Jackson National Life Insurance Company v. Sterling Crum

USCA11 Case: 20-11280 Date Filed: 02/04/2022 Page: 1 of 20
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-11280
____________________
JACKSON NATIONAL LIFE INSURANCE COMPANY,
Plaintiff-Counter Defendant,
Appellee,
versus
STERLING CRUM,
Defendant-Counter Claimant,
Appellant.
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:17-cv-03857-WMR
____________________
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2 Opinion of the Court 20-11280
Before BRANCH, GRANT, and JULIE CARNES, Circuit Judges.
JULIE CARNES, Circuit Judge:
This case presents an issue of first impression regarding what
constitutes an illegal wagering contract under Georgia insurance
law. Plaintiff Jackson National Life Insurance Company issued a
$500,000 life insurance policy to Kelly Couch after the latter falsely
represented that he was not HIV positive. At the time, during the
1990s, HIV-positive individuals had a greatly diminished life expec-
tancy, which led to high demand for HIV-positive insureds willing
to engage in viatical settlements. 1 Indeed, it seems clear that
Couch obtained the policy for the sole purpose of selling it to a
third-party buyer and pocketing the purchase price.
Had Couch entered into a purchase agreement with a buyer
at the time he applied for the policy, the policy clearly would have
been void as an illegal wagering contract. He did not do that, how-
ever. Instead, at some undetermined point before or after procure-
ment of the policy, Couch began working with an intermediary—
a brokerage agency specializing in viatical settlements—to find a
buyer for his policy. Within eight months of the issuance of the
policy, the agency found a willing purchaser in defendant Sterling
1 A viatical settlement is an arrangement whereby a person, usually with a
terminal illness, sells a life insurance policy to a third party for less than its
mature value in order to obtain funds that the insured can use while alive.
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Crum. The premiums were paid through a premium reserve fund
set up by the broker until after the two-year contestability period
for the policy expired in 2001. 2 At that point, Defendant began di-
rectly paying the policy premiums and he continued on for eight
more years, finally letting the policy lapse in 2009.
As it turned out, Couch had died in 2005, at a time when
Defendant was still making payments on the policy. Eleven years
later, in 2016, Defendant became aware that Couch had died. He
then made a claim for the death benefit under Couch’s policy. De-
clining payment of any death benefit to Defendant, Plaintiff filed
this declaratory judgment action seeking a declaration that, under
Georgia law, the policy was void ab initio as an illegal human life
wagering contract and further that Defendant’s claim was barred
by laches, given the eleven-year delay in making the claim.
The district court conducted a bench trial and found that
Couch took out the policy on his own life with the intent to sell the
policy in the near future to one without an insurable interest. Ac-
cordingly, the court concluded that the insurance policy was void
and unenforceable as an illegal human life wagering contract under
Georgia law. 3 Defendant appeals, arguing that Couch’s unilateral
2 Under Georgia law, a life insurance company has two years to uncover any
fraudulent representations made by the insured. After that point, the com-
pany can no longer invalidate the policy based on the insured’s false represen-
tations.
3 The parties agree that Georgia law governs.
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4 Opinion of the Court 20-11280
intent to sell the policy is insufficient to declare the policy void ab
initio. Rather, Defendant contends, Georgia law also requires the
knowing and direct involvement of an identified third-party bene-
ficiary at the time of the initial procurement of the policy before
one can characterize the policy as an illegal human life wagering
contract.
Thus, the question before this Court is whether a life insur-
ance policy is void ab initio if it is procured by an individual on his
own life for the sole purpose of selling the policy to a third party
without an insurable interest in the insured, but without the com-
plicity of the ultimate purchaser at the time of procurement. Geor-
gia caselaw does not definitively answer this question. Accord-
ingly, certification to the Georgia Supreme Court is warranted pur-
suant to O.C.G.A. § 15-2-9(a).
