COLUMBUS LIFE INS. CO. v. WELLS FARGO BANK, N.A., 2023 NCBC 35

STATE OF NORTH CAROLINA 	IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF PITT 	21 CVS 0052
COLUMBUS LIFE INSURANCE
COMPANY,
ORDER AND OPINION ON CROSS-
MOTIONS FOR SUMMARY
JUDGMENT
Plaintiff,
v.
WELLS FARGO BANK, N.A., as
Securities Intermediary,
Defendant.
THIS MATTER comes before the Court on the parties’ cross-motions for
summary judgment (“Motions,” ECF Nos. 105, 108).
THE COURT, having considered the Motions, the briefs, exhibits, affidavits,
arguments of counsel, and all other appropriate matters of record, CONCLUDES
that Defendant’s Motion should be GRANTED, in part, and DENIED as moot, in
part, and that Plaintiff’s Motion should be DENIED.
Cozen O’Connor, by Travis R. Joyce, Michael J. Broadbent, Philip J.
Farinella, Isaac A. Binkovitz, and Gregory J. Star for Plaintiff Columbus
Life Insurance Company.
K&L Gates LLP, by Zachary S. Buckheit, Matthew T. Houston, and A.
Lee Hogewood III, and Schulte Roth & Zabel, LLP, by Harry S. Davis
and 	Robert 	E. 	Griffin, 	for Defendant 	Wells Fargo 	Bank, 	N.A., 	as
Securities Intermediary.
Davis, Judge.
Columbus Life Ins. Co. v. Wells Fargo Bank, N.A., 2023 NCBC 35.

INTRODUCTION
1. 	The ultimate issue in this case lies at the crossroads of two well-settled
doctrines in North Carolina. First, life insurance policies that are merely “wagering
contracts” on the life of the named insured are void from their inception as contrary
to public policy. 	Second, the holder of a valid life insurance policy is free to sell or
assign that policy to any third party for any reason following the policy’s issuance.
Based on the present Motions, the Court must decide whether a life insurance policy
taken out by the named insured on his own life solely for the purpose of later selling
it to investors is void as an unlawful wagering contract under North Carolina law.
For the reasons set forth below, the Court concludes that the insurance policy at issue
is legally valid.
FACTUAL AND PROCEDURAL BACKGROUND
2. 	“The Court does not make findings of fact on motions for summary
judgment; 	rather, 	the 	Court 	summarizes 	material 	facts 	it 	considers 	to 	be
uncontested.” 	McGuire v. Lord Corp., 2021 NCBC LEXIS 4, at **1–2 (N.C. Super.
Ct. Jan. 19, 2021) (cleaned up).
3. 	In 2004 or early 2005, Dr. Gordon E. Trevathan, Jr. learned from his
friend, Fred Webb, that Webb had made extra money—with no required upfront
investment on Webb’s part—by allowing a life insurance policy to be taken out on his
life that would subsequently be sold to investors. 	(Trevathan Dep. 7:20–8:15, ECF

Nos. 107.4, 109.2.)1 	Webb informed Dr. Trevathan that if he was interested in
likewise doing so, he should meet with an insurance producer named Wesley
Chesson—who had assisted Webb with this process. (Trevathan Dep. 8:6–15.)
4. 	During this time period, Chesson was a principal of the Chesson
Company, 	Inc. 	(the 	“Chesson 	Company”), 	a 	brokerage 	life 	insurance 	agency.
(Chesson Dep. 21:19–22:5, ECF Nos. 107.5, 109.3.) Chesson also operated a separate
entity called E&W, LLC (“E&W”),2 a licensed North Carolina premium-finance
company.3 (Chesson Dep. 23:14–16, 61:20–63:10; NCDOI Rs., ECF No. 107.28.)
5. 	Shortly thereafter, Dr. Trevathan met with Chesson at Webb’s office to
learn more about what the process entailed. (Trevathan Dep. 9:12–10:21.) Chesson
stated that in his capacity as an insurance producer he could help Dr. Trevathan
obtain a life insurance policy and receive a premium finance loan from E&W to pay
the policy premiums for the first two years that the policy was in force. The premium
1 For exhibit descriptions that do not lend themselves to easy abbreviations, the Court will
simply refer to the applicable exhibit number or letter and omit reference to the exhibit’s
corresponding brief in an effort to improve readability. 	Numerically marked exhibits
accompanied 	Defendant’s 	Brief 	in 	Support 	of 	its 	Motion 	for 	Summary 	Judgment.
Alphabetically marked exhibits correspond with Plaintiff’s Brief in Support of its Motion for
Summary Judgment. Descriptions of the unabbreviated exhibits can be found in the Index
of Attachments to Brief in Support of Defendant’s Motion for Summary Judgment (ECF No.
107), and the Declaration of Philip J. Farinella in Support of Columbus Life Insurance
Company’s Motion for Summary Judgment (ECF No. 109.1). 	Furthermore, with the
exception of exhibits that are deposition transcripts, the pinpoint citations to exhibits in the
record correspond to the Bates numbering employed by the parties, which is stamped on the
lower right corners of the exhibit pages.
2 The Chesson Company and E&W are occasionally referred to herein collectively as the
“Chesson Entities.”
3 Premium-finance companies assist individuals or entities seeking to obtain an insurance
policy who desire “premium financing,” which occurs when an insured takes out a loan to
cover the cost of premiums associated with the policy.

finance loan would be secured by the policy itself, which would serve as the sole
collateral for the loan—meaning that E&W would not have the right to obtain any
other personal property of Dr. Trevathan in the course of seeking repayment of the
loan in the event of a default.4 	The premium finance loan would mature after the
policy had been in force for two years, at which time Dr. Trevathan would be able to
choose one of the following three options: (1) surrender the policy to E&W in full
satisfaction of the loan; (2) pay off the loan balance to E&W and continue to retain
the policy for himself going forward; or (3) sell the policy and use the proceeds to
satisfy the loan balance. 	(Trevathan Dep. 9:12–10:21, 11:24–17:20; Chesson Dep.
38:24–45:2.)
6. 	In his 24 November 2020 deposition, Dr. Trevathan testified that he had
not been in the market for life insurance prior to his initial discussions with Webb
and Chesson. (Trevathan Dep. 14:22–15:3.) Furthermore, when asked if he had any
beneficiaries (such as a wife or children) for whom he wished to provide financial
benefits by means of life insurance coverage, Dr. Trevathan responded that “[t]hey
weren’t his thoughts at that time.” (Trevathan Dep. 15:4–10.) Instead, Dr. Trevathan
testified, he believed that obtaining an insurance policy on his life “looked like an
easy way to accumulate some funds.” (Trevathan Dep. 15:13–14.) Additionally, Dr.
Trevathan testified that at the time the policy was taken out he had no intention of
either paying the premiums himself or subsequently paying back the loan and
retaining the policy. (Trevathan Dep. 16:9–12.)
4 Such an arrangement is known as non-recourse premium financing.

