The defendants Lenke Halpert 2006 A Irrevocable Trust Dated 5/15/06 (the Trust); Lenke Halpert Irrevocable Family Trust Dated 11/2/06; Estate of Lenke Halpert; Baile Halpert, Trustee (Ms. Halpert); and Miriam Wagschal, Trustee (Ms. Wagschal), move for an order, pursuant to CPLR 3212, awarding them partial summary judgment against plaintiff Lincoln Life & Annuity Company of New York (Lincoln Life).

This action involves two life insurance policies, policy number 7304217 (the Policy) and policy number MN556759 (the Second Policy), issued by Lincoln Life, that the insurance company suspects were the product of unlawful stranger-owned life insurance schemes (STOLI or IOLI schemes). In this action, Lincoln Life is seeking a judgment declaring the policies to be void, ab initio, on the ground that there was no mutual consent and meeting of the minds between Lenke Halpert (Decedent) and Lincoln Life, that the policies were procured by material misrepresentation and the failure to disclose material facts in response to the questions presented on the applications and that there exists no insurable interest in the life of the Decedent, along with money damages to restore Lincoln Life to its pre-contract position. Since the instant motion seeks partial summary judgment with regard to only the first Policy issued, the remainder of this decision will address the Second Policy only as it relates to the defendants' demand for relief.

More specifically, on July 14, 2006, Lincoln Life issued the Policy in the face amount of $5,000,000, with Decedent as the insured and owner, for the benefit of the Trust; Ms. Halpert was named as the Trustee. In order to obtain this Policy, Decedent purportedly executed an application, Part 1, dated May 16, 2006, which was solicited from and procured by Isaac Teitelbaum and Abraham Friedman, as agents. On May 8, [*2]2006, decedent submitted to a paramedical examination, at which time Part 2 of the application was executed; that application represents that decedent was in perfect health and last consulted with her personal physician in the spring of 2006 for a routine examination.

As is also relevant to the motion now before the court, during the underwriting process, Lincoln Life was furnished with an Inspection Report that was facilitated and/or arranged by Mr. Teitlebaum and Mr. Friedman, which allegedly contains Decedent's answers to questions asked during a telephone interview. The Inspection Report represented that Decedent earned $300,000 in rental income annually, that her assets totaled "$20,000,000+" in real estate holdings and that she had no liabilities. Lincoln Life was also furnished with an IOLI Certification executed by Ms. Halpert and Mr. Teitlebaum on August 17, 2006 in which it was represented that the Policy was not being purchased for sale.

Decedent passed away on March 21, 2008. Thereafter, Lincoln Life received a demand from Ms. Halpert, as Trustee, seeking the payment of death benefits under the Policy. Because Decedent's death occurred during the contestable period, Lincoln Life commenced what it describes as a routine investigation. In the course of that investigation, on June 4, 2008, William Buzzone of ICS Merrill, Lincoln Life's outside investigator, interviewed Ms. Halpert and Mr. Wagschal, who appeared for Ms. Wagschal; the interview revealed that neither knew anything about the Trust, the purchase of the Policy, the payment of the premiums or Decedent's finances or net worth. Lincoln Life contends that its request for documents went unanswered; the defendants contend that all of the documents that were requested were produced.

In support of their motion, the defendants argue that Lincoln Life's refusal to pay the death benefits due under the Policy on the ground that material misrepresentations were made in the application is without merit. In this regard, the defendants assert that under New York law, an insurer cannot rescind a policy based upon any representations that were allegedly made unless those representations are physically attached to the Policy at the time that it is issued; they contend that no application was attached to the Policy delivered to Decedent. Further, the defendants assert that the representations allegedly relied upon by Lincoln Life were not made in the Policy application, but were instead contained in an Agent's Certification; Inspection Report; and the application for the Second Policy, since the application for the Policy did not ask any questions concerning Decedent's income or net worth. The defendants also aver that Lincoln Life's claim that the Trust lacks an insurable interest in Decedent's life must fail as a matter of law, since the Policy was procured by Decedent; it has always been owned by the Trust; the beneficiaries of the Trust are Ms. Halpert, who is Decedent's daughter-in-law, and Ms. Wagschal, who is Decedent's granddaughter; and that the Trust was funded by Ms. Wagschal.

In so moving, the defendants rely upon an affirmation from counsel, Cheryl D. Lipsius, in which she alleges that the Policy issued to Decedent did not have a copy of the application attached to it. When she requested a duplicate, it similarly did not have a copy of the application attached. The defendants also rely upon an affirmation submitted by Joshua Farkas, an attorney, who alleges that he represented Abe Schwartz on May 12, 2006 when Mr. Schwartz sold 138 15th Street in Brooklyn for $860,000. Mr. Farkas further avers that Melech Wagschal, a/k/a Elimelech Wagschal, who is Ms. Wagschal's husband, held an ownership interest in that property at the time of the sale. Mr. [*3]Wagschal's share of the proceeds of the sale were placed in an IOLA account and on July 20, 2006, Mr. Wagschal directed counsel to write a check in the amount of $165,000 to the Trust. In her affirmation, Ms. Wagschal states that the Trust was funded by her and her husband, i.e., the first premium of $166,000 was paid using the proceeds of the sale of 138 15th Street. In her affirmation, Ms. Halpert asserts that on May 16, 2006, she and Decedent submitted an application for the Policy, naming the Trust as the beneficiary.

