Opinion

Mayo v. Hartford Life Insurance

220 F. Supp. 2d 714
2002 U.S. Dist. LEXIS 15989
2002 WL 1941620

Court: District Court, S.D. Texas
Filed: Aug 7, 2002
Status: Published
Author: Atlas
On the bench: Atlas
Cited by: 8 cases
Authority: More cited than 70.2%

The opinion

AMENDED AND SUPPLEMENTAL MEMORANDUM OPINION

ATLAS, District Judge.

TABLE OF CONTENTS

BACKGROUND

FACTS.722

II.

THE PARTIES’ BASIC

CONTENTIONS.724

*718

III.

APPLICABLE LEGAL

STANDARDS. o to Cn

Standard for Motions to

Dismiss. co

Summary Judgment

Standard. to O*

Texas Insurable Interest Doctrine

. to

IY.

CHOICE OF

LAW. 00 CM

Applicable Contract Choice of Law

Principles. 00 CM

Analysis of Restatement § 6 Considerations in Insurable Interest Cases

. — CO 1

1. Relevant Policies of the Forum (Texas) . —•A CO l — l

(a)

The

Griffin

Cases, Other Insurable Interest Decisions and Texas Public

Policy.

(b)

Wal-Mart and Other Defendants’ Attack on the Current Viability of Texas Insurable Interest

Doctrine. CO CO c—

(c)

Wal-Mart’s Contention that Texas Public Policy is Not

Implicated. CO

(d)

Texas Insurance Code Article

21.42. 00 CO

2. Policies of Other Interested States, and the Relative Interests of The Various States in the Determination of the Insurable Interest Issues . Oí CO

(a)

Georgia’s Interests in Determination of the

Issues. c* CO

(b)

Extraterritorial Enforcement of Texas or Georgia Law under

Home Insurance v. Dick. 739

3. The Basic Policies Underlying the Particular Field of Law: Insurance Law. 741

4. Protection of Justified Expectations and the Need for Certainty, Predictability, and Uniformity of Result. 742

5. Needs of Interstate and International Systems and Ease in the Determination and Application of the Law to be Applied. g

Application of Texas Contract Choice of Law Principles to Defendants’ COLI

Contracts. —q

1. Restatement § 188 Principles for Contract Disputes. —j

2. Choice of Law Analysis for the Wal-Mart COLI Policies.

(a)

Features of the Wal-Mart

Trust.

(b)

Place of

Contracting.

(c)

Place of Negotiation

. —3

(d)

Place of Performance

. —3

(e)

Location of the Subject Matter of the

Contract. —4

(f)

Domicile of the

Parties. —Q

(g)

Conclusion on the Choice of Law Under Restatement § 188 &§

6. OO lo

(h)

The Fifth Circuit

Baum Decisions. O) to

3. The Camelot COLI Policies. H to L-

Conclusion on Choice of

Law. CO to C-

CONTENTIONS RELATED TO SIMS ESTATE’S

CLAIMS. Oi

ERISA

Preemption.

1. Standard for ERISA Preemption.

2. Relatedness to Wal-Mart’s ERISA Plan.

Statute of

Limitations.

ctj

1. Length of Limitations Period.

(Si

2. Accrual of the Sims Estate’s Claim. o

AIG’s Motion to

Dismiss. —d

1. Overview and Applicable Legal Standards . —«3

2. Allegations in the Complaint. —-Ti

3. Analysis .

VI.

CAMELOT-RELATED

CONTENTIONS. -«3

Ripeness

. -3 —3 c*

1. Declaratory Judgment Standards and the Ripeness Doctrine -q —3 -3

*719

2. Defendants’ Ripeness Arguments . *"3 -3 <1

The Merits of Camelot Plaintiffs ’ Claims for

Relief. —3 OO O

1. Camelot Plaintiffs’ Claim for Declaration that Camelot Defendants Lack an Insurable Interest. —•3 OO O

2. Camelot Plaintiffs’ Claim for a Constructive Trust and Ownership of the COLI Policies.. 00

(a)

COLI Policy Proceeds Upon a Plaintiff’s Death

. <1 00 ^

(b)

Living Plaintiffs’

Remedies. 00 cn

VIL

CONCLUSION AND ORDER

. ..791

The parties in this case dispute the validity of corporate-owned life insurance policies purchased by employers on the lives of their employees and former employees. Plaintiffs are Texas citizens suing as representatives of a putative class of individuals, and estates of individuals, who worked for Defendant Camelot Music, Inc. (“Camelot”) and Trans World Entertainment Corporation (“Trans World”) (collectively, the “Camelot Defendants”) and Wal-Mart Stores, Inc. (“Wal-Mart”). These companies, collectively referred to as the “Employer Defendants,” are named in this action as representatives of a putative class of employers who purchased corporate-owned life insurance policies (“COLI policies”) insuring the lives of Texas citizens. The Employer Defendants purchased these life insurance policies from various insurance companies, including Hartford Life Insurance Company (“Hartford”) and AIG Life Insurance Company (“AIG”).

The Court has before it several motions. The Camelot Defendants move to dismiss Plaintiffs’ claims in their entirety.

The Camelot Defendants also move for summary judgment.

Plaintiffs have cross-moved for partial summary judgment against the Camelot Defendants.

*720

Defendant Wal-Mart moves for summary judgment on the claims against it.

The Wachovia Bank of Georgia, N.A. (“Wacho-via”), as trustee (“Trustee”) for Defendant Wal-Mart Stores, Inc. Corporation Grant- or Trust (“Wal-Mart Trust”), seeks summary judgment in its favor.

Defendant Hartford also moves for summary judgment.

Defendant AIG moves to dismiss and for summary judgment.

The Court

*721

heard argument on these motions on September 7, 2001 and January 11, 2002.

The parties submitted supplemental materials after the January 11 Hearing.

On March 5, 2002, the Court issued an opinion exhaustively addressing the parties’ contentions in the original motions.

The Court granted some aspects of certain parties’ motions and denied others.

Wal-Mart then filed a motion seeking reconsideration of the March 5th Opinion. Plaintiff Sims Estate has responded,

and that Motion is ripe for adjudication. The Court granted Wal-Mart’s Reconsideration Motion on August 2, 2002.

The Court has reconsidered all the parties’ submissions, the entire record, and the applicable authorities, the Court again grants some aspects of certain parties’ motions and denies others. This Amended and Supplemental Memorandum Opinion (“Amended Opinion”) modifies various rulings in the March 5th Opinion as to both the Wal-Mart Defendants and the Camelot Defendants. This Amended Opinion supersedes the Court’s March 5th Opinion, which is withdrawn.

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BACKGROUND FACTS

This case is an uncertified class action that involves a dispute over the rights to benefits from company-owned life insurance policies. Plaintiffs Scott Mayo, Tori-bio Rochas, Jr., Tomas Pena, Daniel Garza, and Charles W. Holmes, Jr. are Texas citizens who were employees of Defendant Camelot (collectively, sometimes referred to as the “Camelot Plaintiffs”). Another Plaintiff is the Estate of Douglas Sims (“Sims Estate”), which is represented in this action by Deborah Sims, the independent executrix of the Sims Estate and a Texas citizen. Douglas Sims was a Texas citizen who worked for Defendant Wal-Mart until his death on December 1, 1998.

