The U.S. Court of Appeals for the Seventh Circuit issued a decision in *Fayez Dahleh v. Minnesota Life Insurance Company*, addressing the controversial practice of investing in life insurance policies on the lives of strangers. The case, decided Jan. 20, 2026, represents another chapter in the ongoing legal battles surrounding stranger-owned life insurance (STOLI) arrangements.
Fayez Dahleh purchased an existing life insurance policy on Gilda Perlas in July 2019, despite having no known prior relationship with her. The transaction involved what the court described as a "flexible premium universal life insurance policy" that allowed the policyholder to choose and vary the amount of insurance coverage and premium payments within certain limits.
The case originated in the U.S. District Court for the Northern District of Illinois, Eastern Division, where Judge Jeremy C. Daniel presided over the initial proceedings. Dahleh appealed the district court's ruling to the Seventh Circuit, where the case was argued on Sept. 9, 2025, before Circuit Judges Diane Rovner, David Hamilton, and Michael Scudder.
Circuit Judge Hamilton, writing for the court, noted that the case presents "a variation on the long-controversial practice of investing in life insurance policies on the lives of others." The court referenced its previous decision in *Sun Life Assurance Co. of Canada v. Wells Fargo Bank, N.A.* (7th Cir. 2022), which addressed similar issues involving life insurance investments.
The legal foundation for such transactions rests on the principle that holders of otherwise valid policies may sell them to strangers as investments, provided the original policy purchase included the required insurable interest. In Dahleh's case, Perlas's original purchase of the policy satisfied this requirement, making the subsequent sale to Dahleh legally permissible under Illinois law.
The flexible premium universal life insurance policy at the center of the dispute allowed significant policyholder control over both coverage amounts and payment schedules. This type of policy differs from traditional life insurance in that it provides policyholders with options to adjust their coverage and premium payments based on their financial circumstances and investment goals.
According to the court documents, problems arose after Dahleh acquired the policy. The policy's account frequently contained insufficient funds to cover the monthly account charges necessary to maintain the coverage. This funding issue appears to have been central to the dispute between Dahleh and Minnesota Life Insurance Company, though the specific details of the disagreement are not fully outlined in the available court records.
The practice of purchasing life insurance policies on strangers' lives has generated considerable controversy in the insurance industry and among regulators. Critics argue that such arrangements create perverse incentives, as investors profit from the deaths of people they do not know. Supporters contend that these transactions provide liquidity to policyholders who need to access the cash value of their policies during their lifetimes.
STOLI arrangements became particularly controversial in the early 2000s when they were sometimes marketed to elderly individuals as a way to generate income. These schemes often involved third parties paying the initial premiums with the understanding that they would eventually acquire ownership of the policies. Many states subsequently enacted legislation to restrict or regulate such practices.
The Seventh Circuit's decision builds on established precedent that recognizes the validity of life settlement transactions while maintaining requirements for proper insurable interest at the time of the original policy purchase. The court's citation of Illinois case law suggests that state regulations played a role in the legal analysis.
The timing of the case is notable, as life settlement markets have evolved significantly since the financial crisis of 2008. Institutional investors have increasingly entered this market, viewing life insurance policies as alternative investments that can provide returns uncorrelated with traditional financial markets.
For the insurance industry, the decision provides additional clarity on the enforceability of policy terms when ownership transfers occur. Insurance companies must balance their obligations to honor valid policies against their need to prevent fraud and maintain actuarial soundness.
The case also highlights the ongoing tension between federal and state regulation of insurance markets. While insurance is primarily regulated at the state level, federal courts frequently address disputes involving interstate commerce and contractual interpretation.
The decision's impact may extend beyond the immediate parties, as similar disputes continue to arise in the life settlement market. Insurance companies, investors, and policyholders will likely scrutinize the Seventh Circuit's reasoning for guidance on future transactions.
The case reflects broader questions about the commoditization of life insurance and the extent to which policies should be treated as tradable securities rather than personal protection vehicles. As the life settlement market continues to mature, courts will likely face additional cases testing the boundaries of permissible investment practices.
The Seventh Circuit's decision in *Dahleh v. Minnesota Life Insurance Company* adds to the developing body of federal case law governing life settlement transactions, providing important precedent for future disputes in this evolving area of insurance law.