NO. 12-20784 ________________ IN THE UNITED STATES COURT OF APPEALS FOR THE FOURTEENTH CIRCUIT ________________ FRANK KIPP, as trustee for THE HICKS IRREVOCABLE LIFE INSURANCE TRUST, and PRESIDENTIAL HOLDINGS, LLC, Appellants, — against — GUARANTY LIFE INSURANCE COMPANY, Appellee. ________________ Appeal from the United States District Court for the District of New Tejas Case No. 28-cv-9563 ________________ BRIEF FOR APPELLANTS ________________ TEAM 90 Attorneys for Appellants QUESTIONS PRESENTED I. Whether the intent to sell a life insurance policy in the future deprives an insured of an insurable interest in his own life or that of his family member so as to allow an insurer to challenge a policy as void ab initio after the expiration of the two-year incontestability period? II. May an insurer retain the premiums paid on a rescinded insurance policy without proving that the current owner of the policy participated in fraud during the application process? i TABLE OF CONTENTS Page QUESTIONS PRESENTED ........................................................................................... i TABLE OF AUTHORITIES .......................................................................................... v OPINIONS BELOW ...................................................................................................... 1 STATEMENT OF JURISDICTION .............................................................................. 1 CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED ....................... 1 STATEMENT OF THE CASE ....................................................................................... 2 SUMMARY OF THE ARGUMENT .............................................................................. 5 ARGUMENT AND AUTHORITIES ............................................................................. 9 I. THE DISTRICT COURT ERRED IN GRANTING SUMMARY JUDGMENT FOR GUARANTY LIFE BASED ON THE LACK OF AN INSURABLE INTEREST ................. 10 A. The Trust Was Entitled to Summary Judgment Because the Incontestability Provisions Bar Guaranty Life’s Counterclaim Based on Alleged Misrepresentations by Others in the Application Process ................................................................................... 13 1. The policy is not void ab initio because an insurable interest existed at the time the Policy was issued ........................................... 16 a. New Tejas law only requires an insurable interest when the policy goes into effect, which Mr. Hicks and Sydney Hicks had ........................................................................................ 16 b. New Tejas law expressly permits the assignment of a policy to someone without an insurable interest ............................ 18 c. The intent to sell a policy in the future is legally irrelevant to whether an insurable interest existed when the Policy took effect ........................................................................................ 19 i. New Tejas law does not have an intent-not-to-sell requirement ............................................................................. 19 ii (1) The Insurance Code does not state or imply that the intent to sell a policy in the future is relevant to whether one has an insurable interest ........................ 20 (2) The 2009 Amendments to section 1409, which incorporate a prohibition on intending to sell a policy in the future, do not apply to a policy issued in 2007 ............................................................................... 20 (A) The Legislature specifically provided that the 2009 Amendments ―are not to be applied retroactively‖ ............................................................. 21 (B) Retroactive application of the 2009 Amendments would violate the Due Process Clause .......... 21 ii. Guaranty Life’s summary judgment evidence does not establish an agreement to sell the Policy before it became effective ....................................................................... 23 2. Guaranty Life’s counterclaim is untimely under the incontestability clause because it was not filed within two years of the February 16, 2007 policy date ......................................... 24 a. The relation-back principles in Federal Rule of Civil Procedure 15(c) do not apply because the incontestability clause is a statute of repose that substantively extinguishes claims not brought within the statutory contestability period .............................................................................................. 24 b. An incontestability clause is not subject to equitable tolling ........ 27 B. Alternatively, Genuine Issues of Material Fact Preclude Summary Judgment for Guaranty Life ................................................... 27 II. THE DISTRICT COURT PROPERLY ORDERED GUARANTY LIFE TO RETURN PREMIUMS PAID ON A RESCINDED LIFE INSURANCE POLICY .............. 29 A. An Insurer That Rescinds a Life Insurance Policy Is Not Entitled to Retain Unearned Premiums Because the Insurer Has Not Been Exposed to Any Risk of Loss ............................................. 30 iii B. The Procured-by-Fraud Exception Allowing for the Retention of Rescinded Life Insurance Premiums Has No Application to a Third Party That Did Not Participate in the Underlying Fraud ............ 32 1. Nothing in the record establishes that the Trust or Presidential Holdings participated in the alleged fraud in procuring the Policy ............................................................................. 33 2. The record contains no evidence that Guaranty Life suffered any special damages so that returning the premiums would not restore the parties to their former positions ................................ 34 3. Alternatively, genuine issues of material fact preclude summary judgment on Guaranty Life’s claim that it be permitted to retain the premiums ...................................................... 34 C. Equitable Principles Independently Favor the Return of the Premiums .................................................................................................. 35 CONCLUSION............................................................................................................. 36 APPENDICES: APPENDIX ―A‖: New Tejas § 1407.............................................................. A-1 APPENDIX ―B‖: New Tejas § 1408.............................................................. B-1 APPENDIX ―C‖: New Tejas § 1409.............................................................. C-1 APPENDIX ―D‖: New Tejas § 1409 (Amended August 28, 2009) ............... D-1 APPENDIX ―E‖: Federal Rule of Civil Procedure 15(c) .............................. E-1 iv TABLE OF AUTHORITIES Page(s) CASES: Am. Gen. Life Ins. Co. v. Ellman Sav. Irrevocable Trust, No. 08-5364, 2010 WL 5253611 (D.N.J. Dec. 17, 2010) ....................................................................................... 10 Am. Gen. Life Ins. Co. v. Goldstein, 741 F. Supp. 2d 604 (D. Del. 2010) ................................................................... 11 Am. Nat’l Prop. & Cas. Co. v. Lindgren, 736 F. Supp 275 (N.D. Ga. 1990) ...................................................................... 31 Amoco Prod. Co. v. Newton Sheep Co., 85 F.3d 1464 (10th Cir. 1996) ........................................................................... 27 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ....................................................................................... 9, 29 Ashkenazi v. AXA Equitable Life Ins. Co., 937 N.Y.S.2d 215 (App. Div. 2012) ................................................................... 11 Ashkenazi v. Lincoln Nat’l Life Ins. Co., No. 08 CV 3235(ENV), 2009 WL 1346394 (E.D.N.Y. May 13, 2009) ................................................................................... 11 AXA Equitable Life Ins. Co. v. Infinity Fin. Grp., LLC, 608 F. Supp. 2d 1349 (S.D. Fla. 2009) .............................................................. 11 Berkshire Settlements, Inc. v. Ashkenazi, No. 09-CV-0006 (FB)(JO), 2011 WL 5974633 (E.D.N.Y. Nov. 29, 2011) ................................................................................... 10 Bernstein v. Principal Life Ins. Co., No. 09 Civ. 4925 (CM)(HBP), 2010 WL 4922093 (S.D.N.Y. Dec. 2, 2010) ....................................................... 10 Blue Cross & Blue Shield of Ga., Inc. v. Sheehan, 450 S.E.2d 228 (Ga. Ct. App. 1994) .................................................................. 27 v Bogacki v. Great-W. Life Assur. Co., 234 N.W. 865 (Mich. 1931)................................................................................ 16 Bouie v. City of Columbia, 378 U.S. 347 (1964) ........................................................................................... 22 Carton v. B&B Equities Grp., 827 F. Supp. 2d 1235 (D. Nev. 2011) ................................................................ 11 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ....................................................................................... 9, 10 City of Chicago v. Morales, 527 U.S. 41 (1999) ....................................................................................... 21, 22 Connally v. Gen. Constr. Co., 269 U.S. 385 (1926) ........................................................................................... 23 Equitable Life Assur. Soc’y of U.S. v. Bell, 27 F.3d 1274 (7th Cir. 1994) ............................................................................. 14 Foremost Guar. Corp. v. Meritor Sav. Bank, 910 F.2d 118 (4th Cir. 1990) ............................................................................. 32 Gentile v. State Bar, 501 U.S. 1030 (1991) ......................................................................................... 22 Gonzalez v. Eagle Ins. Co., 948 So. 2d 1 (Fla. Dist. Ct. App. 2006) ............................................................. 35 Grayned v. City of Rockford, 408 U.S. 104 (1972) ........................................................................................... 22 Grigsby v. Russell, 222 U.S. 149 (1911) ..................................................................................... 18, 19 Halberstam v. U.S. Life Ins. Co. in N.Y.C., 945 N.Y.S.2d 513 (App. Div. 2012) ................................................................... 11 Hartford Life & Annuity Ins. Co. v. Doris Barnes Family 2008 Irrevocable Trust, No. CV 10-7560 PSG (DTBx), 2012 WL 688817 (C.D. Cal. Feb. 3, 2012) .................................................. 10, 30 vi Hilliard v. Jacobs, 874 N.E.2d 1060 (Ind. Ct. App. 2007) .............................................................. 