I. BACKGROUND
A. Factual Background
In August 1998, Kelly Couch applied for a term life insurance
policy with a $500,000 death benefit from Plaintiff. It is undisputed
that Couch made several material misrepresentations in his appli-
cation for the policy: (1) he used an incorrect Social Security num-
ber, (2) he failed to disclose that he had filed for bankruptcy twice
in the past seven years, and (3) he represented that he was a healthy
32-year old man, when in fact he was HIV-positive. That Couch
would seek such a large life insurance policy, absent any depend-
ents who relied on his income, seems odd. Even odder is the fact
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that Couch, who had a troubled financial history involving two
bankruptcy filings in seven years, would expend much needed cash
on a life insurance policy for which there was no identified benefi-
ciary. 4
The answer to the “why” motivating Couch was the AIDS
crisis, which, having begun in the 1980s, gave rise to a flourishing
viatical settlement industry selling life insurance policies held by
HIV-positive individuals. At first, most of these policies were
clearly legitimate, as they typically involved an HIV-positive in-
sured individual selling for a lump sum to a third party a policy he
had acquired without fraudulent representations at a time when he
was healthy. The third party could purchase for a fraction of its
value a life insurance policy on a person whose life expectancy was
quite short; the insured, dying of what was then a terminal and
quick-acting disease, would then gain some needed cash in his final
months. Eventually, however, the demand by viatical investors for
HIV-positive insureds outstripped the supply of policies purchased
non-fraudulently when an insured was healthy. Nevertheless, the
ability to purchase for a fraction of its value a life insurance policy
on a person likely to soon die remained too tempting a proposition
to lie untapped by potential investors. Thus, some HIV-positive
individuals began working with insurance brokers to market life
insurance policies that the former had fraudulently procured after
having received an HIV diagnosis. One scheme to effect this plan
4 Couch listed his estate as his beneficiary.
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was “clean sheeting,” which involved the use of an imposter’s clean
blood sample on behalf of an HIV-positive insurance applicant and
which thereby enabled the applicant to fraudulently obtain a life
insurance policy that could then be sold to a third party for profit.
Couch had received two HIV-positive blood tests in the
weeks surrounding his application for life insurance in 1998. 5 At
that time, his life expectancy was 24-30 months, meaning that
Plaintiff obviously would not have approved Couch’s application
for a $500,000 life insurance policy had it known about his HIV-
positive status. Not surprisingly, Couch omitted any information
about his HIV diagnosis on his life insurance application and, pre-
sumably by some fraudulent means, he provided a blood sample
from an individual without HIV to Plaintiff during his application
process.
Unaware of Couch’s HIV-positive status or his bankruptcy
filings, Plaintiff approved Couch’s application. After processing
Couch’s application fee and an initial premium payment, both of
which Couch paid using a check from his own bank account, Plain-
tiff issued the policy at issue in this litigation in January 1999. The
policy listed “Kelly Couch” as the insured, and it named Couch’s
estate as the beneficiary. As required by Georgia law, the policy
contained an incontestability clause stating:
5 Moreover, prior to purchasing Couch’s policy, defendant Crum was pro-
vided with a form from his broker indicating that Couch had been diagnosed
with HIV as early as 1996.
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20-11280 Opinion of the Court 7
During but not after the contestable period, [Plaintiff]
can contest the validity of this policy or deny a claim
for any misrepresentation or nondisclosure of a ma-
terial fact in the application. The contestable period
starts when the policy goes into force and ends when
the policy has been in force during the insured’s life-
time for 2 years from the policy date.
There is no documentary evidence establishing exactly
when Couch began working with Associates Trust, which was a
viatical insurance broker that procured and sold insurance policies
on the lives of HIV-positive insureds. That is, whether or not
Couch and the broker’s interactions began before Couch at-
tempted to procure the policy is unknown. We do know that
within a few months after issuance of the policy to Couch in Janu-
ary 1999, Associates Trust was working with Couch to sell the pol-
icy. Specifically, by August 1999, Associates Trust was attempting
to market the policy to the defendant in this case, Sterling Crump.
At that time, defendant Crump, an experienced investor in the vi-
atical settlement industry, was involved in a dispute with Associ-
ates Trust over a viatical policy he had purchased in 1998 that had
turned out to be invalid. Instead of refunding Defendant’s money,
Associates Trust offered to transfer the Couch policy to Defendant.
Before deciding whether to agree to this transfer, Defendant
received a one-page summary from Associates Trust, which indi-
cated that Couch had tested positive for HIV in 1996, that he had
been issued the policy in question in January 1999, and that a recent
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8 Opinion of the Court 20-11280
doctor’s review confirmed a life expectancy of only 24-30 months.
