Mayo v. Hartford Life Ins. Co.

• Decision Date: 05 January 2004
• Docket Number: No. 02-21059.,02-21059.
• Parties: Scott MAYO; et al., Plaintiffs, Douglas Sims, by Deborah Sims, the independent executrix, Plaintiff-Appellee, v. HARTFORD LIFE INSURANCE COMPANY; et al., Defendants, Wal-Mart Stores, Inc.; Wal-Mart Stores Incorporated Corporation Grantor Trust; Wachovia Bank of Georgia, N.A., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

354 F.3d 400

Scott MAYO; et al., Plaintiffs, Douglas Sims, by Deborah Sims, the independent executrix, Plaintiff-Appellee, v. HARTFORD LIFE INSURANCE COMPANY; et al., Defendants, Wal-Mart Stores, Inc.; Wal-Mart Stores Incorporated Corporation Grantor Trust; Wachovia Bank of Georgia, N.A., Defendants-Appellants.

No. 02-21059.

United States Court of Appeals, Fifth Circuit.

January 5, 2004.

Scott M. Clearman (argued), Robert Espey, Michael Dane Myers, McClanahan & Clearman, Houston, TX, for Plaintiff-Appellee.

Lynne Liberato (argued), Alene Ross Levy, Haynes & Boone, Houston, TX, William Alan Wright, Benjamin Lee Mesches, Haynes & Boone, Dallas, TX, Leslie Ross

Higman, Wal-Mart Stores Inc., Bentonville, AR, for Defendants-Appellants.

Gerald Z. Goldman (argued), John B. Magee, MeKee Nelson, Washington, DC, Michael Sammie Goldberg, William Karl Mata Kroger, Amy Douthitt Maddux, Baker Botts, Houston, TX, for Dow Chemical Co., Amicus Curiae.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, SMITH and EMILIO M. GARZA, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Wal-Mart Stores, Inc. ("Wal-Mart") took out life insurance on its employees and made itself the beneficiary. This interlocutory appeal arises from a grant of partial summary judgment involving a dispute over death benefits from one of these company-owned life insurance ("COLI") policies. Douglas Sims' estate sued Wal-Mart on the ground that the COLI policy taken out in Sims' name violated the Texas insurable interest doctrine. We hold that: 1) Texas law, which requires an "insurable interest" for valid life insurance policies, governs the dispute; 2) an employer has no insurable interest in an ordinary employee under Texas law; and 3) Wal-Mart failed to establish its affirmative defense that the estate's claims were barred by limitations. In so holding, we affirm the district court's denial of summary judgment for Wal-Mart and affirm its grant of partial summary judgment for the Sims estate.

I

In 1993, Wal-Mart established a trust to serve as the legal holder of life insurance policies insuring the lives of its employees and naming itself as beneficiary. The instrument establishing the trust provided that Georgia law would govern the trust's construction, validity, and administration, and named Wachovia Bank of Georgia, N.A. ("Wachovia") as trustee. Wal-Mart acted in pursuit of tax benefits related to the deductibility of premium payments, and was only one of many similarly situated companies which took this course of action. After Congress and the IRS eliminated the tax advantages of Wal-Mart's COLI program, Wal-Mart unwound the otherwise unprofitable program, surrendering the last of its policies by 2000.

Wal-Mart's COLI policies insured the lives of all employees (also called "associates") with service time sufficient for enrollment in the Wal-Mart Associates' Health and Welfare Plan, unless those associates elected not to participate in a special death benefit program that Wal-Mart introduced in conjunction with the COLI program. Fewer than one percent of the 350,000 eligible employees opted out of the program, which was discontinued by early 1998. Wal-Mart's COLI program was intended to be "mortality neutral," such that the death benefits paid to Wal-Mart upon its associates' deaths would fund employee benefit plans and death expenses, or otherwise be repaid to the insurer as self-correcting "cost of insurance" adjustments.

Douglas Sims was a Wal-Mart associate from May 1987 until his death on December 1, 1998, and was insured under a COLI policy from December 21, 1993 until his death (though the special death benefit program had been discontinued prior to Sims' death). On June 28, 2001, after his estate discovered the existence of this policy, it sued Wal-Mart, alleging a violation of the Texas insurable interest doctrine. The estate sought, in relevant part, a declaratory judgment of its rights under Sims' COLI policy, the imposition of a constructive trust on the policy benefits and disgorgement of the money Wal-Mart unjustly received at some point in 1999.

