditional life settlement, “investors purchase existing lifeinsurance policies from insureds who no longer need the insurance to protecttheir families in the event of their deaths.” Id. at 187. In a STOLIarrangement, by contrast, “a life settlement broker persuades a seniorcitizen . . . to take out a life insurance policy” -- not to protect the person’sfamily but for a cash payment or some other current benefit arranged with alife settlement company. Ibid. A key “difference between non-STOLI andSTOLI policies,” as the Second Circuit has explained, “is simply one of timingand certainty; whereas a non-STOLI policy might someday be resold to aninvestor, a STOLI policy is intended for resale” before it is issued. UnitedStates v. Binday, 804 F.3d 558, 565 (2d Cir. 2015). Generally, an investor funds a STOLI policy from the outset, whichmakes it possible to obtain a policy with a high face value. See Martin,Betting on the Lives of Strangers, 13 U. Pa. J. Bus. L. at 188. The investormay lend the insured “the money to pay the premiums for” the period ofincontestability, typically two years. Ibid. It is also common for an insured tobuy the policy in the name of a trust and name a “spouse or other loved one asthe trust beneficiary.” Ibid. In such arrangements, [i]f the insured dies within [the contestability] period, his spouse, as beneficiary of the insurance trust, will get the death benefit (the free insurance), pay back the loan plus interest from the proceeds, and often pay the 20 broker up to fifty percent of the benefit received. If the insured lives beyond two years or the contestability period, then the life settlement company buys the beneficial interest in the insurance trust, paying the insured a lump sum percent of the face value of the policy . . . . The life settlement company or its investors will continue to pay the premiums on the policy, and when the insured dies, they will get the death benefit. Clearly, the sooner the insured dies, the greater the company’s profit. [Ibid. (footnotes omitted).] STOLI arrangements thus present a significant legal problem: theinvestors have “no insurable interest in the life of the insured.” Ibid. As aresult, the transactions pose questions in light of New Jersey’s policy againstwagering. See Binday, 804 F.3d at 565 (“A STOLI policy is one obtained bythe insured for the purpose of resale to an investor with no insurable interest inthe life of the insured -- essentially, it is a bet on a stranger’s life.”); see alsoGrigsby, 222 U.S. at 156 (noting that “cases in which a person having aninterest lends himself to one without any as a cloak to what is in its inception awager have no similarity to those where an honest contract is sold in goodfaith”). D. New Jersey’s anti-wagering policy is anchored in Article 4, Section 7,Paragraph 2 of the State Constitution, which bars the Legislature fromauthorizing gambling on its own aside from specific exceptions. Under 21 subsections (A) through (F), the Legislature can authorize particular games ofchance run by charitable, religious, and certain other groups; state lotteries;gambling in Atlantic City; and other specified kinds of wagering. See N.J.Const. art. IV, § 7, ¶ 2. Voter approval is required for gambling of any otherkind, see ibid., including wagers on a stranger’s life. The Legislature, in turn, directly barred gambling. See N.J.S.A. 2A:40-1(declaring gaming transactions unlawful); N.J.S.A. 2A:40-3 (declaring void allagreements that violate N.J.S.A. 2A:40-1). The above provisions are relevant expressions of public policy thatinform our analysis of the statutes at the center of this appeal. Moreover, theinsurable interest requirement is consistent with and helps enforce theConstitution’s prohibition on gambling. By ensuring full compliance with theinsurable interest statute, we can avoid an outcome that might run afoul of theConstitution. III. Sun Life relies heavily on New Jersey’s anti-wagering provisions andargues that the policy in question is nothing more than a wager because itlacked an insurable interest. As a result, Sun Life contends, the policy nevertook effect and may now be challenged because the incontestability clauselikewise never took effect. 