Defendant accepted the agency’s offer to transfer the Couch policy
to him and a Beneficiary/Ownership Change Form was submitted
to Plaintiff in September 1999. In that Form, Couch requested that
Plaintiff change the primary beneficiary of the policy from his es-
tate to his “Friend” Sterling Crum, a characterization that was
clearly untrue, as Couch had never met or spoken to Defendant.
Indeed, as noted above, Defendant did not become aware of
Couch’s death until eleven years after the latter’s demise.
Plaintiff approved the change-of-beneficiary request on Sep-
tember 22, 1999. Thereafter, Associates Trust arranged for pre-
mium payments to be made through a “premium reserve ac-
count,” which made it appear the payments were still coming di-
rectly from Couch. 6 This arrangement continued until the insur-
ance company’s two-year contestability period ended in January
2001, after which time Defendant began making all premium pay-
ments. Defendant continued making these premium payments for
the next eight years, through 2009. Plaintiff never contested the
policy while it was in force.
Couch died on June 10, 2005. At that time, all policy premium pay-
ments had been made and Defendant was the named beneficiary.
Because he was unaware of Couch’s death, however, Defendant
made no claim on the policy. Instead, Defendant continued mak-
ing premium payments on the policy for nearly four years after
6 The annual premium was $250 per year.
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Couch’s death, until January 2009. Defendant then stopped mak-
ing premium payments and let the policy lapse.
In late 2016, Defendant learned that Couch had died eleven
years earlier, at a time before the policy lapsed. Defendant submit-
ted a claim to Plaintiff for the death benefit under the policy in Jan-
uary 2017. Plaintiff refused to pay Defendant’s claim.
B. Procedural History
After denying Defendant’s claim, Plaintiff filed this action
seeking a declaratory judgment that the policy was void ab initio
and unenforceable as an illegal human life wagering contract and
for lack of an insurable interest. Defendant responded with a coun-
terclaim seeking a declaration that the policy is valid and enforcea-
ble and that he is entitled to the $500,000 death benefit, plus inter-
est, in accordance with Georgia law and the terms of the policy.
Following discovery, both parties moved for summary judgment.
The district court denied both motions and the case proceeded to
a bench trial.
After the trial, the district court issued written findings of
fact and conclusions of law. As relevant here, the court found that
Couch had procured the policy on his own and that Defendant had
not caused Couch to apply and pay for the policy nor was Defend-
ant otherwise involved at the policy’s inception. Nevertheless, the
court held that the policy was an illegal wagering contract because
Couch procured the policy with the intent to sell it. In support of
its conclusion that at the time he took out the policy, Couch was
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looking to offload the policy and obtain immediate cash, the court
noted that: (1) Couch was an HIV-positive self-employed house
cleaner making $85,000 annually, who had filed for bankruptcy
twice during the preceding seven years, (2) he misrepresented his
financial status and medical history during the application process,
(3) he was unmarried and had no dependents when he applied for
the policy, and (4) he quickly (within eight months) sold the policy
after its inception. Based on this evidence, but again despite the
absence of evidence indicating third-party involvement at the in-
ception of the policy, the district court held that the policy was void
ab initio and unenforceable as an illegal wagering contract because
of Couch’s unilateral intent to sell it for profit. Having found the
policy void, the district court declined to address Plaintiff’s laches
argument.
II. STANDARD OF REVIEW
On appeal from a judgment in a bench trial, we review the
district court’s conclusions of law de novo. U.S. Commodity Fu-
tures Trading Comm’n v. S. Trust Metals, Inc., 894 F.3d 1313, 1322
(11th Cir. 2018). We also review de novo the district court’s inter-
pretation of Georgia law and its application of the law to the facts.
See id. The district court’s findings of fact, on the other hand, are
evaluated under the clear-error standard. Id. “We will not find
clear error unless our review of the record leaves us with the defi-
nite and firm conviction that a mistake has been committed.” Id.
at 1322 (quotation marks omitted).
III. DISCUSSION
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A. Parties’ Contentions
Georgia caselaw provides that a life insurance policy
deemed to constitute an illegal wagering contract is void ab initio.
On appeal, defendant Crump argues that in holding that third-party
involvement is not necessary to show an illegal wagering contract,
the district court improperly interpreted Georgia insurance law.