Wal-Mart moved for summary judgment on the grounds that, in relevant part, Georgia law applies (and thus Sims has no claim) and, in the alternative, the Texas statute of limitations bars Sims' claim. After the district court denied this motion, Wal-Mart moved for reconsideration, renewing its choice of law argument and adding that recent developments in Texas law placed doubt on the public policy underlying the state's insurable interest doctrine. Sims then filed a motion for partial summary judgment, seeking a declaration that Wal-Mart lacked an insurable interest in Sims' life. Wal-Mart responded with a cross-motion for summary judgment, arguing that Wal-Mart had an insurable interest in Sims.

The district court granted Wal-Mart's motion for reconsideration, but again denied summary judgment on all grounds in an amended opinion. The court then granted partial summary judgment in favor of Sims, but certified its order under 28 U.S.C. § 1292(b) for interlocutory appeal on the following issues: (1) which state's substantive law applies to Sims' claims; (2) whether Wal-Mart has an insurable interest in Sims' life; and (3) whether the statute of limitations bars Sims' claims. This court granted Wal-Mart leave to appeal the district court order.

II

This court reviews grants or denials of summary judgment de novo, applying the same legal standards as the district court. Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir.1998). The issues we will address are: 1) the choice of which state's law to apply; 2) an analysis of the Texas insurable interest doctrine as it applies to this case; and 3) the applicable statute of limitations. We take these up in order.

A

First, Wal-Mart contends that the district court erred in applying the substantive law of Texas rather than Georgia to the parties' dispute. This court reviews de novo a district court's choice of law determination. In re Air Disaster at Ramstein Air Base, Germany, 81 F.3d 570, 576 (5th Cir.1996).

In making a choice of law determination, a federal court exercising diversity jurisdiction must apply the choice of law rules of the forum state, here Texas. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); see also Spence v. Glock, Ges.m.b.H., 227 F.3d 308, 311 (5th Cir.2000). Texas courts use the "most significant relationship" test set forth in the Restatement (Second) of Conflict of Laws (1971) for all choice of law cases except contract cases in which the parties have agreed to a valid choice of law clause. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 420-21 (Tex.1984). As the district court correctly noted, neither Sims nor Wal-Mart asserts that a statutory directive governs the choice of law determination here, and neither have they agreed on which state's law to apply (the trust instrument's invocation of Georgia law being of no moment because Sims was not a party to that contract), so this Court applies the Restatement's fact-based analysis. Id.; Maxus Exploration Co. v. Moran Bros., Inc., 817 S.W.2d 50, 53-54 (Tex. 1991).

Section 6 of the Restatement lists several general factors to be used by courts in making choice of law determinations:

a) the needs of the interstate and international systems;

b) the relevant policies of the forum c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue;

d) the protection of justified expectations;

e) the basic policies underlying the particular field of law;

f) certainty, predictability, and uniformity of result; and

g) ease in determination and application of the law to be applied.

RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (1971). The district court thoroughly and conscientiously analyzed each § 6 factor as it applies to this case. We have little to add to this analysis, only emphasizing that Sims' claim centers on an alleged violation of the Texas insurable interest doctrine (as it has evolved via common law and legislative guidance), and that Texas' interest in seeing its policy correctly applied far overwhelms any other consideration.

Further, while the Restatement does not provide a specific analytical schemata for determining insurable interest claims, it does address choice of law analyses for various kinds of disputes that can be analogized to this one. These later sections demonstrate the concrete application of the "most significant relationship" test, and all incorporate § 6 as the starting point for any such analysis. Of potential relevance here are: § 145, governing issues in tort; § 188, governing contract disputes; § 192, governing certain life insurance contracts; and § 221, governing claims for unjust enrichment.

Wal-Mart frames the issue in this case as a contractual dispute, and accordingly argues that § 188 should guide this Court's choice of law analysis. Section 188 provides that "[t]he rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties[.]" RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(1) (1971). The § 188 inquiry is directed at unearthing and upholding contracting parties' intent as to the governing law.

As Sims and the district court point out, however, this case does not involve a dispute over the "rights and duties of parties" to a contract. Instead, this case involves the application of Texas' common law on insurable interests in the context of an insurance contract to which Sims was not a party. Section 188's focus on vindicating the intent of contracting parties, and on balancing factors surrounding the negotiation and finalization of their agreement, simply does not resound in this...