Defendant Camelot was a Pennsylvania corporation. Camelot was acquired in December 1997 by Defendant Trans World, a New York corporation with its principal place of business in New York. Defendant Wal-Mart is a Delaware corporation with its principal place of business in Arkansas. Defendant Wal-Mart Stores, Inc. Corporation Grantor Trust (“Wal-Mart Trust” or the “Trust”) was established by Wal-Mart in Georgia and is represented in this action by its trustee, Defendant Wachovia, a bank that was originally located in Georgia.

Defendant Hartford is a Connecticut insurance company with its principal place of business in Connecticut. Defendant AIG is a Delaware insurance company with its principal place of business in Delaware.

Camelot employed the Camelot Plaintiffs during the 1980s and 1990s. All Camelot Plaintiffs ceased their employment with Camelot by 1998. Wal-Mart employed Douglas Sims from 1987 until his death in December 1998.

The subject of this case is the validity of COLI policies, insurance policies purchased and owned by the Employer Defendants on the lives of their employees. These policies, respectively, list the employers as the sole beneficiaries. As explained by Hartford, the employers borrowed money from the insurers to pay the COLI policy premiums.

The employers claimed the interest paid on these loans as tax deductions. The employers also earned non-taxable interest through the COLI policies. Upon the death of an insured employee, the employer beneficiary used the death benefit it received from the COLI policy to repay the premium loans and cover other expenses, at its option.

On February 16, 1990, Camelot purchased from Mutual Benefit Life Insurance Company (“Mutual”)

COLI policies on the lives of all of its employees who

*723

worked more than twenty hours per week.

Camelot and/or Trans World is the beneficiary of these policies. Plaintiffs allege that Camelot purchased the policies in secret and did not request permission from its employees. The policies remained in effect until after the Court’s March 5th Memorandum Opinion.

On or about December 30, 1993, Wal-Mart bought COLI policies from Hartford for its salaried employees and from AIG on the lives of its hourly employees, including Douglas Sims.

The policies were made effective as of December 28, 1993, for administrative convenience.

The Wal-Mart Trust received the proceeds of

*724

the COLI policies on each insured employee or former employee who died and remitted the proceeds to Wal-Mart.

Plaintiffs allege that Wal-Mart purchased these policies in secret and that Douglas Sims never knowingly consented to the purchase. Wal-Mart asserts that it purchased the COLI policies only on employees who were members of its employee benefit plans. Wal-Mart contends that it gave notice to plan members of the company-owned insurance policies on the members’ lives through a written flyer that invited members to opt out if they chose. Wal-Mart argues that its flyer served as formal notice of the existence of the COLI insurance and also constituted Wal-Mart’s offer to each employee to pay a “Special Death Benefit” of $5,000 to $10,000 from the COLI policy proceeds to the estates of the employee upon his/her death.

The Special Death Benefit was never paid to the Sims Estate because Wal-Mart discontinued that benefit before Sims died.

Wal-Mart surrendered all its COLI policies in January 2000, after Sims died.

It is undisputed that the Insurer Defendants developed the concept and marketed the COLI policies to employers.

Plaintiffs contend that the COLI policies were a tax avoidance scheme that was challenged by IRS.

On the other hand, Defendants contend that the COLI policies had a legitimate use, to fund employee benefit plans and other employer expenses incurred upon the death of the insured.

II.

THE PARTIES’ BASIC CONTENTIONS

Plaintiffs’ essential contention is that the COLI policies are contrary to Texas public policy because the Employer Defendants do not have an “insurable interest” in their lives. Plaintiffs seek to certify two classes of parties. First, Plaintiffs request certification of a plaintiff class that consists of:

All Texas citizens (or if deceased, the Texas citizen’s estate) whose lives are or were insured under a COLI policy issued by AIG Life Insurance Company, Mutual Benefit Life Insurance Company or Hartford Life Insurance Company that purportedly named an employer or former employer as the pokey’s beneficiary or owner, excluding those who are current officers of the named policy beneficiary or owner (or if deceased, those who were officers of the policy beneficia

*725

ry at their death) and those who designated the policy’s beneficiary.

Complaint, at 11. Second, Plaintiffs request certification of an Employer Defendant class of:

[C]ompanies that bought insurance policies written by AIG Life Insurance Company, Mutual Benefit Life Insurance Company or Hartford Life Insurance Company, that insure or insured the lives of Texas employees other than corporate officers and name the company as beneficiary or owner.

Id.

As their remedy, Plaintiffs seek ownership and all benefits of the COLI policies. Specifically, Plaintiffs request a declaration, under 28 U.S.C. § 2201 , that (i) the Employer Defendants do not now have and never have had an “insurable interest” in the lives of their employees, as insurable interests are defined by Texas law; (ii) that the Employer Defendants are not the lawful owners of the COLI polices; and (iii) that Plaintiff employees are the “lawful owners” of the COLI policies, with all rights of the “owner” as defined in the policies. Plaintiffs seek a final judgment “providing remedies necessary to give the declarations force and effect,” which Plaintiffs define as a final judgment (i) placing the polices and all benefits from the policies in a constructive trust for the benefit of Plaintiffs; (ii) awarding “money identifying the amount held in constructive trust by members of the defendant-employer class for the benefit of the plaintiffs and members of the plaintiff-insured person class”; and (iii) disgorging the “money unjustly had and received by members of the defendant-employer class through the [COLI] policies in issue.” Complaint, at 12-18.

Defendants assert numerous defenses to Plaintiffs’ claims. First, all Defendants contend that Plaintiffs’ claims are founded upon Texas law, but Georgia law governs this case and Plaintiffs cannot state a cause of action under Georgia law. Defendant Wal-Mart also contends that Plaintiffs’ claims are preempted by Employee Retirement Income Security Act, 29 U.S.C. § 1001

et seq.

(“ERISA”). Defendant AIG (joined by Wal-Mart) contends that the claims of Plaintiff Sims Estate are time-barred since the COLI policy sold to Wal-Mart on Sims’s life was created in December 1993 and Wal-Mart gave Sims notice of the existence of the insurance at about that time. Defendant AIG also argues that the Sims Estate has failed to state a claim under the insurable interest doctrine and moves to dismiss these claims. The Camelot Defendants contend that the Camelot Plaintiffs’ claims are not ripe, since these Plaintiffs all are still living, and their causes of action accrue only when the death benefits under the COLI policies are payable. Finally, the Camelot Defendants contend that the Camelot Plaintiffs’ claims are not legally viable because the Texas insurable interest doctrine does not provide a remedy to living insureds and does not allow reformation of the insurance contract. Each of these matters will be addressed in turn.

III.

APPLICABLE LEGAL STANDARDS

The parties have filed numerous motions to dismiss and motions for summary judgment. The Court notified the parties at the January 11, 2002 conference that if documents or other evidence outside of the pleadings had been submitted in connection with a motion to dismiss, the Court intended to convert the motion, if appro

*726

priate, to a motion for summary judgment.

See

Fed.R.CivP. 12(b). The Court therefore permitted the parties to make additional submissions.

Standard for Motions to Dismiss

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure is viewed with disfavor and is rarely granted.

Kennedy v. Tangipahoa Parish Library Bd. of Control,

224 F.3d 359, 365 (5th Cir.2000). The complaint must be liberally construed in favor of the plaintiff, and all facts pleaded in the complaint must be taken as true.

Zephyr Aviation, L.L.C. v. Dailey,

247 F.3d 565, 573 (5th Cir.2001). The district court may not dismiss a complaint under Rule 12(b)(6) “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.”