22 Wells Fargo counters that allowing the sale of life insurance policies isalso a matter of public policy -- one that the Legislature has regulated throughthe insurable interest statute and the Viatical Settlements Act. Wells Fargoasserts that the policy in this case fully complied with the insurable interestrequirement at the policy’s inception, and that, even if it did violate theViatical Settlements Act, it could be challenged on that basis only for a periodof two years. We consider those arguments in the context of the Third Circuit’s firstquestion. A. The first part of question one asks whether “a life insurance policy thatis procured with the intent to benefit persons without an insurable interest inthe life of the insured violate[s] the public policy of New Jersey.” If a third party without an insurable interest procures or causes aninsurance policy to be procured in a way that feigns compliance with theinsurable interest requirement, the policy is a cover for a wager on the life ofanother and violates New Jersey’s public policy. In such a case, the plain 23 language reading of the statute that Wells Fargo advances can lead to absurdresults.3 1. Consider a policy that strangers financed or caused to be procured forMary’s life. When the policy is issued, Mary’s daughter is the namedbeneficiary or the trustee of an irrevocable trust that owns the policy. Thetrust thus has an insurable interest at the time the contract for the policy ismade. See N.J.S.A. 17B:24-1.1(a). But the strangers actually have a sideagreement with Mary or her daughter to transfer control of the trust, thebeneficial interest in the policy, or ownership of the policy, at a later time. Inshort, the outside investors who funded the policy effectively control it fromthe start. If the investors cause the daughter to transfer her interest to them amonth, a day, or an hour after the policy is issued, it would elevate form oversubstance to suggest that the policy satisfies the insurable interest requirement.At most, there is only feigned compliance with the requirement that an3 Statutes cannot “be construed to lead to absurd results. All rules of construction are subordinate to that obvious proposition.” State v. Provenzano, 34 N.J. 318, 322 (1961). “[W]hen 'a literal interpretation would create a manifestly absurd result, contrary to public policy,’ courts may consider the law’s overall purpose for direction.” Sussex Commons Assocs., LLC v. Rutgers, 210 N.J. 531, 541 (2012) (quoting Hubbard ex rel. Hubbard v. Reed, 168 N.J. 387, 392 (2001)). 24 insurable interest exist “at the time when [the] contract was made.” See N.J.S.A. 17B:24-1.1(b). In reality, Mary and her daughter satisfy therequirement in name alone. The policy is a cover for a wager on Mary’s lifeby a stranger. It therefore violates public policy. STOLIs commonly involve life insurance policies procured and financedby investors -- strangers -- who have no insurable interest in the life of theinsured yet, from the outset, are the ultimate intended beneficiaries of thepolicy. In other words, in a classic STOLI situation, a stranger who hopes theinsured will die soon causes the policy to be procured and collects the deathbenefit. That type of arrangement runs afoul of New Jersey’s insurableinterest requirement and the statute’s purpose. It also counters the principleunderlying the requirement: the individual with an insurable interest “musthave an interest in the continued life of the insured rather than in his earlydeath.” Ohio Nat’l Life Assurance Corp. v. Davis, 803 F.3d 904, 907 (7th Cir.2015); see also Warnock, 104 U.S. at 779 (noting that because of “the relationsof the parties,” someone with an insurable interest “expect[s] some benefit oradvantage from the continuance of the life of the assured” (emphasis added)). Contrary to Wells Fargo’s assertions, sections (c) and (d) of theinsurable interest statute do not call for a different result. N.J.S.A. 17B:24-1.1(c) addresses the recovery of moneys already paid under a contract that 25 violates the insurable interest requirement. It creates a cause of action for theinsured or her estate after a death benefit has been paid. Section (d) insulatesinsurers from liability when they rely on an applicant’s statements about herinsurable interest. Neither section allows for enforcement of a policy thatlacks an insurable interest. Nor do the sections contain language that suggeststhey are the exclusive remedies when the absence of an insurable interestarises after two years. Sections (a)(4) and (a)(5) of N.J.S.A. 17B:24-1.1 also inform themeaning and scope of the insurable interest requirement. Section (a)(4)expressly allows corporations to insure their directors, officers, employees,and others. Section (a)(5) similarly enables nonprofit or charitable entities toinsure their directors and others, including their supporters. Under (a)(5), adirector, supporter, or other insured must either sign the application forinsurance, which names the charitable entity as the owner and beneficiary, or“subsequently transfer ownership of the insurance to the entity.” Those detailed sections were added to the insurable interest statute in1991. L. 1991, c. 369. The Sponsor’s Statement noted that “the principle ofinsurable interest was founded on the idea that the person purchasing thepolicy should have such a real and substantial interest in the property or personinsured as would prevent the policy from being a mere wager on the insured 26 event.” Sponsor’s Statement to A. 4957 2 (L. 1991, c. 369). The statementadded, however, that “[o]ver the years, many states have expanded the conceptof insurable