Jackson Nat'l Life Ins. Co. v. Crum

• Decision Date: 04 February 2022
• Docket Number: No. 20-11280,20-11280
• Citation: 25 F.4th 854
• Parties: JACKSON NATIONAL LIFE INSURANCE COMPANY, Plaintiff-Counter Defendant, Appellee, v. Sterling CRUM, Defendant-Counter Claimant, Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

25 F.4th 854

JACKSON NATIONAL LIFE INSURANCE COMPANY, Plaintiff-Counter Defendant, Appellee,

v.Sterling CRUM, Defendant-Counter Claimant, Appellant.

No. 20-11280

United States Court of Appeals, Eleventh Circuit.

Filed: February 4, 2022

Michael Broadbent, Michael J. Miller, Cozen O'Connor, Philadelphia, PA, Robert F. Parsley, Miller & Martin, PLLC, Chattanooga, TN, Eileen Hintz Rumfelt, Miller & Martin, PLLC, Atlanta, GA, for Plaintiff-Appellee.

Scott Zweigel, John H. Elliott, Parker Hudson Rainer & Dobbs, LLP, Atlanta, GA, Brady J. Cobb, Cobb Eddy, Fort Lauderdale, FL, for Defendant-Appellant.

Before Branch, Grant, and Julie Carnes, Circuit Judges.

Julie Carnes, Circuit Judge:

This case presents an issue of first impression regarding what constitutes an illegal wagering contract under Georgia insurance law. Plaintiff Jackson National Life Insurance Company issued a $500,000 life insurance policy to Kelly Couch after the latter falsely represented that he was not HIV positive. At the time, during the 1990s, HIV-positive individuals had a greatly diminished life expectancy, which led to high demand for HIV-positive insureds willing to engage in viatical settlements.¹ Indeed, it seems clear that Couch obtained the policy for the sole purpose of selling it to a third-party buyer and pocketing the purchase price.

Had Couch entered into a purchase agreement with a buyer at the time he applied for the policy, the policy clearly would have been void as an illegal wagering contract. He did not do that, however. Instead, at some undetermined point before or after procurement of the policy, Couch began working with an intermediary—a brokerage agency specializing in viatical settlements—to find a buyer for his policy. Within eight months of the issuance of the policy, the agency found a willing purchaser in defendant Sterling Crum. The premiums were paid through a premium reserve fund set up by the broker until after the two-year contestability period for the policy expired in 2001.² At that point, Defendant began directly paying the policy premiums and he continued on for eight more years, finally letting the policy lapse in 2009.

As it turned out, Couch had died in 2005, at a time when Defendant was still making payments on the policy. Eleven years later, in 2016, Defendant became aware that Couch had died. He then made a claim for the death benefit under Couch's policy. Declining payment of any death benefit to Defendant, Plaintiff filed this declaratory judgment action seeking a declaration that, under Georgia law, the policy was void ab initio as an illegal human life wagering contract and further that Defendant's claim was barred by laches, given the eleven-year delay in making the claim.

The district court conducted a bench trial and found that Couch took out the policy on his own life with the intent to sell the policy in the near future to one without an insurable interest. Accordingly, the court concluded that the insurance policy was void and unenforceable as an illegal human life wagering contract under Georgia law.³ Defendant appeals, arguing that Couch's unilateral intent to sell the policy is insufficient to declare the policy void ab initio . Rather, Defendant contends, Georgia law also requires the knowing and direct involvement of an identified third-party beneficiary at the time of the initial procurement of the policy before one can characterize the policy as an illegal human life wagering contract.

Thus, the question before this Court is whether a life insurance policy is void ab initio if it is procured by an individual on his own life for the sole purpose of selling the policy to a third party without an insurable interest in the insured, but without the complicity of the ultimate purchaser at the time of procurement. Georgia caselaw does not definitively answer this question. Accordingly, certification to the Georgia Supreme Court is warranted pursuant to O.C.G.A. § 15-2-9(a).