Conley v. Gibson,

355 U.S. 41, 45-46 , 78 S.Ct. 99 , 2 L.Ed.2d 80 (1957);

Southern Christian Leadership Conf. v. Supreme Court of Louisiana,

252 F.3d 781, 786 (5th Cir.2001). Thus, the Court must determine whether the complaint states any valid claim for relief in the light most favorable to the plaintiff and with every doubt resolved in the plaintiffs behalf.

Lowrey v. Texas A & M Univ. Sys.,

117 F.3d 242 , 247 (5th Cir.1997). Furthermore, a plaintiff must plead specific facts, not mere conclusory allegations or unwarranted deductions of fact, in order to avoid dismissal for failure to state a claim.

Collins v. Morgan Stanley Dean Witter,

224 F.3d 496, 498 , (5th Cir.2000).

Summary Judgment Standard

In deciding a motion for summary judgment, the Court must determine whether “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c);

Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 , 106 S.Ct. 2548 , 91 L.Ed.2d 265 (1986);

Little v. Liquid Air Corp.,

37 F.3d 1069, 1075 (5th Cir.1994)

(en

banc);

Boze v. Branstetter,

912 F.2d 801, 804 (5th Cir.1990). Material facts are those facts “that might affect the outcome of the suit under the governing law.”

Smith v. Brenoettsy,

158 F.3d 908, 911 (5th Cir.1998). The facts are to be reviewed with all “justifiable inferences” drawn in favor of the party opposing the motion.

Morris v. Covan World Wide Moving, Inc.,

144

F.3d

377, 380 (5th Cir.1998). However, factual controversies are resolved in favor of the nonmovant “only when there is an actual controversy — that is, when both parties have submitted evidence of contradictory facts.”

Laughlin v. Olszewski,

102 F.3d 190, 193 (5th Cir.1996).

The party moving for summary judgment has the initial burden of demonstrating the absence of a material fact issue with respect to those issues on which the movant bears the burden of proof at trial. The movant meets this initial burden by showing that the “evidence in the record would not permit the nonmovant to carry its burden of proof at trial.”

Smith,

158 F.3d at 911 .

The burden then shifts to the nonmov-ant to demonstrate that summary judgment is inappropriate.

See Morris,

144 F.3d at 380 . This is accomplished by producing “significant probative evidence” that there is an issue of material fact so as to warrant a trial,

see Texas Manufactured Hous. Ass’n v. Nederland,

101 F.3d 1095, 1099 (5th Cir.1996);

Taylor v. Principal Financial Group, Inc.,

93 F.3d 155, 161 (5th Cir.1996);

Transamerica Ins. Co. v. Avenell,

66 F.3d 715, 718-19 (5th Cir.1995);

Forsyth v. Barr,

19 F.3d 1527, 1533 (5th Cir.1994), and that is “sufficient to support a jury verdict.”

Morris,

144 F.3d at 380 ;

Doe v. Dallas Indep. School Dist.,

*727

153 F.3d 211 , 215 (5th Cir.1998). This burden is not met by mere reliance on the allegations or denials in the non-movant’s pleadings.

E.g., Morris,

144 F.3d at 380 . Likewise, “unsubstantiated or conclusory assertions that a fact issue exists” do not meet this burden.

Id.

Instead, the non-moving party must present specific facts which show “the existence of a ‘genuine’ issue concerning every essential component of its case.”

Id.

Dispute about a material fact is genuine only if evidence is such that reasonable a jury could return a verdict for nonmoving party.

Stafford v. True Temper Sports,

123 F.3d 291, 294 (5th Cir.1997);

Hanks v. Transcontinental Gas Pipe Line Corp.,

953 F.2d 996, 997 (5th Cir.1992).

In the absence of any proof, the Court will not assume that the nonmovant could or would prove the necessary facts.

McCallum Highlands, Ltd. v. Washington Capital Dus, Inc.,

66 F.3d 89, 92 (5th Cir.),

revised on other grounds upon denial of reh’g,

70 F.3d 26 (5th Cir.1995);

Little,

37 F.3d at 1075 . Rule 56 mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing of the existence of an element essential to the party’s case, and on which that party will bear the burden at trial.

Little,

37 F.3d at 1075 .

Texas Insurable Interest Doctrine

“[I]t is against the public policy of the State of Texas to allow anyone who has no insurable interest to be the owner of a policy of insurance upon the life of a human being.”

Griffin v. McCoach,

123 F.2d 550, 551 (5th Cir.1941);

see Cheeves v. Anders,

87 Tex. 287 , 28 S.W. 274, 275 (1894);

Tamez v. Certain Underwriters at Lloyd’s, London, International Accident Facilities, Inc.,

999 S.W.2d 12, 16-17 (Tex. App.—Houston [14th Dist.] 1999, pet. denied);

accord DeLeon v. Lloyd’s London, Certain Underwriters,

259 F.3d 344, 350 (5th Cir.2001). Put another way, the “State of Texas has established a fixed policy with reference to its own citizens, by and through which it refuses to permit one who has no insurable interest in a living person to be and become the beneficiary in an insurance policy written on the life of such living person.”

Cole v. Browning,

187 S.W.2d 588, 593 (Tex.Civ.App.—Ft. Worth 1945, writ ref'd w.o.m.) (citing

Cheeves v. Anders,

87 Tex. 287 , 28 S.W. 274 (1894)). The doctrine has been defined more specifically to provide that a putative beneficiary only has an insurable interest in the life of another where the beneficiary is (1) so closely related by blood or affinity that he wants the other to continue to live, irrespective of the monetary considerations; (2) a creditor; [or] (3) one possessing a reasonable expectation of pecuniary benefit or advantage from the continued life of another.

Drane v. Jefferson Standard Life Ins. Co.,

139 Tex. 101 , 161 S.W.2d 1057, 1058-59 (1942);

Tamez,

999 S.W.2d at 17 ;

Stillwagoner v. Travelers Ins. Co.,

979 S.W.2d 354, 360-61 (Tex. App.—Tyler 1998, no pet.);

accord DeLeon,

259 F.3d at 350 .

Since the mid-1950’s, Texas statutory law has permitted an individual to designate his own beneficiary — even if that beneficiary otherwise lacks an insurable interest under common law. Tex.Ins.Code, art. 3.49-1, §§ 1, 2, 3, 5 (eff. Jan. 1, 2000). Long-standing Texas law also allows an employer to obtain death benefit from so-called “key-man” life insurance on an employee crucial to its business.

Tamez,

999 S.W.2d at 18 n. 4 (citing Tex.Ins.Code, art. 3.49).

*728

IV.

CHOICE OF LAW

Defendants all raise a threshold choice of law issue.

Defendants argue that Georgia law — which Defendants contend does not recognize Plaintiffs’ causes of action — governs this dispute. Alternatively, Defendants (led by Wal-Mart) argue that if Georgia law is not selected, then the law of Arkansas, North Carolina, or Delaware applies. In any event, Defendants contend that Texas has no material connection to the dispute and Texas law does not govern. In response, Plaintiffs argue that Texas state courts would apply the Texas common law insurable interest doctrine to Defendants’ COLI policies on the lives of Texas citizens.

Applicable Contract Choice of Law Principles

The jurisdiction

this Court is based on diversity of citizenship. 28 U.S.C. § 1332 .

In diversity cases, federal courts must apply the conflict of law rules of the state in which they sit.