interest for the purpose of life and health insurance to reflectcurrent trends in investment and the development of innovative insuranceproducts,” and that the time had come to broaden New Jersey’s definition ofinsurable interest in part “to afford New Jersey residents greater access to themyriad policy and investment options already available in other states.” Id. at2-3. Notably, despite the pro-investment aim of the 1991 amendments, theLegislature did not modify or loosen the insurable interest requirement beyondthe particular areas that sections (a)(4) and (a)(5) address. Both sectionsreveal that when the Legislature meant to expand the insurable interestrequirement to allow transfers that would satisfy the requirement, theLegislature acted with precision and care. Finally, we note that an incontestability provision does not bar achallenge to a STOLI policy. As discussed earlier, insurance contracts that arecontrary to public policy cannot be enforced despite an incontestability clause.See Tulipano, 57 N.J. Super. at 277 (collecting cases); see also Martin, LifeSettlements, 64 Syracuse L. Rev. at 104. If a policy never came into effect,neither did its incontestability clause; the clause thus cannot stand in the way 27 of a claim that the policy violated public policy because it lacked an insurableinterest. See Price Dawe, 28 A.3d at 1067-68; 17 Couch on Insurance§ 240:82; 8 New Appleman on Insurance Law § 83.09. 2. In the prior example, strangers funded the policy at the outset. Othersituations might also raise concerns. Imagine, for example, that Mary’sdaughter procured the above policy, paid the policy premiums for a fewmonths, and then transferred her role as trustee, or the ownership or beneficialinterest in the policy, to a group of strangers in exchange for fullreimbursement and some compensation. Suppose as well that Mary’s daughterintended to do so from the start. That arrangement likewise might be littlemore than a cover for a wager on Mary’s life for the benefit of strangers, and itraises questions about the manner in which the policy was procured. Thetransfer could also result in a challenge under the Viatical Settlements Act, N.J.S.A. 17B:30B-13. A number of considerations could affect the validity of the policy: thenature and timing of any discussions between the purchaser and the strangers;the reasons for the transfer; and the amount of time the policy was held; amongother factors. 28 If the purchaser and investors discussed an arrangement in advance, athird party without an insurable interest may have caused the policy to beprocured -- even if no firm agreement had yet been finalized. See N.J.S.A.17B:24-1.1(b) (stating that “[n]o person shall procure or cause to be procured”a policy without an insurable interest) (emphasis added)). Wells Fargo and LISA both stress that the Legislature could have -- butdid not -- impose a good faith intent requirement on the purchase of lifeinsurance policies. Nonetheless, if a person with an insurable interest takesout a policy because he has an agreement to sell it to a third party, thetransaction could be as much of an attempt to circumvent the insurable interestrequirement as if a stranger had funded the policy at the outset. In eitherevent, the aim of the insurable interest requirement would be thwarted.4 Timing may also be a relevant factor. By way of comparison, theViatical Settlements Act restricts for two years the sale of lawfully purchasedpolicies to people who lack an insurable interest. N.J.S.A. 17B:30B-10(a).The Act addresses a different set of circumstances -- typically, the sale of a lifeinsurance policy at a discount, by an elderly or ill person -- and the Legislature4 But see PHL Variable Insurance Co. v. Bank of Utah, 780 F.3d 863, 865-66, 868 (8th Cir. 2015) (upholding a policy purchased by a 74-year-old retiree, with guidance from an insurance agent, for the purpose of selling it on the secondary market, and noting that the insured held the policy for two years before he surrendered it to repay a loan). 29 imposed limits to guard against the abuse of vulnerable individuals. Likewise,in the related context of this matter, the less time the policy owner held thepolicy before transferring it to a stranger, the greater the likelihood the policyviolates public policy. Courts cannot devise a bright-line rule for the type of transaction thissecond hypothetical presents. The area is best addressed by the Legislatureand DOBI. B. Thirty states have enacted anti-STOLI legislation to date. See Ariz. Rev.Stat. Ann. § 20-443.02(A); Ark. Code Ann. §§ 23-81-802(7)(A)(i)(j), 23-81-816; Cal. Ins. Code §§ 10113.1(g)(B), 10113.3(s); Colo. Rev. Stat. § 10-7-708(2); Conn. Gen. Stat. § 38a-465j(a)(1), (a)(2)(A)(i)(X); Fla. Stat.