In opposition to the motion, the plaintiff alleges that the defendants have failed to produce documents pertaining to Decedent's assets, net worth and medical condition, as demanded during its contestability investigation. Lincoln Life further asserts that the defendants' motion is made in reliance upon statements that are made by persons who do not have personal knowledge of the facts, so that the motion is predicated upon inadmissible hearsay. More specifically, Lincoln Life alleges that Ms. Lipsius lacks personal knowledge of the content of the Policy, since the original was not delivered to her and has never been produced. Lincoln Life also argues that the motion should not be granted on the ground that it has not been afforded the opportunity to conduct any discovery, including issuing subpoenas and conducting depositions.

In reliance upon an affidavit submitted by Helena Roberts, a manager of its Underwriting and New Business Department, Lincoln Life further asserts that in 2006, Lincoln Life did not make and retain a photocopy of an original policy of life insurance after it was assembled. Thus, to recreate a "specimen" of a policy, Lincoln Life is required to review the files and manually copy and attach the applications; a specimen copy of the Policy is annexed to Ms. Roberts' affidavit. Lincoln Life also argues that pursuant to its business practices and procedures, application forms were inserted and affixed to policy forms when assembling a policy for delivery. Ms. Roberts further alleges that the copy of the Policy attached to the defendants' moving papers is not a photocopy of the original Policy, but was created by Lincoln Life's Customer Service Department in response to Ms. Lipsius' request. In this regard, the procedures followed by the Customer Service Department when asked to provide a copy of a policy of insurance are not the procedures utilized by the Underwriting/New Business Department when a policy is originally issued and delivered. Hence, in accordance with Lincoln Life's procedures, a copy of the application was not attached to the duplicate copy provided to Ms. Lipsius by the Customer Service Department.

Lincoln Life further argues that the affidavit of Mr. Farkas fails to establish that Mr. Wagschal owned any interest in 138 15th Street at the time that it was sold. In this regard, Lincoln Life notes that the Statute of Frauds requires that an ownership interest in real property must be in writing and the defendants offer no such writing to evidence Mr. Wagschal's ownership. In addition, Lincoln Life notes that the power of attorney attached to the moving papers to evidence ownership is "limited to the purchase and mortgage of the property," so that it does not provide Mr. Wagschal with authority to sell the property. Finally, the proceeds of the sale were made payable to the attorney's IOLA account and a check was thereafter issued to the Trust, so that Mr. Wagschal never had possession of the funds. Lincoln Life thus concludes that the documents relied upon by the defendants to establish that the Trust had an insurable interest in Decedent's life instead appear to establish that Mr. Wagschal took the proceeds of the sale of the property from Mr. Schwartz, a stranger to Decedent, and since neither Decedent nor the beneficiaries paid any portion of the premiums, the Trust lacks an insurable interest in her life.

As is relevant to the instant dispute, the Policy contains a provision that states:

"Entire Contract. The policy and the application for the policy (including any supplemental application for additional Specified Amounts) constitute the entire contract between the parties. All statements made in the application will be deemed representations and not warranties. No statements will be used in defense of a claim under the policy unless it is contained in the application, and a copy of the application is attached to the policy when it is issued."

The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence in admissible form to demonstrate the absence of any material issues of fact (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). A "movant's failure to make a prima facie showing of entitlement to judgment as a matter of law requires a denial of the motion, regardless of the sufficiency of the opposing papers' and it is only if the movant succeeds in making this showing that the burden shifts to the party opposing the motion" (Ferluckaj v Goldman Sachs & Co., 12 NY3d 316, 321 [2009], quoting Alvarez, 68 NY2d at 324). Further, mere conclusory allegations, unsubstantiated assertions, or speculation may not defeat a motion for summary judgment (see e.g. DePodwin & Murphy v Fonvil, 38 AD3d 827, 827 [2007]; Carleton Studio v MONY Life Ins. Co., 18 AD3d 491, 492 [2005]). On such a motion, the court is not to determine credibility, but whether a factual issue exists (Capelin Assoc. v Globe Mfg., 34 NY2d 338 [1973]). Thus, " issue finding, as opposed to issue determination, is the key to summary judgment'" (Paulin v Needham, 28 AD3d 531, 531 [2006], quoting Stretch v Tedesco, 263 AD2d 538, 539[1999]).

Turning to the substantive issues, Insurance Law § 3204(a), entitled "policy to contain entire contract; statements of applicant to be representations and not warranties; alterations", provides that: "(1) Every policy of life, accident or health insurance, or contract of annuity, delivered or issued for delivery in this state, shall contain the entire contract between the parties, and nothing shall be incorporated therein by reference to any writing, unless a copy thereof is endorsed upon or attached to the policy or contract when issued. "(2) No application for the issuance of any such policy or contract shall be admissible in evidence unless a true copy was attached to such policy or contract when issued."

