Geronta Funding v. Brighthouse Life Ins. Co.

• Decision Date: 25 August 2022
• Docket Number: 380, 2021
• Parties: GERONTA FUNDING, a Delaware Statutory Trust, Defendant Below, Appellant, v. BRIGHTHOUSE LIFE INSURANCE COMPANY, Plaintiff Below, Appellee.
• Court: United States State Supreme Court of Delaware

284 A.3d 47

GERONTA FUNDING, a Delaware Statutory Trust, Defendant Below, Appellant,

v.BRIGHTHOUSE LIFE INSURANCE COMPANY, Plaintiff Below, Appellee.

No. 380, 2021

Supreme Court of Delaware.

Submitted: June 8, 2022

Decided: August 25, 2022

Andrew S. Dupre, Esquire (argued), Steven P. Wood, Esquire, Travis J. Ferguson, Esquire, MCCARTER & ENGLISH, LLP, Wilmington, Delaware; for Appellant Geronta Funding.

Gregory F. Fischer, Esquire, COZEN O'CONNOR, Wilmington, Delaware; Joseph M. Kelleher, Esquire (argued), Brian D. Burack, Esquire, COZEN O'CONNOR, Philadelphia, Pennsylvania; for Appellee Brighthouse Life Insurance Company.

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and MONTGOMERY-REEVES, Justices, constituting the Court en banc.

MONTGOMERY-REEVES, Justice:

This appeal requires the Court to determine whether premiums paid on insurance policies declared void ab initio for lack of an insurable interest should be returned. Geronta Funding ("Geronta" or "Appellee") argues that Delaware law requires the automatic return of all premiums paid on the void policy. Brighthouse Life Insurance Company ("Brighthouse" or "Appellant") argues that Delaware law does not require an automatic return of premiums; rather, a party must prove entitlement to restitution. The court below agreed with Brighthouse and relied on the Restatement (Second) of Contracts (the "Restatement") to determine whether Geronta was entitled to restitution. Specifically, the court held that Geronta may obtain restitution under Section 198 of the Restatement ("Section 198") if it could prove excusable ignorance or that it was not equally at fault. Applying this test, the court ruled that Geronta was only entitled to the return of the premiums it paid after alerting Brighthouse to the void nature of the policy at issue. Geronta appeals this ruling, arguing that the court erred when it adopted Section 198 instead of automatically returning the premiums, erred in its actual application of Section 198, even assuming that is the proper test, and erred by precluding certain testimony from Geronta witnesses.

Because this is a matter of first impression, the Court first surveys the applicable legal landscape, which reveals that courts across the country generally have adopted one of the following approaches: (1) rescission and automatic disgorgement of premiums, (2) restitution under a fault-based analysis grounded in considerations specific to insurance policies declared void ab initio for lack of an insurable interest, and (3) restitution under the Restatement. This Court adopts restitution under a fault-based analysis as framed by the Restatement as the test to determine whether premiums should be returned when a party presents a viable legal theory, such as unjust enrichment, and seeks the return of paid premiums as a remedy. We hold, however, that despite applying the Restatement, the Superior Court's application of the Restatement failed to account for the relevant questions encompassed by that approach.

Having reviewed the parties’ briefs and the record on appeal, and after oral argument, we reverse the court's holdings regarding entitlement to premiums and remand for consideration consistent with this Opinion. But we find no fault in the Superior Court preclusion of certain testimony from Geronta's witnesses. As such, the judgment of the Superior Court is AFFIRMED, in part, and REVERSED and REMANDED, in part.

I. RELEVANT FACTS AND BACKGROUND

A. The Seck Policy

On July 11, 2007, Mansour Seck Irrevocable Life Insurance Trust (the "Seck Trust") applied to MetLife Investors USA Insurance Company (Brighthouse's predecessor) for a $5 million universal life insurance policy insuring the life of a fictitious man identified as Mansour Seck (the "Policy"), with a birthday of January 1, 1933.¹ Seck was identified as a French citizen residing at 170 Academy Street, Jersey City, New Jersey.²

Algren Associates, Inc. ("Algren"), a broker-general-agent organization with whom MetLife had a longstanding relationship, conducted a recorded phone interview with someone purporting to be Seck.³ In that interview, the individual claiming to be Seck stated that he was a retired French ambassador with a yearly income of $500,000 from a pension and $1.5 million from investments.⁴ He also claimed that his net worth was $18 to $20 million.⁵

Algren submitted the following information about Seck to MetLife: " ‘Marital Status: married [;] Annual earned income: $400,000 [;] unearned income: $0 ... The applicant is a retired U[S] Ambassador to France. He has diplomatic status[,] and his passport allows him to come and go freely. His passport # is 02Y12556479, exp. 10/20/12.’ "⁶