7. 	On or about 11 February 2005, Chesson submitted an application (the
“Application”) to Plaintiff Columbus Life Insurance Company (“Columbus Life”) for a
life insurance policy on behalf of Dr. Trevathan. 	(Application, ECF No. 109.7;
Chesson Dep. 29:16–34:23.) The Application, which was executed by Dr. Trevathan
in Greenville, North Carolina, sought a $1 million policy with a $1 million rider,
naming himself as the owner of the policy and his estate as the beneficiary.
(Application, at 1036–38.) The Application also contained a representation that the
policy’s benefits would be used for “Personal and Family Protection.” (Application, at
1039.) 	The Application did not disclose the fact that the initial premiums for the
policy were being funded through a non-recourse premium finance loan from E&W.
8. 	On 9 March 2005, Columbus Life issued the life insurance policy (the
“Policy”) to Dr. Trevathan that is the subject of this lawsuit. (Policy, ECF Nos. 107.1,
109.8.) Dr. Trevathan was 81 years old at the time the Policy was issued. (Policy, at
448.)5
9. 	Chesson sent a letter to Dr. Trevathan memorializing the terms of
E&W’s non-recourse premium finance loan on 24 March 2005. 	(Prem. Fin. Agrmt.
Letter, ECF Nos. 107.2, 109.4.) This letter confirmed that the premiums for the first
two years the Policy was in force would be paid by E&W and that, after two years,
Trevathan would have the following options:
1. 	Do not repay loan and relinquish all rights of policy
ownership to E & W, LLC. Loan becomes null and void.
5 As of the date the present Motions were filed, Dr. Trevathan was still alive.

2. 	Sell the policy in the life settlement marketplace within a
two month period after the second policy anniversary. Any
gain after loan repayment goes to policyowner.
3. 	Pay off loan to E&W, LLC and retain all rights of policy
ownership.
(Prem. Fin. Agrmt. Letter, at 67.)
10. 	An addendum to the letter provided an estimate of the amount of money
for which the Policy could be sold in the life settlement market after two years and a
projection of the amount of the net proceeds Dr. Trevathan could expect to receive if
he were to exercise his option to sell the Policy. (Prem. Fin. Agrmt. Letter, at 68.)
11. 	On 9 May 2005, Hill, Chesson, and Woody—another company with
which Chesson was affiliated—submitted to Columbus Life an assignment form that
had been completed by Dr. Trevathan. 	On this form, Dr. Trevathan checked the
applicable box signifying that he was merely making a “collateral assignment” of the
policy (as opposed to an “absolute assignment”) to E&W in connection with the Policy.
(Ex. 29, ECF No. 107.30.)6
12. 	On 31 March 2005, Chesson transmitted a check in the amount of
$94,190.16 to Columbus Life, which represented the Policy’s first annual premium
payment. 	(Ex. 3, ECF No. 107.3, at 1078; Ex. I, ECF No. 109.10.) 	The check was
drawn on the account of E&W. (Ex. 3, at 1078; Ex. I.) Shortly thereafter, the Chesson
Company received a check from Columbus Life in the amount of $84,771.14, which
constituted Chesson’s producer commission with regard to the issuance of the Policy.
(Ex. J, ECF No. 109.11, at 133.)
6 The significance of this distinction is discussed later in this Opinion.

13. 	The Chesson Company subsequently submitted a check to Webb for
$9,419.01, which amounted to 10% of the initial premium on the Policy. (Ex. K, ECF
No. 109.12, at 160.)
14. 	On or about 17 May 2005, Columbus Life wrote to E&W that the
collateral assignment to E&W “ha[d] been recorded[.]” (Ex. 29, at 53.)
15. 	Approximately 	twenty 	months 	later, 	on 	8 	February 	2007—in
anticipation 	of 	the 	sale 	of 	the 	Policy 	by 	Dr. 	Trevathan—E&W 	executed 	the
“RELEASE” 	portion 	of 	the 	collateral 	assignment 	form, 	thereby 	releasing 	and
cancelling its collateral assignment in the Policy. 	(Ex. 35, ECF No. 107.36.) 	Four
days 	later, 	Columbus 	Life 	acknowledged 	to 	E&W 	that 	its 	records 	had 	been
“documented to indicate that the assignment to E & W, LLC has been released.” (Ex.
36, ECF No. 107.37.)
16. 	Chesson ultimately began marketing the policy to potential buyers and
eventually engaged the interest of seventeen bidders. 	(Chesson Dep. 80:8–97:5,
115:22–118:16; Ex. 53, ECF No. 107.55; Ex. 54, ECF No. 107.56; Ex. 55, ECF No.
107.57; Ex. 56, ECF No. 107.58; Ex. 57, ECF No. 107.59; Ex. 58, ECF No. 107.60; Ex.
59, ECF No. 107.61.) 	On or about 30 May 2007, a life settlement broker, Advanced
Settlements, sent Chesson a letter informing him that an undisclosed buyer had
offered $400,000 to purchase the Policy. (Ex. 58; Ex. L, ECF No. 109.13.) Advanced
Settlements also informed Chesson that he could receive $160,000 as a commission
resulting from the sale. (Ex. 58; Ex. M, ECF No. 109.14.)