In interpreting this language, it has been held that: "The purpose of this section is to impose upon a company the duty of setting forth in each policy issued the entire agreement, as well as every statement or representation which induced its making, and upon which the company relied, if it is to be available as a defense. (Archer v Equitable Life Assurance Society, 218 NY 18, 23, 24.) "The application for the insurance in question was not attached to the policy. Any statements or representations therein contained are, therefore, of no avail here. We must take the policy before us as stating the entire agreement between the parties."

(Hurley v John Hancock Mut. Life Ins. Co., 247 AppDiv 547, 549 [1936]; accord Tannenbaum v Provident Mut. Life Ins. Co., 53 AD2d 86, 106 [1976], affd 41 NY2d 1087 [1977] [the application for the issuance of the subject policy was not admissible in evidence under circumstances where it was not attached to and returned with the policy, so that the insurer was estopped from urging misrepresentation by decedent in avoidance of the contract in reliance upon the application]).

Turning to the issue of whether the Trust had an insurable interest in Decedent's [*5]life,

Insurance Law § 3205 provides, in pertinent part, that: "(a) In this section: "1) The term, insurable interest' means: "(A) in the case of persons closely related by blood or by law, a substantial interest engendered by love and affection; "(B) in the case of other persons, a lawful and substantial economic interest in the continued life, health or bodily safety of the person insured, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the insured. . . ."(b)(1) Any person of lawful age may on his own initiative procure or effect a contract of insurance upon his own person for the benefit of any person, firm, association or corporation. Nothing herein shall be deemed to prohibit the immediate transfer or assignment of a contract so procured or effectuated. "(2) No person shall procure or cause to be procured, directly or by assignment or otherwise any contract of insurance upon the person of another unless the benefits under such contract are payable to the person insured or his personal representatives, or to a person having, at the time when such contract is made, an insurable interest in the person insured."

"The insurable interest requirement at common law was designed to distinguish an insurance contract from a wager on someone's life" (Kramer v Phoenix Life Ins. Co., ___ NY3d ___, 2010 NY Slip Op 08376, *5 [2010], citing Ruse v Mutual Benefit Life Ins. Co., 23 NY 516, 523 [1861] [a policy obtained by a party who has no interest in the subject of insurance is a mere wager policy]). The court went on to explain that: "The statutory mandate that a policy must be obtained on an insured's own initiative' requires that the decision to obtain life insurance be knowing, voluntary, and actually initiated by the insured. In common parlance, to act on one's own initiative' means to act at one's own discretion: independently of outside influence or control' (Merriam-Webster's Collegiate Dictionary, 10th ed., 602 [1996]). The key point is that the policy must be obtained at the insured's discretion." (Kramer, 2010 NY Slip Op 8376, *7).

Applying the above discussed general principles of law to the facts of this case, Lincoln Life cannot refuse to pay benefits under the Policy based upon an alleged misrepresentation that was not included in the Policy. In moving for partial summary judgment, however, the defendants argue that a copy of the application upon which Lincoln Life relies was not attached to the Policy when it was delivered to Decedent and moreover, did not include any representations with regard to Decedent's income and/or finances. This assertion, which is made in an affirmation submitted by Ms. Lipsius, does not allege that her allegation is based upon personal knowledge. Thus, the defendants fail to make a prima facie showing that the application was not attached to the Policy. Further, even assuming that the defendants met their burden, the affidavit of Ms. Roberts, in which she alleges that applications were always attached to policies before they were delivered, raises an issue of fact sufficient to warrant denial of the motion. In addition, the defendants fail to establish that the allegations regarding Decedent's health, as made in the application for the Policy, were accurate.

Similarly, the defendants fail to make a prima facie showing that the Trust had an insurable interest in Decedent's life at the time that the Policy was issued. In this regard, Lincoln Life's allegation that when it first sought to interview the defendants, Ms. Wagschal did not appear and neither Ms. Halpert nor Mr. Wagschal offered any information with regard to the Trust, the application for the Policy, or Decedent's income or assets raise issues of fact with regard to whether an insurable interest did, in fact, exist. In addition, the documents attached to the defendants' moving papers fail to establish that [*6]Mr. Wagschal held any interest in 138 15th Street before it was sold, that he had any authority to sell it or that he received any of the proceeds. These facts, when viewed in conjunction with the absence of any evidence regarding the relationship of Mr. Schwartz to Mr. Wagschal, Decedent or the Trust, raise issues of fact with regard to whether Mr. Schwartz, a stranger to Decedent, procured the Policy.

Additionally, the Court notes that discovery has not been completed. Lincoln Life argues effectively that it has not yet been afforded full discovery (see generally R.C.S. Farmers Markets v Great American Ins. Co., 56 NY2d 918, 920-921 [1982], citing CPLR 3212[f]) For the foregoing reasons, the defendants' motion is denied in its entirety without prejudice to renewal upon the completion of discovery.

This constitutes the decision, order and judgment of the court.

E N T E R

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yvonne lewis, J.S.C.