Algren also submitted Seck's general medical information, such as a note from Seck's physicians confirming that Seck regularly attended medical appointments.⁷ Algren provided MetLife with two full paramedical exams from an approved third-party that showed Seck's medical history, vitals, and EKG readings.⁸ An approved third party represented that he personally took Seck's blood pressure, performed EKG readings, and witnessed Seck sign the application's medical section.⁹ "Based on the paramedic's reports, MetLife waived its requirement to have Mansour Seck undergo a ‘MD Exam + EKG,’ which was defined in MetLife's ‘The Life Underwriting Guide'as a ‘full exam performed by a medical doctor.’ "¹⁰ MetLife also received a lab slip for Seck's lab work that included test results for blood and urine.¹¹ MetLife reviewed Algren's cover letter regarding the results of the test results.¹²

If documentation relating to a policy comes from a general agent with whom MetLife has an existing relationship, MetLife itself does not further validate the documentation or employ a third party to validate the documentation.¹³

Sandor Krauss, the trustee of the Seck Trust, executed a trust certificate in which the named beneficiary of the Seck Trust was Michael Seck, with an address of 170 Academy Street, Suite B23, Jersey City, New Jersey.¹⁴ Krauss also confirmed the soundness and validity of the Policy.¹⁵ Krauss is a licensed attorney in the State of New York.¹⁶ He acknowledged and agreed in the Policy application's trust certification that MetLife "is relying exclusively on the representations in this agreement .... [MetLife] is permitted to rely upon the representations in this document, unless or until notice of any change, amendment, or revocation is provided in writing and delivered to [MetLife]."¹⁷ He also declared in the Statement of Policyowner Intent Form that the Seck Trust did not "intend to sell the applied-for life insurance policy in the future."¹⁸ He later testified that he had never met or communicated with anyone by the name of Mansour Seck.¹⁹

Talma Nassim, a licensed broker working with Algren, submitted the application for the Policy, acted as witness to Seck's signature, and confirmed that she met Seck in person.²⁰ She certified that she spoke with Seck personally and witnessed his signature on the application.²¹ MetLife had a policy of relying on the broker's representations, particularly where, as here, MetLife had an established relationship with the general agent.²²

After confirming that its procedures and guidelines were met, MetLife issued the Policy on or around July 24, 2007.²³

For the next two years, the Seck Trust paid $248,711.14 in premiums.²⁴ After the two-year contestability period ended, the Seck Trust sold the Policy to EEA Life Settlements, Inc.²⁵ Before purchasing the policy, EEA Life Settlements, Inc. consulted with its investment advisor, ViaSource Funding LLC ("ViaSource").²⁶ ViaSource is "in the business of locating, evaluating, investing in, purchasing, servicing, managing, dealing in and collecting upon Life Insurance Policies."²⁷ Although ViaSource did its own "check of the validity of [Seck],"²⁸ EEA Life Settlements, Inc. did not hire a private investigator to locate Seck.²⁹ EEA Master Fund, LTD ("EEA") bought the Policy on August 11, 2009, and paid premiums on the Policy for the next six years.³⁰

On January 25, 2010, ViaSource tried to contact Krauss and Seck's designated contacts for Seck's contact information.³¹ Krauss stated that he did not have a valid address for Seck and was unable to provide any of Seck's information.³² Mail sent to Seck was marked "return to sender," and three of the doctors from his application stated that Seck was not their patient.³³ On October 19, 2010, ViaSource reached out to Krauss again, and he was still unable to provide ViaSource with any information.³⁴ As a result, ViaSource and EEA placed the Policy on its "Hard to Track" list.³⁵ They did not, however, regard the issue as a red flag.³⁶

On October 11, 2011, ViaSource ran a public records search for Seck, which resulted in no findings of any public record for a Mansour Seck with a birthday of January 1, 1933, or with a matching Social Security number.³⁷ ViaSource conducted a second search in 2012 that again turned up no matching results.³⁸

On December 17, 2012, ViaSource sent a letter to one of Seck's designated contacts, with a reminder that he agreed to " ‘[p]rovide updates to as [sic] Mr. Seck's location once every one and a half [sic] months [;] [p]rovide the Insured's updated medical records, every six months [;] [p]rovide immediate written notification if Mr. Seck leaves the country ....’ "³⁹ The letter further stated, " ‘[t]o date, you have not fulfilled any of your obligations. You are in breach of this agreement ....’ "⁴⁰ EEA, however, continued paying $706,478.29 in premiums on the Policy to MetLife until it sold the Policy to Geronta in 2015.⁴¹

On September 2, 2015, EEA sold the Policy to Geronta as part of a bulk sale of life insurance policies.⁴² As part of the transaction, EEA created a data room with information about all the policies being sold.⁴³ Geronta did not ask for additional information.⁴⁴ Geronta did not review the information in the data room about the Policy, and it did not...