17 In re Estate of D’Agosto, 139 P.3d 1125 (Wash. Ct. App. 2006) ............................................................... 18 In re Tex. Ass’n of Sch. Bds., Inc., 169 S.W.3d 653 (Tex. 2005) .............................................................................. 31 John Hancock Mut. Life Ins. Co. v. Greer, 71 Cal. Rptr. 2d 48 (Ct. App. 1998) ............................................................ 14, 15 Johnson v. Riddle, 443 F.3d 723 (10th Cir. 2006) ........................................................................... 28 Johnson & Johnson Med. v. Sanchez, 924 S.W.2d 925 (Tex. 1996) .............................................................................. 28 Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827 (1990) ........................................................................................... 21 Ky. Cent. Life Ins. Co. v. McNabb, 825 F. Supp. 269 (D. Kan. 1993)....................................................................... 17 Kirby v. Dean, 199 N.W. 174 (Minn. 1924) ............................................................................... 31 Kramer v. Phoenix Life Ins. Co., 940 N.E.2d 535 (N.Y. 2010) .............................................................................. 11 Landgraf v. USI Film Prods., 511 U.S. 244 (1994) ........................................................................................... 21 Liberte Capital Grp. v. Capwill, 854 F. Supp. 2d 478 (N.D. Ohio 2012) .............................................................. 10 Lincoln Life & Annuity Co. of N.Y. v. Berck, No. 37-2008-00083905, 2011 WL 1878855 (Cal. Ct. App. May 17, 2011)............................................................................. 11 Lincoln Nat’l Life Ins. Co. v. Joseph Schlanger 2006 Ins. Trust, 28 A.3d 436 (Del. 2011) ..................................................................................... 11 vii Lincoln Nat’l Life Ins. Co. v. Schwarz, No. 09-03361 (FLW), 2010 WL 3283550 (D.N.J. Aug. 18, 2010) ....................................................................................... 17 Lincoln Nat’l Life Ins. Co. v. Snyder, 722 F. Supp. 2d 546 (D. Del. 2010) ............................................................. 32, 35 Lowe v. Rennert, 869 S.W.2d 199 (Mo. Ct. App. 1993) ................................................................. 18 Methodist Healthcare Sys. of San Antonio, Ltd., L.L.P. v. Rankin, 307 S.W.3d 283 (Tex. 2010) .............................................................................. 25 Minn. Mut. Life Ins. Co. v. Ricciardello, No. 3:96CV2387(AHN), 1997 WL 631027 (D. Conn. Sept. 17, 1997) .................................................................................. 26 New Eng. Mut. Life Ins. Co. v. Caruso, 535 N.E.2d 270 (N.Y. 1989) .............................................................................. 16 New Eng. Mut. Life Ins. Co. v. Doe, 710 N.E.2d 1060 (N.Y. 1999) ...................................................................... 14, 25 N.Y. Life Ins. Co. v. Waterman, 104 F.2d 990 (9th Cir. 1939) ............................................................................. 25 Nw. Mut. Life Ins. Co. v. Johnson, 254 U.S. 96 (1920) ............................................................................................. 14 Oglesby v. Penn Mut. Life Ins. Co., 889 F. Supp. 770 (D. Del. 1995) ........................................................................ 15 Ohio Nat’l Life Assur. Corp. v. Davis, No. 10 C 2386, 2011 WL 2680500 (N.D. Ill. July 6, 2011)....................................................................................... 11 P. Stolz Family P’ship L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004) ................................................................................ 25 Penn Mut. Life Ins. Co. v. GreatBanc Trust Co., No. 09-6129, 2012 WL 2074789 (N.D. Ill. June 8, 2012)...................................................................................... 11 viii Penn Mut. Life Ins. Co. v. Greatbanc Trust Co., No. 09-C-06129, 2012 WL 3437161 (N.D. Ill. Aug. 15, 2012) .............................................................................. 29, 30 Penn Mut. Life Ins. Co. v. Rodney Reed 2006 Ins. Trust, Civ. No. 09-CV-663, 2010 WL 1994675 (D. Del. May 18, 2010) ...................................................................................... 11 Penn Mut. Life Ins. Co. v. Wolk, 739 F. Supp. 2d 387 (S.D.N.Y. 2010) ................................................................ 11 Peterson v. Equitable Life Assur. Soc’y of the U.S., 57 F. Supp. 2d 692 (W.D. Wis. 1999) ................................................................ 25 PHL Variable Ins. Co. v. Abrams, No. 10cv521 BTM(NLS), 2012 WL 10686 (S.D. Cal. Jan. 3, 2012) ..................................................................................... 11 PHL Variable Ins. Co. v. Charter Oak Trust, No. HHDCV106012621S, 2012 WL 2044416 (Conn. Super. Ct. May 4, 2012) ........................................................................ 11 PHL Variable Ins. Co. v. Jolly, 800 F. Supp. 2d 1205 (N.D. Ga. 2011) .............................................................. 30 PHL Variable Ins. Co. v. Lucille E. Morello 2007 Irrevocable Trust, 645 F.3d 965 (8th Cir. 2011) ....................................................................... 11, 32 PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust, 28 A.3d 1059 (Del. 2011) ................................................................................... 11 PHL Variable Ins. Co. v. Robert Gelb Irrevocable Trust, No. 10 C 957, 2010 WL 4363377 (N.D. Ill Oct. 27, 2010) ...................................................................................... 11 PHL Variable Ins. Co. v. Sidney Nachowitz 2007 Irrevocable Trust, No. 09-1923, 2010 WL 3893623 (D. Minn. Sept. 30, 2010) .................................................................................. 11 ix Principal Life Ins. Co. v. DeRose, No. 1:08–CV–2294, 2011 WL 4738114 (M.D. Pa. Oct. 5, 2011) ...................................................................................... 12 Principal Life Ins. Co. v. Erno Altman Ins. Trust, No. 10-CV-1936 (DLI), 2011 WL 7498936 (E.D.N.Y. Sept. 20, 2011) .................................................................................. 10 Principal Life Ins. Co. v. Lawrence Rucker 2007 Ins. Trust, 774 F. Supp. 2d 674 (D. Del. 2011) ............................................................. 11, 34 Protective Life Ins. Co. v. Sullivan, 682 N.E.2d 624 (Mass. 1997) ............................................................................ 26 Principal Life Ins. Co. v. Wells Fargo Bank, N.A., No. CV 09-03143 DDP (RZx), 2011 WL 768058 (C.D. Cal. Jan. 18, 2011) ...................................................... 11 Pruco Life Ins. Co. v. Brasner, No. 10-80804-CIV, 2011 WL 134056 (S.D. Fla. Jan. 7, 2011) ..................................................................................... 11 Resolution Trust Corp. v. Olson, 768 F. Supp. 283 (D. Ariz. 1991) ...................................................................... 26 SEC v. Private Equity Mgmt. Grp., LLC, No. CV 09-2901 PSG (Ex.), 2010 WL 4794701 (C.D. Cal. Nov. 18, 2010) ............................................................................ 10, 11 Settlement Funding LLC, v. AXA Equitable Life Ins. Co., No. 06 CV 5743(HB), 2010 WL 3825735 (S.D.N.Y. Sept. 30, 2010) .................................................................................. 11 Stan Koch & Sons Trucking, Inc. v. Great W. Cas. Co., 517 F.3d 1032 (8th Cir. 2008) ........................................................................... 31 Sullivan v. Iantosca, 569 N.E.2d 822 (Mass. 1991) ............................................................................ 27 x TTSI Irrevocable Trust v. Reliastar Life Ins. Co., 60 So. 3d 1148 (Fla. Dist. Ct. App. 2011) ................................................... 32, 33 United States v. Diebold, Inc., 369 U.S. 654 (1962) ........................................................................................... 10 United States v. Heth, 7 U.S. (3 Cranch) 399 (1806)............................................................................. 21 Unity Life Ins. Co. v. Moses, 621 F. Supp. 13 (E.D. Pa. 1985)........................................................................ 13 CONSTITUTIONAL PROVISIONS: U.S. Const. amend. V ................................................................................................... 22 U.S. Const. amend. XIV ........................................................................................... 1, 22 STATUTES & RULES: Fed. R. Civ. P. 15(c) ..................................................................................................... 24 Fed. R. Civ. P. 56(c) ....................................................................................................... 9 N.Y. Ins. Law § 7815 (McKinney 2010) ...................................................................... 11 Rules Enabling Act, 28 U.S.C. § 2072 (2006) ..................................................................................... 26 28 U.S.C. § 1291 (2006) ................................................................................................. 1 28 U.S.C. § 1332 (2006) ................................................................................................. 1 xi LEGISLATIVE MATERIALS: H.B. 660, 2009 Sess. (N.H. 2010) ................................................................................ 11 S.B. 513, 2009–2010 Leg. (Wis. 2009) ......................................................................... 12 LEGAL PERIODICALS: Douglas R. Richmond, Investing with the Grim Reaper: Insurable Interest and Assignment in Life Insurance, 47 Tort Trial & Ins. Prac. L.J. 657 (2012) ........................................................ 13 OTHER SOURCES: 1 Couch on Insurance 3d (2010) .................................................................................. 31 2 Couch on Insurance 3d (2010) .................................................................................. 31 Letter from Jennifer Floyd, Clerk, Fourteenth Circuit Court of Appeals, to 2013 Judicial Panel No. 35 (Oct. 8, 2012) ............................................................................... 16 xii TO THE HONORABLE UNITED STATES COURT OF APPEALS FOR THE FOURTEENTH CIRCUIT: Appellants, Frank Kipp, as trustee of The Hicks Irrevocable Life Insurance Trust and Presidential Holdings, L.L.C.