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Berkshire Settlements, Inc., A Georgia Corporation, and Church Street v. Alexander Ashkenazi

November 29, 2011

BERKSHIRE SETTLEMENTS, INC., A GEORGIA CORPORATION, AND CHURCH STREET NOMINEES LTD., AN ISLE OF MAN CORPORATION, AND ASSURED FUND, A CAYMAN ISLANDS CORPORATION,
PLAINTIFFS,
v.
ALEXANDER ASHKENAZI, AN INDIVIDUAL AND AS TRUSTEE FOR HALPERT ALEXANDER TRUST, A NEW YORK TRUST, MALI HALPERT, AND INDIVIDUAL, JOHN HANCOCK LIFE INSURANCE COMPANY, A MASSACHUSETTS CORPORATION, CAMBRIDGE LIFE SETTLEMENTS, LLC, A NEW YORK CORPORATION, GLOBAL LIFE SETTLEMENTS, INC., A NEW YORK CORPORATION, AND JOEL ECKSTEIN, AN INDIVIDUAL, DEFENDANTS.



The opinion of the court was delivered by: Block, Senior District Judge:

MEMORANDUM AND ORDER

Church Street Nominees Ltd. ("Church Street") is the nominal owner of a $5,000,000 life insurance policy issued by John Hancock Life Insurance Company ("John Hancock") on the life of Mali Halpert ("Halpert"). It seeks a declaratory judgment that the policy remains in force and did not lapse due to nonpayment of premiums by the prior owner, the Halpert Alexander Trust ("the Trust").*fn1 Jurisdiction is premised on diversity and all agree that New York law governs.

Plaintiffs and John Hancock both move for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the following reasons, Plaintiffs' motion is granted and John Hancock's is denied.

I

A. The Trust and the Policy

The policy at issue has its beginnings in the creation of the Trust. In a declaration of trust dated April 1, 2005, Halpert ostensibly granted to Ashkenazi, as trustee, "all of [her] rights, title and interest on and to the life insurance policy or policies listed in Schedule A annexed hereto." Merkl Decl., Ex. 14, at 1.*fn2 Upon Halpert's death, the corpus of the trust was to be distributed to "Malka Schwartz daughter of Mali Halpert." Id. at 3. At her deposition, Halpert denied having ever seen the declaration of trust and was "nearly sure"-though "not quite"-that the "Mali Halpert" signature appearing on the declaration was not hers. Halpert Dep. at 29, 38. She does not have a daughter and has "no idea" who Ashkenazi and Malka Schwartz are. Id. at 19, 25.
Although the declaration of trust contemplated a transfer of a life insurance policy owned by Halpert, Ashkenazi purchased a "universal life" policy from John Hancock on the Trust's behalf.*fn3 The policy was brokered by Halpert's granddaughter, Gittel. As with the declaration of trust, however, Halpert denied knowledge of the policy. She further denied authorizing Ashkenazi or anyone else to purchase life insurance on her behalf. Nevertheless, her signature appears, with Ashkenazi's, on the insurance application. Halpert testified at her deposition that she signed the signature page without reading the document at the instruction of Joseph Reigler, an insurance agent who lived in her building. The policy was issued on June 13, 2005, with Halpert as the insured and the Trust as the owner and beneficiary.

As required by New York law, the policy contains the following "incontestability clause":

This policy, except any provision for reinstatement or policy change requiring evidence of insurability, shall be incontestable after it has been in force during the lifetime of the insured for two years from its Date of Issue, except for nonpayment of premiums.

Merkl Decl., Ex. 13, at JH00000024. The clause took effect on June 13, 2007.

B. Premium Payments

The policy carried an annual premium of $285,000, but there was no fixed schedule for payment. Instead, the Trust had some discretion to make payments, as long as the policy had sufficient cash value to cover the anticipated cost of the guaranteed death benefit and other administrative costs.

John Hancock would "test" the policy's cash value once per quarter. If, on the testing date, the value was insufficient, it would send the Trust a notice of the payment required to prevent the policy from lapsing. The notice stated that the premium was "due upon receipt," but that the policy would not lapse until the expiration of a 60-day grace period called for by the policy. Under the policy, the notice would be sent to the owner and "any assignee of record . . . at least 15 and not more than 45 days before the end of this grace period." Merkl Decl., Ex. 13, at JH00000019.

In 2007, the policy lapsed twice for nonpayment of premiums. On both occasions, John Hancock sent a notice of the lapse to the Trust, inviting it to apply to "reinstate" the policy. Randall Decl., Ex. 9. John Hancock "reversed" or "undid" both lapses when Ashkenazi sent a payment shortly after (ten days on one occasion, one month on the second) the expiration of the grace period.

C. Sale of the Policy

In early 2008, Ashkenazi and Plaintiffs negotiated the sale of the policy. The negotiations culminated in a purchase agreement, dated April 4, 2008, in which ...


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