When the Record Was Made in Advance.

Few private clients will ever stand before an insurance commissioner. The principle still applies to them. A record made in advance, with full disclosure, before a decision-maker independent of the transferor, is very hard to attack later. A record made afterward in self-defense usually is not.

Genworth Life Insurance Company (“GLIC”) sells long-term care insurance (“LTCI”). For years a portion of its LTCI liabilities was reinsured within the Genworth group: first by Brookfield Life Assurance Company and, from 2011, by Brookfield Life and Annuity Insurance Company (“BLAIC”), backed by a Brookfield guaranty supported by profitable foreign mortgage-insurance businesses (Id. at 4–5, 8–9). By 2009, Brookfield had reinsured 50% of GLIC’s LTCI liabilities (Id. at 9).

In 2013 and 2014, facing higher Bermuda reserve requirements and a reserve increase that hurt its stock price and credit rating, Genworth decided to bring its LTCI business back to the United States and isolate it from the group’s other businesses (Id. at 9–11). The plan had two steps.

• Step one (2015). Brookfield’s guaranty was cancelled and replaced by a Capital Maintenance Agreement (“CMA”) under which another affiliate agreed to fund BLAIC’s reinsurance obligations. By its terms, the CMA would end automatically when the reinsurance agreements ended (Id. at 11–12).
• Step two (2016). BLAIC merged into GLIC, which terminated the reinsurance agreement and, with it, the CMA. GLIC received a $785 million capital infusion and a $900 million fixed-annuity block as part of the merger (Id. at 15).

GLIC also paid dividends to its parent companies during this period. Policyholders and agents later sued under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”). They alleged that the restructuring and the dividends were intentional and constructive fraudulent transfers that stripped GLIC of about $1.5 billion in claims-paying support (Id. at 2, 19–20, 41–42).

The decision includes several points that favor creditors, and planners should not overlook them.

Contingent, unmatured creditors have standing. No policyholder plaintiff had yet made a claim, and every agent plaintiff had been paid all commissions due. GLIC said it had paid about $18.2 billion in LTCI benefits since the challenged transactions (Id. at 3–4 & nn.3–4 (GLIC represented that it had paid $18,242,015,710 in LTCI benefits and $953,632,281 in commissions since the challenged transactions)). The defendants argued that any injury was too speculative. The court disagreed. Its earlier ruling, which it treated as law of the case, held that under DUFTA “a creditor with an unmatured and contingent claim does have standing … even though her contractual right to payment is contingent and not yet mature” (Id. at 25–29 (quoting the court’s earlier opinion on the motion to dismiss, Dkt. 85)). That ruling rested on when a DUFTA injury occurs, which is at the moment of the transfer, not when the debtor later fails to pay (Id. at 28). DUFTA claims must be brought within four years “after the transfer is made,” and the court noted that the defendants had themselves relied on that timing to have the claims over earlier dividends dismissed as time-barred (Id. at 28 n.145 (quoting 6 Del. C. § 1309(1), (2))).

Solvency was a genuine dispute. The defendants pointed out that GLIC had paid every creditor for nine years and could pay claims through 2047. The court found that “a mixed bag.” It cited evidence that GLIC was “$4 billion short out in the tail” after 2047. It also cited internal fair-value analyses prepared for a later, abandoned merger stating that the fair value of GLIC’s liabilities “significantly exceed[ed]” the fair value of its assets (Id. at 16–17, 31–34). On a product whose liabilities mature over decades, the court indicated that paying current debts as they come due might not settle the question, and that summary judgment on insolvency “would be inappropriate” (Id. at 33–35).

The termination of an insider contract may be a “transfer.” DUFTA defines “transfer” as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset” (6 Del. C. § 1301(12); Burkhart, at 36–37). Genworth argued that a contract ending by its own terms is not a transfer. The court found no Delaware precedent on point and observed that the cases Genworth cited did not involve “an insider transaction where the entities terminating the relevant contract were controlled by the same parent.” It said that question was not well suited to summary judgment (Burkhart, at 36–39; see also Burkhart v. Genworth Fin., Inc., 275 A.3d 1259, 1277 (Del. Ch. 2022)).

Had the case turned only on DUFTA’s elements, it would likely have gone to trial.

The case turned on finality. Delaware “has long prohibited collateral attacks on final judicial or administrative determinations except for fraud or lack of jurisdiction” (Burkhart, at 39 (citing Robins v. Garvine, 136 A.2d 549, 550 (Del. 1957); Taylor v. Hatzel & Buehler, 258 A.2d 905, 907 (Del. 1969))). A collateral attack is “an attempt to avoid, defeat, evade, or deny the force and effect of a final order or judgment in an incidental proceeding” (Id. (quoting In re Vale, 2015 WL 721038, at *4 (Del. Ch. Feb. 19, 2015))). The question is not how the claimant describes the suit or whether the statute differs. It is whether the suit is “a disguised attempt to get a second review of a prior [determination]” (Id. at 39–40 (quoting Gulf LNG Energy, LLC v. Eni USA Gas Mktg. LLC, 242 A.3d 575, 589–91 (Del. 2020))).