—the defendants in the United States District Court for the District of New Tejas—respectfully submit this brief-on-the merits in support of their request that this Court reverse-in-part and affirm-in-part the district court’s judgment. OPINIONS BELOW The opinion of the United States District Court for the District of New Tejas is unreported but appears in the record at pages 1–15. STATEMENT OF JURISDICTION The judgment of the United States District Court for the District of New Tejas was entered on December 14, 2011. R. at 15. This Court has appellate jurisdiction under 28 U.S.C. § 1291 (2006). The district court had subject-matter jurisdiction under 28 U.S.C. § 1332 (2006). CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED This case involves the Fourteenth Amendment’s Due Process Clause, which provides in pertinent part that no State shall ―deprive any person of life, liberty, or property, without due process of law.‖ U.S. Const. amend. XIV. This case also involves the interpretation of three New Tejas statutes, § 1407, § 1408 and § 1409(c). See Appendices ―A‖–‖C.‖ 1 STATEMENT OF THE CASE This case involves a life insurance policy purchased on the life of Don Juan W. Hicks (―Mr. Hicks‖). R. at 2, 7. When the owner sold the policy and submitted transfer documentation to Guaranty Life Insurance Company (―Guaranty Life‖), the insurance company threatened to rescind the policy and, more than two years after issuing the policy, filed a counterclaim to do precisely that based on alleged misrepresentations made by the original purchasers in the application process. R. at 9, 12. The Policy. On January 4, 2007, Sydney Hicks met with Reggie Hightower, a life insurance agent for Top Gun–Executive Insurance Agency, to discuss life insurance options for his elderly father, Mr. Hicks. R. at 10. Several days later, Mr. Hicks agreed to purchase a life insurance policy, and Sydney agreed to pay the premiums. R. at 10. The same day, Sydney Hicks e-mailed the executed application and statement of client intent form to Reggie Hightower. R. at 10. Mr. Hicks created the Hicks Irrevocable Life Insurance Trust (the ―Trust‖) on February 5, 2007, naming his son as the sole beneficiary and attorney Bryan Jones as the trustee. R. at 7. The following day, the trust submitted an application for a $20 million policy. R. at 10. After Mr. Hicks underwent a medical exam, the application was submitted to Guaranty Life’s underwriting department. R. at 7. Following an independent underwriting process, Guaranty Life offered Policy No. UT8675309 (the ―Policy‖) with a planned first year premium of $955,826, a policy issue date of February 16, 2007, and a face amount of $20,000,000. 2 R. at 7. Guaranty Life delivered this form to the Trust on March 5, 2007. R. at 8. That same day, Sydney Hicks forwarded Guaranty Life the first 3-month premium payment of $238,956.75. R. at 8. The Sale to Presidential Holdings. Two days later on March 7, 2007, Sydney Hicks sold his beneficial interest in the policy. The Beneficial Interest Transfer Agreement (―BITA‖) contained the following statement from Sydney Hicks: I hereby affirm and represent that (1) at no time prior to the issuance of the Policy to the Trust did Presidential solicit me, directly or indirectly, to obtain the Policy for the specified purpose of transferring the Beneficial Interest in the Trust to Presidential, and Presidential did not participate in any way with the decision to obtain the Policy or the procurement of the Policy by the Trust, (2) I did not become aware of Presidential through any sort of general advertisement or marketing, (3) prior to issuance of the Policy to the Trust, I did not communicate (directly or indirectly) with Presidential or its employees or agents, and the identity of the Purchaser and its activities was unknown to me, and (4) I did not receive any form of inducement or consideration from Presidential or its agents in connection with the issuance of the Policy to the Trust, nor was I provided any documents in connection with the sale of the Beneficial Interest to the Purchaser prior to issuance. R. at 8. In exchange, Presidential Holdings, L.L.C. (―Presidential Holdings‖) provided Sydney Hicks with a payment of $838,956.75, which is equivalent to the first three months’ premiums and three percent of the policy’s face value. R. at 9. That same day, Trustee Bryan Jones resigned and appointed Frank Kipp as the successor Trustee. R. at 9. The Designation of Owner and Designation of Beneficiary Form. Presidential Holdings sent Guaranty Life the necessary forms to transfer ownership of the policy on October 21, 2008. R. at 9. Rather than processing the request, Guaranty Life sent the Trust a letter requesting production of documentation 3 purporting to ―confirm the accuracy‖ of representations made to Guaranty Life during the underwriting process and threatening rescission of the Policy. R. at 9. The District Court Proceedings. On January 3, 2009, the Trust and Presidential Holdings initiated this lawsuit. R. at 13. The Trust sued Guaranty Life for breach of contract, conversion, breach of the covenant of good faith and fair dealing and fraud. R. at 13. Presidential Holdings sued Guaranty Life for fraud, intentional and negligent interference with contract and prospective economic advantage. R. at 13. Five months later on June 6, 2009, Guaranty Life filed a counterclaim seeking a declaration that the Policy is void for lack of an insurable interest. The insurance company also asked the court to allow it to retain the premiums paid under the Policy, which were deposited in the court registry. R. at 13. Guaranty Life’s position was based on actions taken during the application process by Sydney Hicks and Reggie Hightower, who asserted his Fifth Amendment right when questioned about the events. R. at 10 n.8. In the discovery process, Guaranty Life had learned that (1) Mr. Hicks did not have the net worth and income shown on the application, R. at 11; (2) two Guaranty Life underwriters questioned Mr. Hicks’ net worth and income before the policy was issued, R. at 11; and (3) Reggie Hightower had discussed the policy with a Presidential Holdings executive before the policy was issued, R. at 11. All parties moved for summary judgment. R. at 13, 14. The Trust and Presidential Holdings sought summary judgment on its claims for breach of 4 contract and monetary damages resulting from the loss of the Policy value in the secondary market. R. at 13. The same day, Guaranty Life also moved for summary judgment for rescission and to keep the premiums paid on the Policy to date. R. at 14. The district court granted Guaranty Life’s summary judgment motion on the rescission claim, but denied Guaranty Life’s request to keep the premiums paid to the policy to date. R. at 14. The district court denied the summary judgment motions filed by the Trust and Presidential Holdings. R. at 14. SUMMARY OF THE ARGUMENT I. The district court improperly granted summary judgment for Guaranty Life on the basis that the policy lacked an insurable interest. The issue does not turn on the fact that the Policy in this case may have been the product of misrepresentations involving the grantor’s financial position. The insurance company could have chosen to investigate the statements in the application before the Policy was issued or even during the two-year contestability period. But it did not. By waiting until after the statutory and contractual incontestability period expired, Guaranty Life may only assert that no insurable interest existed and the Policy is void ab initio. And that argument is unavailing here because, under New Tejas law, the insurable interest need only exist at the time the Policy was issued. An insurable interest existed here because the Trust obtained the Policy on Mr. Hicks’ behalf based on his own interest in his life and because the beneficiary was 5 his family member, Sydney Hicks. Either basis supports the statutory requirement of having an insurable interest. The district court improperly determined that an insurable interest was lacking because of an alleged pre-arranged deal to transfer ownership and the beneficial interest in the Policy to others without an insurable interest. Even if conclusive proof of these facts existed (which it did not), that conclusion does not support relief for Guaranty Life because the fact is legally irrelevant under current New Tejas law. While the New Tejas legislature amended section 1407 in 2009 to create an intent-not-to-transfer requirement in life and disability insurance contracts, those amendments specifically state that they do not apply retroactively. By judicially imposing the prospective amendments to a life insurance policy issued in 2007, the district court ignored the plain statutory language and violated the settled rights of the Trust and Presidential Holdings. Moreover, Guaranty Life is not entitled to rely on the provisions in Federal Rule of Civil Procedure 15(c) that allow a pleading amendment to relate back to the time the lawsuit was initially filed so as to make the counterclaim fall within the two-year contestability period. Section 1407 is not a procedural rule or a statute of limitations that would fit within the scope of Rule 15(c). Instead, section 1407 operates as a statute of repose that extinguishes the right to challenge a policy altogether after two years. When the New Tejas Legislature determined that two years was an appropriate time limit for an insurance company to investigate claims associated with the application and underwriting process, it created the substantive 6 right not to have to defend against that type of claim. Once the two years has passed and the right vested in the Trust and Presidential Holdings, the district court may not take that right away by allowing Guaranty Life to resurrect its untimely challenge to the policy. If anything, the record supports summary judgment for the Trust and Presidential Holdings because the facts that were part of the application and underwriting process have no bearing on the insurable interest question. But even if they do, at a minimum, the record raises a genuine issue of material fact that precludes summary judgment for Guaranty Life. The insurance company has not conclusively established that an agreement to transfer the policy existed when the Policy was issued. None of the communications are sufficient to meet Guaranty Life’s burden to conclusively establish its right to obtain summary judgment on its affirmative counterclaim. This Court should reverse the district court’s judgment by holding that the Policy was supported by an insurable interest when it was issued and, for that reason, was not void ab initio. II. The district court correctly denied Guaranty Life’s request to recover the money in the court registry. Guaranty Life cannot, as a matter