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Berck v. Principal Life Ins. Co.

Supreme Court of New York, New York County

July 2, 2013

Jonathan S. BERCK, as Trustee of the Diane Warhit Insurance Trust, dated January 17, 2007, Plaintiff,
PRINCIPAL LIFE INSURANCE CO., M & M Brokerage Services Inc. and Marvin Meyer, Defendants. No. 150305/10.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Rebecca S. Tinio, Esq., Susman Godfrey, LLP, New York, for Plaintiff.

William G. Winget and Anthony Green, Esqs., Winget Spadafora Schwartzberg, LLP, New York, for Defendants.


This case involves a stranger-owned life insurance, or STOLI,[1] arrangement. Effective November 19, 2009, the New York Insurance Law (" NYIL" ) was amended to make STOLI arrangements unlawful. See NYIL 7815(c). However, the events in this action predate that amendment and, therefore, they are not barred thereunder.


On or about January 27, 2007, Principal Life Insurance Company (" Principal" ), issued a life insurance policy, (the " Warhit Policy" or the " Policy" ), in the face amount of $5 million on the life of Diane Warhit (" Warhit" or the " Insured" ). The Policy is owned by the Diane Warhit Insurance Trust (the " Warhit Trust" or the " Trust" ), which was created pursuant to a trust agreement dated January 17, 2007. Plaintiff Jonathan S. Berck (" Berck" ) is Trustee of the Trust. (Complaint, ¶¶ 8-9).

The Policy provides for an " incontestability period," meaning that if the Insured dies within two years of issuance of the Policy, then Principal has the right to investigate a claim for the death benefit due under the Policy, to determine whether or not to pay that death benefit and to alert the beneficiary of its decision. (Warhit Policy, p. 17; Deposition of Steven Lockwood [" Lockwood" ], 410:4-23).

Approximately six weeks following the issuance of the Policy, LPC Holdings I, LP (" LPC" ) became the beneficiary of the Warhit Trust pursuant to a " Beneficial Interest Transfer Agreement" dated as of March 13, 2007, entered into by Warhit, as Seller, and LPC, as Purchaser. Pursuant to this Agreement, LPC obtained the right to collect the Policy death benefit upon Warhit's death.

LPC is a limited partnership managed by its general partner, LPC Holdings G.P. (" LPC GP" ), which in turn is owned by Steven G. Lockwood (" Lockwood" ) and Martin Fleisher (" Fleisher" ).[2] Lockwood is also a limited partner in LPC itself.[3] (Fleisher Deposition, 12:15-13:12). Under its Operating Agreement, LPC could not purchase the beneficial interest in any life insurance policy unless that policy was owned by a trust for which the instant plaintiff, Berck, served as trustee. (Fleisher Deposition, 103:11-104:18).

Defendants emphasize that Berck is a Harvard-educated attorney licensed to sell insurance in New York State and, by the time the Warhit Policy was issued, had served as the trustee of over 60 life insurance trusts. (Plaintiff's Responses to defendant Marvin Meyer's Notices to Admit No. 18). Notably, in his capacity as trustee of other trusts, Berck is or has been a party to numerous lawsuits over investor-oriented insurance policies, which may or may not have been brokered by defendant M & M Brokerage Services Inc. (" M & M" ). (Affirmation of Rebecca S. Tinio [" Tinio" ], ¶ 29).

Diane Warhit died on January 25, 2009. Thereafter, on or about April 9, 2009, plaintiff submitted a claim (the " Death Claim" ) for the death benefits due to the Trust under the terms of the Policy. (Complaint, ¶¶ 11-12). Since Warhit died less than two years after the Policy was issued, Principal performed an investigation into the Death Claim pursuant to the incontestability clause in the Policy. (Deposition of Anita Henry [" Henry" ], 18:15-19:5). Principal ultimately determined that it should not pay the death benefit because of certain alleged misrepresentations by Berck and Warhit made during the application process concerning Warhit's alleged intention to sell the beneficial interest in the Trust immediately after issuance of the Policy. (Amended Answer, Affirm. Defenses to Complaint and Counterclaims of Principal, p. 4 at ¶ 14, pp. 22-23 at ¶¶ 50-53; Third Party Complaint, ¶¶ 52-55).

Plaintiff filed a Summons and Complaint, dated September 24, 2010, asserting causes of action for (1) breach of contract (against Principal); (2) violation of GBL 349 (against all defendants); and (3) estoppel (against Principal). By stipulations of discontinuance dated January 12, 2012 and February 3, 2012, all claims asserted by and against defendant/third-party plaintiff Principal and third-party defendant Lockwood have been discontinued.

In accordance with a decision dictated on the record on March 7, 2011, this Court denied a motion by defendants M & M and Marvin Meyer (" Meyer" ) to dismiss the second cause of action asserted against them for violation of GBL 349. Thereafter, M & M and Meyer filed an Answer, dated ...

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