1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Columbus Life Insurance Company, No. CV-21-00734-PHX-DJH
10 Plaintiff, ORDER
11 v.
12 Wilmington Trust NA,
13 Defendant. 14 15 Pending before the Court is the matter of submitting a certified question to the 16 Arizona Supreme Court. The Court has requested the parties’ input in the drafting of the 17 question. (Doc. 83). And the parties have submitted their proposed questions. (Doc. 90). 18 I. Background 19 As alleged, Wilmington “holds bare legal title as administrator” of an insurance 20 policy (the “Policy”) issued by Plaintiff Columbus Life Insurance Company (“Columbus”). 21 (Doc. 1 at ¶ 2). Columbus argues the Policy was “void ab initio” because it was an “illegal 22 wagering contract” in violation of Arizona law. (Id. at ¶ 37). The Policy itself was a “$2.5 23 million dollar, second to die, life insurance policy” on the lives of Howard and Eunice 24 Peterson. (Id. at ¶¶ 16, 18). The Petersons never paid anything for the Policy. (Id. at ¶ 25 13). In fact, the $2.5 million does not go to “the Petersons or their family” but, rather, to 26 Wilmington, an entity with no insurable interest such that, Columbus claims, the Policy is 27 “merely a wager” on how soon they would pass. (Id. at ¶¶ 17, 31). Columbus argues that 28 such a wager turns life insurance policies “into cash machines whereby strangers to the 1 insureds are more interested in seeking the insureds dead than alive.” (Id. at ¶ 15). 2 The Policy was applied for in November 2003 and the first premium was paid in 3 May 2004. (Id. at ¶¶ 20, 23). Howard Peterson died in 2018, and Eunice Peterson died in 4 2020. (Id. at ¶¶ 27–28). Wilmington has since made a claim on the Policy. (Id. at ¶ 30). 5 Of note, the Policy contains a statutorily required provision stating that Columbus “will 6 not contest this policy to the extent of the Specified Amount after it has been in effect 7 during both Insureds’ lifetimes for two years from” October 26, 2003. (Doc. 1-1 at 4, 34). 8 Now, Columbus seeks a judgment declaring that the Policy is an illegal wagering 9 contract that was void ab initio and that Wilmington lacks an insurable interest. (Doc. 1 at 10 ¶¶ 32–41). In its Answer, Wilmington brought counterclaims against Columbus for breach 11 of contract, bad faith, promissory estoppel, and unjust enrichment. (Doc. 8). 12 II. Certifying Question to Arizona Supreme Court 13 Arizona’s Supreme Court may answer certified questions of law that “may be 14 determinative of the cause then pending in the certifying court and as to which it appears 15 to the certifying court there is no controlling precedent in the decisions of the supreme 16 court and the intermediate appellate courts of this state.” A.R.S. § 12-1861. Arizona 17 Supreme Court Rule 27(a)(3) states that a certification order must include: “(A) The 18 questions of law to be answered; (B) A statement of all facts relevant to the questions 19 certified; (C) A list of the counsel (or pro se parties) appearing in the matter, together with 20 their addresses and telephone numbers; (D) The proportions in which the parties shall share 21 the required filing fees, if such proportions are not to be equal; (E) Any other matters that 22 the certifying court deems relevant to a determination of the questions certified.” 23 a. The Question of Law 24 Here, the potentially determinative question deals with whether the Policy may be 25 enforced. Arizona has long held that “a valid contract of insurance cannot legally be taken 26 on the life of another by one who has no insurable interest in said life, because such a 27 contract contravenes public policy . . . .” Gristy v. Hudgens, 203 P. 569, 572 (Ariz. 1922), 28 disapproved of on different grounds by Day v. Clark, 285 P. 682 (Ariz. 1930). By statute, 1 “no person shall procure or cause to be procured any insurance contract on the life or body 2 of another individual unless the benefits under such contract are payable to the individual 3 insured or his personal representatives, or to a person having, at the time when the contract 4 was made, an insurable interest in the individual insured.” A.R.S. § 20-1104(A). There is 5 reason to believe that the Policy in this matter violates this statute and general public policy. 