The opinion of the court was delivered by: Judge John J. Tharp, Jr.
MEMORANDUM OPINION AND ORDER
Stranger-owned life insurance, or STOLI, entails the maintenance of a life insurance policy by an investor who has no insurable interest in the life of the insured. Although the arrangement is unremarkable some cases, such as when an insured sells a policy on the open market as a means of liquefying the asset, other times it violates state common or- increasingly-statutory law. The term "STOLI" (or "SOLI" or "IOLI") is more often applied in the latter case, for instance when a policy is originally taken out by a third party without an insurable interest, or when the insured procures the policy on his or her own life and immediately transfers it to an investor. These scenarios do not always run afoul of state laws, e.g., Kramer v. Phoenix Life Ins. Co., 940 N.E. 2d 535 (N.Y. 2010), but they often do, and here the parties agree that the policy at issue was procured unlawfully. The principle underlying the law's aversion to STOLI is the longstanding public policy against wagering contracts. See, e.g., Grigsby v. Russell, 222 U.S. 149, 154 (1911) ("A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end."); Guardian Mut. Life Ins. Co. v. Hogan, 80 Ill. 35 (1875).
In this case, Plaintiff Penn Mutual Life Insurance Company alleges that it was defrauded by an unlawful STOLI scheme that resulted in the issuance of policy to an insurance trust, the beneficiary of which had no insurable interest in the life of Natalie Rosenblatt-Spitzer, the insured. Defendant Greatbanc Trust Company (the "Trustee") is trustee of the Natalie Rosenblatt-Spitzer Insurance Trust ("NRSI Trust"). Although it is still the nominal owner and beneficiary of the policy, the Trustee transferred the beneficial interest to the GIII Accumulation Trust, an institutional investor, almost concurrently with the issuance of the policy and establishment of multiple trusts that facilitated the transfer. The Trustee now concedes that the Rosenblatt-Spitzer policy was procured unlawfully, but it disclaims knowledge of or participation in the scheme. Instead, the Trustee*fn1 points the finger at Ms. Spitzer (who is no longer a defendant) and the insurance agents who sold the policy and did the underwriting.
Before the Court are a number of motions addressed to the consequences of the Trustee's relatively recent admission that the policy was indeed an illegal STOLI arrangement. The Trustee amended its answer and now concedes that Penn Mutual is entitled to a judicial declaration that policy is void. Specifically, the Trustee admits:
x The Spitzer Policy "is 'void or voidable,'" and Penn Mutual is entitled to "a judicial declaration that the Rosenblatt-Spitzer Policy is void ab initio." Amended Answer ¶ 1 (Dec. 5, 2011).
x The application for insurance contained at least one misrepresentation. Id. ¶ 39.
x The Underwriting Report contained misrepresentations. Id.¶ 40
x Material misrepresentations were made to Penn Mutual "concerning the source of funds for the premium payments on the Rosenblatt-Spitzer Policy." Id. ¶ 50
x "Penn Mutual is . . . entitled to a judicial declaration that, pursuant to applicable law, the Rosenblatt-Spitzer Policy is void ab initio, as it was issued by Penn Mutual in reliance upon material misrepresentations." Id.¶ 55
x "[T]he Rosenblatt-Spitzer Policy lacked a valid insurable interest at inception."
x "Under applicable law, Penn Mutual is entitled to a judicial declaration that the Rosenblatt-Spitzer Policy lacked an insurable interest at inception and is therefore void ab initio." Id.¶ 60.
Based primarily upon the Trust's amended answer,*fn2 Penn Mutual moved for summary judgment on Counts I and II of its Complaint, which seek a declaratory judgment that the policy is void ab initio because it was procured through material misrepresentations and in the absence of a valid insurable interest. In addition to these declarations, Penn Mutual asks the Court to order that it may retain the policy premiums it has collected to date. Toward that end, Penn Mutual also moves for summary judgment on the Trustee's counterclaims: Count I, in which the Trustee requests rescission of policy premiums paid to Penn Mutual, and Count II, in which the Trustee seeks to recoup the premiums on a theory of unjust enrichment.. Penn Mutual filed its motion on December 19, 2011.
The Trustee responded to the summary-judgment motion on January 30, 2012. Consistent with its amended answer, the Trustee concedes that Penn Mutual is entitled to a judicial declaration that the policy is void ab initio. However, the Trustee argues that summary judgment on the issue of the premiums cannot be granted because the remedy available when a contact is declared void ...