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Sun Life Assurance Company of Canada v. Wilmington Trust, National Association

Superior Court of Delaware

August 9, 2018

SUN LIFE ASSURANCE COMPANY OF CANADA, Plaintiffs,
v.
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Securities Intermediary, and GREGG GOTTLIEB, Defendants.

          Submitted: May 17, 2018

          Joseph J. Bellew, Esq., Joseph Kelleher, Esq. (argued), Michael J. Miller, Esq., Charles J. Vinicombe, Esq., Gregory J. Star, Esq., Cozen O'Connor, Attorneys for Plaintiff Sun Life Assurance Company of Canada

          Harry S. Davis, Esq. (argued), Robert E. Griffin, Esq., Schulte Roth & Zabel LLP, Kevin G. Abrams, Esq., John M. Seaman, Esq., E. Wade Houston, Esq., Abrams & Bayliss LLP, Attorneys for Defendant Wilmington Trust, National Association, as Securities Intermediary

          OPINION

          MARY M. JOHNSTON JUDGE.

         FACTUAL AND PROCEDURAL CONTEXT

         This is an action for declaratory judgment involving a life insurance policy. Plaintiff Sun Life Assurance Company of Canada ("Sun Life") sold a New York businessman a $ 10 million life insurance policy, which was held by the businessman in a trust. The trust sold the policy in the life insurance settlements market, where it was eventually transferred to Wilmington Trust, National Association, ("Wilmington Trust"), one of the defendants in this case. When the original policy holder died, Wilmington Trust notified Sun Life of the death and began the steps necessary to collect the claim. Sun Life then initiated this action.

         In its complaint, Sun Life alleges that the policy was a stranger oriented life insurance policy, known as a STOLI. It seeks a declaratory judgment that the policy was void ab initio as an illegal wager on human life. Sun Life asserts that the trust was an illegitimate cover for this wager. Therefore, the trust lacked both an insurable interest in the policy and the capacity to form a contract. Sun Life also brings four claims solely against the producer of the policy, defendant Gregg Gottlieb: fraudulent inducement, fraud, negligent misrepresentation, and breach of contract.

         The Defendants argue that the policy is valid. Defendants have alleged four counterclaims as a result of Sun Life's nonpayment: breach of contract, breach of the implied covenant of good faith and fair dealing, a violation of a Massachusetts law prohibiting unfair and deceptive trade practices, and promissory estoppel. Defendants also asserted six affirmative defenses in their answer: failure to state a claim, statute of limitations and incontestability, laches, waiver and estoppel, unclean hands, and lack of standing.

         Sun Life has moved to dismiss each of the counterclaims and to strike all of the affirmative defenses except for failure to state a claim.

         MOTION TO STRIKE AND MOTION TO DISMISS STANDARD

         Superior Court Civil Rule 12(f) permits the Court to strike "any insufficient defense" or "redundant, immaterial, impertinent or scandalous matter."[1] The movant must show "clearly and without doubt that the matter sought to be stricken has no bearing on the . . . litigation."[2] Because motions to strike are disfavored in Delaware, they are "granted sparingly" and only where "clearly warranted, with [any] doubt... resolved in favor of the pleadings."[3]

         In a Rule 12(b)(6) motion to dismiss, the Court must determine whether the claimant "may recover under any reasonably conceivable set of circumstances susceptible of proof."[4] The Court must accept as true all well-pleaded allegations.[5]Every reasonable factual inference will be drawn in the non-moving party's favor.[6]If the claimant may recover under that standard of review, the Court must deny the motion to dismiss.[7]

         ANALYSIS

         Motion to Dismiss Counterclaims

         Sun Life argues that the Court should dismiss Wilmington Trust's breach of contract and breach of the duty of good faith counterclaims because seeking a declaratory judgment as to whether a death benefit is valid and payable does not breach either of these obligations. It argues that the Court should dismiss the counterclaim for a violation of Massachusetts' law regarding deceptive and unfair trade practices because the "center of gravity" of the allegations in the complaint is not in Massachusetts. Finally, Sun Life argues that the Court should dismiss Wilmington Trust's promissory estoppel counterclaim because the policy was void ab initio.

         The resolution of both motions primarily hinges on the interpretation and applicability of recent decisions cited by the parties regarding the effect of a void life insurance policy on the viability of claims related to the contract.

         The foundational case in this area is PHL Variable Insurance Company v. Price Dawe 2006 Insurance Trust, ex rel. Christiana Bank & Trust Co.[8]Dawe is commonly cited for its holding that "a life insurance policy lacking an insurable interest is void against public policy and thus never comes into force . . . ."[9] More germane to the motion before the Court is Dawe's holding that "an insurer can challenge the enforceability of a life insurance ...


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