of law, seek to rescind the Policy—or have it declared void ab initio—while seeking to retain the $4,779,135 in premiums paid on the Policy. Even if this Court determines that the 7 Policy is void ab initio (which it should not), the insurance company was not entitled to retain the premiums paid on a rescinded policy. The two remedies—rescission of the insurance contract and retention of the premiums—are fundamentally inconsistent. When a party chooses to rescind a contract, the normal course of action is to return the parties to the position each held before the parties entered into the contract. But Guaranty Life wants to have their cake and eat it too. They ask to treat the insurance policy as a nullity and then keep the money received for the non-existent coverage. In this circumstance, the insurer bears no risk and suffered no identifiable damages. Nothing justifies departing from the normal practice of returning the parties to their pre-contract position. The punishment of not returning the premiums is particularly inappropriate where, as here, the underlying fraud the insurer complains about was committed by others. Guaranty Life has not alleged that the current owner of the Policy or the beneficial interest in it—the Trust and Presidential Holdings—committed any of the acts forming the basis of their counterclaim. To allow the insurer to retain the premiums under these circumstances—particularly when Guaranty Life offered no evidence of specific damages it suffered—would provide a windfall and improperly punish those who legitimately purchased a policy on the open market. The balance of the equities necessarily favors returning the premiums to the Trust and Presidential Holdings. 8 In the event this Court finds that the insurance contract is void ab initio, then this Court should affirm the district court’s ruling that the premiums paid on the rescinded insurance policy must be returned to the Trust and Presidential Holdings. Alternatively, even if this Court determines that the issue cannot be resolved on summary judgment in favor of the Trust and Presidential Holdings, genuine issues of material fact would preclude summary judgment for Guaranty Life. The insurance company’s summary judgment evidence does not conclusively prove anything. At most, it raises fact questions, and the case should be remanded for further consideration of the issues. ARGUMENT AND AUTHORITIES The district court resolved this case by granting one of two competing summary judgment motions. R. at 13. A reviewing court considers the granting of a summary judgment motion de novo, applying the same standard as the district court. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Summary judgment is only appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates no genuine issue of material fact exists and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c). A genuine issue of material fact will exist if a fair-minded jury could return a verdict for the non-moving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Summary judgment is not proper if a genuine issue about a material fact exists. Id. at 248. The moving party has the burden of proof with regard to showing that no genuine issue of material fact exists and that she is 9 entitled to a judgment as a matter of law. Celotex, 477 U.S. at 323. The nonmoving party must identify a genuine issue of material fact to defeat a summary judgment motion. Id. at 324. A summary judgment motion should only be granted when the moving party’s right to relief is clear and free from doubt. Id. All fact inferences must be viewed in a light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). I. THE DISTRICT COURT ERRED IN GRANTING SUMMARY JUDGMENT GUARANTY LIFE BASED ON THE LACK OF AN INSURABLE INTEREST. FOR Guaranty Life brought a counterclaim in this lawsuit to avoid honoring the life insurance policy it had issued on the life of Mr. Hicks and with the Trust as beneficiary. The insurance company did so after receiving notice that the policy had been sold by the original owner. R. at 12. Guaranty Life alleges it was defrauded by an unlawful stranger-originated life insurance scheme that eventually resulted in the assignment of a policy to those without an insurable interest in the life of Mr. Hicks, the insured. R. at 12. Stranger-owned life insurance—commonly known by the acronym STOLI—has been an emerging area for litigation in the insurance industry. 1 STOLI generally The following cases have found that STOLI policies are permissible. See Liberte Capital Grp. v. Capwill, 854 F. Supp. 2d 478, 485 (N.D. Ohio 2012); Berkshire Settlements, Inc. v. Ashkenazi, No. 09-CV-0006 (FB)(JO), 2011 WL 5974633, at *6 (E.D.N.Y. Nov. 29, 2011); Principal Life Ins. Co. v. Erno Altman Ins. Trust, No. 10CV-1936 (DLI), 2011 WL 7498936, at *12 (E.D.N.Y. Sept. 20, 2011); Hartford Life & Annuity Ins. Co. v. Doris Barnes Family 2008 Irrevocable Trust, No. CV 10-7560 (DTBx), 2011 WL 759554, at *5 (C.D. Cal. Feb. 22, 2011); Am. Gen. Life Ins. Co. v. Ellman Sav. Irrevocable Trust, No. 08-5364, 2010 WL 5253611, at *7 (D.N.J. Dec. 17, 2010); Bernstein v. Principal Life Ins. Co., No. 09 Civ. 4925 (CM)(HBP), 2010 WL 4922093, at *4 (S.D.N.Y. Dec. 2, 2010); SEC v. Private Equity Mgmt. Grp., LLC, 1 10 describes the purchase of life insurance by an insured with the intent of assigning ownership of the policy along with its death benefits to investors without an insurable interest in the insured’s life. Some states have passed legislation to restrict this type of transaction. See, e.g., N.Y. Ins. Law § 7815 (McKinney 2010) (banning STOLI transactions); H.B. 660, 2009 Sess. (N.H. 2010) (banning the use of third-parties to apply for life insurance and increasing the contestability period to No. CV 09-2901 PSG (Ex.), 2010 WL 4794701, at *4 (C.D. Cal. Nov. 18, 2010); Kramer v. Phoenix Life Ins. Co., 940 N.E.2d 535, 546 (N.Y. 2010); Halberstam v. U.S. Life Ins. Co. in N.Y.C., 945 N.Y.S.2d 513, 517–18 (App. Div. 2012). The following cases have found that STOLI policies are impermissible. PHL Variable Ins. Co. v. Lucille E. Morello 2007 Irrevocable Trust, 645 F.3d 965, 970 (8th Cir. 2011); Penn Mut. Life Ins. Co. v. GreatBanc Trust Co., No. 09-6129, 2012 WL 2074789, at *5 (N.D. Ill. June 8, 2012); PHL Variable Ins. Co. v. Abrams, No. 10cv521 BTM(NLS), 2012 WL 10686, at *7 (S.D. Cal. Jan. 3, 2012); Ohio Nat’l Life Assur. Corp. v. Davis, No. 10 C 2386, 2011 WL 2680500, at *8 (N.D. Ill. July 6, 2011); Principal Life Ins. Co. v. Lawrence Rucker 2007 Ins. Trust, 774 F. Supp. 2d 674, 683 (D. Del. 2011); Principal Life Ins. Co. v. Wells Fargo Bank, N.A., No. CV 09-03143 DDP (RZx), 2011 WL 768058, at *4 (C.D. Cal. Jan. 18, 2011); Pruco Life Ins. Co. v. Brasner, No. 10-80804-CIV, 2011 WL 134056, at *8 (S.D. Fla. Jan. 7, 2011); Carton v. B&B Equities Grp., 827 F. Supp. 2d 1235, 1250–51 (D. Nev. 2011); PHL Variable Ins. Co. v. Robert Gelb Irrevocable Trust, No. 10 C 957, 2010 WL 4363377, at *4 (N.D. Ill Oct. 27, 2010); Settlement Funding LLC, v. AXA Equitable Life Ins. Co., No. 06 CV 5743(HB), 2010 WL 3825735, at *14 (S.D.N.Y. Sept. 30, 2010); Am. Gen. Life Ins. Co. v. Goldstein, 741 F. Supp. 2d 604, 617 (D. Del. 2010); PHL Variable Ins. Co. v. Sidney Nachowitz 2007 Irrevocable Trust, No. 09-1923, 2010 WL 3893623, at *4 (D. Minn. Sept. 30, 2010); Penn Mut. Life Ins. Co. v. Wolk, 739 F. Supp. 2d 387, 395 (S.D.N.Y. 2010); Penn Mut. Life Ins. Co. v. Rodney Reed 2006 Ins. Trust, Civ. No. 09-CV-663, 2010 WL 1994675, at *2 (D. Del. May 18, 2010); Ashkenazi v. Lincoln Nat’l Life Ins. Co., No. 08 CV 3235(ENV), 2009 WL 1346394, at *6 (E.D.N.Y. May 13, 2009); AXA Equitable Life Ins. Co. v. Infinity Fin. Grp., LLC, 608 F. Supp. 2d 1349, 1358 (S.D. Fla. 2009); PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust, 28 A.3d 1059, 1079 (Del. 2011); Lincoln Nat’l Life Ins. Co. v. Joseph Schlanger 2006 Ins. Trust, 28 A.3d 436, 441–42 (Del. 2011); Ashkenazi v. AXA Equitable Life Ins. Co., 937 N.Y.S.2d 215, 216 (App. Div. 2012); PHL Variable Ins. Co. v. Charter Oak Trust, No. HHDCV106012621S, 2012 WL 2044416, at *6 (Conn. Super. Ct. May 4, 2012); Lincoln Life & Annuity Co. of N.Y. v. Berck, No. 37-2008-00083905, 2011 WL 1878855, at *15 (Cal. Ct. App. May 17, 2011). 11 five years); S.B. 513, 2009–2010 Leg. (Wis. 2009) (increasing the contestability period to five years and instituting other controls on their sale). Some insurers have incorporated language into policies that prohibit the practice. See, e.g., Principal Life Ins. Co. v. DeRose, No. 1:08–CV–2294, 2011 WL 4738114, at *1 (M.D. Pa. Oct. 5, 2011) (upholding policy that expressly prohibited any form of STOLI transaction, ―including non-recourse premium financing . . . as these are almost always tied directly or indirectly to a sale to an investor group‖). But nothing about the assignment of the ownership of beneficial interest ran afoul of the law or the Policy. When this Policy was issued, the State of New Tejas did not prohibit STOLI transactions. And, while Guaranty Life asked about the intent to transfer the policy during the application process, the insurer chose not to prohibit the practice in the Policy language. R. at USCA 20, 22. Thus, apart from a claim for fraud in the application process—which under the Policy’s plain language could only be brought within two years of issuance—the insurance company cannot unilaterally rescind the insurance contract or otherwise deny coverage to an insured who chooses to exercise his legal right to sell the policy benefits to another. Ignoring what the Policy actually says and what New Tejas law permits, Guaranty Life seeks to impose a general prohibition against purchasing a life insurance policy with the future intent to sell it. Though the district court was charged with the responsibility of interpreting New Tejas law as written and the insurance contract as agreed by the parties, it instead chose to impose a prohibition not found in either. This was reversible error. 