17. 	On 31 May 2007, the Policy was sold pursuant to a “Purchase and Sale
Agreement” to Advanced Settlements’ purchaser, LifeTrust, LLC (“LifeTrust”), on
behalf 	of 	LifeTrust’s 	client, 	Assured 	Holdings 	(“Assured”). 	By 	virtue 	of 	the
transaction, 	the 	Policy 	would 	be 	owned 	by 	Assured’s 	affiliate, 	Church 	Street
Nominees Limited (“CSNL”). 	The ultimate purchase price for the policy was
$440,000. (Ex. 6, ECF No. 107.6, at 100; LifeTrust Dep. 11:15–12:15, 28:7–32:2, 46:2–
47:3, 80:14–81:18, ECF Nos. 107.7, 109.17.)7
18. 	The Purchase and Sale Agreement provided that the sale proceeds
would be delivered to the Chesson Company on Dr. Trevathan’s behalf. 	(Ex. 6, at
109; Ex. O, ECF No. 109.16, at 109.) Additionally, the Purchase and Sale Agreement
required certain forms to be completed by Dr. Trevathan, including a “Premium
Financing Disclosure” form. On this form, Dr. Trevathan—incorrectly—checked the
box that stated: “The Policy is NOT a Premium Financed Policy.” (Ex. 6, at 118; Ex.
O, at 118; Trevathan Dep. 36:7–37:20; Chesson Dep. 113:4–115:16.)
19. 	On 	or 	around 	18 	June 	2007, 	Columbus 	Life 	received 	change 	of
ownership and beneficiary forms that sought to change the owner and beneficiary of
the Policy to CSNL. (Ex. 37, ECF No. 107.38.) Columbus Life sent CSNL a letter on
22 June 2007 that stated: “We received your recent request to change the ownership
and beneficiary on the [Policy]. The changes have been recorded.” (Ex. 37, at 81.)
7 As discussed in more detail later in this Opinion, there is no evidence in the record that
either Advanced Settlements, LifeTrust, Assured, or CSNL were involved in any way with
the events leading up to the issuance of the Policy to Dr. Trevathan by Columbus Life.

20. 	On 3 July 2007, CSNL transmitted a check made payable to Dr.
Trevathan in the amount of $440,000, for the sale of the Policy. (Ex. 6, at 61; Ex. Q,
ECF No. 109.18.) Three days later, Dr. Trevathan sent a check to E&W in the amount
of $234,827, accounting for the loan balance, with interest. 	(Ex. 9, ECF No. 107.10,
at 57; Ex. R, ECF No. 109.19.) 	Dr. Trevathan retained $205,173 for himself, which
represented the difference between the sale price and the loan balance. 	(Chesson
Dep. 127:16–128:2; Ex. 6, at 100; Ex. 8, ECF No. 107.9, at 61–62; Ex. 9, at 57.)
21. 	Approximately five years later, in June 2012, ownership of the Policy
was once again changed when the Policy was sold by CSNL to Defendant Wells Fargo
Bank, N.A. (“Wells Fargo”), as Securities Intermediary for the owner of the Policy,
LSH, Co. (“LSH”).8 (Ex. 18, ECF No. 107.19.)
22. 	On or around 11 June 2012, Columbus Life received a fax from Wells
Fargo enclosing Change of Policy Owner and Change of Beneficiary forms on the
Policy, which sought to change the owner and beneficiary of the Policy to Wells Fargo,
as Securities Intermediary for LSH. (Ex. 18, at 374–80.) On 2 July 2012, Columbus
Life sent a fax to Wells Fargo advising that the change of ownership and beneficiary
on the Policy had been recorded on 15 June 2012. (Ex. 19, ECF No. 107.20.)
23. 	After acquiring the Policy, LSH, through its agents, sought several
affirmations from Columbus Life over the next few years that the Policy remained
valid. (Ex. 21, ECF No. 107.22; LSH Dep. 100:1–25, ECF No. 107.11 [SEALED], ECF
8 LSH acquired the Policy on the tertiary market as part of a purchase of a portfolio of policies.
(Ex. W, ECF No. 109.24; Ex. X, ECF No. 109.25.)

No. 116.2; CMG Dep. 62:13–22, 81:16–82:7, 201:9–202:22, ECF No. 107.12; Ex. 38,
ECF No. 107.39.) On each occasion, Columbus Life responded that the Policy was “in
force,” “Active,” and “Premium Paying.” (Ex. 21; Ex. 38.)
24. 	However, Columbus Life did not disclose to Wells Fargo that in 2011 it
had placed the Policy on an internal list of “Potential Investor Owned / Life
Settlement Policies.” 	(Noschang Dep. 86:22–103:5, 119:18–122:21, ECF No. 107.33
[SEALED], ECF No. 116.4; Ex. 38; Ex. 39, ECF No. 107.40; Ex. 42, ECF No. 107.44,
at Resp. No. 7.) 	This document listed policies that—based on various “red flags”—
Columbus Life suspected could potentially be so-called “stranger-originated life
insurance” (“STOLI”) policies.9 	(Noschang Dep. 81:13–24.) 	With respect to Dr.
Trevathan’s Policy, Columbus Life’s concerns were triggered by the fact that the
premiums had been paid by E&W, the Policy had been assigned as collateral to E&W,
and the Policy’s ownership had changed approximately two years after the Policy was
issued. (Noschang Dep. 62:1–7.)
25. 	Eight years after Wells Fargo purchased the Policy, Columbus Life
ultimately decided to seek a declaratory judgment as to whether it was legally
entitled to void the Policy as having been void ab initio as the product of a STOLI
scheme. Columbus Life originally initiated a lawsuit against Wells Fargo on 4 May
2020 in the United States District Court for the Eastern District of North Carolina
seeking a declaration as to whether the Policy was valid under North Carolina law.
On 8 December 2020, the federal court entered an order declining to issue a
9 The characteristics of STOLI policies are discussed in detail below.

substantive ruling on Wells Fargo’s motion to dismiss the action, stating that because
the parties’ arguments raised unsettled issues of North Carolina law, the dispute
should be adjudicated in the state courts of North Carolina. See Columbus Life Ins.
Co. v. Wells Fargo Bank, N.A., 2020 U.S. Dist. LEXIS 231414, at *17 (E.D.N.C. Dec.
8, 2020). 	Accordingly, the federal court dismissed the case without prejudice to
Columbus Life’s right to refile the lawsuit in state court. Id. at *18.
26. 	On 7 January 2021, Columbus Life initiated the present action by filing
a Complaint in Pitt County Superior Court naming Wells Fargo and LSH as
defendants.10 (Compl., ECF No. 3.) The Complaint contained two related declaratory
judgment claims. First, Columbus Life sought a declaration from this Court that the
Policy is unenforceable as an illegal wagering contract on human life that violates
North Carolina public policy. Second, Columbus Life requested a similar declaration
that the Policy is likewise void for lack of an insurable interest under the laws of this
State. (Compl. ¶¶ 36–45.)
27. 	This case was designated as a mandatory complex business case on 5
March 2021 and assigned to the Honorable Gregory P. McGuire. 	(Reassign. Order,
ECF No. 7.) 	The case was subsequently reassigned to the undersigned on 1 July
2021. (Reassign. Order, ECF No. 43.)
28. 	On 29 September 2021, Wells Fargo filed an Answer (ECF No. 53)
containing various affirmative defenses in which it asserted that the Policy is valid
and 	enforceable. 	However, 	Wells 	Fargo 	also 	asserted, 	in 	the 	alternative, 	a
10 LSH was later dismissed as a defendant by this Court. See Columbus Life Ins. Co. v. Wells
Fargo Bank, N.A., 2021 NCBC LEXIS 73, at **31 (N.C. Super. Ct. Sept. 2, 2021).