Specifically, Defendant argues, because Georgia law provided
Couch an unlimited insurable interest in his own life, no life insur-
ance that is “lawfully taken out” at its outset can ever constitute an
illegal wagering contract. See O.C.G.A. § 33-24-3(b). And, Defend-
ant continues, Couch’s policy was lawfully taken out at its incep-
tion because no third party intending to wager on Couch’s life was
involved in procuring that policy. Further, Georgia law permits an
individual to subsequently sell a policy lawfully obtained to some-
one who, like Defendant, does not have an insurable interest in the
insured’s life. Thus, Defendant concludes, Couch’s unilateral in-
tent at the time of the policy’s issuance to later sell that policy for
profit to someone having no insurable interest is insufficient to
deem the policy an illegal wagering contract void at issuance.
Stated another way, absent an agreement at the time of issuance of
a life insurance policy by an identified person to later purchase the
policy, the policy cannot be characterized as an illegal wagering
contract.
Plaintiff responds that Georgia case law establishes that a
policy is an illegal human life wager when an insured takes out that
policy on his own life with the intent to enter into a wagering
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contract, regardless of whether a wagering third party was directly
involved in procuring the policy. Plaintiff argues that Georgia law
does not allow an insured to take out a life insurance policy on his
or her own life when the insured’s sole intent is to sell that policy
to a third party who is gambling on the insured’s quick demise.
Plaintiff emphasizes that Georgia courts have long held that the va-
lidity of a policy intended to benefit a person with no insurable in-
terest requires the insured to have acted for himself, at his own ex-
pense, and in good faith to promote the interest of that beneficiary.
Plaintiff contends that, when interpreted properly, Georgia law
precludes enforcement of a policy procured by the insured with an
intent to sell it for profit to a third party who does not have an in-
surable interest. According to Plaintiff, that the insured has manip-
ulated the sequence of events to assure that the identity of that
third party will not be known at the time the policy is procured
should not render valid a policy that would have been invalid had
the purchaser been earlier identified.
B. Georgia Caselaw Impacting the Question Whether
Couch’s Life Insurance Policy is Void Ab Initio as an
Illegal Wagering Contract
The question here is whether an illegal human life wagering
contract exists when a life insurance policy obtained by an individ-
ual on his own life is procured with the intent to sell the policy to
an as-yet unidentified third party and when the policy is in fact later
sold to such a third party—even if no third party was involved at
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the time the policy was procured. The district court determined
that Clements v. Terrell, 145 S.E. 78 (Ga. 1928) controlled the res-
olution of this question. Specifically, the court relied on Clements’
statement in dictum that an insured has the ability to name any
beneficiary he chooses for a life insurance policy only so long as the
insured has no intent to enter into a wagering contract. Clements,
145 S.E. at 79. Given this statement, the district court concluded
that because the evidence demonstrated Couch’s intent to enter
into a wagering contract at the time he procured the policy, it did
not matter that the eventual third-party purchaser had not been in-
volved in the actual procurement of the policy. Couch’s intent ren-
dered the policy an unlawful wagering contract, and thus void ab
initio.
The dictum in Clements notwithstanding,7 there is no Geor-
gia case authority that definitively addresses the present question.
And much of the Georgia caselaw that pertains to the general sub-
ject matter surrounding this issue is many decades old. Neverthe-
less, an examination of that caselaw reveals a few foundational
principles.
7 The case on whose dictum the district court relied—Clements—did not fo-
cus on the question whether the life insurance policy was a wagering contract.
Instead, the question arising in Clements was twofold: whether a beneficiary
who was named and described as the insured’s wife could collect on the policy
when it turned out that she and the decedent were never legally married and
whether the estate, as opposed to the insurance company, could make this
challenge. Clements, 145 S.E. at 80–83.