§§ 626.99289, 626.99291; Ga. Code Ann. §§ 33-59-2(6)(A)(i)(X), 33-59-14(a)(1); Haw. Rev. Stat. § 431C-42(1)(A)(x); Idaho Code § 41-1962(1); 215 Ill. Comp. Stat. 159/50(a); Ind. Code § 27-8-19.8-20.1; Iowa Code§§ 508E.2(6)(a)(3), 508E.15(1)(a); Kan. Stat. Ann. §§ 40-5002(f)(5), 40-5012a(a)(1); Ky. Rev. Stat. Ann. §§ 304.15-020(7)(a)(1)(k), 304.15-717(1)(d);Me. Stat. tit. 24-A, §§ 6802-A(6)(A)(3), 6818(1)(A); Mass. Gen. Laws ch. 175,§ 223A(a), (b)(1)(i)(J); Minn. Stat. § 60A.0784(2); N.H. Rev. Stat. Ann.§ 408-D:12(I); N.Y. Ins. Law § 7815(c) (McKinney); N.D. Cent. Code §§ 30 26.1-33.4-01(7)(a)(1)(j), 26.1-33.4-13(1)(a); Ohio Rev. Code Ann. § 3916.172;Okla. Stat. tit. 36, §§ 4055.2(7)(e), 4055.13(A)(1); Or. Rev. Stat.§ 744.369(10); 27 R.I. Gen. Laws §§ 27-72-2(9)(i)(A)(X), 27-72-14(a)(1);Tenn. Code Ann. §§ 56-50-102(6)(A)(iii), 56-50-114(a)(1); Utah Code Ann.§ 31A-36-113(2)(a)(iii); Vt. Stat. Ann. tit. 8, § 3844(a)(2); Wash. Rev. Code§§ 48.102.006(8)(a)(ii), 48.102.140(1)(a); W. Va. Code §§ 33-13C-2(5)(F),33-13C-14(a)(1); Wis. Stat. § 632.69(1)(g)(7), (15)(a); see also Neb. Rev.Stat. § 44-1110(1)(c). Two model acts have been designed to stop STOLIs. One bars anyperson from “[e]nter[ing] into any practice or plan which involves STOLI[s].”National Conference of Insurance Legislators (NCOIL), Life SettlementsModel Act §§ 2(H)(1)(a)(x), 13(A)(3), (readopted in March 2014), http://ncoil.org/wp-content/uploads/2016/04/AdoptedLifeSettlementsModel.pdf. Theother generally bars viatical settlement agreements for five years, instead oftwo. See National Association of Insurance Commissioners (NAIC), ViaticalSettlements Model Act § 11 (July 2009), https://www.naic.org/store/free/MDL-697.pdf. Anti-STOLI legislation has been proposed multiple times in New Jersey.From 2009 through 2014, ten bills were introduced: S. 2747 (Apr. 27, 2009);A. 3991 (June 4, 2009); A. 4196 (Nov. 23, 2009); S. 487 (Jan. 12, 2010); A. 31 371 (Jan. 12, 2010); A. 376 (Jan. 12, 2010); A. 234 (Jan. 10, 2012); A. 237(Jan. 10, 2012); A. 1049 (Jan. 16, 2014); A. 1051 (Jan. 16, 2014). None werepassed or enacted. Despite suggestions by Wells Fargo, it is difficult to discern theLegislature’s intent from bills it has not passed. See Grupe Dev. Co. v.Superior Court, 844 P.2d 545 , 552 (Cal. 1993) (en banc); Entergy Gulf States,Inc. v. Summers, 282 S.W.3d 433, 443 (Tex. 2009). Some legislators mayhave thought that current law already barred STOLI policies under theinsurable interest statute and that the proposed laws were unnecessary; othersmay have opposed the bills. Under the circumstances, we are unable todetermine what the Legislature meant when it did not act on proposedlegislation. C. The position of the Division of Banking and Insurance also offers a viewof the State’s present public policy toward STOLI policies. DOBI’s amicusbrief outlines the nature of a “STOLI scheme” and submits that “it is againstthe public policy of New Jersey for a third party to procure a life insurancepolicy from a life insurance company with the intent to benefit persons withoutan insurable interest in the insured.” “A policy procured under suchcircumstances,” DOBI explains, “violates the insurable interest requirement of 32 N.J.S.A. 17B:24-1.1.” Absent an insurable interest, according to DOBI, a lifeinsurance policy is a “pure gamble” in violation of N.J.S.A. 17B:24-1.1 and“the anti-gambling provisions of both the New Jersey Constitution and NewJersey statutes.” DOBI’s views are entitled to considerable weight in this area, whichfalls within its field of expertise. See In re Election Law Enf’t Comm’nAdvisory Op. No. 01-2008, 201 N.J. 254, 262 (2010); see also N.J.S.A. 17:1-1(charging DOBI “with the execution of all laws relative to insurance”). D. Other courts have considered similar questions under related state laws. In Davis, the Seventh Circuit found STOLI policies void at the outsetunder Illinois law. 803 F.3d at 907-09.5 The STOLI scheme in the caseworked as follows: Defendant Davis persuaded people “to become thenominal . . . buyers of” life insurance policies in exchange for “small amountsof money.” Id. at 906. Along with another defendant who was an insuranceagent, Davis “targeted elderly people because of their diminished life5 The court based its decision on “the common law of Illinois” but noted that Illinois adopted anti-STOLI legislation after the relevant policies were issued. Id. at 909. 