Klaxon v. Stentor Electric Mfg. Co.,

313 U.S. 487, 496 , 61 S.Ct. 1020 , 85 L.Ed. 1477 (1941);

Denman by Denman v. Snapper Div.,

131 F.3d 546, 548 (5th Cir.1998). Accordingly, this Court will apply the conflict of laws principles followed by Texas state courts.

The Texas Supreme Court has adopted the “most significant contacts” test of the Restatement (Second) of Conflicts of Laws § 6 (“Restatement”) for determining all choice of law issues.

Duncan v. Cessna Aircraft Co.,

665 S.W.2d 414, 420-21 (Tex.1984);

Minnesota Mining & Mfg. Co. v. Nishika Ltd.,

953 S.W.2d 733, 735-36 (Tex.1997);

Maxus Exploration Co. v. Moran Bros., Inc.,

817 S.W.2d 50, 53 (Tex.1991).

The Restatement provides that a court must follow, “subject to constitutional restrictions ... a statutory directive of its own state on choice of law.” Restatement § 6(1);

Maxus Exploration,

817 S.W.2d at 54 . Neither Plaintiffs nor Defendants assert that a statutory directive governs the outcome of the choice of law issue in this case. In the absence of a statutory directive, the Court is to consider the relevant choice of law principles in the Restatement.

Id.

The Restatement’s analysis commences with § 6, which sets forth the pertinent overriding principles applicable in every case:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

*729

ests 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 the determination and application of the law to be applied.

Restatement § 6(2).

A more difficult question is what more specific choice of law principles also should be considered. Defendants insist that contract choice of law principles should be applied in this case because Defendants entered into contracts that are the subject of Plaintiffs’ claims. Plaintiffs do not supply any recognized alternative approach to the choice of law issue.

This case, as pleaded by Plaintiffs, fundamentally involves the application — or lack thereof — of Texas’s common law on insurable interests. This doctrine arises in the context of insurance contracts. The claims in this case are

not

merely claims to enforce or claims for breach of insurance contracts, as in typical contract cases. Plaintiffs are not signatories to the COLI policies. Plaintiffs do

not

claim that Defendants are liable for breaching the terms of those contracts. Plaintiffs do not seek to enforce rights under the terms of the COLI policy contracts as written. Plaintiffs did not participate in the negotiation for the contracts. Plaintiffs did not receive or give definitive consideration for their involvement in the contracts.

Defendants nevertheless contend that the resolution of the choice of law issue is strictly determined by the Texas conflict of law rules relating to contract actions.

Defendants, not unexpectedly, view the dispute from their own perspective. Defendants merely want to enforce the insurance contracts that they alone signed. Defendants argue essentially that the interests of Plaintiffs, the insureds, are immaterial to the choice of law analysis. Defendants’ argument fails to account for the true nature of Plaintiffs’ claims. Defendants’ mischaracterization of the claims in dispute results in Defendants’ misapplication of pertinent choice of law principles.

As noted, Plaintiffs’ role is not the ordinary participant in the formation of a contract and Plaintiffs’ causes of action do not fit the typical breach of contract rubric. Plaintiffs’ claims arise under the Texas

*730

common law insurable interest doctrine with equitable remedies sought under unjust enrichment principles. Accordingly, § 6 principles are especially important in this case. The Court also considers the factors in a “contract claim” choice of law analysis, adapted to the actual claims and defenses being asserted,

because Plaintiffs seek remedies relating to Defendants’ insurance contracts, and because contract doctrines are the backdrop for many of the parties’ contentions on the merits.

In contract cases, Texas courts examine the § 6 principles in' light of the parties specific “contacts” or factors listed in Restatement § 188. The pertinent contacts under § 188 are:,

(a) the place of contracting,

(b) the place of negotiation of the contract,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

Restatement § 188(2);

Minnesota Mining and Mfg. Co.,

953 S.W.2d at 735-36 ;

Maxus Exploration,

817 S.W.2d at 53-54 ;

Houston Casualty Co. v. Certain Underwriters at Lloyd’s London,

51 F.Supp.2d 789, 797 (S.D.Tex.1999). “These contacts are to be evaluated according to their relative importance with respect to the particular issue.” Restatement § 188(2). In general, it is not the number of contacts with a particular state that is determinative.

Duncan,

665 S.W.2d at 421 . “Some contacts are more important than others because they implicate state policies underlying the particular substantive issue.”

Id.

Ultimately, the “selection of the applicable law depends on the qualitative nature of the particular contacts.”

Id.

Once the facts pertaining to the parties’ and the dispute’s contacts with various states are established, the Court is to decide the choice of law issue as a matter of law.

Id.

The Court concludes, after the detailed analysis set forth below, that Texas courts would select Texas law to decide this case. Thus, the Court will apply the Texas insurable interest doctrine. The Court also rejects Wal-Mart’s contention that the law of the states of Arkansas, North Carolina and/or Delaware, states with which at least one of the parties is connected, should be applied.

*731

Analysis of Restatement § 6 Considerations in Insurable Interest Cases

The Court addresses the basic Restatement § 6 principles first, and then considers the § 188 contacts in context. As noted, the importance of the § 6 principles is heightened in this case because Plaintiffs’ claims are not typical contract disputes. It cannot be ignored that Plaintiffs’ relationships with Defendants, the actual contracting parties, are unique in that Plaintiffs did not participate in the creation of the COLI contracts and did not meaningfully agree to the policies’ creation.

1. Relevant Policies of the Forum (Texas)

(a)

The

Griffin

Cases, Other Insurable Interest Decisions and Texas Public Policy

Plaintiffs predominantly argue that the choice of law decision in this case is governed by the opinions of the United States Supreme Court in

Griffin v. McCoach,

313 U.S. 498, 506 , 61 S.Ct. 1023 , 85 L.Ed. 1481 (1941), and the Fifth Circuit on remand in

Griffin v. McCoach,

123 F.2d 550, 551 (5th Cir.1941). The Court concludes that the

Griffin

cases do not dispose of the issue presented by Plaintiffs’ claims, but the opinions provide valuable insight into the insurable interest doctrine and its importance as law of the State of Texas.

Griffin,

the Supreme Court held that Texas courts have the constitutional authority to “refuse enforcement of an insurance contract where the beneficiaries have no insurable interest on the ground of its interference with local law.” 313 U.S. at 506, 61 S.Ct. 1023 . The personal representatives of Gordon, a deceased Texas citizen, disputed the entitlement of certain named beneficiaries of a life insurance policy on Gordon’s life.

Id.

at 499-500 , 61 S.Ct. 1023 . The Supreme Court stated:

*732

It is “rudimentary”-that a state “will not lend the aid of its courts to enforce a Contract founded upon a foreign law where to do so would be repugnant to good morals, would lead to disturbance and disorganization of the local municipal law, or, in other words, violate the public policy of the state where the enforcement of the foreign contract is sought.”

Id.

at 506 , 61 S.Ct. 1023 (citation omitted). The Supreme Court held that it would be constitutionally permissible for a Texas court to. refuse the enforcement of a foreign contract that violated local public policy embodied in the Texas insurable interest doctrine.

Id.

at 507 , 61 S.Ct. 1023 . However, the Court explained that Texas only may apply its public policy to foreign contracts that relate to “anything done or to be done within [its] borders.”

