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In 2009, the Penn Mutual Life Insurance Company sued a trust and its trustee in a Delaware federal court, alleging the life insurance policy issued to them was part of an impermissible “stranger oriented life insurance” or “STOLI” scheme. Penn Mutual sought to rescind the policy because of “material misrepresentations” it relied upon when it placed the coverage.

The trust filed a counterclaim against Penn Mutual, essentially arguing that any misrepresentations in the policy application were made by Penn Mutual’s agents and should therefore be imputed to Penn Mutual itself. Penn Mutual asked the Delaware court to dismiss the counterclaim. But the court refused.  On July 30, 2010 it held the trust’s allegations “implicate legal and factual issues related to agency” and allowed the counterclaim to proceed further. The case is styled civil action number 09-677, Penn Mutual Life Insurance Company v. Barbara Glasser 2007 Insurance Trust, in the United States District Court for the District of Delaware.

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Penn Mutual Life Insurance Company sued two insurance agents, Kevin Bechtel and Steven Brasner, alleging they unlawfully initiated a “stranger originated life insurance” or “STOLI” policy. Penn Mutual claimed Bechtel and Brasner contacted a seventy-one-year-old woman, encouraged her to participate in a STOLI scheme, and then submitted an “Agent's Underwriting Report” which falsely stated the policy was not intended for sale in the secondary market and the premiums would not be paid with borrowed funds. Brasner was to receive 60% of the policy’s sales commission. Bechtel was to receive 40% of the commission

Bechtel moved to dismiss the case, arguing that the Illinois federal court did not have jurisdiction over him because he did not: (1) do business in Illinois, (2) speak with the woman insured by the policy while he was in Illinois, or (3) sign the underwriting report. The Court was not persuaded. It denied Bechtel’s motion and noted he carefully crafted his statements to leave the misleading impression that he did not engage in any conduct with regard to the policy, but did not actually deny any of the essential claims against him. The Court concluded it had jurisdiction because Bechtel had an Illinois insurance agent’s license and was therefore subject to suit in Illinois. Bechtel also asked the Court to dismiss the case because Penn Mutual had not “stated a claim” against him. The Court refused, stating Bechtel’s arguments “merit little discussion.” It denied the motion on a procedural matter and also restated the obvious sufficiency of Penn Mutual’s allegations.  

Notably, Bechtel’s co-defendant Brasner has been accused in other civil actions alleging the same type of STOLI scheme, including suits filed by Axa Equitable Life Insurance Company and West Coast Life Insurance Company. He was also indicted in Florida on charges of grand theft, insurance fraud, creating an organized scheme to defraud, and aggravated white-collar crime for allegedly inflating the income and net worth of several senior citizens on life insurance applications to foster STOLI transactions.

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