12 A. The Trust Was Entitled to Summary Judgment Because the Incontestability Provisions Bar Guaranty Life’s Counterclaim Based on Alleged Misrepresentations by Others in the Application Process. Under New Tejas law, a challenge to the validity of an insurance contract may not be filed more than two years after the date the policy issues. The applicable New Tejas statute provides as follows: All life insurance policies, delivered or issued for delivery in this state, shall contain in substance a provision stating that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue, and that, if a policy provides that the death benefit provided by the policy may be increased, or other policy provisions changed, upon the application of the policyholder and the production of evidence of insurability, the policy with respect to each such increase or change shall be incontestable after two years from the effective date of such increase or change, except in each case for nonpayment of premiums or violation of policy conditions relating to service in the armed forces. R. at 5. This statutory requirement is common and grew out of a concern for the imbalance that was historically recognized to exist between insurance companies and insureds. See Douglas R. Richmond, Investing with the Grim Reaper: Insurable Interest and Assignment in Life Insurance, 47 Tort Trial & Ins. Prac. L.J. 657, 678– 79 (2012). For example, litigation years after a policy was issued is not only expensive but, quite often, the contest is made after the named insured has died, robbing the beneficiaries of their most potent witness. Unity Life Ins. Co. v. Moses, 621 F. Supp. 13, 15–16 (E.D. Pa. 1985). This puts beneficiaries in the untenable position of having to battle powerful insurance carriers without favorable evidence 13 that might only be known by the deceased. Equitable Life Assur. Soc’y of U.S. v. Bell, 27 F.3d 1274, 1278–79 (7th Cir. 1994). As the New York Court of Appeals recognized, The incontestability concept was first introduced in the middle of the nineteenth century in life insurance policies issued by English life insurance companies to assuage concerns by the public that the companies were unjustly avoiding payment on claims. There was widespread belief, and accompanying insecurity on the part of the public, that insurance companies resisted liability stubbornly on the basis of some misstatement made by the insured at the time of applying for the policy, as to which they carefully refrained from comment until the insured had died and was unable to testify in his own behalf. The remedy was the advent of the incontestability clause, which is something akin to a contractual statute of repose. It limits the period of time that the carrier has to investigate the veracity of the policyholder’s statements, after which it may not contest the policy except on certain stated grounds, usually nonpayment of premiums. New Eng. Mut. Life Ins. Co. v. Doe, 710 N.E.2d 1060, 1061–62 (N.Y. 1999). Justice Holmes extolled the virtues of incontestability when he wrote: ―[t]he object of the clause is plain and laudable—to create an absolute assurance of the benefit, as free as may be from any dispute of fact except the fact of death, as soon as it reasonably can be done.‖ Nw. Mut. Life Ins. Co. v. Johnson, 254 U.S. 96, 102 (1920). The California Supreme Court echoed his sentiment almost eighty years later when it reasoned: Incontestability clauses are given broad effect and are strictly enforced . . . even in the face of gross fraud in procuring the policy. The view is that even though dishonest people are given advantages under incontestability clauses which any right-minded man is loath to see them get, still the sense of security given to the great majority of honest policyholders by the presence of the clause in their policies makes it worth the cost. The time allowed to the insurance company after issuance of the policy to investigate the case and uncover any fraud is deemed a fair check against trickery or deception by the insured. 14 John Hancock Mut. Life Ins. Co. v. Greer, 71 Cal. Rptr. 2d 48, 50–51 (Ct. App. 1998) (internal citations and quotations omitted); see also Oglesby v. Penn Mut. Life Ins. Co., 889 F. Supp. 770, 774 (D. Del. 1995) (recognizing incontestability statutes arose ―as a reaction to the early greed and ruthlessness of the insurers, . . . who were apt to deny benefits years after the policy had issued based on technicalities or preexisting conditions.‖). In compliance with New Tejas’ statutory requirement that all life insurance policies contain an incontestability clause, Guaranty Life included the following provision in the Policy the Trust purchased: ―This policy shall be incontestable after it has been in force during the Insured’s lifetime for two years from the Issue Date, except for nonpayment of premiums or violation of policy conditions relating to service in the armed forces.‖ R. at USCA 20. This incontestability period provides a finite window for Guaranty Life to investigate and determine whether the policy it issued—based on information provided in the application by Mr. Hicks, Sydney Hicks, the Trust and Reggie Hightower—is the policy Guaranty Life intended to issue. The window is a two-year period—a time the legislature determined was sufficient for any investigation to take place. Guaranty Life issued the policy on February 16, 2007. R. at 8. Therefore, the New Tejas statute and the incontestability clause in the policy statutorily bar any challenges to the validity of the Policy initiated after February 16, 2009—when the two-year contestability period expired. Guaranty Life first filed its counterclaim on June 6, 2009—three months after the two-year contestability period had expired. 15 Thus, the proffered evidence established as a matter of law that the Trust—not Guaranty Life—was entitled to summary judgment. 1. The policy is not void ab initio because an insurable interest existed at the time the Policy was issued. Guaranty Life argues that it may challenge the policy despite the incontestability clause as the policy was void ab initio for lack of an insurable interest.2 R. at 12. In its view, if a policy is proven to be void ab initio, then it never existed, and, the incontestability clause also never existed. In that scenario, the insurer would be free to rescind the policy. Unfortunately, the district court agreed with this reasoning, holding that, ―as a matter of law, the Policy failed for lack of insurable interest at its inception due to the pre-arranged deal of the investors to procure ownership and beneficial interest in the Policy.‖ R. at 14. But neither New Tejas law nor the record supports the district court’s conclusions. a. New Tejas law only requires an insurable interest when the policy goes into effect, which Mr. Hicks and Sydney Hicks had. Section 1409 of the New Tejas statutes mandates that the owner of a life insurance policy must have ―an insurable interest . . . at the time the contract of life Some courts have held that an incontestability clause forecloses all challenges to a policy, including one based on the lack of an insurable interest. See, e.g., New Eng. Mut. Life Ins. Co. v. Caruso, 535 N.E.2d 270, 272–75 (N.Y. 1989) (concluding that incontestability clause bars insurers from asserting lack of insurable interest as a defense to payment); Bogacki v. Great-W. Life Assur. Co., 234 N.W. 865, 867 (Mich. 1931) (same). In this case, however, the parties do not dispute that Guaranty Life, ―after the contestability period, may contest the validity of the subject policy.‖ Letter from Jennifer Floyd, Clerk, Fourteenth Circuit Court of Appeals, to 2013 Judicial Panel No. 35 (Oct. 8, 2012). 2 16 or disability insurance becomes effective, but [that insurable interest] need not exist at the time the loss occurs.‖ R. at 5 (emphasis added). An insurable interest is defined as ―an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law.‖ R. at 5. Two individuals were connected to the Policy Guaranty Life issued—Mr. Hicks, as applicant for the Policy and Sydney Hicks, as beneficiary of the Trust and ultimate beneficiary of the Policy. Both had an insurable interest within the meaning of New Tejas law. Mr. Hicks had ―an unlimited insurable interest in his . . . own life.‖ R. at 5. Likewise, Sydney Hicks is ―closely related by blood or law‖ to his father. R. at 5. This conclusion is consistent with how most other states interpret insurable interest statutes. See, e.g., Lincoln Nat’l Life Ins. Co. v. Schwarz, No. 09-03361 (FLW), 2010 WL 3283550, at *6 (D.N.J. Aug. 18, 2010) (holding that an ―insurable interest exists at the time a life insurance policy is issued, as long as it is obtained for a pecuniary advantage‖); Ky. Cent. Life Ins. Co. v. McNabb, 825 F. Supp. 269, 272 (D. Kan. 1993) (―A person who insures the life of anther must have an insurable interest therein, or the policy is deemed void ab initio.‖); Hilliard v. Jacobs, 874 N.E.2d 1060, 1064–65 (Ind. Ct. App. 2007) (―As a general rule, the authorities affirm that a policy of life insurance or the appointment or designation of a 17 beneficiary, which is valid in its inception, continues and remains valid, although the insurable interest or relationship of the beneficiary has ceased or terminated.‖); Lowe v. Rennert, 869 S.W.2d 199, 202 (Mo. Ct. App. 1993) (finding that ―wagering contract‖ are unenforceable because they are not founded upon the relations of the parties to each other); In re Estate of D’Agosto, 139 P.3d 1125, 1128 (Wash. Ct. App. 2006) (stating that an insurable interest exists as long as the parties are either related closely by blood or a pecuniary interest exists). b. New Tejas law expressly permits the assignment of a policy to someone without an insurable interest. New Tejas law permits assignment of a life insurance policy. The operative version of section 1409 specifically states an insurable interest ―need not exist at the time the loss occurs.‖ R. at 5. Subsection (b) further provides that an individual may ―have the policy made payable to whomsoever he or she pleases, regardless of whether the beneficiary designated has an insurable interest.‖ R. at 5. This necessarily allows precisely what occurred in this case—a person with an insurable interest buying a policy and then transferring it to someone without an insurable interest. Of course, Guaranty Life or any other insurer could prohibit transfer to someone without an insurable interest as a contractual matter. But unless a policy expressly provides otherwise (which this one did not), the policy is freely assignable at any time to any person. The fact that New Tejas law permits assignment of a life insurance policy is consistent with what the United States Supreme Court said more than a century ago. As the court explained in Grigsby v. Russell, 18 life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. . . . [I]t is desirable to give to life policies the ordinary characteristics of property. . . . To deny the right to sell except to persons [with an insurable interest] is to diminish appreciably the value of the contract in the owner’s hands. 