United States Court of Appeals For the Seventh Circuit ____________________ Nos. 20-2339 & 20-2472 SUN LIFE ASSURANCE COMPANY OF CANADA, Plaintiff-Appellee, Cross-Appellant, v. WELLS FARGO BANK, N.A., as Securities Intermediary, Defendant-Appellant, Cross-Appellee. ____________________

Appeals from the United States District Court for the Northern District of Illinois, Western Division. No. 1:17-cv-06588 — Philip G. Reinhard, Judge. ____________________

ARGUED MARCH 30, 2022 — DECIDED AUGUST 17, 2022 ____________________

Before EASTERBROOK, WOOD, and HAMILTON, Circuit Judges. HAMILTON, Circuit Judge. This diversity action under Illi- nois law takes us to a corner of life insurance law dealing with insurable interests. For more than a century, courts in Illinois and across the country have tried to balance two general rules. First, the owner or buyer of a life insurance policy, at least at its inception, must have an insurable interest, typically some sort of family and/or financial interest in the continued 2 Nos. 20-2339 & 20-2472 life of the insured. If a stranger without an insurable interest buys insurance on another person’s life, the purchase is treated as void ab initio as a perhaps dangerous wager on an- other’s life. Second, though, a life insurance policy is a con- tract and can be a form of property. A person who buys a pol- icy supported by an insurable interest may choose voluntarily to sell, give, or otherwise assign the policy to a third party who does not have an insurable interest in the insured’s con- tinued life. Compare Warnock v. Davis, 104 U.S. 775 (1881), and Cisna v. Sheibley, 88 Ill. App. 385 (1899) (both treating stranger- originated life insurance policies as void), with Grigsby v. Rus- sell, 222 U.S. 149 (1911), and Bloomington Mutual Life Benefit Ass’n v. Blue, 120 Ill. 121, 11 N.E. 331 (1887) (both allowing sale or assignment of policy first purchased in good faith with proper insurable interest). This case presents a twenty-first century iteration of the insurable interest problem, in an era with an active secondary market for life insurance policies and even securitization of pools of policies obtained in the secondary market. See gener- ally PHL Variable Insurance Co. v. Price Dawe 2006 Insurance Trust, 28 A.3d 1059, 1069–70 (Del. 2011) (providing overview of issues and history). The district court found here that a $5 million life insurance policy was void because it had been purchased through an elaborate sequence of transactions de- signed to hide from the insurer the fact that there was no proper insurable interest. Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A., 2020 WL 1503641 (N.D. Ill. Mar. 30, 2020). The paper transactions took the form of a proper policy, but their substance amounted to a void wager on a stranger’s life. The court also allowed the insurer to keep almost all of the premiums that had been paid while the policy was in force. In these cross-appeals, we affirm the district court’s Nos. 20-2339 & 20-2472 3 judgment, with the one exception of the small portion of the premiums that the district court ordered to be refunded. I. Facts for Summary Judgment At the age of 78, Robert Corwell seemed to buy a new $5 million life insurance policy on his life with an annual pre- mium of nearly $300,000. His purchase was the visible part of a complex scheme of legal engineering by several companies to buy a life insurance policy so that its true nature as unlaw- ful stranger-originated life insurance would not be detected. The key facts underlying the purchase and later sale of the policy here are not in dispute. That makes the case suitable for the parties’ cross-motions for