counterclaim against Columbus Life for “Return of Premiums” under “theories of
unjust enrichment, quantum meruit, and/or restitution.” (Answer ¶¶ 44–60.) In its
counterclaim, Wells Fargo asserted that in the event the Court declared the Policy to
be void, Columbus Life should be required to return to Wells Fargo all premiums ever
paid on the Policy since its issuance, plus interest. (Answer ¶ 47.)
29. 	Wells Fargo subsequently filed an Amended Answer, Defenses and
Counterclaims (“Amended Answer”, ECF No. 92) on 9 May 2022. In this document,
Wells Fargo added a new counterclaim for fraud. (Am. Answer, at 24–33.) However,
Wells Fargo later took a voluntary dismissal of the fraud counterclaim. 	(Notice of
Partial Voluntary Dismissal with Prejudice, ECF No. 104.)
30. 	On 11 November 2022, Columbus Life and Wells Fargo filed the present
Motions. 	(“Pl.’s Mot.,” ECF No. 108; “Def.’s Mot.,” ECF No. 105.) 	In its Motion,
Columbus Life seeks summary judgment in its favor on both of its own claims and as
to Wells Fargo’s counterclaim and affirmative defenses. 	(Pl.’s Mot., at 1.) 	Wells
Fargo, in turn, requests in its Motion that the Court grant summary judgment in its
favor as to Columbus Life’s claims and, in the alternative, as to Wells Fargo’s
counterclaim. (Def.’s Mot., at 1.)
31. 	It is undisputed that, as of the date of the filing of the Motions, the
amount of premiums collected by Columbus Life since the Policy was originally issued
to Dr. Trevathan totaled approximately $2.7 million—$700,000 more than the face
value of the death benefit under the Policy. 	(Fangman Dep. 14:24–17:20, ECF No.
107.29 [SEALED], ECF No. 116.3; Noschang Dep. 15:16–16:10, 63:12–64:11, 74:11–

75:6; Harrison Aff., ECF No. 107.53.) Moreover, because Dr. Trevathan is still alive
and the Policy remains in force, Columbus Life is continuing to collect premiums on
it.
32. 	The Court held a hearing on the Motions on 2 March 2023, and they are
now ripe for resolution.
LEGAL STANDARD
33. 	It is well established that “[s]ummary judgment is proper ‘if the
pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact
and that any party is entitled to a judgment as a matter of law.’ ” Morrell v. Hardin
Creek, Inc., 371 N.C. 672, 680 (2018) (quoting N.C. R. Civ. P. 56(c)). 	“[A] genuine
issue is one which can be maintained by substantial evidence.” 	Kessing v. Nat’l
Mortg. Corp., 278 N.C. 523, 534 (1971). 	“Substantial evidence is such relevant
evidence as a reasonable mind might accept as adequate to support a conclusion and
means more than a scintilla or a permissible inference.” 	Daughtridge v. Tanager
Land, LLC, 373 N.C. 182, 187 (2019) (citation and internal quotation marks omitted).
34. 	On a motion for summary judgment, “[t]he evidence must be considered
‘in a light most favorable to the non-moving party.’ ” McCutchen v. McCutchen, 360
N.C. 280, 286 (2006) (quoting Howerton v. Arai Helmet, Ltd., 358 N.C. 440, 470
(2004)). 	“[T]he party moving for summary judgment ultimately has the burden of
establishing the lack of any triable issue of fact.” 	Pembee Mfg. Corp. v. Cape Fear
Constr. Co., 313 N.C. 488, 491 (1985) (citation omitted).

35. 	The party moving for summary judgment may satisfy its burden by
proving that “an essential element of the opposing party’s claim does not exist, cannot
be proven at trial, or would be barred by an affirmative defense, or by showing
through discovery that the opposing party cannot produce evidence to support an
essential element of [the] claim[.]” Dobson v. Harris, 352 N.C. 77, 83 (2000) (citations
omitted). “If the moving party satisfies its burden of proof, then the burden shifts to
the non-moving party to ‘set forth specific facts showing that there is a genuine issue
for trial.’ ” 	Lowe v. Bradford, 305 N.C. 366, 369–70 (1982) (quoting N.C. R. Civ. P.
56(e)). If the nonmoving party does not satisfy its burden, then “summary judgment,
if appropriate, shall be entered against [the nonmovant].” United Cmty. Bank (Ga.)
v. Wolfe, 369 N.C. 555, 558 (2017) (quoting N.C. R. Civ. P. 56(e)).
ANALYSIS
36. 	The parties’ Motions present two distinct issues. 	The first issue is
whether the Policy is legally valid or, alternatively, whether it was void ab initio as
an unlawful wagering contract in violation of North Carolina public policy. 	The
second issue is whether—assuming the Policy is, in fact, void—Wells Fargo is entitled
to a return of premiums paid on the Policy and, if so, in what amount.
37. 	Accordingly, the Court need reach the second issue only if it resolves the
first issue by determining that the Policy is void.
38. 	Both parties have moved for summary judgment on the issue of whether
the policy is valid. Although the parties offer starkly different analyses regarding the
proper application of the relevant legal principles to the facts of this case, they are in