222 U.S. 149, 156 (1911). c. The intent to sell a policy in the future is legally irrelevant to whether an insurable interest existed when the Policy took effect. Guaranty Life and the district court make much of the allegation that a prearranged deal to transfer the Policy’s ownership and beneficial interest existed. In their view, the intent to sell the policy extinguishes any insurable interest that the grantor or beneficial interest owner may have. But these alleged misrepresentations have nothing to do with an insurable interest under current New Tejas law. i. New Tejas law does not have an intent-not-tosell requirement. The prohibition the district court imposed in this case is not found in the operative version of section 1409. Guaranty Life may not avoid its obligations under the Policy merely because Sydney Hicks or the Trust intended to exercise the right to transfer them at some point in the future. The intent to transfer the Policy is legally irrelevant. 19 (1) The Insurance Code does not state or imply that the intent to sell a policy in the future is relevant to whether one has an insurable interest. The intent to sell a policy in the future is not mentioned in the version of Section 1409 in force when the Policy was issued. Thus, the prohibition imposed by the district court has no statutory basis. (2) The 2009 Amendments to section 1409, which incorporate a prohibition on intending to sell a policy in the future, do not apply to a policy issued in 2007. The New Tejas legislature has recently incorporated the prohibitions Guaranty Life sought and the district court imposed. In amendments to Section 1409, the following sections were added: (d) Trusts and special purpose entities that are used to apply for and initiate the issuance of policies of insurance for investors, where one or more beneficiaries of those trusts or special purpose entities do not have an insurable interest in the life of the insured, violate the insurable interest laws and the prohibition against wagering on life. (e) Any device, scheme, or artifice designed to give the appearance of an insurable interest where there is no legitimate insurable interest violates the insurable interest laws. (f) This section shall not be interpreted to define all instances in which an insurable interest exists. There is no doubt that Guaranty Life and the district court would be correct if these provisions applied to this lawsuit. But they do not. The amendment was passed after the policy had been issued and had no applicability to the present dispute because statutes that retroactively alter the legal consequences of completed acts are greatly disfavored. ―The principle that the 20 legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place has timeless and universal human appeal. . . . It has long been a solid foundation of American law.‖ Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 855 (1990) (Scalia, J., concurring). For this reason, courts have historically applied a strong presumption that statutes altering the consequences of completed acts should apply only to events that occur after their enactment. United States v. Heth, 7 U.S. (3 Cranch) 399, 413 (1806) (―Words in a statute ought not to have a retrospective operation, unless they are so clear, strong, and imperative, that no other meaning can be annexed to them.‖). (A) The Legislature specifically provided that the 2009 Amendments “are not to be applied retroactively.” The New Tejas Legislature directed that the ―2009 Amendments are not to be applied retroactively.‖ R. at 6. This is a clear and direct command that the provisions do not apply to this dispute. Because the New Tejas legislature clearly articulated its intention not to apply the 2009 Amendments retroactively, this Court should defer to that legislative decision. Landgraf v. USI Film Prods., 511 U.S. 244, 280 (1994). (B) Retroactive application of the 2009 Amendments would violate the Due Process Clause. The district court’s judgment violates due process. The Due Process Clause may render a law unconstitutionally void for vagueness for one of two independent reasons. See City of Chicago v. Morales, 527 U.S. 41, 56 (1999). First, a court may 21 invalidate a law on vagueness grounds when it does not ―give the person of ordinary intelligence a reasonable opportunity to know what is prohibited.‖ Grayned v. City of Rockford, 408 U.S. 104, 108 (1972). Second, the Constitution will invalidate a law if it authorizes or encourages arbitrary or discriminatory enforcement, Morales, 527 U.S. at 56, or the threat thereof, Gentile v. State Bar, 501 U.S. 1030, 1051 (1991). The prohibition on vague laws applies to all regulations. U.S. Const. amend. V, XIV. The district court’s interpretation of section 1409 violates due process in both ways. In the district court’s view, section 1409 imposes a retroactive obligation, not merely in the absence of clear legislative intent to do so, but, in fact, in the face of an express statutory direction to the contrary. No person of ordinary intelligence would or could have understood section 1409 to prohibit the intent to transfer an insurance policy to someone without an insurable interest until the district court created that requirement. Nor is there anything the Trust or Presidential Holdings could have done to comply with the law until the regulations were promulgated four years later. That is exactly the kind of ―unforeseeable and retroactive judicial expansion of narrow and precise statutory language‖ that the Due Process Clause forbids. Bouie v. City of Columbia, 378 U.S. 347, 352 (1964). Adding an intent-not-to-sell element to section 1409 under these circumstances would necessarily violate the due process requirement that a person of ordinary intelligence should be able to discern from reading a statute whether his or her conduct complies with the statute’s requirements without being forced to guess at 22 the statute’s meaning. Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926). An ordinary person reading the New Tejas statute would not know a life insurance policy could not be procured or effected with the intent to transfer it. To the contrary, the clear and unambiguous language would cause the reader to believe the opposite—that it is permissible to obtain a policy with the intent to transfer it. ii. Guaranty Life’s summary judgment evidence does not establish an agreement to sell the Policy before it became effective. Even if the Court considered Guaranty Life’s misrepresentation claims, the insurance company cannot prove these claims against the Trust or Presidential Holdings. Nothing in the record establishes an agreement to sell the Policy when it was issued. Reggie Hightower exchanged an e-mail with a Presidential Holdings executive, stating ―Talked to Sidney Hicks, and we should be able to flip his old man’s policy for 3% of the face value of the policy. Confirmed $20 million for the face value.‖ R. at 10. This is not an agreement. Bryan Jones and Sydney Hicks—the owner and beneficial interest owner at the time—were not even copied on the e-mail. R. at 10. The e-mail specifically provides that ―we should be able to flip‖—language indicating that an agreement has not been reached. Moreover, this communication has no indication that anyone at Presidential Holdings knew or participated in any misrepresentations at all. This does not establish that an agreement existed. 23 2. Guaranty Life’s counterclaim is untimely under the incontestability clause because it was not filed within two years of the February 16, 2007 policy date. Guaranty Life first asserted its counterclaim to rescind the policy two years and three months after the insurer issued the policy. R. at 12. The counterclaim was filed in an ongoing lawsuit, initiated by the Trust and Presidential. R. at 13. Because Guaranty Life did not contest the policy within two years of the policy being issued, it missed an absolute, finite and substantive deadline that may not be altered by procedural rules or equitable principles. a. The relation-back principles in Federal Rule of Civil Procedure 15(c) do not apply because the incontestability clause is a statute of repose that substantively extinguishes claims not brought within the statutory contestability period. The late-filed challenge to the policy does not somehow become timely because of the nature of Guaranty Life’s allegations or the fact the lawsuit was on file within the two-year contestability period. Guaranty Life’s counterclaim to rescind the policy cannot ―relate back‖ to the filing of the lawsuit. The relation back principle is found in Federal Rule of Civil Procedure 15(c), which allows an amended pleading to relate back to the time—for a statute of limitations—when the original complaint was filed. Fed. R. Civ. P. 15(c). But the two-year incontestability period under section 1407, however, is not a statute of limitations. It is a substantive restriction on Guaranty Life’s ability to challenge a policy that operates as a statute of repose based on the legislative conclusion that a point in time arrives beyond which an insurer should not be able to deny coverage. 24 Each court considering the question has regarded an incontestability clause as a substantive right. The distinction between a statute of limitations and a statute of repose is significant. A statute of limitations is a procedural device operating as a defense to limit the remedy available from an existing cause of action; a statute of repose creates a substantive right to be free from liability after a legislatively determined period. See P. Stolz Family P’ship L.P. v. Daum, 355 F.3d 92, 102 (2d Cir. 2004); see also Rules Enabling Act, 28 U.S.C. § 2072 (2006) (recognizing that Federal Rules of Civil Procedure ―shall not abridge, enlarge, or modify any substantive right‖). While statutes of limitations operate to bar enforcement of a right, a statute of repose takes away the right altogether. Methodist Healthcare Sys. of San Antonio, Ltd., L.L.P. v. Rankin, 307 S.W.3d 283, 291 (Tex. 2010). The period set under a statute of repose is independent of the claim’s accrual or discovery and may cut off rights of action even before they accrue. Courts interpreting incontestability clauses have characterized them either as statutes of repose or as substantive rules of law—not as statutes of limitations or procedural rules. See, e.g., N.Y. Life Ins. Co. v. Waterman, 104 F.2d 990, 992 (9th Cir. 1939) (holding that an incontestability provision is not analogous to a statute of limitations); Peterson v. Equitable Life Assur. Soc’y of the U.S., 57 F. Supp. 2d 692, 699 (W.D. Wis. 1999) (stating that incontestability clauses are in the nature of a statute of repose); New Eng. Mut. Life Ins. Co. v. Doe, 710 N.E.2d at 1062 (noting that an incontestability clause is ―something akin to a contractual statute of 25 repose‖); Protective Life Ins. Co. v. Sullivan, 682 N.E.2d 624, 631 (Mass. 1997) (providing that an incontestability statute ―is more in the nature of a statute of repose than a statute of limitations‖); Minn. Mut. Life Ins. Co. v. Ricciardello, No. 3:96CV2387(AHN), 1997 WL 631027, at *2 (D. Conn. Sept. 17, 1997) (comparing a incontestability clause to a statute of repose because ―[i]t gives the insurer a fixed period of time to ascertain the truth of representations made by the applicant and to take any necessary action to protect its rights‖). A claim extinguished by operation of a statute of repose cannot ―relate back‖ to the filing of an earlier pleading as it would in the case of a statute of limitation. See Resolution Trust Corp. v. Olson, 768 F. Supp. 283, 285 (D. Ariz. 1991) (―Relation back under Rule 15 does not apply when the statute at issue defines substantive rights rather than merely limiting procedural remedies.