33 expectancies and African-Americans because the average life expectancy of anAfrican-American is shorter than that of other Americans.” Ibid. Once a policy was issued, defendants had the insured place it in anirrevocable trust. Ibid. The trust was designated as the “policy’s owner andbeneficiary,” and Davis, a lawyer, served as trustee. Ibid. At the start, trustdocuments also listed “either members of the insured’s family or the insured’sother trusts” as beneficiaries. Id. at 907. Weeks or months later, “Daviswould have the nominal buyer of the policy . . . assign the beneficial interest inthe trust (and therefore in the policy) to a company owned by [a third]defendant.” Ibid. That person “would make the initial premium payments . . .but then resell the beneficial interest in the trust to an investor who hoped thatthe insured would die soon” -- to be able to collect the proceeds of the policy.Ibid. Through those steps, “the defendants were trying to appear to complywith the” insurable interest requirement. Ibid. As the court observed, “onecan’t take out a life insurance policy on a person unless one has an interest,financial or otherwise, in the life of the insured rather than in his early death. ”Id. at 908 (citing Grigsby, 222 U.S. at 155). In the STOLI scheme in question,though, the circuit court found no such insurable interest: The insureds merely lent their names to the insurance applications, in exchange for modest compensation, 34 and the defendants forthwith transferred control over (effectively ownership of) the policies to themselves. The defendants, who had no interest in the insureds’ lives (as distinct from their deaths), initiated, paid for, and controlled the policies from the outset. .... . . . The insureds’ family members . . . retained beneficial interests in the policies only briefly and never controlled the trusts. The insureds were the defendants’ puppets and the policies were bets by strangers on the insureds’ longevity. [Id. at 908-09.]In essence, the Seventh Circuit concluded that feigned compliance with theinsurable interest requirement is not enough. The Supreme Court of Delaware reached a similar conclusion in PriceDawe, 28 A.3d 1059. In that case, the Price Dawe 2006 Insurance Trustpurchased a $9 million life policy on Dawe’s life. Id. at 1063. A family trustwas the named beneficiary, and “Dawe was the beneficiary of the familytrust.” Ibid. PHL Variable Insurance Company (Phoenix) issued the policy.Ibid. About two months later, an unrelated private investor “formallypurchased the beneficial interest of the Dawe Trust from the Family Trust.”Id. at 1064. When Dawe died some three years later, and two competingclaims were made, Phoenix discovered the circumstances of the sale and 35 sought a declaratory judgment in United States District Court that the policywas void. Id. at 1063-64. The Delaware Supreme Court accepted and answered three certifiedquestions of law. The court first found that Phoenix could challenge the policyfor lack of an insurable interest despite an incontestability clause. Id. at 1065. The second question asked “whether the statutory insurable interestrequirement is violated where the insured procures a life insurance policy withthe intent to immediately transfer the benefit to an individual or entit y lackingan insurable interest.” Id. at 1068. The court found that it is not, “so long asthe insured procured or effected the policy and the policy is not a mere coverfor a wager.” Ibid. The court based its decision on various provisions of Delaware’sstatutory code in light of the history and purpose of the insurable interestrequirement. Id. at 1071-76 (discussing Del. Code Ann. tit. 18, §§ 2704, 2705,2708, and 2720). The opinion thus focused principally on who “procured” thepolicy or “caused it to be procured,” and not on the insured’s subjective intent.Id. at 1075-76 (construing Del. Code Ann. tit. 18, § 2704(a)). “To determinewho procured the policy,” the court “look[ed] at who pa[id] the premiums.”Id. at 1075. 36 The court also addressed STOLI policies and noted they “lack aninsurable interest and are thus an illegal wager on human life.” Id. at 1070.Delaware’s insurable interest statute at section 2704(a), the court explained,“requires more than just technical compliance at the time of issuance,” yet“STOLI schemes are created to feign technical compliance with” the law. Id.at 1074. “At issue is whether a third party having no insurable interest can usethe insured as a means to procure a life insurance policy that the statute wouldotherwise prohibit. Our answer is no,” because of the insurable interestrequirement. Ibid. The court applied the same line of thinking to a third question, whichconcerned the use of trusts to effect the transfer of a policy. See id. at 1076-78. The court observed that, “[i]n cases where a third party either directly orindirectly funds the premium payments as part of a pre-negotiated arrangementwith the insured to immediately transfer ownership, the policy fails at itsinception for lack of an insurable interest.” Id. at 1078. The United States District Court for the Eastern District of Tennesseeused similar reasoning to void a STOLI policy purchased through a trust andfunded by outsiders. Sun Life Assurance Co. v. Conestoga Tr. Servs., LLC, 263 F. Supp. 3d 695, 697, 699 (E.D. Tenn. 2017). The policy had been issuedbefore Tennessee’s anti-STOLI legislation took effect. Id. at 701 n.3. The 37 District Court noted that “Tennessee courts have held for over one hundredyears that life insurance taken out as a wager is void.” Id. at 701. The courtalso found that “Tennessee prohibit[ed] STOLI policies through both statutoryand common law.” Ibid. The nominal use of a trust, the court explained, didnot satisfy the state’s insurable interest requirement. Id. at 702. The factsinstead revealed a scheme that improperly used a named insured “as a conduitto acquire a policy” that investors “could not otherwise acquire.” Ibid. Before the New York Legislature barred STOLI policies, the Court ofAppeals of New York “h[e]ld that New York law permits a person to procurean insurance policy on his or her own life and immediately transfer it to onewithout an insurable interest in that life, even where the policy was obtainedfor just such a purpose.” Kramer v. Phoenix Life Ins. Co., 940 N.E.2d 535,536-37, 539 n.5 (N.Y. 2010); see also N.Y. Ins. Law § 7815(c) (McKinney). Kramer involved a challenge to “several insurance policies obtained by[a] decedent . . . on his own life, allegedly with the intent of immediatelyassigning the beneficial interests to investors who lacked an insurable interestin his life.” 940 N.E 2d at 537. In considering a question certified by theSecond Circuit, the Court of Appeals explained that a specific provision inNew York law upheld the policies: Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own 38 person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated. [Id. at 539 (emphasis added) (quoting N.Y. Ins. Law § 3205(b)(1) (McKinney)).]New Jersey has no such statute. Florida’s insurable interest statute similarly states that an “insurableinterest need not exist after the inception date of coverage.” Fla. Stat.§ 627.404(1). Relying on that statute, the Florida Supreme Court declined tofind STOLI policies exempt from a two-year period of incontestability. WellsFargo Bank, N.A. v. Pruco Life Ins. Co., 200 So. 3d 1202, 1205-06 (Fla.2016). Florida later enacted anti-STOLI legislation. Fla. Stat. §§ 626.99289,626.99291. California’s insurable interest statute also limits the duration of aninsurable interest: “[A]n interest in the life or health of a person insured mustexist when the insurance takes effect, but need not exist thereafter or when theloss occurs.” See Cal. Ins. Code § 286. The United States District Court forthe Central District of California relied on that provision in rejecting achallenge to several life insurance policies in Lincoln National Life InsuranceCo. v. Gordon R.A. Fishman Irrevocable Life Trust, 638 F. Supp. 2d 1170,1170-71, 1177, 1179 (C.D. Cal. 2009). Similar to a STOLI transaction, 39 policies were purchased through a trust, which borrowed $2.8 million to coverpremiums and fees for two years; almost immediately, the policies wereassigned to the lender as security. Id. at 1174-76. The trust remained theowner of the policies. Id. at 1179. The court observed that the “[d]efendants may have found a loophole inthe law barring a STOLI finding.” Ibid. Although the financing scheme“skirts close to the letter, and certainly can be viewed as violating the spirit, ofthe law . . . the law as it presently exists allows this kind of insurancearrangement.” Ibid. Like New York and Florida, California has now enactedanti-STOLI legislation. See Cal. Ins. Code. §§ 10113.1(g)(B), 10113.3(s). New Jersey statutory law does not permit the immediate transfer of a lifeinsurance policy to people or entities that lack an insurable interest. As notedabove, policyholders who lawfully procure life insurance policies cannottransfer them through a viatical settlement agreement for two years, aside fromlimited exceptions. See N.J.S.A. 17B:30B-10(a). Nor does New Jersey have an analogue to Wis. Stat. 631.07(4), whichprovides that “[n]o insurance policy is invalid merely because the policyholderlacks insurable interest.” The Seventh Circuit relied on the statute when itdeclined to declare a policy void under Wisconsin law. Sun Life AssuranceCo. of Can. v. U.S. Bank Nat’l Ass’n, 839 F.3d 654, 657-58 (7th Cir. 2016). 40 The circuit court noted that Wisconsin had “retain[ed] the common lawprinciple forbidding the purchase of a life insurance policy by one who lackedan insurable interest” but had “changed the remedy from cancelling the policyto requiring the insurer to honor its promise,” by paying someone equitablyentitled to the benefit. Id. at 656. IV. To be clear, we do not suggest that life settlements in general arecontrary to public policy. Valid life insurance policies are assets that can besold. See Grigsby, 222 U.S. at 156. An established secondary market existsfor the sale of valid policies -- at least two years after they are issued or earlierin certain cases, see N.J.S.A. 17B:30B-10(a) -- to investors who lack aninsurable interest, see generally Peter Nash Swisher, Wagering on the Lives ofStrangers: The Insurable Interest Requirement in the Life InsuranceSecondary Market, 50 Tort Trial & Ins. Prac. L.J. 703, 724-29 (2015)(discussing the nationwide development and regulation of the