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First, a person lacking an “insurable interest” 8 in the insured
cannot unilaterally take out a life insurance policy on the insured,
naming himself as a beneficiary, without the insured’s knowledge
or consent. See Wood v. New York Life Ins. Co., 336 S.E.2d 806,
808–09 (1985). As Wood gently put it, a beneficiary who has no
interest in the insured’s life might be tempted to “hasten by im-
proper means the time when he will receive the benefits of the pol-
icy.” See id. at 809. Indeed, Georgia has codified the public policy
interest in forbidding such contracts, with its insurance statute
providing: “Any personal insurance contract procured or caused
to be procured upon another individual is void unless the benefits
under the contract are payable to the individual insured or such
individual’s personal representative or to a person having, at the
time when the contract was made, an insurable interest in the indi-
vidual insured.” O.C.G.A. § 33-24-3(i).
That statutory prohibition is not triggered here because all
agree that Couch procured the policy on his own life without any
assistance or prodding from Defendant. Further, the district court
found insufficient proof that a third party, such as Associates Trust,
was involved in Couch’s decision to obtain the policy. Yet, while a
8 The Georgia insurance statute defines an “insurable interest” as “an interest
based upon a reasonable expectation of pecuniary advantage through the con-
tinued life, health, or bodily safety of another person and consequent loss by
reason of such person’s death or disability or a substantial interest engendered
by love and affection in the case of individuals closely related by blood or by
law.” O.C.G.A. § 33-24-3(a). For example, a business partner, spouse, or child
would likely be deemed to have an insurable interest in the insured.
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stranger cannot take out a life insurance policy on the insured, the
insured is not so limited and, as a general matter, has the right to
name any beneficiary he chooses for a policy that the insured has
himself procured. Specifically, Georgia law makes clear that “[a]n
individual has an unlimited insurable interest in his or her own life
. . . and may lawfully take out a policy of insurance on his or her
own life . . . and have the policy made payable to whomsoever such
individual pleases, regardless of whether the beneficiary designated
has an insurable interest.” O.C.G.A. § 33-24-3(b) (emphasis added).
This statute codifies long-standing Georgia case law. See Union
Fraternal League v. Walton, 34 S.E. 317 (Ga. 1899) (explaining that
a valid contract of insurance cannot lawfully be taken on the life of
another by one who has no insurable interest therein because it
contravenes public policy, but that one having an insurable interest
in his own life may lawfully procure insurance thereon for the ben-
efit of any other person whose interest he desires to promote).
But Georgia caselaw has also established an exception to the
general rule allowing the insured to name whomever he wants as
a beneficiary. That exception prohibits an individual from taking
out a policy on his or her own life as part of a wagering contract.
“The true rule . . . is that one may insure his life, and make the
amount of the policy payable to whom he pleases, provided the
contract is not made at the expense and for the benefit of the person
designated as the beneficiary, as a cover for a mere wagering con-
tract.” Walton, 34 S.E. 317 at 320. In fact, Georgia statutory law
deems wagering contracts unenforceable as contrary to public
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policy. O.C.G.A. § 13-8-2(a)(4). 9 Such policies are therefore void
ab initio, as if the contract never existed. Wilson v. Progressive Life
Ins. Co., 7 S.E.2d 44, 44–45 (Ga. Ct. App. 1940).
Thus, despite an individual having an unlimited insurable in-
terest in his own life pursuant to O.C.G.A. § 33-24-3(b), a policy
procured by the putative insured on his own life for the benefit of
one with no insurable interest can be assessed to determine
whether the policy should be deemed void as a “wagering policy”
or because it was assigned “by way of cover for a wager policy.”
See Walton, 34 S.E. at 321; Rylander v. Allen, 125 Ga. 206, 53 S.E.
1032, 1034 (Ga. 1906); O.C.G.A. § 33-24-3(k).
No Georgia case provides guidance on the question whether
an illegal wagering contract exists when a terminally-ill insured has
purchased a life insurance policy with the expectation that he will
soon sell that policy to a speculator, but has purposely manipulated
the timing of that sale to dodge any characterization of the transac-
tion as being illegal. Specifically, here an insured diagnosed with a
terminal illness procured a life insurance policy solely for the pur-
pose of selling the policy for a profit—but he did so without, at least
as far as the evidence shows, the immediate involvement of a third
party. Within months of that procurement, and through the
9 Section 13-8-2(a) provides that “[a] contract that is against the policy of the
law cannot be enforced.” O.C.G.A. § 13-8-2(a). The statute provides a non-
exclusive list of examples of such contracts, and it includes “[w]agering con-
tracts.” Id. at § 13-8-2(a)(4).