Id.

at 507 , 61 S.Ct. 1023 . The Supreme Court in

Griffin

did not decide whether Texas courts would apply the Texas insurable interest doctrine to foreign life insurance contracts on the lives of Texas citizens.

Id.

at 504, 507, 61 S.Ct. 1023 . Instead, the court remanded the issue to the Fifth Circuit.

Id.

On remand, the Fifth Circuit implicitly concluded that Texas law applied,

and interpreted the effect of the Texas insurable interest doctrine on the facts before it.

Griffin,

123 F.2d at 551 . The Fifth Circuit held that Texas law required the insurance proceeds to be paid to the estate of the insured, rather than the. contractual beneficiaries’ assignees who lacked an insurable interest in the life of the insured under Texas law. The Court' of Appeals gave' two reasons for its holding. First, the insurance proceeds were'in the custody of the court.

Id.

Second, the Court of Appeals held that “it is against the public policy of the State of Texas to allow anyone who has no insurable interest to be the owner of a policy of insurance upon the life of a human being.”

Id.

The Court further stated that it had “no reason to think that courts of Texas would permit citizens of other states to speculate upon the death of one of its citizens by means of contracts made without the state when the same is forbidden within its territorial limits.”

Id.

*733

The

Griffin

decisions accurately reflect Texas precedent on choice of law and policy. For example, a Texas court in

Manhattan Life Ins. Co. v. Cohen,

139 S.W. 51, 57 (Tex.Civ.App.—San Antonio 1911, writ dism’d), held that an assignment of the beneficial interest in life insurance policies on the life of a Texas citizen to one with no insurable interest was governed by Texas law. The

Cohen

court emphasized the importance of Texas policy by stating that, even if the assignment were governed by, and valid under, another state’s law, “it may be doubted whether, on account of its being contrary to the distinctive policy of the forum in which the suit was brought, such laws would be given effect by the courts of Texas.”

Id.

Cole v. Browning,

another Texas appellate court held that Texas had a legitimate governmental interest in deciding the rights to an insurance policy’s proceeds when the insured died while he and the named beneficiary under the policy were temporarily residing in Texas. 187 S.W.2d 588, 593 (Tex.Civ.App.—Fort Worth 1945, writ ref'd w.o.m.).

The court held that a Texas court will apply Texas insurable interest law to all insurance policies relating to persons residing in Texas, even if these individuals are citizens of-states with contrary insurable interest law.

Id.

at 594 . “A state may prohibit the enjoyment by persons within its borders of rights acquired elsewhere which violate its laws or public policy.”

Id.

at 594 ;

accord, Bell v. Phillips,

152 F.2d 188, 190 (5th Cir.1945).

(b)

Wal-Mart and Other Défendants’ Attack on the Current Viability of Texas Insurable Interest Doctrine

In response to Plaintiffs’

Griffin

arguments, Defendants characterize-Texas policies and the insurable interest doctrine as obsolete. For example, Wal-Mart argues that the public policy of Texas is an “old common law rule that has been heavily weakened by statute.”

The State of Texas has retained a commitment to thé insurable interest doctrine, although the doctrine has been narrowed over the years by the Texas Legislature. Texas courts have repeatedly refused to follow the majority rule adopted by other states that allows non-creditors- and non-family members to have an insurable interest in another’s life.

E.g., Drane v. Jefferson Standard Life Ins. Co.,

139 Tex. 101 ,

*734

105-06, 161 S.W.2d 1057, 1058-59 (1942) (godson had insurable interest in godmother’s life only because godson had a reasonable expectation of pecuniary benefit from godmother, who made frequent and substantial gifts to godson during his lifetime);

Cheeves,

87 Tex. at 291 , 28 S.W. 274 (former partner of insured did not have insurable interest after leaving partnership);

Tamez,

999 S.W.2d at 16-17, 19 (employer did not have insurable interest in employees);

Stillwagoner,

979 S.W.2d at 360-61 (ernployer did not have insurable interest in employee);

Cole,

187 S.W.2d at 593 (former wife did not have insurable interest in

former

husband).

See DeLeon,

259 F.3d at 350 (employer did not have insurable interest in employee’s life);

Griffin,

123 F.2d at 551 (assignees of insured’s former business partners and life insurance beneficiaries did. not have insurable interest). Texas courts thus have reaffirmed a strong public policy requiring the beneficiary of an insurance contract to have an insurable interest in the life of the insured under traditional restrictions, unless the Texas Legislature specifically alters the policy.

Wal-Mart argues that two of the three justices’ individual opinions in a recent splintered ruling,

Certain Underwriters at Lloyd’s London, D.M. v. Smith,

77 S.W.3d 859 (Tex.App.—Houston [14th Dist.] 2002, no pet.), demonstrate that the Texas insurable interest doctrine has been eviscerated or abandoned, and that earlier case law supporting the doctrine is no longer representative of Texas courts’ views or Texas public policy. In Smith, the majority decision adopted the reasoning of

Tamez ,

a ruling by another panel of the same court, and involving the same defendant employer and the same group accidental injury and death COLI policy. In Smith, the justices in the majority were Justice Wanda Fowler, who wrote a detailed opinion, and Chief Judge Scott Brister, who issued a concurrence “reluctantly.” Chief Justice Brister acknowledged that

'stare decisis

applied and that

Tamez

governed the outcome of the case.

As in

Tamez ,

the Smith Defendant was National Convenience Stores (“NCS”), which was trying to establish that the company had an insurable interest in the lives of employees insured under a group accidental injury and death policy the company had purchased naming itself as the beneficiary and owner.

Ultimately, the Smith ruling is a reaffirmation that

Tamez

continues to reflects Texas law on the insurable interest doctrine to the extent the dispute does not involve circumstances governed by Texas statutes. The Smith decision was not appealed.

Wal-Mart ignores the obvious fact that the Smith concurrence and the dissent have no precedential value; they represent the individual views of two Texas judges. Wal-Mart’s argument that the Smith case represents a binding — or even representative — explanation of the insurable interest doctrine is unfounded. If anything, Smith establishes that Texas courts continue to apply that doctrine unless specifically directed by Texas statute that the doctrine does not apply. Wal-Mart’s argument, based on

Smith,

that Texas courts funda

*735

mentally have abandoned the insurable interest doctrine is unpersuasive.

Wal-Mart contends that the Texas Legislature’s enactment of laws to alter the traditional insurable interest doctrine demonstrates that the doctrine lacks viability. The Legislature’s modifications of the common law insurable interest doctrine have been slow and careful. In 1921, the Legislature enacted article 5048 of the Texas Civil Statutes, which was recodified in 1951 as article 3.49 of the Texas Insurance Code. This provision provides that a corporation or other business may be named a beneficiary in any life insurance policy, and these beneficiaries have an insurable interest in the fives of their officers and stockholders. Tex.INS.Code, art. 3.49 (Vernon 2000). In effect, article 3.49 allows a business to benefit from insurance on the fives of individuals that are deemed most significant to the business. The Legislature explicitly permitted these rights to apply to existing policies that already had designated the enumerated categories of people as beneficiaries.

This provision is significant for what it did not address; article 3.49 does not authorize companies and partnerships to be an owner of the policy. This statute is inapplicable in this case because Douglas Sims was not a stockholder, officer or partner of Wal-Mart.

In 1953, the Legislature enacted article 3.49-1 of the Texas Insurance Code.

