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New Jersey Supreme Court Bars STOLI Policies

New Jersey’s Supreme Court has ruled stranger-owned life insurance policies violate public policy.
  • Timothy Darragh
  • July 2019
  • print this page

Although the state legislature has not been able to pass a law prohibiting life policies taken out on strangers, the execution of such deals is not legal in New Jersey, the court said.

“In New Jersey and elsewhere, no one can procure a life insurance policy on a stranger's life and receive the benefits of the policy,” said the ruling written by Chief Justice Stuart Rabner. “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.”

In New Jersey and elsewhere, no one can procure a life insurance policy 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.

Chief Justice
Stuart Rabner
NJ Supreme Court

State law does allow individuals to take out life policies on others, but only if the benefits are payable to someone with an “insurable interest” in the person whose life is insured, it said. Beneficiaries can be the insured, “a close relative, a person, corporation, or charity with certain financial ties to the insured, or select others,” it said.

The case involved a series of life insurance policies taken out on Nancy Bergman, by her grandson and other investors, the court record said. According to the court, Sun Life Assurance Company of Canada was told her income was $600,000 a year and that her net worth was more than $9.2 million in an application for a $5 million policy. In total, five policies with a value of $37 million were taken out on her in 2007, it said.

Five weeks after taking out the first policy, her grandson, Nachman Bergman, left the trust that had been created to pay the premiums, it said. The trust two years later sold the policies to SLG Life Settlements for $700,000, it said.

The policies continued to change hands, until they landed with Wells Fargo Bank, which paid $1.9 million to cover the premiums until Nancy Bergman died in 2014, it said. When Wells Fargo sought to collect the death benefit, Sun Life investigated and refused to pay, setting the stage for litigation, Rabner wrote Nachman Bergman's membership in the trust made the purchase of the policies legal, but his early exit did not. STOLI policies run afoul of New Jersey's insurable interest requirement, the ruling said, and “would elevate form over substance to conclude that feigned compliance with the insurable interest statute—as technically exists at the outset of a STOLI transaction—satisfies the law. Such an approach would upend the very protections the statute was designed to confer and would effectively allow strangers to wager on human lives.”


Timothy Darragh is an associate editor, BestWeek. He can be reached at timothy.darragh@ambest.com.


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