PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust

Price Dawe formed the Price Dawe 2006 Insurance Trust (defendant) designating the beneficiary as a family trust of which Dawe was the beneficiary. Several months later, PHL Variable Insurance Co. (Phoenix) issued a $9 million life-insurance policy on Dawe’s life to the Dawe trust, which was also the beneficiary. Two months later, a third-party investor, GIII, purchased the beneficial interest of the Dawe trust from the family trust. After three years, Dawe died, and the Dawe trust sought benefits. Following an investigation, Phoenix asserted that Dawe lied on his application after being financially induced into participating in a stranger-owned life-insurance (STOLI) scheme. Phoenix filed suit seeking a declaration that the lack of insurable interest voided the policy. The federal district court denied the trust’s motion to dismiss and certified these questions to the Delaware Supreme Court: (1) Does Delaware’s two-year incontestability period prevent a life-insurer from challenging the validity of a policy due to lack of insurable interest? (2) If an insured never intended to provide insurance for a person with an insurable interest, does Delaware law prohibit immediately transferring the policy to someone without an insurable interest? (3) If the insured intended to transfer the beneficial interest in a trust to a third-party investor with no insurable interest, does Delaware law confer upon a trustee an insurable interest in the life of the individual insured who established the trust?