That statute was amended again in 1999. Contrary to prior case law,

the Legislature mandated that insureds of new or existing fife insurance policies could grant — in writing — an insurable-interest to any person or entity by naming them as a beneficiary or owner of the fife insurance policy.

The Legislature set forth its intentions with respect to its new statute and prior case law in two clauses in section 4 of article 3.49-1. Section 4 provided that “provisions of this Act are cumulative of existing law in Texas, statutory and otherwise, on the question óf insurable interest,” and this “Act shall be liberally construed to effectuate its purposes, and its provisions are not to be limited or restricted by previous declarations or holdings of the Courts of Texas defining the term insurable interests.”

*736

In 1999, the-Legislature amended article 3.49-1, to add a significant provision, which was codified as a new. section 3 (and renumbered the prior sections 3 and 4 to be sections 4 and 5, respectively).

Under new section 3, after January 1, 2000, any adult in Texas may consent in' writing to the “purchase” of, or the “application” for, a group or individual life insurance policy on that person’s life, which insurance is purchased or applied for by a third party. In addition, the insured may, “in such written document consent to or designate” “any person” or entity as the beneficiary or owner of the policy.

Upon such written consent or designation by the insured, the designated beneficiary and/or owner shall “at all times thereafter have an insurable interest in the life of the insured.” Finally, in 2001, the Legislature voted to repeal article 3.49-1 effective June 1, 2003, apparently as part of a massive repeal of the Insurance Code.

Thus, the Texas Legislature, after gaining some experience with the broader rights given to Texas insureds in 1953, granted Texas residents the right — after January 1, 2000 — to consent in writing to third parties’ acquisition of new group insurance on their lives

(Id.

art. 3.49-1, § 3), so

long as

each insured consents to or designates the beneficiary and owner. This provision was not made retroactive.

The Legislature thus carefully limited its enlargement of insureds’ options. Thus, the, new statutorily-based flexibility granted to insureds does not represent, as Wal-Mart suggests, a wholesale rejection of longstanding Texas public policy and case law.

The Court is also unpersuaded for other reasons by Wal-Mart’s new arguments, based on the

Smith

case, that prior Texas public policy on insurable interest, was abandoned by the Legislature’s 1999 amendment to article 3.49-1. Defendants’ conduct in issue occurred long prior to the 1999 amendments, even if the legislation represented a material shift in Texas public policy. Further, the statute since 1953 has provided that the “Act” is to be given “liberal construction.” This language dictates that the statute, as written, be given full (“liberal”) effect, not that the statutory provisions should be given effect

beyond

the Legislature’s expressed intent. The Legislature limited insureds’ right to allow a third party to purchase group insurance to insurance applications and purchases after January 1, 2000.

The Legislature was aware of the issues presented by the

*737

Texas insurable interest doctrine when applied in a corporate context from the 1998 decision in

Stilhvagoner

and other cases that preceded the 1999 amendments to article 3.49-1. It is not the r.ole of a federal court sitting in diversity to ignore longstanding and consistently applied Texas legal authorities. The Court declines Wal-Mart’s invitation, made under the guise of interpreting current Texas public policy, to expand recent legislative enactments beyond their express language.

Accordingly, the Court rejects Defendants’ arguments that the traditional Texas insurable interest doctrine is “obsolete.”

(c)

Wal-Mart’s Contention that Texas Public Policy is Not Implicated

Wal-Mart also argues that Texas public policy on insurable interests is not implicated in this case because Wal-Mart’s purchase of COLI policies provided no financial incentive to Wal-Mart to take the lives of its employees and thus “the relevant Texas public policy should have no interest in applying the Texas insurable interest rule to COLI insurance contracts made in the other 49 states.”

Wal-Mart essentially asserts that Wal-Mart had no financial incentive for its insured employees to die quickly.

Wal-Mart’s argument that Texas public policy is not implicated fails for two reasons. First, Wal-Mart’s argument assumes a favorable ruling on the merits of this case,

ie.,

that the Wal-Mart COLI policies do not violate Texas insurable interest law. Indeed, Wal-Mart cites no authority for its singularly outcome determinative approach. The Court must consider the nature of the claims Plaintiffs assert in deciding the threshold choice of law issue. Plaintiffs’ claims directly implicate the Texas insurable interest doctrine. The Court need not decide the merits of the parties’ arguments about application of that doctrine in order to decide the choice of law issue.

Second, the parties’ evidence does not support Wal-Mart’s position that its COLI policies, as a matter of law, did not create an incentive in Wal-Mart for the death of the insureds. Wal-Mart largely relies on á single paragraph in an affidavit by Lee A. Nystrom, a representative of the insurance broker on the Wal-Mart COLI policies, National Benefits Group, Inc. (“NBG”). The record establishes that the COLI insurance contracts involved intricate financial arrangements that included

inter alia

loans by the insurers to the Employer Defendants to pay some or all of the insurance premiums, Employers’ income tax considerations, and actuarial analyses.

The evidence that Wal-Mart and the Camelot Defendants have submitted on the numerous pending motions reveals that the factual issue of the net benefits Wal-Mart hoped to obtain is highly complex. Nystrom, one of Wal-Mart’s insurance brokers, gives only tentative testimony; he stated that “[i]t is my

belief

that the COLI policies provided no financial incentive for the Trust or Wal-Mart to have the insureds die sooner rather than later.”

Nothing in the record demon

*738

strates that Nystrom was privy to Wal-Mart’s proprietary financial matters. Moreover, Wal-Mart has produced from its own corporate ranks no evidence on the financial effects or mechanics of the policies. Wal-Mart’s evidence is patently insufficient to establish that Wal-Mart was financially better off paying premiums to the insurer over many years while the insureds were alive than Wal-Mart would have been if it paid only one or two years of premiums and received the full death benefits under the policies. The oversimplified averments on which Wal-Mart.re-lies raise more questions than they answer,, and

are not

probative evidence.that the Texas insurable interest doctrine should not apply in the choice of law determination.

(d)

Texas Insurance Code Article 21.42

Hartford attacks the applicability of the Texas insurable interest doctrine in a different manner. Hartford argues that article 21.42 of the Texas Insurance Code expresses the state’s current policy to limit the extraterritorial application of Texas law. Article 21.42 provides in relevant part:

Any contract of insurance payable to any citizen or inhabitant, of this State by any insurance company or corporation doing business within this State shall be held to be a contract made and entered into under and by virtue of the laws of this State relating to insurance.

Hartford argues that “Article 21.42 is designed to ensure only that Texas law will apply to contracts made between Texas citizens and insurance companies doing business in Texas, •

when and only when

those contacts are made in the course of the company's Texas business,” and thus the Texas Legislature intended to exclude COLI policies payable to beneficiaries outside Texas.

This argument is rejected. First, there is nothing in Article 21.42 to support the inference that the Texas Legislature, in enacting Article 21.42, intended to repeal by implication the longstanding, prophylactic common law insurable interest doctrine. The Texas Legislature by Article 21.42 expressed its intent to ex

*739

pand Texas regulatory authority to foreign entities doing business in Texas, who elect to pay or designate beneficiaries who live in or are citizens of Texas. There is no basis to conclude that this legislative decision represents an intention by Texas to abandon silently the insurable interest doctrine that protects its citizens in a different circumstance, namely, when the insured, rather than the beneficiary, is the Texas resident. The Court therefore rejects Defendants’ attempt to discount the Texas insurable interest doctrine as obsolete oí-as limited by Article 21.42.