agreement that this issue should be resolved via summary judgment due to the
absence of any genuine issue of material fact. The Court agrees with the parties that
all material facts regarding the validity of the Policy are undisputed and the Motions
only present issues of law.
39. 	Columbus Life argues that the Policy lacked a legally recognized
insurable interest from its inception as it was merely an impermissible wager on Dr.
Trevathan’s life and therefore void ab initio. 	(Compl. ¶ 33.) 	Columbus Life asserts
that the role played by Chesson and the Chesson Entities with regard to the issuance
of the Policy makes this a quintessential example of an unlawful STOLI policy.
40. 	Wells Fargo, conversely, contends that the Policy is legally valid and
enforceable. 	Wells Fargo asserts that (1) Dr. Trevathan possessed an insurable
interest in his own life at the time the Policy was issued; and (2) the mere fact that
he viewed the Policy purely as a profit-making venture and received assistance from
Chesson and the Chesson Entities in obtaining the Policy in no way renders the Policy
invalid.
41. 	It is appropriate to acknowledge the recent history of STOLI litigation
across the country, even though the holdings in such cases are not binding on this
Court. Beginning in the 2000s, there was an increase in interest regarding the buying
and selling of life insurance policies in the life settlement market, which generated
significant investor demand for such policies. 	The combination of high investor
demand and a limited pool of existing policies led to the emergence of STOLI policies.

The circumstances attendant to the creation of a typical STOLI policy have been
described as follows:
In a STOLI transaction, an investor approaches a potential insured,
usually an individual who is over seventy years old and in declining
health, and suggests a means by which the investor could acquire a
policy on the individual’s life. The suggestion is often appealing to the
individual because of the financial remuneration the investor will pay
to the individual for the opportunity.
The investor does not have an insurable interest in the individual, so
any direct purchase of a policy on the individual’s life by the investor
would be void for a lack of insurable interest. 	As a result, STOLI
transactions have historically been structured in the following way: (1)
the individual applying for the policy, or someone with an insurable
interest in the life of the individual, purchases the policy; (2) the investor
pays the premiums on the policy, at least for the first two years (the
policy’s period of contestability); and (3) at the end of the two-year
period, the owner may decide whether to keep the policy (and pay the
investor back its advances plus some additional fee) or transfer the
policy to the investor, directly or indirectly, in exchange for financial
remuneration.11
42. 	Over the past two decades, numerous cases addressing the validity of
STOLI policies have been litigated in courts throughout the country. Although these
cases address a common issue—that is, whether a valid insurable interest on the life
of the named insured existed at the time the alleged STOLI policy was issued—no
national consensus has emerged as to when a policy should be declared void on STOLI
grounds. The absence of such a consensus is not surprising as each state has its own
rules for determining when a valid insurable interest exists in connection with the
11 Mary Ann Mancini and Caitlin L. Murphy, The Elusive Insurable Interest Requirement:
Are You Sure the Insured is Insured?, 46 REAL PROP., TR., & EST. L. J. 409, 439 (Winter 2012);
see also Life Settlements Task Force, Staff Report to the U.S. Sec. & Exch. Comm’n 35 (2010)
(providing detailed background on STOLI policies).

issuance of a life insurance policy. 	The STOLI cases from other jurisdictions are
helpful in obtaining a greater understanding of the issues that often arise in this
context, and this Court has reviewed many of those decisions in connection with the
present Motions. Ultimately, however, the Court must decide this issue based solely
upon North Carolina law.
43. 	Despite the explosion of litigation on this subject since the 2000s, North
Carolina’s appellate courts have not had occasion to address STOLI-related issues in
recent years. Our Supreme Court has, however, decided a number of cases involving
the issue of whether a life insurance policy was void as an unlawful wagering contract
that amounted to an impermissible wager on human life in violation of North
Carolina public policy. This line of cases was decided between the latter part of the
19 th century and the first few decades of the 20 th century and therefore involved
circumstances less sophisticated than modern STOLI schemes. Nevertheless, these
cases—as discussed below—establish pertinent legal principles that control the
Court’s analysis of the present Motions.
44. 	It is important to note that our Supreme Court has made clear that a
life insurance policy is a form of property and that, once lawfully issued, it can be
assigned or sold to any third party—for investment purposes or otherwise. See, e.g.,
Hardy v. Aetna Life Ins. Co., 152 N.C. 286, 292 (1910) (“Hardy I”) (holding that “[a]
person insuring his own life may designate any person whatever as beneficiary,
irrespective of insurable interest in that beneficiary” and that “a policy of life

insurance, validly issued to one having an insurable interest, becomes in his hands a
valuable chose in action, which should be assignable as any other property right”).12
45. 	Nevertheless, our Supreme Court has also held that in order for a life
insurance policy to be lawfully issued, the party obtaining the policy must possess an
insurable interest in the life of the named insured at the time of issuance; otherwise,
the policy is void ab initio as an unlawful wagering contract. See, e.g., Trinity College
v. Travelers’ Ins. Co., 113 N.C. 244, 248 (1893) (holding that life insurance contracts
without an insurable interest “become[ ] what the law denominates a wagering
contract” and “all such contracts must be declared illegal and void, no matter what
good object the parties may really have in view”); Burbage v. Windley, 108 N.C. 357,
361 (1891) (“As the assured had no insurable interest in the life of the cestui que
vie the contract was simply a wager–it was not founded upon any just and lawful
consideration–it was a mere gambling speculation.”).
46. 	This, of course, raises the question of how to determine whether a person
taking out a life insurance policy actually possesses such an insurable interest in the
life of the insured under North Carolina law. The parties offer competing arguments
on this issue as applied to the facts of this case.
47. 	Although conceding—as it must—the fact that Dr. Trevathan possessed
an insurable interest in his own life, Columbus Life argues that this proposition does
not end the inquiry. Instead, Columbus Life contends that in assessing whether the
12 Columbus Life does not dispute the fact that if the Policy had been lawfully issued at its
inception, Dr. Trevathan would have been legally entitled to sell it to an investor such as
LifeTrust thereafter.

