A stranger-originated life insurance (STOLI) policy is a life insurance policy obtained as an investment for a stranger, rather than for the benefit of the insured’s beneficiaries. Public policy disfavors STOLI policies because, among other things, legislators consider them to be wagers on human life. See, e.g., N.Y. Ins. Law §7815(c) (“No person shall directly or indirectly engage in any act, practice or arrangement that constitutes stranger-originated life insurance.”).

When an insurance company discovers that it has issued a STOLI policy, it may seek to challenge its validity on the basis of fraud. Often, an insurer’s ability to succeed depends on whether a state incontestability law—commonly providing that a life insurer may not challenge the validity of a life insurance policy after a period of time, such as two years—permits or bars its challenge.