2. Policies of Other Interested States, and the Relative Interests of the Various States in the Determination of the Insurable Interest Issues

(a)

Georgia’s Interests in Determination of the Issues

Defendants argue that Georgia has a stronger interest than Texas in the application of its public policy. Defendants also posit that enforcement of the Texas policy in this case will infringe Georgia’s public policy.

These contentions are not persuasive. Nothing in the record establishes that the State of Georgia

per se

has an interest in enforcing its laws in Texas as to Texas inhabitants. Indeed, Defendants fail to answer meaningfully the question why the Georgia Legislature or Georgia citizens care if an employer (in or outside of Georgia) is prohibited from obtaining insurance on the life of its Texas employees. There is no indication that the State of Georgia intended this result when adopting its insurable interest statutes.

(a) Defendants’ analysis, taken to its logical conclusion,- is that the state of Georgia unilaterally may authorize any company or person that arbitrarily or artificially creates some connection to that state to abrogate contrary public policy in one or. more of the remaining forty-nine states. Under the Employer Defendants’ respective theories, in order to impose Georgia’s law on other states, an employer need only purchase a COLI policy covering its employees nationwide, while the employer’s representatives signing the documents are physically present in Georgia (as Camelot did), or may simply purchase the insurance through a legal entity created solely for the purpose of invoking Georgia, law (as Wal-Mart did). Georgia’s Legislature has not exhibited any intent to go so far. Moreover, there is no meaningful public policy that has been articulated on behalf of Georgia that would be advanced by condoning Defendants’ actions in this choice of law analysis.

In any event, the United States Supreme Court long ago ruled in

Griffin,

that a Texas court is not obligated to give effect within the State of Texas to the laws of other states if those laws violate fundamental Texas public policy. A “state is not required to enforce a law obnoxious to its public policy.”

Griffin,

313 U.S. at 507 , 61 S.Ct. 1023 .

(b)

Extraterritorial Enforcement of Texas or Georgia Law under

Home Insurance v. Dick

Defendants alternatively argue, relying on

Home Insurance Co. v. Dick,

281 U.S. 397 , 50 S.Ct. 338 , 74 L.Ed. 926 (1930), that the extraterritorial application of the Texas insurable interest doctrine in

*740

the case at bar “raises serious Constitutional questions involving due process”.

This argument lacks-merit.

Home Insurance

involved a property damage claim for coverage under insurance issued in Mexico by a Mexican underwriter of a tugboat that operated outside the United States. The insurance was owned and negotiated by a person 'while living and working in Mexico.

Neither the insurance contract, the subject-matter of that contract, nor the parties had any mean-ingfiil contacts with - Texas.

The Supreme Court ruled that “[a] state may of course prohibit and declare invalid the making of certain contracts within its borders. Ordinarily, it may prohibit performance within its borders, even of contracts validly made elsewhere, if they are required to be performed

within

the state and their performance would violate its laws.”

Home Insurance,

281 U.S. at 407 , 50 S.Ct. 338 (emphasis added).

The

Home Insurance

ruling thus, if anything, supports Plaintiffs’ position, not Defendants’.

*741

In addition, the Supreme Court decided

Home Insurance

eleven years

before

its

Griffin

decision. In

Griffin,

as discussed above, the Supreme Court specifically held that it would be constitutionally permissible for Texas to apply its insurable interest doctrine to a foreign contract.

See Griffin,

313 U.S. at 507 , 61 S.Ct. 1023 .

Thus, Defendants have failed to show that Georgia has a stronger interest in the disputed issues than Texas. Giving Georgia law the extraterritorial effect requested by Defendants would encroach on the Texas Legislature’s and Texas courts’ prerogatives, while not materially advancing Georgia public policy to protect its own citizens. The Court also rejects Defendants’ contention that

Home Insurance

controls this case or limits Texas courts’ application of the Texas insurable interest doctrine. Requiring compliance with the Texas insurable interest doctrine is not an improper extraterritorial application of Texas law.

3. The Basic Policies Underlying the Particular Field of Law: Insurance Law

The issues in this case implicate the fundamental purpose of and policies underlying life insurance. Under Texas law, “the essential foundation of a life insurance policy is the life of a human being.”

Gibralter Colorado Life Co. v. Taylor,

132 Tex. 328 , 123 S.W.2d 318, 321 (1939). The primary purpose of life insurance is the “protection of those who would be pecuni-arily damaged by the death of the insured.”

Hildebrandt v. Ames,

27 Tex.Civ.App. 377 , 66 S.W. 128, 131 (Tex.Civ.App.1901, writ ref'd). Texas courts have held generally that “to permit those who would not be so damaged to receive the benefit of the policy would be to defeat the purpose and intent of the contract.”

Id.; accord, Hansen v. Blackmon,

169 S.W.2d 955, 962 (Tex.Civ.App.—El Paso 1942),

aff'd,

140 Tex. 536 , 169 S.W.2d 962 (1943).(“The primary purpose of life insurance is not investment, but protection.”). Texas courts follow this principle when applying the insurable interest doctrine:

Bluntly expressed, insurable interest ... is determined by monetary considerations, viewed from the standpoint of,the beneficiary. Would [the beneficiary] regard himself as better off from the standpoint of money, would [the beneficiary] enjoy more substantial economic returns should the insured continue to live; or would [the beneficiary] have more, in the form of the proceeds of the policy, should [the insured] die? Therefore, it is said that if the situation is such that [the beneficiary] might be led to conclude that he would profit by [the insured’s] death, the policy is void as to him since the public has a controlling concern that no person have an interest in the early death of another, an interest that may give rise to a temptation to destroy [the insured’s] life.

Drane,

161 S.W.2d at 1059 . Enforcement of the Texas insurable interest doctrine advances Texas policies underlying insurance law.

*742

4. Protection of Justified Expectations and the Need for Certainty, Predictability, and Uniformity of Result

Defendants argue that the protection of justified expectations, as well'as the need for certainty, predictability, and uniformity of result, demand enforcement of the COLI policies using Georgia law. Analysis here again differs depending on the party’s perspective. Defendants stress that, when they created the COLI policies, they expected that Georgia law would apply to those policies. Defendants acknowledge that there are no choicfe of law provisions in the COLI policies. Nevertheless, Defendants contend that the choice''of law provisions in the Wal-Mart Trust Agreement (“Trust Agreement”), the Wal-Mart Trust’s'location, and all Defendants’ activities in Georgia require'that the issues in this case be governed exclusively under Georgia law. Defendants further assert that application of Georgia law nationwide would advance the goal of uniformity and predictability of the result under thé COLI policies.

Under the Restatement, reliance by contracting parties on their agreed terms to ¿ contract, including selection of laws, ordinarily is a significant consideration. Restatement § 187. The parties’ agreed terms, however,’ do not control in every circumstance under a choice of law analysis.

When a person is integral to a contract, such as the insured for an insurance policy, but that person plays no active role in the creation of the contract in issue, there is little reason for the contracting parties’ self-serving expectations to control the choice of law determination for the parties’ disputes.

Indeed, when a person is unaware of the contract, the expectations of the signatories to the contract is substantially less significant in a dispute between a signatory and the non-signatory. Plaintiffs did not negotiate or agree to the COLI contract terms, at least some' Plaintiffs were not even aware of the existence of the insurance at all.

The Restatement § 6’s goal of the need for certainty, predictability, and uniformity of result is not intended to serve as a vehicle for contracting parties to override the protection that states’ public policies afford to non-signatories to the contract.

