On October 12, 2016, the United States Court of Appeals for the Seventh Circuit, in an opinion authored by Judge Richard Posner, affirmed a district court decision finding that securities intermediary U.S. Bank, N.A. is entitled to $6 million in life insurance policy proceeds, plus statutory interest and bad faith damages, from insurer Sun Life Assurance Company of Canada. In its decision in the case, Sun Life Assurance Co. of Canada v. U.S. Bank National Association, as Securities Intermediary, the Seventh Circuit made clear that, pursuant to applicable Wisconsin statutory law, an insurance company cannot avoid its obligation to pay the death benefit on a life insurance policy, even if the policy was issued to a stranger lacking an insurable interest in the insured life. And if it fails to timely pay a claim on such a policy, a carrier may be held liable for statutory interest and additional damages for acting in bad faith. The ruling applies to policies governed by Wisconsin law that were issued prior to November 1, 2010, when the Wisconsin legislature amended the applicable law.
The insurance policy in this case was issued in 2007 by Sun Life on the life of wealthy octogenarian Charles Margolin. In 2011, U.S. Bank purchased the policy on behalf of an investor (i.e., as securities intermediary), and in 2014, Mr. Margolin died. Even though Sun Life had collected $2.5 million in premiums and knew about all of the transactions concerning the policy that occurred between 2007 and 2014, it refused to pay the policy proceeds without first investigating the policy’s validity. U.S. Bank, as the owner and beneficiary of the policy, invoked a Wisconsin statute requiring the insurer to pay claims within 30 days and brought a lawsuit against Sun Life to force a payment.