secondarymarket). Today, billions of dollars worth of policies are sold annually in thesecondary market. Lincoln Nat’l Life Ins. Co. v. Calhoun, 596 F. Supp. 2d 882, 885 (D.N.J. 2009). Typically, people procure and pay premiums on a policy to plan for thefuture, but circumstances may change years later in ways that are distinct from 41 the previous hypotheticals. Some policyholders may no longer need lifeinsurance to protect a financially secure spouse or grown, self-supportingchildren; other insureds might need immediate cash for medical care or anotherurgent obligation. If the insureds stopped paying the premiums, they and theirbeneficiaries “would get nothing.” See Martin, Betting on the Lives ofStrangers, 13 U. Pa. J. Bus. L. at 186. Instead, they can sell policies tostrangers on the secondary market for a percentage of the policy’s face value.Provided the buyers continue to pay the premiums, they will eventually receivethe death benefit. Ibid. Once again, policyholders in New Jersey, in certain cases, may alsotransfer a policy within two years, in accordance with the Viatical SettlementsAct. N.J.S.A. 17B:30B-10(a). In any of those circumstances, buyers need not have an insurable interestin the life of the insured. V. The first certified question poses a supplemental inquiry: If the policyprocured violates New Jersey’s public policy, is it void ab initio? Wells Fargosubmits that when a fraud has been committed, “policies are merely voidable,not void” from the outset, under New Jersey law. According to Wells Fargo, 42 that means that an “insurer may waive, or be estopped to raise, the fraud.” SunLife contends that a wagering policy is void ab initio. When an insurance policy violates public policy, it is as though thepolicy never came into existence. See D’Agostino v. Maldonaldo, 216 N.J. 168, 194 n.4 (2013) (“A void contract is '[a] contract that is of no legal effect,so that there is really no contract in existence at all. A contract may be voidbecause it is technically defective, contrary to public policy, or illegal.”(quoting Black’s Law Dictionary 374 (9th ed. 2009))); see also Vasquez v.Glassboro Serv. Ass’n, Inc., 83 N.J. 86, 98 (1980) (“No contract can besustained if it is inconsistent with the public interest or detrimental to thecommon good.”); Hebela v. Healthcare Ins. Co., 370 N.J. Super. 260, 270(App. Div. 2004) (“[O]ur courts will decline to enforce an insurance policy,like any other contract, if its enforcement would be contrary to publicpolicy.”).6 We note as well that “[t]he vast majority of courts today that haveinterpreted STOLI contracts have held that such contracts are void ab initio6 Wells Fargo suggests that, because the fire insurance statute once stated that fire insurance policies would be void if the policyholder did not have sole and unconditional ownership of the property insured, see Flint Frozen Foods, Inc. v. Fireman’s Ins. Co. of Newark, 8 N.J. 606, 611-12 (1952), the Legislature could have expressly said life insurance policies lacking an insurable interest were void, had it so intended. That type of declaration is not needed if a policy violates public policy. 43 from their inception.” Swisher, Wagering on the Lives of Strangers, 50 TortTrial & Ins. Prac. L.J. at 734. The policy would be void from the outset. VI. The second certified question asks, “If such a policy is void ab initio, isa later purchaser of the policy, who was not involved in the illegal conduct,entitled to a refund of any premium payments that they made on the policy?”Sun Life contends that it should be permitted to retain the premiums itcollected because, “upon a determination that a policy is an illegal, void abinitio wagering policy” -- as distinct from a voidable policy that is rescinded --“New Jersey law requires that the court simply leave the parties where it findsthem.” Wells Fargo argues that “if any insurance policy is canceled orrescinded in the State of New Jersey, the insurer must return the premium.” The traditional rule -- that courts leave the parties to a void contract asthey are rather than assist an illegal contract -- has evolved over time.Williston discusses the more modern view and notes that equitable factors canbe considered to determine the proper remedy: In some cases, rescission of an illegal transaction and recovery of consideration are allowed where the parties are said not to be in pari delicto. The typical case in which this rule is applied is when one party acts under compulsion of the other. The 44 doctrine originated in cases in which a creditor, by improper pressure, induced a debtor to enter into transactions fraudulent as to other creditors; now, generally, one who has been induced by fraud, coercion, or undue influence to convey property in fraud of creditors can rescind and recover it or its proceeds despite the illegality. In some other types of cases, the guilt of the parties is differentiated for other reasons, such