6 However, Arizona law requires life insurance policies contain an incontestability 7 provision, which states that a policy “shall be incontestable, except for nonpayment of 8 premiums, after it has been in force during the lifetime of the insured for a period of two 9 years from its date of issue.” A.R.S. § 20-1204. In accordance with this statute, the Policy 10 contains a provision stating that Columbus “will not contest this policy to the extent of the 11 Specified Amount after it has been in effect during both Insureds’ lifetimes for two years 12 from” October 26, 2003. (Doc. 1-1 at 4, 34). 13 The parties dispute how these legal principles interact. Wilmington argues that even 14 if the Policy was entered into with an entity that lacks an insurable interest, all challenges 15 to the Policy’s validity, except for non-payment of premium” are time barred. 16 (Doc. 41 at 6). Columbus argues it is not too late because the incontestability statute does 17 not apply because the Policy was void ab initio. (Doc. 46 at 9). It appears to the Court 18 that Arizona has no controlling precedent on this issue. 19 During a hearing on June 22, 2022, the Court informed the parties that it was 20 contemplating certifying the following question to the Arizona Supreme Court: Whether a 21 life insurance policy that contains an incontestability provision under A.R.S. § 20-1204 22 may be contested more than two years after it has been in force for the reason that it violates 23 A.R.S. § 20-1104(A) and is, therefore, void ab initio. (Doc. 83). 24 Wilmington suggests submitting two questions, which are whether “a life insurer 25 [may] contest a life insurance policy more than two years after its date of issue for a reason 26 not set forth in the statute” and, if so, “ (a) what obligations does a life insurer have to seek 27 to rescind a life insurance policy for lack of insurable interest; and (b) what principles may 28 operate to prohibit the life insurer from belatedly seeking to contest such life insurance 1 policy?” (Id. at 4). The Court finds these multiple questions are not all determinative and 2 are inappropriate for certification. 3 Columbus suggests that the Court submit a question that parallels language 4 submitted to the Delaware Supreme Court on the same issue. (Doc. 90 at 2) (citing PHL 5 Var. Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059, 1064 (Del. 2011)). The Court 6 finds that this is an acceptable substitute to the question it proposed. 7 Therefore, the Court certifies the following question the Arizona Supreme Court: 8 Does Arizona law permit an insurer to challenge the validity of a life insurance policy 9 based on a lack of insurable interest after the expiration of the two-year contestability 10 period required by A.R.S. § 20-1204? 11 b.
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Columbus Life Insurance Company, No. CV-21-00734-PHX-DJH
10 Plaintiff, ORDER
11 v.
12 Wilmington Trust NA,
13 Defendant. 14 15 Pending before the Court is the matter of submitting a certified question to the 16 Arizona Supreme Court. The Court has requested the parties’ input in the drafting of the 17 question. (Doc. 83). And the parties have submitted their proposed questions. (Doc. 90). 18 I. Background 19 As alleged, Wilmington “holds bare legal title as administrator” of an insurance 20 policy (the “Policy”) issued by Plaintiff Columbus Life Insurance Company (“Columbus”). 21 (Doc. 1 at ¶ 2). Columbus argues the Policy was “void ab initio” because it was an “illegal 22 wagering contract” in violation of Arizona law. (Id. at ¶ 37). The Policy itself was a “$2.5 23 million dollar, second to die, life insurance policy” on the lives of Howard and Eunice 24 Peterson. (Id. at ¶¶ 16, 18). The Petersons never paid anything for the Policy. (Id. at ¶ 25 13). In fact, the $2.5 million does not go to “the Petersons or their family” but, rather, to 26 Wilmington, an entity with no insurable interest such that, Columbus claims, the Policy is 27 “merely a wager” on how soon they would pass. (Id. at ¶¶ 17, 31). Columbus argues that 28 such a wager turns life insurance policies “into cash machines whereby strangers to the 1 insureds are more interested in seeking the insureds dead than alive.” (Id. at ¶ 15). 