Is a Dispute Over a Death Benefit On a Possible STOLI Policy a Reminder of the Law of Unintended Consequences?

United States District Court for the Western District of Pennsylvania

The complaint in this case was filed on November 15, 2022.  The plaintiff, U.S. Bank, subsequently filed, on February 16, 2023, a notice of voluntary dismissal, stating in part that the dismissal was “in accordance with the settlement agreement among the parties to this action.”

U.S. Bank National Association, Plaintiff v. Nassau Life Insurance Company and Sue L. Betres, Defendants

U.S. Bank filed this action, “solely in its capacity as securities intermediary” (Complaint, p. 1), in order “to compel payment of the $6,000,000 death benefit payable under [an] insurance policy insuring the life of John D. Betres…issued by Nassau’s predecessor-in-interest, PHL Variable Insurance Company” (Complaint at Para. 1). The complaint avers that the insurer “refuses the pay the [p]roceeds to [s]ecurities [i]ntermediary because Ms. Betres claims that the [p]olicy was first purportedly purchased with marital funds by a trust and is a marital asset to which she may have a claim for equitable distribution” (Complaint at Para. 2).

The Complaint avers that the policy on John Betres’ life was issued in 2007, with the original owner being a life insurance trust (Complaint at Paras. 11, 13, and 14). About two years later, the complaint avers, the policy’s death benefit was sold by the trust to something called Master Trust, thence sold by it to Oceanus LLC, which then transferred its interest to yet another entity (Complaint at Paras. 18 through 21).

The complaint further avers that in a divorce action commenced by Ms. Betres in 2020, she sought special relief in 2021, claiming that the policy was purchased with marital assets, and was therefore presumptively a marital asset as to which she was entitled to equitable distribution (Complaint at Para. 30). Mr. Betres died in 2022 (Complaint at Para. 35).

According to the docket the matter was subsequently settled between the parties. The terms of the settlement were not disclosed on the docket.

You can choose your favorite aphorism, but to me here is a reminder that one can never fully account for the law of unintended consequences; and particularly so with unconventional or markedly complex transactions.