February 10, 2017

Where Life Insurance Policy Procured Through Fraud Choice of Law Provision Not Controlling

Pardalis & Nohavicka Insurance law Update: 

Where Life Insurance Policy Procured Through Fraud Choice of Law Provision Not Controlling

In AEI Life v. Lincoln Benefit Life, 14 CV 6449 (EDNY, Dec. 22, 2016), Judge Weinstein rejected an insurer's effort to get around a life insurance policy's incontestability provision by arguing that the policy was procured by fraud. The result turned on the court's decision to apply New York rather than New Jersey law as specified in the insurance contract. New York law, unlike New Jersey law, bars an insurer from challenging the validity of a life insurance policy on grounds of fraud in the inducement after expiration of the two-year period specified in the incontestability clause.

In 2008, defendant Lincoln Benefit Life (LBL) issued an insurance policy for over $6 million on the life of one Gabriela Fischer. The initial owner and beneficiary of the policy was the "Gabriela Fisher Trust," whose beneficiary was Ms. Fischer's son, Irving Fischer. Shortly before the trust bought the policy, $1 million was wired into the trust's account by another individual. In 2011, the trust sold the policy to a third party, which a few days later sold the policy to plaintiff AEI Life (AEI). Since then, AEI continuously paid the premiums. The insurance contract contained a choice of law provision specifying New Jersey law.

Because jurisdiction was based on diversity, the court had to apply New York conflict of law rules. Under those rules, the parties' choice of New Jersey law was entitled to a presumption of validity, but that presumption is rebutted when, among other things, "the contract as a whole is procured through fraud." If the parties' choice of law is disregarded on account of fraud, the court must determine which state's law to apply by, first, determining whether there is an "actual conflict" between the two states' laws, and if there is such a conflict, by applying a "center of gravity" analysis to determine which state's interest predominates. Here, New York law wins.


Here is the case:


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