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auspices of a brokerage agency that matched sellers of life insur-
ance policies with purchasers, the insured succeeded in selling the
policy to a buyer. The policy was then assigned to the latter who
was named the beneficiary and who then paid future premiums.
Because Georgia caselaw concerning illegal life wagering contracts
does not address the legal standard governing such facts, we find it
necessary to certify this question to the Georgia Supreme Court, as
set out below.
IV. Questions to be Certified to the Georgia Supreme Court
Georgia law permits federal courts to certify questions of
law to the Georgia Supreme Court when “there are no clear con-
trolling precedents,” as to a question of law that is “determinative
of the case”; the Georgia Supreme Court is authorized to answer
such questions by written opinion. O.C.G.A. § 15-2-9(a). “Under
our precedent, ‘we should certify questions to the state supreme
court when we have substantial doubt regarding the status of state
law.’” Whiteside v. GEICO Indem. Co., 977 F.3d 1014, 1018 (11th
Cir. 2020), quoting Peoples Gas Sys. v. Posen Constr., Inc., 931 F.3d
1337, 1340 (11th Cir. 2019) (quotation marks omitted)). “Certifying
questions is a useful tool ‘to avoid making unnecessary Erie
‘guesses’ and to offer the state court the opportunity to interpret or
change existing law.’” Id., quoting CSX Transp., Inc. v. City of Gar-
den City, 325 F.3d 1236, 1239 (11th Cir. 2003).
We assume the following facts in this case:
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(1) An insured, diagnosed with a terminal illness that
he failed to disclose, took out a policy on his own life
for the purpose of selling the policy for profit to an
individual whom the insured had not yet identified;
(2) At an undetermined date, but at least within a few
months of purchasing the policy, the insured con-
tacted a viatical brokerage firm to market the policy;
(3) The viatical firm marketed the policy, which was
purchased during the two-year contestability pe-
riod—and, specifically here, within eight months
from the date of its issuance—by a buyer whom one
could infer was on reasonable notice that the insured
had likely procured the policy for the purpose of sell-
ing it to a person with no insurable interest in the in-
sured. 10
As to the controlling legal standard, we seek guidance on the
question whether a third party with no insurable interest must be
involved in the procurement of the policy before it can be deemed
an unlawful wagering contract. Given the above nucleus of facts,
our questions are these.
1. When an insured has purchased a life insurance policy
with the intent to sell the policy to a third party with no insurable
10 Here, Defendant was aware that Couch had obtained a $500,000 policy after
purportedly being diagnosed as HIV-positive and that he attempted to market
his policy to a purchaser within a few months of its issuance.
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interest, must either the subsequent purchaser or an intermediary11
be complicit in the procurement of the policy before the latter can
be deemed to be an illegal wagering contract and thus void ab ini-
tio?
2. If the answer to the above question is neither an ab-
solute “Yes” or “No,” but instead is a response that a life insurance
policy can sometimes be deemed to constitute an unlawful wager-
ing contract even without the complicity of the described third
party, then we respectively seek further guidance as to the circum-
stances that determine when the policy is void ab initio and when
it is not.
In asking this question, “we do not intend to restrict the is-
sues considered by the state court or to limit the state court’s dis-
cretion in choosing how to frame or to answer these issues in the
light of the facts of this case.’” Whiteside, 977 F.3d at 1022 (internal
quotations omitted). “We ask broadly for the state court’s help in
getting the state law right in this case.” Id. (internal quotations
omitted).
11 The Georgia Supreme Court’s answer concerning an intermediary has rel-
evance to both the question whether the insurance policy was void ab initio
and to Plaintiff’s laches defense, which defense the district court did not reach
given its decision that the policy was void. Plaintiff’s laches defense is based
on Defendant’s eleven-year delay in making his claim, which delay allegedly
prejudiced Plaintiff’s ability to show the precise timing and scope of any in-
volvement by Associates Trust in Couch’s procurement of the life insurance
policy.
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To assist in consideration of the certified question, the entire
record and the briefs of the parties shall be transmitted to the Geor-
gia Supreme Court. Pruco Life Ins. Co. v. Wells Fargo Bank, N.A.,
780 F.3d 1327, 1336–37 (11th Cir. 2015).
QUESTION CERTIFIED.