I. BACKGROUND

A. Factual Background

In August 1998, Kelly Couch applied for a term life insurance policy with a $500,000 death benefit from Plaintiff. It is undisputed that Couch made several material misrepresentations in his application for the policy: (1) he used an incorrect Social Security number, (2) he failed to disclose that he had filed for bankruptcy twice in the past seven years, and (3) he represented that he was a healthy 32-year old man, when in fact he was HIV-positive. That Couch would seek such a large life insurance policy, absent any dependents who relied on his income, seems odd. Even odder is the fact that Couch, who had a troubled financial history involving two bankruptcy filings in seven years, would expend much needed cash on a life insurance policy for which there was no identified beneficiary.⁴

The answer to the "why" motivating Couch was the AIDS crisis, which, having begun in the 1980s, gave rise to a flourishing viatical settlement industry selling life insurance policies held by HIV-positive individuals. At first, most of these policies were clearly legitimate, as they typically involved an HIV-positive insured individual selling for a lump sum to a third party a policy he had acquired without fraudulent representations at a time when he was healthy. The third party could purchase for a fraction of its value a life insurance policy on a person whose life expectancy was quite short; the insured, dying of what was then a terminal and quick-acting disease, would then gain some needed cash in his final months. Eventually, however, the demand by viatical investors for HIV-positive insureds outstripped the supply of policies purchased non-fraudulently when an insured was healthy. Nevertheless, the ability to purchase for a fraction of its value a life insurance policy on a person likely to soon die remained too tempting a proposition to lie untapped by potential investors. Thus, some HIV-positive individuals began working with insurance brokers to market life insurance policies that the former had fraudulently procured after having received an HIV diagnosis. One scheme to effect this plan was "clean sheeting," which involved the use of an imposter's clean blood sample on behalf of an HIV-positive insurance applicant and which thereby enabled the applicant to fraudulently obtain a life insurance policy that could then be sold to a third party for profit.

Couch had received two HIV-positive blood tests in the weeks surrounding his application for life insurance in 1998.⁵ At that time, his life expectancy was 24-30 months, meaning that Plaintiff obviously would not have approved Couch's application for a $500,000 life insurance policy had it known about his HIV-positive status. Not surprisingly, Couch omitted any information about his HIV diagnosis on his life insurance application and, presumably by some fraudulent means, he provided a blood sample from an individual without HIV to Plaintiff during his application process.

Unaware of Couch's HIV-positive status or his bankruptcy filings, Plaintiff approved Couch's application. After processing Couch's application fee and an initial premium payment, both of which Couch paid using a check from his own bank account, Plaintiff issued the policy at issue in this litigation in January 1999. The policy listed "Kelly Couch" as the insured, and it named Couch's estate as the beneficiary. As required by Georgia law, the policy contained an incontestability clause stating:

During but not after the contestable period, [Plaintiff] can contest the validity of this policy or deny a claim for any misrepresentation or nondisclosure of a material fact in the application. The contestable period starts when the policy goes into force and ends when the policy has been in force during the insured's lifetime for 2 years from the policy date.

There is no documentary evidence establishing exactly when Couch began working with Associates Trust, which was a viatical insurance broker that procured and sold insurance policies on the lives of HIV-positive insureds. That is, whether or not Couch and the broker's interactions began before Couch attempted to procure the policy is unknown. We do know that within a few months after issuance of the policy to Couch in January 1999, Associates Trust was working with Couch to sell the policy. Specifically, by August 1999, Associates Trust was attempting to market the policy to the defendant in this case, Sterling Crum. At that time, defendant Crum, an experienced investor in the viatical settlement industry, was involved in a dispute with Associates Trust over a viatical policy he had purchased in 1998 that had turned out to be invalid. Instead of refunding Defendant's money, Associates Trust offered to transfer the Couch policy to Defendant.

Before deciding whether to agree to this transfer, Defendant received a one-page summary from Associates Trust, which indicated that Couch had tested positive for HIV in 1996, that he had been issued the policy in question in January 1999, and that a recent doctor's review confirmed a life expectancy of only 24-30 months. Defendant accepted the agency's offer to transfer the Couch policy to him and a Beneficiary/Ownership Change Form was submitted to Plaintiff in September 1999. In that Form, Couch requested that Plaintiff change the primary beneficiary of the policy from his estate to his "Friend" Sterling Crum, a characterization that was clearly untrue, as Couch had never met or spoken to Defendant. Indeed, as noted above, Defendant did not become aware of Couch's death until eleven years after the latter's demise.

Plaintiff approved the change-of-beneficiary request on September 22, 1999. Thereafter, Associates Trust arranged for premium payments to be made through a "premium reserve account," which made it appear the payments were still coming directly from Couch.⁶ This arrangement continued until the insurance company's two-year contestability period ended in January 2001, after which time Defendant began...