role played by Chesson and the Chesson Entities rendered the Policy a wagering
contract, 	this 	Court 	should 	employ 	a 	totality 	of 	the 	circumstances 	approach.
Specifically, Columbus Life asserts that
North Carolina trial courts must analyze the substance of transactions
and not just their form, considering (i) who paid the premiums; (ii)
whether the policy was taken out in good faith; (iii) whether the
subsequent assignee was “cognizant” of and/or did it “take part in” the
original scheme or transaction; (iv) whether—if the insured did not pay
the premiums—any meaningful consideration was provided to the party
that paid the premiums, such as a pre-existing debt; and (v) whether,
after looking past form to substance, the entire transaction was merely
a cover for a wager.
(Pl.’s Br. Supp. Mot. Summ. J., ECF No. 109 [SEALED], ECF No. 117.2, at 9–11
(emphasis in original).)
48. 	Conversely, Wells Fargo offers a bright-line test: “For a policy to be an
illegal wager in a circumstance where a person takes out a policy insuring his own
life, the insured and stranger must agree prior to the policy’s issuance that the
insured will acquire the policy and then assign it to the stranger.” (Def.’s Br. Supp.
Mot. Summ. J., ECF No. 106 [SEALED], ECF No. 116.1, at 21.)
49. 	Although our General Assembly has enacted a handful of statutes on the
subject of insurable interests, none of them specifically address the issue presented
here.13 See N.C.G.S. § 58-58-75 (explaining when an insurable interest exists in the
life of an employee or agent); Id. § 58-58-80 (addressing the existence of an insurable
interest in the life of partners in a partnership); Id. §§ 58-58-85 (providing trustee
with an insurable interest in the life of a person covered by a pension plan); Id. § 58-
13 In some states, unlike North Carolina, the legislature has passed laws expressly addressing
STOLI policies.

58-86 (considering when a charitable organization has an insurable interest in the
life of an insured). Additionally, Section 58-58-90 provides that
G.S. 58-58-75, 58-58-80, 58-58-85, and 58-58-86 do not limit or abridge
any insurable interest or right to insure now existing at common law or
by statute, and shall be construed liberally to sustain insurable interest,
whether as a declaration of existing law or as an extension of or addition
to existing law.
Id. § 58-58-90 (2022).
50. 	North 	Carolina 	also 	has 	a 	statute 	prohibiting 	gaming 	or 	betting
contracts. See N.C.G.S. § 16-1 (“All wagers, bets or stakes made to depend upon any
race, or upon any gaming by lot or chance, or upon any lot, chance, casualty or
unknown 	or 	contingent 	event 	whatever, 	shall 	be 	unlawful; 	and 	all 	contracts,
judgments, conveyances and assurances for and on account of any money or property,
or thing in action, so wagered, bet or staked, or to repay, or to secure any money, or
property, or thing in action, lent or advanced for the purpose of such wagering,
betting, or staking as aforesaid, shall be void.”).
51. 	None of these statutes provide specific guidance in the present case.
Therefore, the Court turns its attention to the case law from our Supreme Court that
has addressed the circumstances under which a life insurance policy is deemed to be
an unlawful wagering contract. These decisions include U.S. Fid. & Guaranty Co. v.
Reagan, 256 N.C. 1 (1961); Allgood v. Wilmington Sav. & Tr. Co., 242 N.C. 506 (1955);
Webb v. Insurance Co., 216 N.C. 10 (1939); Wharton v. Home Sec. Life Ins. Co., 206
N.C. 254 (1934); Crump v. Southern-Dixie Life Ins. Co., 204 N.C. 439 (1933); Slade v.
Life & Cas. Ins. Co. of Tenn., 202 N.C. 315 (1932); McNeal v. Life & Cas. Ins. Co. of
Tenn., 192 N.C. 450 (1926); Howell v. Am. Nat’l Ins. Co., 189 N.C. 212 (1925); Am. Tr.

Co. v. Life Ins. Co., 173 N.C. 558 (1917); Johnson v. Mut. Ben. Life Ins. Co., 157 N.C.
106 (1911); Hardy v. Aetna Life Ins. Co., 154 N.C. 430 (1911) (“Hardy II”); Hardy I,
152 N.C. 286 (1910); Pollock v. Household of Ruth, 150 N.C. 211 (1909); Hinton v.
Mut. Reserve Fund Life Ass’n, 135 N.C. 314 (1904); Powell v. Dewey, 123 N.C. 103
(1898); Albert v. Insurance Co., 122 N.C. 92 (1898); Trinity College, 113 N.C. 244
(1893); and Burbage, 108 N.C. 357 (1891).
52. 	The 	Court 	has 	carefully 	reviewed 	each 	of 	the 	above-cited 	cases.
Although none of them are completely on point factually with the circumstances
presented here, the Court deems the most instructive to be Hardy I, Johnson, and
Howell.14
53. 	In Hardy I, the defendant insurance company issued three life insurance
policies on the life of the plaintiff’s uncle, which were payable to the executors,
administrators, or assigns of the uncle. 	152 N.C. at 288. 	At some point after the
policies’ issuance, the uncle assigned two of the policies to the plaintiff. 	Id. 	The
plaintiff did not have knowledge of, or involvement in, any of the transactions
surrounding the procuring of the policies. 	Id. 	The assignment was made with the
approval of the insurance company. Id.
54. 	The 	Supreme 	Court 	concluded that 	the 	policy 	was 	not an illegal
wagering contract and that as long as the assignment was otherwise valid the nephew
14 Columbus Life seeks to rely on several other cases in which the Supreme Court found an
insurable interest to be lacking, but those cases are materially distinguishable because they
involved circumstances in which a person took out a life insurance policy on the life of
someone else—which did not occur in the present case. 	See Burbage, 108 N.C. at 360–62;
Hinton, 135 N.C. at 315–16; Wharton, 206 N.C. at 256; Allgood, 242 N.C. at 513–14; Trinity
College, 113 N.C. at 248.

was entitled to the policy’s proceeds despite not having an insurable interest in the
life of the insured. 	Id. 	In its opinion, the Supreme Court stated that, as a general
proposition, a lawfully issued life insurance policy can subsequently be assigned to a
third party lacking an insurable interest in the insured’s life.
[W]here an insurant makes a contract with a company, taking out a
policy on his own life for the benefit of himself or for his estate generally,
or for the benefit of another, the policy being in good faith and valid at
its inception, the same may, with the assent of the company, be assigned
to one not having an insurable interest in the life of the insured;
provided this assignment is in good faith, and not a mere cloak or cover
for a wagering transaction.
Id. at 288–89.
55. 	The Supreme Court then explained the circumstances under which it
had previously invalidated policies taken out by an insured on his own life on the
ground that the policies were actually unlawful wagering contracts.
In several cases, where the opinion apparently upholds the contrary
view, 	it 	will 	be 	found 	that 	the 	cause 	was 	correctly 	decided 	and
sustainable on the ground that the policy, though taken out in the name
of the insured, was procured in pursuance of a scheme and purpose to
assign to one having no insurable interest, and that the proposed
assignee was cognizant of the arrangement and took part in it. This was
true in the case of Warnock v. Davis, 104 U.S. 775, 26 L. Ed. 924, and
also in Cammack v. Lewis, 82 U.S. 643, 21 L. Ed. 244, 15 Wall. 643. In
both of these cases the assignees were parties to the arrangement by
which the policies were procured and assigned, and having no insurable
interest in the life of the insured, the facts disclosed, as far as the
assignments were concerned, a clear case of wagering contract on the
duration of a human life, forbidden by the law, and the assignments
were not allowed to stand.
. . .
Undoubtedly . . . there are decisions which directly hold that a life
insurance policy, though valid at its inception, may not be assigned to
persons having no insurable interest in the life of the insured; and North
Carolina has been referred to as upholding this view both in textbooks
and in decisions of other courts. If this is a correct interpretation of our