‖). The incontestability clause—mandated by New Tejas law and this particular policy—bars challenges after two years of the date of issuance. It extinguishes the action—or terminates any right to action—after this fixed time period has elapsed. By imposing an absolute time limit within which an action must be brought, the incontestability clause creates an outer boundary in time beyond which no cause of action may arise for conduct that otherwise would have been actionable. Attempts to amend pleadings in existing lawsuits cannot resurrect extinguished claims after the statute of repose has expired. 26 b. An incontestability clause is not subject to equitable tolling. Guaranty Life is not entitled to postpone the running of a statute of repose through some sort of equitable tolling. In this circumstance, equitable tolling would circumvent the incontestability statute, the very purpose of which is to compel a timely investigation of the statements made in a policy application. See Amoco Prod. Co. v. Newton Sheep Co., 85 F.3d 1464, 1472 (10th Cir. 1996) (―A statute of repose represents an absolute time limit beyond which liability no longer exists and is not tolled for any reason because to do so would upset the economic balance struck by the legislative body.‖); Sullivan v. Iantosca, 569 N.E.2d 822, 823–24 (Mass. 1991) (recognizing equitable doctrines of fraudulent concealment and discovery rule did not toll a statute of repose). While an insurer, like Guaranty Life, may sit back and wait for claims to come in before it starts any investigation, if it does wait, it runs the risk that it will not discover a fraud until it is too late to do anything about it. See Blue Cross & Blue Shield of Ga., Inc. v. Sheehan, 450 S.E.2d 228, 230 (Ga. Ct. App. 1994). Equitable principles will not extend the deadline. B. Alternatively, Genuine Issues of Material Fact Preclude Summary Judgment for Guaranty Life. Even if this Court disagrees that the record conclusively establishes that the Trust and Presidential Holdings are entitled to judgment as a matter of law, this Court should still reverse the district court because, at a minimum, a genuine issue of material fact precludes judgment for Guaranty Life. 27 Guaranty Life asserted the affirmative defense that the policy was void ab initio for lack of an insurable interest. R. at 12. Where, as here, the defendant is seeking summary judgment on the basis of an affirmative defense, [t]he defendant . . . must demonstrate that no disputed material fact exists regarding the affirmative defense asserted. If the defendant meets this initial burden, the plaintiff must then demonstrate with specificity the existence of a disputed material fact. If the plaintiff fails to make such a showing, the affirmative defense bars his claim, and the defendant is then entitled to summary judgment as a matter of law. Johnson v. Riddle, 443 F.3d 723, 725 n.1 (10th Cir. 2006); Johnson & Johnson Med. v. Sanchez, 924 S.W.2d 925, 927 (Tex. 1996) (recognizing defendant moving for summary judgment on affirmative defense must conclusively prove each element of defense as a matter of law). If the non-moving party can create a fact issue by producing controverted evidence on one of the elements of the defendant’s affirmative defense, summary judgment is improper. Johnson, 443 F.3d at 725 n.1. The district court held that the intent to sell a policy in the future deprived a person of having an insurable interest under New Tejas law. R. at 14. But Guaranty Life did not conclusively prove this point, as was required to obtain an order granting summary judgment. The summary judgment evidence in the record raises a genuine issue of material fact on the following issues: • Did Mr. Hicks intend to sell the policy at the moment it took effect? • Did Sydney Hicks intend to sell the policy at the moment it took effect? • Did the Trust and Presidential Holdings have an agreement in place to purchase the Policy at the moment it took effect? • Where did Sydney Hicks get the $238,956.75 to enable him to make the first payment? 28 • Were the Trust or Presidential Holdings aware of any misrepresentations made on the application? • Did Presidential Holdings’ Vice President, Timmy Chung, know that the policy was not in effect at the time of the email communications between himself and Reggie Hightower? • Did Guaranty Life make any investigation of the transaction in light of a series of email exchanges that demonstrated that they suspected that the policy was being sought for illegitimate purposes? These factual disputes dealing with the intent to transfer the policy and the alleged misrepresentations in the underwriting and application process—though not relevant unless the court imposes an intent-not-to-sell requirement—preclude summary judgment for Guaranty Life. Each represents a fact that, if viewed in favor of the Trust and Presidential Holdings, could persuade a fair-minded jury to return a verdict for the Trust and Presidential Holdings. See Anderson, 477 U.S. at 255. II. THE DISTRICT COURT PROPERLY ORDERED GUARANTY LIFE PREMIUMS PAID ON A RESCINDED LIFE INSURANCE POLICY. TO RETURN Another aspect of Guaranty Life’s summary judgment motion asked the district court to allow the insurance company to retain the $4,779,135 in premiums on the Policy. The insurance company did not claim specific damages resulting from the issuance of the policy but, rather, the money it received as premiums on a policy it claims never came into existence. Nothing in law or equity justifies Guaranty Life’s position. In some instances, a court declaring a policy as void ab initio will refuse to take any further action by treating it as an ―illegal contract.‖ See, e.g., Penn Mut. Life 29 Ins. Co. v. Greatbanc Trust Co., No. 09-C-06129, 2012 WL 3437161, at *8 (N.D. Ill. Aug. 15, 2012) (―As Illinois law apparently requires the Court to drop like a hot potato the parties to an illegal contract, the Court will not make any provision for the premiums at this time.‖). In those situations, the insurance company simply keeps the money. But that approach will not work here. As Guaranty Life has deposited the premiums in the court registry, a court order will be required to disburse those funds. In the event this court affirms the district court’s decision that the Policy is void ab initio, the district court made the correct decision on this issue. The Trust and Presidential Holdings are entitled to the return of all premiums Guaranty Life received. A. An Insurer That Rescinds a Life Insurance Policy Is Not Entitled to Retain Unearned Premiums Because the Insurer Has Not Been Exposed to Any Risk of Loss. Based on the district court’s holding that the insurance contract was void ab initio, Guaranty Life never provided any coverage under the Policy. General provisions of rescission require that all parties be returned to their respective positions prior to the formation of the contract. Thus, the premiums must be returned to those who paid them. Hartford Life & Annuity Ins. Co. v. Doris Barnes Family 2008 Irrevocable Trust, No. CV 10-7560 PSG (DTBx), 2012 WL 688817, at *5 (C.D. Cal. Feb. 3, 2012); see also PHL Variable Ins. Co. v. Jolly, 800 F. Supp. 2d 1205, 1216 (N.D. Ga. 2011) (―[T]he Court finds no factual, legal or equitable basis 30 for permitting plaintiff to obtain policy premiums being held in the registry of the court absent a judgment in plaintiff’s favor on [the fraud claims].‖). An insurance contract depends on payment for ―the assumption of a risk of loss and the undertaking to indemnify the insured against such loss.‖ 1 Couch on Insurance 3d § 1:9 (2010); see also Stan Koch & Sons Trucking, Inc. v. Great W. Cas. Co., 517 F.3d 1032, 1035 n.2 (8th Cir. 2008) (―[A]n insurance policy essentially shifts the risk of loss from the insured to the insurer whereby the insurer assumes the risk of loss and undertakes to indemnify the insured against such loss.‖). ―The payment . . . [of] premiums is the consideration for which the insurer agrees to assume the risk specified in the policy.‖ 2 Couch on Insurance 3d § 69:2 (2010); In re Tex. Ass’n of Sch. Bds., Inc., 169 S.W.3d 653, 658 (Tex. 2005) (same). Having elected the remedy of rescission, Guaranty Life cannot also seek recovery of additional damages through the return of premiums. The two remedies are fundamentally inconsistent. Rescission undoes the contract. As a general rule, when a contract is rescinded, each party must restore to the other all consideration received under the contract. In this instance, the insured is entitled to the return of all unearned premiums paid on the policy. See Kirby v. Dean, 199 N.W. 174, 175 (Minn. 1924) (noting that one who rescinds a fraudulently procured contract ―is not damaged at all by the other party’s wrong because he escaped that wrong by rescinding and thereby avoiding the contract.‖); Am. Nat’l Prop. & Cas. Co. v. Lindgren, 736 F. Supp 275, 276 (N.D. Ga. 1990) (holding an insurer could not retain premiums and, at the same time, seek to void the policy). This settled principle is 31 based on the premise that, if the contract is voided, the insurance company will not be exposed to any loss and has not earned the premiums. Foremost Guar. Corp. v. Meritor Sav. Bank, 910 F.2d 118, 129 (4th Cir. 1990) (recognizing that ―[f]undamental to any insurance contract is the proposition that the insurer cannot bill for and collect premiums when it has no intention of paying claims‖). As one court recognized, ―[i]f an insurance company could retain premiums while also obtaining rescission of a policy, it would have the undesirable effect of incentivizing insurance companies to bring rescission suits as late as possible, as they continue to collect premiums at no actual risk.