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PHL Variable Insurance Co. v. Robert Gelb Irrevocable Trust

October 27, 2010


The opinion of the court was delivered by: Charles P. Kocoras, District Judge


This case comes before the court on the motions of Defendant Robert Gelb Irrevocable Trust ("the Trust") to dismiss for failure to state a claim upon which relief can be granted under Fed. R. Civ. P. 8(a)(2) and to strike the request to retain a portion of the insurance premiums at issue. For the reasons set forth below, the motion to dismiss is denied and the motion to strike is granted.


According to the allegations of the complaint, which we must accept as true for purposes of this motion,*fn1 Plaintiff PHL Variable Insurance Company ("PHL") is an insurer based in Hartford, Connecticut. PHL is involved in the business of underwriting and issuing life insurance policies and has authorization to engage in the insurance business in Illinois.

In February 2008, the Trust submitted an application to PHL asking for a policy insuring the life of Robert Gelb ("Gelb"). The application required Gelb and the Trust to provide PHL with several pieces of important information about Gelb's net worth and income. In its written submission to PHL, the Trust represented that Gelb had a net worth of $11,000,000 and an annual earned income of $350,000. The Trust also stated that it sought the life insurance policy in order to achieve "Income Replacement/Estate Liquidity." The Trust, through its trustee, executed the application on February 8, 2008. On the basis of the representations made by the Trust in the application, PHL issued a life insurance policy to the Trust with an effective date of February 13, 2008. The policy provided for a death benefit totaling $7,000,000.

PHL alleges that the statements made by the Trust in its application regarding Gelb's financial information and the purpose of obtaining the insurance were materially incorrect. With respect to the Trust's assertions regarding Gelb's net worth and annual income, PHL alleges that it conducted an independent investigation into these issues and did not discover any basis to reasonably conclude that the Trust's statements were correct. Additionally, PHL asserts that the Trust did not accurately state its reason for obtaining the policy at issue. The company alleges that the Trust procured the policy in furtherance of a stranger originated life insurance ("SOLI") scheme. Specifically, PHL asserts that the Trust purchased a policy insuring Gelb's life for the sole purpose of reselling the policy to a third party in the secondary market. PHL maintains that they would not have issued the policy had the Trust provided accurate responses regarding Gelb's net worth, annual income, and his reason for procuring life insurance. The company also alleges that the Trust did not have an insurable interest in Gelb's life at the time it purchased the policy on his behalf.

On February 11, 2010, PHL filed suit against the Trust seeking declaratory judgment that the policy at issue is null and void under two theories. In Count I, PHL asserts that it is entitled to rescission of the policy because of the material misrepresentations made by the Trust in applying for a life insurance policy for Gelb. In Count II, PHL alleges that it is entitled to rescission of the policy because the Trust procured a policy insuring Gelb's life but lacked an insurable interest in the life of the insured. In its prayer for relief, PHL requests an order declaring the policy to be null and void as well as an order allowing the company to retain some portion of the premiums paid by the Trust in order to offset its damages. The Trust now moves to dismiss all claims against it for failure to state a claim and to strike PHL's request to retain some or all of the premiums paid on the policy.


Under Fed. R. Civ. P. 8(a)(2), a pleading must contain a "short and plain statement showing that the pleader is entitled to relief." To survive a motion to dismiss under Rule 8, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). A claim has facial plausibility when the plaintiff pleads factual content that permits the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Id. "[D]etermining whether a complaint states a plausible claim for relief will be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Cooney v. Rossiter, 583 F.3d 967, 971 (7th Cir. 2009) (quoting Iqbal, 129 S.Ct. at 1950) (internal quotation marks and editorial marks omitted). In ruling on a motion to dismiss, a court must draw all reasonable inferences in favor of the plaintiff, construe allegations of a complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Bontkowski v. First Nat'l Bank of Cicero, 998 F.2d 459, 461 (7th Cir. 1993). When examining the facts alleged and matching them with the legal claims, the court must give the plaintiff "the benefit of imagination, so long as the hypotheses are consistent with the complaint." Bissessur v. Ind. Univ. Bd. of Trustees, 581 F.3d 599, 602-03 (7th Cir. 2009).


I. Motion To Dismiss

The Trust argues that both counts should be dismissed because PHL has not plead sufficient factual material to state a plausible claim for relief. We will address the merits of the Trust's motion with respect to each count.

A. Count I - Rescission For Material Misrepresentation

As an initial matter, the parties dispute whether Rule 8 standards apply to the Trust's motion with respect to Count I. The Trust contends that we should employ the more restrictive pleading standards for pleading fraud under Fed. R. Civ. P. 9(b) because PHL alleged that the Trust made fraudulent statements. PHL responds that Rule 9(b) does not supply the relevant criteria for the pleadings at issue because the company merely alleges that the Trust made material misrepresentations without fraudulent intent. Federal courts construe Rule 9(b) narrowly and apply its standards to allegations of fraud or mistake and nothing else. Kennedy v. Vanrock Assocs., 348 F.3d 584, 593 (7th Cir. 2003). PHL affirms that Count I seeks rescission of the policy based on alleged misrepresentations that materially affected the risk associated with furnishing the Trust with life insurance. See 215 ILCS ยง 5/154 (permitting ...

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