cases on this subject, we would not hesitate to hold that they were not
well decided; but, while some of them certainly give color to this view,
we think that a more careful consideration of our decisions will disclose
that in all of them, where the contract was declared void or set aside, it
appeared that the assignment of the policy to one having no insurable
interest was made in pursuance of a preconceived purpose, and that the
assignee had suggested the arrangement or been a party to it.
Id. at 290 (emphasis added).
56. 	In 	Johnson, 	an individual took 	out a policy 	on his own life 	and
subsequently assigned it to a third party. Upon the death of the insured, the insured’s
administrator contended that the policy was “void as a wagering transaction.”
Johnson, 157 N.C. at 107–09. 	The jury rejected this argument, finding that the
assignee “had nothing to do with the taking out of the policy by [the insured], and
that the assignment of the policy was made in good faith, and not as a cloak or cover
for a wagering transaction or speculation on the life of [the insured],” and that “[t]he
evidence was to the effect that the [assignee] knew nothing about [the insured] taking
out the policy until after it was issued[.]” 	Id. at 108. 	Our Supreme Court affirmed
the judgment and determined that “[i]t is impossible to distinguish [the facts of
Johnson] from Hardy[.]” 	In reaching this conclusion, the Court reaffirmed the rule
set out in Hardy I, stating that “ ‘a policy of life insurance, validly issued to one having
an insurable interest, becomes in his hands a valuable chose in action, which should
be assignable as any other property right, unless such assignment be opposed to some
clear rule of public policy.’ ” 	Id. at 	109 (quoting Hardy I, 152 N.C. at 289). 	The
Supreme Court ended its analysis by noting that, in light of its prior decision in

Hardy, “the law . . . must now be considered as thoroughly settled in this state,
whatever may be the views of other courts.” Id. at 110.
57. 	Finally, in Howell, the Supreme Court was once again tasked with
determining whether the named beneficiary of the deceased insured’s life insurance
policy could recover the proceeds of the policy despite lacking an insurable interest in
the life of the insured. Howell, 189 N.C. at 214. The Supreme Court concluded that
the beneficiary was entitled to the proceeds because beneficiaries of a policy do not
need to possess such an insurable interest. Id. In so holding, the Court summarized
the law on this subject as follows:
[E]very person has an insurable interest in his own life, and may
lawfully insure it for the benefit of his own estate, or on behalf of any
other person. It is not necessary that such beneficiary shall possess an
interest in the life insured. . . . 	In Hardy v. Ins. Co., 152 N.C. 286, 67
S.E. 767, Justice Hoke, writing for this Court, says: “We consider it . . .
as established by the great weight of authority that where an insurant
makes a contract with a company, taking out a policy on his own life for
the benefit of himself or for his estate generally, or for the benefit of
another, the policy being in good faith, and valid at its inception, the
same may, with the assent of the company, be assigned to one not having
an insurable interest in the life of the insured; provided, this assignment
is in good faith and not a mere cloak or cover for a wagering contract.”
. . .
It is only when a policy has been issued upon the life of another, upon
application and for the benefit of one who has no insurable interest in
the life insured, and who pays or undertakes to pay the premiums, that
the policy is void as against public policy. 	Such a policy is a wagering
transaction. So, although a policy of insurance be issued, payable to the
estate of the insured, if at the inception of the contract, there is an
agreement that it shall subsequently be assigned to one who has no
insurable interest and who agrees to pay the premiums, the policy is void,
for notwithstanding the form of the transaction, it is in fact a wager upon
the life of another, and is therefore condemned by the law as against
public policy[.]

Id. at 215 (emphasis added).
58. 	Based upon a careful reading of these cases from our Supreme Court, it
is clear that, under North Carolina law, in circumstances such as those present here
in which the policy at issue is taken out by the insured on his own life, the following
rule applies: The policy is void as a wagering contract only where there is evidence of
an agreement—prior to the policy’s issuance—that the policy would be assigned to a
third party and that the third party participated in that agreement. In other words,
in order for such a policy to be deemed an unlawful wagering contract in this context,
the ultimate assignee must have been a participant in (1) the sequence of events by
which the policy was initially obtained, and (2) the agreement that the assignment
would occur thereafter.
59. 	Here, as Columbus Life concedes, there is no evidence in the record of
any involvement whatsoever by LifeTrust, Advanced Settlements, Assured, or CSNL
relating to the Policy until 2007—which was well after the policy’s issuance in 2005.
Those entities had nothing to do with the Policy’s issuance to Dr. Trevathan and, in
fact, did not know it existed until 2007. Thus, Columbus Life is unable to satisfy the
test articulated by our Supreme Court with regard to whether the Policy is void as a
wagering contract.
60. 	Columbus Life argues that, even assuming a pre-issuance agreement
must be shown in order for it to prevail in this case, such an agreement did, in fact,
exist—if not with LifeTrust (and its affiliated entities), then with Chesson. But this
argument is fatally flawed for at least two reasons.