2 The Policy was applied for in November 2003 and the first premium was paid in 3 May 2004. (Id. at ¶¶ 20, 23). Howard Peterson died in 2018, and Eunice Peterson died in 4 2020. (Id. at ¶¶ 27–28). Wilmington has since made a claim on the Policy. (Id. at ¶ 30). 5 Of note, the Policy contains a statutorily required provision stating that Columbus “will 6 not contest this policy to the extent of the Specified Amount after it has been in effect 7 during both Insureds’ lifetimes for two years from” October 26, 2003. (Doc. 1-1 at 4, 34). 8 Now, Columbus seeks a judgment declaring that the Policy is an illegal wagering 9 contract that was void ab initio and that Wilmington lacks an insurable interest. (Doc. 1 at 10 ¶¶ 32–41). In its Answer, Wilmington brought counterclaims against Columbus for breach 11 of contract, bad faith, promissory estoppel, and unjust enrichment. (Doc. 8). 12 II. Certifying Question to Arizona Supreme Court 13 Arizona’s Supreme Court may answer certified questions of law that “may be 14 determinative of the cause then pending in the certifying court and as to which it appears 15 to the certifying court there is no controlling precedent in the decisions of the supreme 16 court and the intermediate appellate courts of this state.” A.R.S. § 12-1861. Arizona 17 Supreme Court Rule 27(a)(3) states that a certification order must include: “(A) The 18 questions of law to be answered; (B) A statement of all facts relevant to the questions 19 certified; (C) A list of the counsel (or pro se parties) appearing in the matter, together with 20 their addresses and telephone numbers; (D) The proportions in which the parties shall share 21 the required filing fees, if such proportions are not to be equal; (E) Any other matters that 22 the certifying court deems relevant to a determination of the questions certified.” 23 a. The Question of Law 24 Here, the potentially determinative question deals with whether the Policy may be 25 enforced. Arizona has long held that “a valid contract of insurance cannot legally be taken 26 on the life of another by one who has no insurable interest in said life, because such a 27 contract contravenes public policy . . . .” Gristy v. Hudgens, 203 P. 569, 572 (Ariz. 1922), 28 disapproved of on different grounds by Day v. Clark, 285 P. 682 (Ariz. 1930). By statute, 1 “no person shall procure or cause to be procured any insurance contract on the life or body 2 of another individual unless the benefits under such contract are payable to the individual 3 insured or his personal representatives, or to a person having, at the time when the contract 4 was made, an insurable interest in the individual insured.” A.R.S. § 20-1104(A). There is 5 reason to believe that the Policy in this matter violates this statute and general public policy. 6 However, Arizona law requires life insurance policies contain an incontestability 7 provision, which states that a policy “shall be incontestable, except for nonpayment of 8 premiums, after it has been in force during the lifetime of the insured for a period of two 9 years from its date of issue.” A.R.S. § 20-1204. In accordance with this statute, the Policy 10 contains a provision stating that Columbus “will not contest this policy to the extent of the 11 Specified Amount after it has been in effect during both Insureds’ lifetimes for two years 12 from” October 26, 2003. (Doc. 1-1 at 4, 34). 13 The parties dispute how these legal principles interact. Wilmington argues that even 14 if the Policy was entered into with an entity that lacks an insurable interest, all challenges 15 to the Policy’s validity, except for non-payment of premium” are time barred. 