Both steps of the restructuring had gone through the Delaware Department of Insurance.

• September 2015. GLIC filed a Form D asking the Department to approve cancelling the guaranty and replacing it with the CMA. The filing stated that the CMA “would remain in effect only for so long as the Reinsurance Agreements would remain in effect” and that on completion of the repatriation it “would automatically be terminated.” A draft CMA was attached. The Department approved on 8 September 2015 (Id. at 13, 44–45).
• 2016. The merger required the Commissioner’s prior approval under 18 Del. C. § 4930. The Commissioner may withhold approval if a merger “[w]ould substantially reduce the security of and service to be rendered to policyholders” (18 Del. C. § 4930(b); Burkhart, at 7–8). Notice of the hearing was published on the Department’s website, in two Delaware newspapers, and on the state’s public-meeting calendar. A former Vice Chancellor served as hearing officer and took fact and expert testimony. No objector appeared (Burkhart, at 14, 46). The Commissioner adopted the hearing officer’s findings, concluded that the merger “would not substantially reduce the security of or service to be rendered to the policyholders of GLIC,” and approved it on 15 September 2016. No one sought review (Id. at 14–15 & n.67, 40, 46).

The plaintiffs’ central allegation was that the restructuring left GLIC unable to meet its obligations to policyholders. That was the “core issue” the Commissioner had already decided, and the remedy the plaintiffs sought, unwinding the transactions, had been available before the Department (Id. at 40–43). The plaintiffs argued that Genworth had defrauded the regulator by not mentioning the CMA’s termination at the 2016 hearing. The court found no genuine dispute. The Department had received a written explanation of the CMA and its automatic termination a year earlier, in Genworth’s own filing (Id. at 43–46). In the court’s words:

The court granted summary judgment and denied the plaintiffs’ Rule 56(d) motion and the defendants’ motion to strike as moot (Id. at 47–48).

Genworth involves a regulated insurer and an administrative-finality doctrine that private families will rarely invoke directly. Its practical lessons still apply to private planning.

The creditor’s injury is fixed at the moment of transfer. The DUFTA holding is the part of the case most relevant to private clients. A creditor whose claim is contingent and unmatured, such as a guarantor’s lender, a future malpractice claimant, or a counterparty under a long-dated contract, may challenge a transfer made today, and the limitation period runs from the transfer. The test is the debtor’s position and intent when the asset moves. That is why seasoning matters. A structure funded while the transferor is clearly solvent, with no claim on the horizon, removes the facts on which both actual-intent and constructive-fraud claims depend.

Insider transactions get close scrutiny. The court was prepared to treat the termination of a contract among affiliates under common control as a possible “transfer.” Planners should assume that any movement of value among related parties, including entities, family members, and trusts the client influences, will be examined for substance rather than form.

Disclosure made in advance is far more persuasive than disclosure made later. The plaintiffs’ fraud argument failed because the decisive fact was already in a written submission made a year before the contested hearing. In private planning the equivalent is a contemporaneous record: solvency analysis prepared at the time of funding, documentation of the legitimate purposes of the structure, consistent reporting, and full disclosure when legitimately asked. A record created during a later dispute is weaker than one that already existed.

An independent decision-maker gives the record weight. The Commissioner, acting through a hearing officer who was not part of the Genworth group, made the finding that ended the case. Private structures have no commissioner, and private planning should not assume any equivalent finality. But the same reasoning explains why Lighthouse places weight on an independent trustee. A trustee who is not the settlor and not the settlor’s agent, who decides on the record and keeps that record, shows that the structure operates on its own terms rather than as the settlor’s alter ego.

This decision should not be read as a guarantee that any approved transaction is immune from challenge. The collateral-attack doctrine has express exceptions for fraud and for lack of jurisdiction, and it applies only to final determinations by a body acting within its authority (Burkhart, at 39, 43 & n.207; see also id. at 47 n.220). The court also noted that the litigation appeared to be funded by competitor insurers, which shows how determined and well-funded challengers can be (Id. at 41 n.197, 46). The plaintiffs may also seek further review. Whether any structure can withstand a challenge depends on its facts, its timing, and the governing law.

Burkhart v. Genworth is a defense win that teaches the same lesson as the creditors’ wins. The plaintiffs established standing as contingent creditors, raised a genuine solvency dispute, and made a serious argument that an insider contract termination was a transfer. They lost because the transactions had been disclosed in advance, in writing, to an independent decision-maker whose approval became final. Improvised planning lacks that kind of record. A structure that is seasoned, disclosed, and independently administered has it from the start.

This note is for general information and planning discussion and is not legal advice for any specific matter. Voidable-transfer exposure depends on the facts, timing, and governing law of each transaction.