Although I had heard of “dead peasant” or "janitor" insurance policies or, as they known more euphemistically, corporate-owned life insurance (COLI) policies, Arianna Huffington’s reference to them in her review of Michael Moore’s new film, Capitalism: A Love Story, prompted me to do some research. And what I learned, among other things, is that protracted litigation about the validity of several hundred thousand policies involves three corporations whose names you won’t be surprised to hear: Wal-Mart, Hartford Life Insurance Company, and AIG Life Insurance Company. But before I discuss that lawsuit, let me provide some background.
In its simplest form, a dead peasant policy is a life insurance policy that a company takes out on an employee, usually without the employee’s knowledge or permission. When the employee dies, his or her employer receives the life insurance benefits. In this post, the Contingent Fee Business Litigation Blog explains how the policies got their name. An earlier post contains a link to an article in the National Law Journal that discusses issues involved in COLI litigation. Also, Mike Myers, whose firm publishes the blog, recently launched a site that answers questions about the policies.
Jere Beasley, in his eponymous blog, describes some of the litigation about the policies and points out that in 2006, Congress passed the Pension Protection Act, which requires employers to obtain the consent of their rank-and-file employees who are insured under a COLI policy.
And here is George Washington University law professor Jonathan Turley’s post about a lawsuit filed by the widow of an employee who was insured under such a policy. The Wall Street Journal Law Blog also wrote about the lawsuit, and described the policies as "the next big thing in insurance litigation."
As for the litigation I mentioned at the beginning, Wal-Mart sued Hartford, AIG, and several brokers and agents in Delaware Chancery Court in 2002 for what Wal-Mart felt were insufficient returns on the 350,000 COLI policies that it bought between 1993 and 1995. Wal-Mart’s first lawsuit was dismissed on statute of limitations grounds, but the Delaware Supreme Court reversed on the grounds that the issue could not be decided on the pleadings.
On remand, the court granted the insurers’ renewed motion to dismiss for failure to state a claim, and the Supreme Court affirmed, except for Wal-Mart’s claim for equitable fraud. Following remand and a transfer from Chancery Court to Superior Court, Wal-Mart moved to amend to assert a common-law fraud claim based on "structural flaws" associated with the insurers’ inducements to Wal-Mart to purchase the policies.
The Superior Court dismissed the amended complaint on the grounds that the applicable three-year statute of limitations barred Wal-Mart’s claim, which had accrued, at the latest, in July 1995 and was not saved by Delaware’s "discovery rule."
But on May 12, 2009, for the third time, the Supreme Court reversed the dismissal, finding in a summary opinion that "material issues of fact" precluded judgment in the insurers’ favor on statute of limitations grounds. Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 979 A.2d 858 (Del. 2009).
Wal-Mart’s case goes back to Superior Court for further proceedings. I haven’t been able to locate any estimate of the money at issue, but with 350,000 policies involved, it’s pretty easy to get to several hundred million dollars, if not substantially more.