16 (Doc. 41 at 6). Columbus argues it is not too late because the incontestability statute does 17 not apply because the Policy was void ab initio. (Doc. 46 at 9). It appears to the Court 18 that Arizona has no controlling precedent on this issue. 19 During a hearing on June 22, 2022, the Court informed the parties that it was 20 contemplating certifying the following question to the Arizona Supreme Court: Whether a 21 life insurance policy that contains an incontestability provision under A.R.S. § 20-1204 22 may be contested more than two years after it has been in force for the reason that it violates 23 A.R.S. § 20-1104(A) and is, therefore, void ab initio. (Doc. 83). 24 Wilmington suggests submitting two questions, which are whether “a life insurer 25 [may] contest a life insurance policy more than two years after its date of issue for a reason 26 not set forth in the statute” and, if so, “ (a) what obligations does a life insurer have to seek 27 to rescind a life insurance policy for lack of insurable interest; and (b) what principles may 28 operate to prohibit the life insurer from belatedly seeking to contest such life insurance 1 policy?” (Id. at 4). The Court finds these multiple questions are not all determinative and 2 are inappropriate for certification. 3 Columbus suggests that the Court submit a question that parallels language 4 submitted to the Delaware Supreme Court on the same issue. (Doc. 90 at 2) (citing PHL 5 Var. Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059, 1064 (Del. 2011)). The Court 6 finds that this is an acceptable substitute to the question it proposed. 7 Therefore, the Court certifies the following question the Arizona Supreme Court: 8 Does Arizona law permit an insurer to challenge the validity of a life insurance policy 9 based on a lack of insurable interest after the expiration of the two-year contestability 10 period required by A.R.S. § 20-1204? 11 b. Statement of Facts 12 Here, the Court refers back to the background established in Section I of this Order. 13 c. Counsel 14 Counsel for Plaintiff Columbus Life Insurance Company: 15 - Brian D Burack; 1 Liberty Pl.,1650, Market St., Ste. 2800, Philadelphia, PA 19103; 16 215-665-2076 17 - Ilya Schwartzburg; 1 Liberty Pl., 1650 Market St., Ste. 2800, Philadelphia, PA 18 19103; 215-366-4443 19 - Isaac Binkovitz; 1 Liberty Pl., 1650 Market St., Ste. 2800, Philadelphia, PA 19103; 20 215-665-5506 21 - Michael John Broadbent; 1 Liberty Pl., 1650 Market St., Ste. 2800, Philadelphia, 22 PA 19103; 267-987-4755 23 - Charles J Vinicombe; 1010 Kings Hwy. S, Cherry Hill, NJ 08034; 856-910-5003 24 - Laura Christine Martinez; 4808 N 22nd St., Ste. 200, Phoenix, AZ 85016; 25 602-222-5501 26 - Nancy Renee Giles; 4808 N 22nd St., Ste. 200, Phoenix, AZ 85016; 602-222-5501 27 Counsel for Defendant Wilmington Trust NA: 28 - Andrew James Dykens; 1301 Avenue of the Americas, 42nd Fl., New York, NY 1 10019; 212-484-3900 2 - David J Ward; 1301 Avenue of the Americas, 42nd Fl., New York, NY 10019; 3 212-457-5405 4 - Julius A Rousseau, III; 1301 Avenue of the Americas, 42nd Fl., New York, NY 5 10019; 212-457-5488 6 - JSteven Sparks; 3030 N 3rd St., Ste. 1300, Phoenix, AZ 85012-3099; 602-532-5600 7 - Vincent Richard Miner; 3030 N 3rd St., Ste. 1300, Phoenix, AZ 85012-3099; 8 602-532-5600 9 d. Filing Fees 10 The parties shall split the filing fees equally. Il. Conclusion 12 Accordingly, 13 IT IS HEREBY ORDERED that the aforementioned question is certified to the Arizona Supreme Court. The Clerk of Court is directed to submit a certified copy of this 15 || Order and six copies to the Clerk of the Arizona Supreme Court under Arizona Supreme 16 || Court Rule 27. 17 IT IS FURTHER ORDERED that this action shall be stayed pending a response 18 || from the Arizona Supreme Court, except that the parties may conduct the deposition that is the subject of the parties’ recent discovery dispute. (Doc. 97). 20 Dated this 10th day of August, 2022. 21 22 oC. . oe □□ 23 norable'Dian¢g/4. Hunfetewa 14 United States District Fudge 25 26 27 28
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