DO NOT PUBLISH
Sun Life Assurance Company of Canada ("Sun Life") brought this action against U.S. Bank National Association ("U.S. Bank"), which owned a $5 million life insurance policy, issued by Sun Life, on the life of Phyllis Malkin (the "Policy").
Larry Bryan operated Simba, a Florida insurance brokerage which targeted elderly clients for life insurance transactions. In 2006, Simba procured the Policy on behalf of Malkin, who at the time was in her mid-seventies. Another entity, Coventry Capital LLC ("Coventry"), acted as the Policy's funder. The Policy's designated beneficiary was a trust for which Malkin's husband was the beneficial owner (the "Malkin Trust"). The Policy took effect in 2006.
Simba structured its life insurance transactions so that the application listed a trust as the owner of the policy, but the trust in turn would be controlled by the funder of the policy. At Simba's direction, the client, like Malkin, would complete paperwork allowing Simba to obtain the client's medical records. Simba would send that paperwork to the funder, like Coventry, which would assess the client's life expectancy, and to insurance companies to determine for which policies the client might be eligible. Once Simba received the offers back from the insurers, Simba would package those offers together and send them to the funder. Based on the policies offered and its assessment of the client's life expectancy, the funder would decide whether to offer to fund a particular insurance policy. The funder would also decide how to fund the deal.
There is no evidence indicating that Malkin ever paid premiums on the Policy. Coventry's business records confirm that someone made the initial premium payments on the Policy, but the parties dispute whether it was Coventry that made these initial payments. In August 2008, the Malkin Trust sold the Policy to Coventry for $255,000. Shortly after that sale, U.S. Bank purchased the Policy from Coventry. From 2008 to 2014, U.S. Bank made premium payments on the Policy until Malkin's death in September 2014.
In 2014, when U.S. Bank made a claim for benefits under the Policy, Sun Life refused to pay the benefits and filed a civil action against U.S. Bank seeking declaratory and other relief. Sun Life alleged that the Policy constitutes a "stranger originated life insurance" ("STOLI") policy, which this Court has described as follows:
Sun Life sought an order declaring that, because the Policy was procured as a wagering contract and lacked an insurable interest from its inception, the Policy was void
At the close of discovery, Sun Life and U.S. Bank filed motions for summary judgment. The district court determined that: (1) Delaware law governed the resolution of the parties' claims; (2) under Delaware law, the Policy lacked an insurable interest at its inception and thus was void
In a post-judgment order, the district court clarified that: (1) U.S. Bank was only entitled to the return of premiums paid after U.S. Bank acquired the Policy from Coventry in 2008; (2) U.S. Bank was not entitled to an award of prejudgment interest on those premium payments; and (3) Sun Life was not entitled to a set-off for costs associated with originating and maintaining the Policy. Both U.S. Bank and Sun Life appealed.
After review of the record and the parties' briefs, and with the benefit of oral argument, we affirm in part, reverse in part, and remand for further proceedings. As to all issues except the award of prejudgment interest, we discern no reversible error in the district court's thorough and well-reasoned orders and thus affirm.
With respect to the issue of prejudgment interest, however, we reverse the judgment of the district court. Under Delaware law, "prejudgment interest is awarded as a matter of right" and "is to be computed from the date payment is due."
The "general rule" in Delaware "is that interest starts on the date when payment should have been made."
Here, U.S. Bank seeks the refund of premium payments that it never should have made because the Policy was void from its inception. Under these circumstances, prejudgment interest accrues from the date of payment rather than the date on which U.S. Bank demanded the refund. Thus, we reverse the district court's determination that U.S. Bank was not entitled to prejudgment interest and remand for calculation of the amount of prejudgment interest due to U.S. Bank and for further proceedings consistent with this opinion.