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