Opinion ID: 2782885
Heading Depth: 2
Heading Rank: 1

Heading: The Berger Policy

Text: Throughout 2005 and 2006, Arlene and Richard Berger attended financial planning seminars at which they were told that they could obtain “free life insurance.” The Bergers talked with insurance salesman Stephen Brasner, who arranged for them to participate in his STOLI scheme 4 by obtaining (1) financing for the payment of premiums from a third-party lender and (2) a fraudulent financial report listing Arlene Berger’s net worth as $15.9 million and her annual income as $245,000. Brasner then applied to Pruco for a $10 million insurance 4 For a fuller explanation of the workings of STOLI transactions, see PHL Variable Ins. Co. v. Bank of Utah, Civ. No. 12-1256 ADM/JJK, 2013 WL 6190345, at  (D. Minn. Nov. 27, 2013) and Susan Lorde Martin, Betting on the Lives of Strangers: Life Settlements, STOLI, and Securitization, 13 U. Pa. J. Bus. L. 173, 187–88 (Fall 2010). 4 Case: 13-12135 Date Filed: 02/27/2015 Page: 5 of 21 policy on the life of Arlene Berger, naming her husband Richard as beneficiary. Pruco issued the policy on April 27, 2006. Brasner subsequently established an irrevocable trust to hold the Berger policy. The trust named Wilmington Trust Company as trustee and Richard Berger as co-trustee and beneficial owner. In conjunction with the financing agreement and the creation of the trust, Arlene Berger granted the third-party lender a power of attorney and the authority to obtain her medical records. Despite their signed authorizations, the Bergers claim not to have realized the implications of these actions. Richard Berger was shocked when he discovered that Arlene Berger had granted an irrevocable power of attorney pursuant to the financing agreement. Moreover, according to the Bergers, they neither needed nor wanted life insurance when they joined Brasner’s STOLI scheme, did not intend to pay any of the premiums, never had any intention of controlling or keeping any insurance procured through Brasner, and only accepted the policy because it was free. At some point, ownership of the Berger policy was transferred to the trust. For their participation in this insurance policy transaction, the Bergers received a payment of nearly $173,000 from Brasner in May of 2008. Then, in September of 2008, Arlene Berger instructed Wilmington Trust to relinquish all her interests and 5 Case: 13-12135 Date Filed: 02/27/2015 Page: 6 of 21 rights under the policy to the third-party lender in satisfaction of the financing agreement. The policy was ultimately sold to a client of Wells Fargo. On July 9, 2010, approximately four years after it had issued the Berger policy, Pruco filed suit against Wells Fargo asserting that the policy was void ab initio for lack of an insurable interest, as required by § 627.404. The district court granted summary judgment to Pruco on its claim. Adopting its previous analysis of this issue in an order denying Wells Fargo’s motion to dismiss, the court held that there was no valid insurable interest in the life of the insured by the party procuring the insurance, 5 meaning that the policy ran afoul of Florida Statute § 627.404’s requirement of such an interest at the time an insurance policy is issued. See Pruco Life Ins. Co. v. Brasner, No. 10-80804-CIV, 2011 WL 134056, at –6 (S.D. Fla. Jan. 7, 2011) (Cohn, J.). From this conclusion, the court reasoned that the policy was void ab initio and therefore the incontestability provision of § 627.455 did not bar Pruco’s claim, asserted more than two years after issuance of the policy. 5 The question whether the individual procuring the insurance for Mrs. Berger had the requisite “insurable interest” in her life was actually a bit more complicated than described above, and the factual wrinkle creating that complication will be addressed in the second question to the Florida Supreme Court. But the district court did ultimately hold that the procurer of the insurance did not have the necessary interest, which therefore rendered the policy void ab initio. 6 Case: 13-12135 Date Filed: 02/27/2015 Page: 7 of 21