as one party’s lack of knowledge of the other party’s illegal activities. Probably no more exact principle can be laid down than if a plaintiff, although culpable, has not been guilty of moral turpitude, and the loss the plaintiff will suffer by being denied relief is wholly out of proportion to the requirements either of public policy or of appropriate individual punishment, the plaintiff may be allowed to recover back the consideration paid for an illegal agreement. [8 Williston on Contracts § 19:80 (4th ed. 2019) (footnotes omitted).] Williston notes situations in which the above doctrine has been appliedto permit recovery by the less culpable party: “the purchaser of theconsideration paid for securities sold in violation of securities acts”; “apurchaser of poisonous intoxicating liquor or some other product that wasillegally sold”; and “money lost at gaming.” Ibid. Williston adds that theprinciple has also “been extended by a number of courts to allow evenaffirmative recovery in limited settings” but notes that, “simply because theparties are not in equal fault, it does not mean that a court should automaticallyenforce the agreement at the behest of the less guilty party.” Ibid. 45 The Seventh Circuit applied a similarly nuanced approach in Davis afterit found the STOLI contracts in question were void. 803 F.3d at 910-11. Thecourt awarded the insurance company its attorney’s fees and the premiumspaid by all defendants except one investor, Egbert. Id. at 911. “Being toblame for the illegal contracts,” the court reasoned, “the defendants have noright to recoup the premiums they paid to obtain them; allowing recoupmentwould, by reducing the cost, increase the likelihood of illegal activity.” Ibid. As to Egbert, however, the court noted that “[h]e caused no harm,” “wasnot involved in the conspiracy,” and “would not have paid the premiums” hadhe known the policy was void. Ibid. Under the circumstances, it would “havehave been a windfall” for the company to keep the premiums he paid. Ibid.As a result, the court relied on an exception to the general rule -- to leave theparties where they are -- “for the case in which the party that made thepayments is not to blame for the illegality.” Ibid. The court concluded thatEgbert’s premium payments should be returned. Id. at 911-12. In Conestoga, the Eastern District of Tennessee found that the sixthassignee of a void STOLI policy was entitled to a refund of the premiums itpaid. 263 F. Supp. 3d at 697, 704. The court stressed that the assignee was“not to blame for the fraud here” and based its holding on the “rule that anassignee who has paid premiums in good faith is entitled to recover premiums 46 paid if the policy is later declared void because of the misconduct of others.”Ibid. (collecting cases). The United States District Court for the District of Nevada likewiseconsidered the relative culpability of the parties in a matter that involved a“textbook STOLI arrangement.” See Carton v. B & B Equities Grp., LLC, 827 F. Supp. 2d 1235, 1239-40, 1247 (D. Nev. 2011). The court noted “[t]heInsurers were the clear victims of the STOLI scheme.” Id. at 1247. Theoriginal investors, in contrast, who “may have . . . been duped,” “were at leaston inquiry notice of the illicit scheme.” Ibid. The court pointed to several“red flags [that] should have placed” them on notice. Ibid. “Because it wouldbe unjust” to reward the investors under those circumstances, the courtconcluded they “failed to state a claim for unjust enrichment” and were notentitled to a refund of the premiums they funded. Ibid. In the context of a void STOLI policy, the fact-sensitive approachoutlined by Williston and adopted in the above cases is sound. To decide theappropriate remedy, trial courts should develop a record and balance therelevant equitable factors. Those factors include a party’s level of culpability,its participation in or knowledge of the illicit scheme, and its failure to noticered flags. Depending on the circumstances, a party may be entitled to a refund 47 of premium payments it made on a void STOLI policy, particularly a laterpurchaser who was not involved in any illicit conduct. We note that the District Court considered equitable principles andfashioned a compromise award based on the record before it. We do notcomment on the award itself. VII. For the reasons set forth above, we answer both parts of the firstcertified question in the affirmative: a life insurance policy procured with theintent to benefit persons without an insurable interest in the life of the insureddoes violate the public policy of New Jersey, and such a policy is void at theoutset. In response to the second question, we note that a party may be entitledto a refund of premium payments it made on the policy, depending on thecircumstances. JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in CHIEF JUSTICE RABNER’s opinion. JUSTICE ALBIN did not participate. 48