‖ Lincoln Nat'l Life Ins. Co. v. Snyder, 722 F. Supp. 2d 546, 565 (D. Del. 2010). B. The Procured-by-Fraud Exception Allowing for the Retention of Rescinded Life Insurance Premiums Has No Application to a Third Party That Did Not Participate in the Underlying Fraud. Some courts have allowed insurers to retain premiums paid on rescinded policies because of fraud in the application process. See, e.g., PHL Variable Ins. Co. v. Lucille E. Morello 2007 Irrevocable Trust, 645 F.3d 965, 970 (8th Cir. 2011) (affirming insurer’s right to retain premiums on fraudulently procured policy); TTSI Irrevocable Trust v. Reliastar Life Ins. Co., 60 So. 3d 1148, 1150 (Fla. Dist. Ct. App. 2011) (same). In those cases, however, the insurance company established that the defendant actively participated in the underlying fraud. See, e.g., Lucille E. Morello 2007 Irrevocable Trust, 645 F.3d at 970 (―The record reflects that Morello, in collaboration with Chiaro, Claus, and Mitan, purposefully falsified Morello’s financial profile to dupe Phoenix into issuing an insurance policy for which she was 32 not actually qualified.‖); TTSI Irrevocable Trust, 60 So. 3d at 1150 (recognizing the person paying the premiums was ―the only party who engaged in deceptive and misleading conduct at the time the contract was entered into‖). That reasoning is inapplicable here because Guaranty Life has not alleged—much less proven as a matter of law—that the Trust or Presidential Holdings had any involvement in the specific misrepresentations in the application process. 1. Nothing in the record establishes that the Trust or Presidential Holdings participated in the alleged fraud in procuring the Policy. Some of those involved in the application process provided testimony that is shown in the summary judgment record. Sydney Hicks and Mr. Hicks). themselves. See R. at 10 (detailing testimony by Others exercised their right not to incriminate See R. at 10 n.8 (noting that Reggie Hightower pled his Fifth Amendment right to each and every question raised during his two and one-half hour deposition); see also R. at 8 n.4 (stating Reggie Hightower died). Nothing in the record suggests that the original trustee, Bryan Jones, or the current trustee, Frank Kipp, made any representations whatsoever. And, without any evidence of complicity, they cannot be held responsible for misrepresentations made by others. Likewise, the e-mail between Reggie Hightower and a Presidential Holdings executive does not show participating in the underlying fraud. The statement— ―Talked to Sidney Hicks, and we should be able to flip his old man’s policy for 3% of the face value of the policy. Confirmed $20 million for the face value.‖—is not an agreement. Bryan Jones and Sydney Hicks—the owner and beneficial interest 33 owner at the time—were not even copied on the e-mail. R. at 10. This communication has no indication that anyone at Presidential Holdings knew or participated in any misrepresentations at all. 2. The record contains no evidence that Guaranty Life suffered any special damages so that returning the premiums would not restore the parties to their former positions. If Guaranty Life suffered damages resulting from the procurement of the Policy, it could be compensation for them. But Guaranty Life has not put on any evidence that any of those involved in the procurement of this Policy caused any specific, identifiable damage to the insurance company. And, for this reason, it is not seeking compensatory damages. Rather, the insurance company merely seeks to punish the Trust and Presidential Holdings because of the underlying fraudulent conduct. The law does not permit courts to punish a party for fraudulent conduct by awarding damages where none exists. 3. Alternatively, genuine issues of material fact preclude summary judgment on Guaranty Life’s claim that it be permitted to retain the premiums. At a minimum, however, the issue of how to dispose of the premiums cannot be resolved in Guaranty Life’s favor because it has not proved as a matter of law that the Trust or Presidential Holdings participated in any wrongdoing. See Principal Life Ins. Co. v. Lawrence Rucker 2007 Ins. Trust, 774 F. Supp. 2d 674, 681 (D. Del. 2001) (denying summary judgment motion to allow insurer to retain premiums after a finding the policy was void ab initio because fraud had not been established 34 against defendant insurance trust). The summary judgment standards require more than what Guaranty Life has offered in this record. C. Equitable Principles Independently Favor the Return of the Premiums. Guaranty Life cannot claim that it is entitled to retain the premiums as an equitable remedy. The balance of equities tips decisively in favor of the Trust and Presidential Holdings. They have paid $4,779,135 in Policy premiums for insurance coverage that they never had. If Guaranty Life were permitted to keep these premiums, it would be a windfall for the insurance company. The principle of equitable remedies in this context is to prevent unjust enrichment and disincentivize insurance fraud. Gonzalez v. Eagle Ins. Co., 948 So. 2d 1, 3 (Fla. Dist. Ct. App. 2006) (unjust enrichment); Snyder, 722 F. Supp. 2d at 565 (disincentivize insurance fraud). Those interests are not served by punishing the Trust or Presidential Holdings in this circumstance. According to Guaranty Life’s allegations, it was Sydney Hicks, Mr. Hicks and Reggie Hightower who allegedly committed the fraud against Guaranty Life. It would be wholly inequitable to punish the Trust or Presidential Holdings under these circumstances. 35 CONCLUSION This Court should affirm-in-part and reverse-in-part the district court’s final judgment. Specifically, this Court should reverse the portion of the district court’s judgment that holds the insurance policy is void ab initio for lack of an insurable interest. This court should affirm the portion of the district court’s judgment that orders the money in the court registry representing the amount paid in premiums be returned to the Trust and Presidential Holdings. Respectfully submitted, ______________________________ ATTORNEYS FOR APPELLANTS 36 APPENDIX TABLE OF CONTENTS Page APPENDIX ―A‖: New Tejas § 1407 ........................................................................ A-1 APPENDIX ―B‖: New Tejas § 1408 ........................................................................ B-1 APPENDIX ―C‖: New Tejas § 1409 ........................................................................ C-1 APPENDIX ―D‖: New Tejas § 1409 (Amended August 28, 2009) ......................... D-1 APPENDIX ―E‖: Federal Rule of Civil Procedure 15(c) ........................................ E-1 APPENDIX “A” New Tejas Statute § 1407- Incontestability All life insurance policies, delivered or issued for delivery in this state, shall contain in substance a provision stating that the policy shall be incontestable after being in force during the life of the insured for a period of two years from its date of issue, and that, if a policy provides that the death benefit provided by the policy may be increased, or other policy provisions changed, upon the application of the policyholder and the production of evidence of insurability, the policy with respect to each such increase or change shall be incontestable after two years from the effective date of such increase or change, except in each case for nonpayment of premiums or violation of policy conditions relating to service in the armed forces. A-1 APPENDIX “B” New Tejas Statute § 1408- Rescission If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false. B-1 APPENDIX “C” New Tejas Statute § 1409- Insurable Interest (a) An insurable interest, with respect to life and disability insurance, is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law. (b) An individual has an unlimited insurable interest in his or her own life, health, and bodily safety and may lawfully take out a policy of insurance on his or her own life, health, or bodily safety and have the policy made payable to whomsoever he or she pleases, regardless of whether the beneficiary designated has an insurable interest. (c) An insurable interest shall be required to exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs. C-1 APPENDIX “D” New Tejas Statute § 1409 (Amended August 28, 2009) (a) An insurable interest, with reference to life and disability insurance, is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law. (b) An individual has an unlimited insurable interest in his or her own life, health, and bodily safety and may lawfully take out a policy of insurance on his or her own life, health, or bodily safety and have the policy made payable to whomsoever he or she pleases, regardless of whether the beneficiary designated has an insurable interest. (c) An insurable interest shall be required to exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs. (d) Trusts and special purpose entities that are used to apply for an initiate the issuance of policies of insurance for investors, where one or more beneficiaries of those trusts or special purpose entities do not have an insurable interest in the life of the insured, violate the insurable interest laws and the prohibition against wagering on life. (e) Any device, scheme, or artifice designed to give the appearance of an insurable interest where there is no legitimate insurable interest violates the insurable interest laws. (f) This section shall not be interpreted to define all instances in which an insurable interest exists. (g) The 2009 Amendments are not to be applied retroactively. D-1 APPENDIX “E” Federal Rule of Civil Procedure Rule 15(c) Relation Back of Amendments. (1) (2) When an Amendment Relates Back. An amendment to a pleading relates back to the date of the original pleading when: (A) the law that provides the applicable statute of limitations allows relation back; (B) the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out--or attempted to be set out--in the original pleading; or (C) the amendment changes the party or the naming of the party against whom a claim is asserted, if Rule 15(c)(1)(B) is satisfied and if, within the period provided by Rule 4(m) for serving the summons and complaint, the party to be brought in by amendment: (i) received such notice of the action that it will not be prejudiced in defending on the merits; and (ii) knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity. Notice to the United States. When the United States or a United States officer or agency is added as a defendant by amendment, the notice requirements of Rule 15(c)(1)(C)(i) and (ii) are satisfied if, during the stated period, process was delivered or mailed to the United States attorney or the United States attorney's designee, to the Attorney General of the United States, or to the officer or agency. E-1