61. 	First, neither Chesson nor the Chesson Entities were the ultimate
assignee of the Policy after its issuance. Rather, the Policy was assigned to LifeTrust.
Columbus Life attempts to argue that the collateral assignment form signed by Dr.
Trevathan suffices for this purpose, but this contention is incorrect. As explained in
the following testimony from Lisa B. Fangman, a senior vice-president of insurance
operations for Columbus Life’s parent company, this document merely constituted a
“collateral assignment” rather than an “absolute assignment.”
Q. 	This is a May 9, 2005, letter from Bonnie Miller to Columbus Life
client services enclosing a collateral assignment. 	And then the final
page of the document is a May 17, 2005, letter recording the collateral
assignment. Are you familiar with this exhibit?
A. I am.
Q. All right. What is it?
A. [I]t is a submission of a collateral assignment form for the Trevathan
policy to E & W, LLC, which was received by Columbus Life, determined
to be in good order in terms of contractually permissible, and recorded
and confirmed.
. . .
Q. 	The collateral assignment document itself was actually a – a form
document, right, entitled Assignment of Policy? This is the second page
of the exhibit.
A. Yes.
Q. All right. And there’s two options here where the person filling out
this form can either check a box for, As Collateral Assignment to the
Extent of Assignee's Interest, or As Absolute Assignment. 	Do you see
that?
A. I do.
Q. Okay. What’s the difference between a collateral assignment and an
absolute assignment?

A. An absolute assignment is an assignment of the entire policy and any
proceeds associated with it, whereas the collateral assignment is only in
effect up – up to the amount of – of debt between the assignee and the
owner of the policy.
Q. 	So in this case, the amount of debt between the assignee, E & W,
LLC, and the owner of the policy listed here as insured, Gordon
Trevathan. Right?
A. Yes.
(Fangman Dep. 95:8–97:24.)
62. 	Thus, the Policy itself was never actually assigned to Chesson (or the
Chesson Entities). The execution of the collateral assignment form did not give them
ownership of the Policy, which remained at all times with Dr. Trevathan until his
2007 sale of the Policy to LifeTrust.
63. 	Second, although Columbus Life attempts to gloss over the significance
of the options Dr. Trevathan possessed following the issuance of the Policy to him by
Columbus Life, the existence of these options further serves to refute its argument.
As mentioned earlier, the documents executed between Dr. Trevathan and Chesson
(on behalf of E&W) made clear that Dr. Trevathan retained three options upon the
expiration of the two-year period following the Policy’s issuance. One of these options
was for Dr. Trevathan to pay off the premium loans and retain his existing ownership
of the Policy going forward. 	(Prem. Fin. Agrmt. Letter, at 67.) 	Columbus Life’s
argument as to the unlikelihood that Dr. Trevathan would have actually chosen that
option misses the mark. The point is that Dr. Trevathan was at all times in complete
control over the decision as to whether he would keep, abandon, or sell the Policy—
which is fundamentally inconsistent with the notion of an insurance policy that is,

from its inception, nothing more than a wagering contract on human life by one
lacking an insurable interest in that life.
64. 	Moreover, the present facts simply do not implicate the public policy
concerns discussed in the above-referenced cases from our Supreme Court. 	Those
cases make clear that public policy is violated in circumstances where a third party
lacking a legally recognized insurable interest in the insured’s life participates in the
initial procurement of the policy and, from that point on, stands to benefit from the
early death of the insured through its status as the policy’s ultimate assignee.
65. 	No such wager by a “stranger” on the life of Dr. Trevathan existed at the
time of the Policy’s issuance. 	Indeed, it is worth noting that—as Columbus Life’s
counsel conceded at the 2 March hearing in this case—Chesson (and, by extension,
the Chesson Entities) would not have profited from Dr. Trevathan’s death. 	To the
contrary, 	Chesson 	financially 	benefitted—and 	continues 	to 	do 	so—from 	Dr.
Trevathan remaining alive. 	Chesson accrued interest on the premium finance loan
until the loan balance was satisfied by proceeds from the sale of the Policy.
Additionally, Chesson received a brokerage fee for Dr. Trevathan’s life settlement.
Moreover, 	Chesson, 	as 	the 	agent 	for 	the 	Policy, 	continues 	to 	collect 	annual
commissions each time the Policy is renewed.
66. 	Finally, the Court observes that its holding today is consistent with the
following statement from our Supreme Court in Hardy II:
A sound public policy requires the enforcement of contracts deliberately
made, which do not clearly contravene some positive law or rule of public
morals. It is surely not a sound policy to permit insurers to contract to
insure the lives of persons, receive premiums therefor as long as the

insured, the beneficiary, or the assignee will continue to pay, and then,
when the time comes for the insurers to pay what they agreed to pay,
allow them to escape their contract on the ground of want of insurable
interest in the life of the insured, unless it clearly appears that such
contracts are pernicious and dangerous to society. 	Courts should not
annul contracts on doubtful grounds of public policy. In such matters it
is better that the Legislature should speak first[.]
Hardy II, 154 N.C. at 436 (quoting Crosswell v. Ct. Indem. Assn., 51 S.C. 103, 117
(1897)).
67. 	Indeed, it need hardly be said that our General Assembly possesses the
authority to pass legislation with regard to STOLI policies that would create a new
set of rules for North Carolina courts to apply in addressing challenges to life
insurance policies asserted on this ground. 	See, e.g., Martin v. N.C. Housing Corp.,
277 	N.C. 	29, 	41 	(1970) 	(“[Q]uestions 	as 	to 	public 	policy 	are 	for 	legislative
determination.”). However, unless and until such legislation is enacted, this Court is
required to follow the applicable principles that have been articulated by our
Supreme Court on this subject, which is exactly what this Court has attempted to do
in this Opinion.15
CONCLUSION
THEREFORE, IT IS ORDERED as follows:
1. 	Plaintiff Columbus Life’s Motion for Summary Judgment is DENIED as to its
first and second causes of action for declaratory relief.
15 Because the Court has ruled that Dr. Trevathan’s Policy is valid and enforceable, it need
not—and does not—reach the second issue briefed by the parties regarding whether a refund
of premiums to Wells Fargo would be appropriate upon the invalidation of the Policy. That
issue is now moot.

2. 	Defendant Wells Fargo’s Motion for Summary Judgment is GRANTED as to
Columbus Life’s first and second causes of action for declaratory relief.
3. 	The life insurance policy issued by Columbus Life to Dr. Trevathan is legally
valid and enforceable.
4. 	Plaintiff Columbus Life’s Motion for Summary Judgment and Defendant Wells
Fargo’s Motion for Summary Judgment are DENIED as moot as to all other
issues.
SO ORDERED, this the 4th day of May, 2023.
/s/ Mark A. Davis
Mark A. Davis
Special Superior Court Judge
for Complex Business Cases