The Court concludes that Defendants’ expectation when entering into the COLI contracts that Georgia law would apply with regard to Texas insureds was not justified. Defendants. admittedly set up the COLI policies in Georgia and selected

*743

Georgia law in an attempt to avoid contrary public policies in states such as Texas. In doing so, Defendants took the risk that a Texas court would decline to apply Georgia law, as prior Texas cases indicated.

Defendants also fail to demonstrate persuasively how application of Georgia law to Texas insureds advances the need for certainty, predictability, and uniformity of result. Defendants provide no meaningful reason why Texas citizens and residents should not be able to count on enforcement of the longstanding Texas insurable interests doctrine (except as expressly altered after public debate and final enactment of statute by the Texas Legislature). The Court rejects Defendants’ attempts in the choice of law context to impose their self-serving expectations on non-signatories to the insurance contracts in issue under the artificial circumstances in this case. The goals of certainty, predictability, and of uniformity are served in the case at bar by the consistent application of Texas law to Texas citizens, not by the application of Georgia law at Defendants’ behest.

5. Needs of Interstate and International Systems and Ease in the Determination and Application of the Law to be Applied.

Defendants contend that it would serve the interstate system for courts to permit parties to make contracts involving residents of other states. While the principle of consistency in interstate systems and ease of determination of applicable law clearly have general merit, Defendants’ requested application of these concepts is

*744

flawed. First, these aspirational goals are not immutable.' They are to be balanced when the contracts in issue flout an established public policy of another state and the contracting parties have attempted to manipulate the choice of law considerations.

See Griffin,

123 F.2d at 551 (“[W]e have no reason to think that the courts of Texas would permit citizens of other states to speculate upon the death of one of its citizens by means of contracts made without the state when the same is forbidden within its territorial limits.”).

Interstate or international systems are advanced by each jurisdiction having easily ascertainable, certain, uniform, and predictable law governing disputes in that jurisdiction. The application of Texas law to insurance contracts on the lives of Texas residents and citizens is an easily ascertainable rule that respects each jurisdiction’s choices and priorities. The application of Texas insurable interest law is not difficult. As set forth above, the doctrine is well established in, Texas and has been uniformly applied.

It is common that, in matters a state has authority to regulate, the state’s courts consistently will apply that state’s law to disputes involving its citizens.

Pearson v. Northeast Airlines Inc.,

309 F.2d 553, 559 (2d Cir.1962);

see Caton v. Leach Corp.,

896 F.2d 939, 943 (5th Cir.1990);

Stobaugh v. Norwegian Cruise Line Ltd.,

5 S.W.3d 232 (Tex.App.—Houston [14th Dist.] 1999) (citing Catón). Defendants’ insistence that private contracting parties be able to impose on non-signatories the state law the contracting parties select, despite the impact of that law on other state’s citizens, undermines the uniformity of Texas law, thereby interfering with goal of promotion of ease of determination and application of the law to be applied. The.choice of law factors of the needs of interstate system and the ease of determination of the law to be applied are advanced by application in this case of Texas, not Georgia law.

Application of Texas Contract Choice of Law Principles to Defendants’ COLI Contracts

1. Restatement § 188 Principles for Contract Disputes

As discussed above, .the choice of law analysis in contract cases focuses on the parties’ contacts with a jurisdiction in the following respects:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(d) the location of the subject matter of the contract, and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

Restatement § 188(2);

Minnesota Mining and Mfg. Co.,

953 S.W.2d at 735-36 ;

Maxus Exploration,

817 S.W.2d at 53-54 ;

Houston Casualty Co. v. Certain Underwriters at Lloyd’s London,

51 F.Supp.2d 789, 797 (S.D.Tex.1999). The choice of law analysis must be performed under § 188(2) for each disputed issue. _ “Some contacts are more important than others because they implicate state policies underlying the particular substantive issue.”

Duncan v. Cessna Aircraft Co.,

665 S.W.2d 414, 421 (Tex.1984).

The comments to the Re

*745

statement further teach that “[standing alone, the place of contracting is a relatively insignificant contact.”. Restatement § 188 cmt. e. Ultimately, the selection of the applicable law depends on the qualitative nature of the parties’ particular contacts with the respective jurisdictions.

Duncan,

665 S.W.2d at 421 .

2. Choice of Law Analysis for the Wal-Mart COLI Policies

In this case, the Wal-Mart Defendants contend that the Wal-Mart COLI policies have the most significant contacts with the state of Georgia and that Wal-Mart intended Georgia’s law to apply. On reconsideration, the Wal-Mart Defendants contend in the alternative that, “if Georgia law does not apply, then the law of Arkansas, Delaware, or North Carolina would apply to the insurable interest issue because those states have móre significant contacts than Texas does.”

Wal-Mart contends that all of these states other than Texas “would recognize that Wal-Mart had" an insurable interest in the lives of its employees.”

(a)

Features of the Wal-Mart Trust

The Wal-Mart Defendants have demonstrated without contradiction that the Wal-Mart Trust was created in Georgia for the sole purpose of advancing

Wal-Mart’s

goal of purchasing the. COLI policies.

Choice of Georgia as the situs of the Trust was for Wal-Mart’s administrative convenience and to attempt to enjoy Georgia’s favorable insurable interest law.

The Trust is nothing but an administrative arm of Wal-Mart through which the company hoped to ease its administrative burdens’for the COLI policies and shield itself from disadvantageous insurable interest doctrines in several states. The Trust Agreement states that Wal-Mart “will effectuate insurance on the Insureds [Wal-Mart employees] through this Trust” and the “Trust is for the sole and exclusive benefit of [Wal-Mart] and Trustee.... No other person ... shall be entitled to rely on -or enforce any provision of this Trust.”

The Trust Agreement provided that the .purposes of the Trust were:

(i) to hold one or more policies of insurance on the life or lives of any or all of the present employees and-future employees of the Grantor and its subsidiaries (the “Insureds”); (ii) to receive the proceeds of any such policy as and when such proceeds become payable; and (iii) to pay the Grantor from the cash assets (including the cash value of any insur-

*746

anee policies) of the Trust such amount or amounts as Grantor may from time to time direct.

It is clear from the face of the Wal-Mart Trust Agreement that the Trust was solely a vehicle through which Wal-Mart directed its investment in the COLI policies. The Trust Agreement states that Wal-Mart “will effectuate insurance on the Insureds [i.

e.,

Wal-Mart employees] through this Trust.”

The Trust was to purchase and hold COLI policies “at the direction of [Wal-Mart].”

Also, the Trust was to receive the proceeds of the policies.

The Trust was to handle all Trust property, including proceeds from the COLI policies, to Wal-Mart at Wal-Mart’s sole direction.

The Trust was not responsible for the collection of life insurance proceeds.

Instead, the Trustee merely was to receive, hold, and use whatever benefits were paid by the insurance companies, at Wal-Mart’s direction.

Wal-Mart itself, not the Trust, was responsible for notifying the insurers of .claims, providing proof of death of an insured, or pursuing collection of benefits.

The Trust Agreement further states: “The.Trustee shall not be responsible for the administration and distribution hereunder of such proceeds until they are actually paid to the Trustee.”

The Wal-Mart Trust Agreement named Wachovia, a bank doing business in Georgia, as the Trustee and established Georgia as the situs of the Wal-Mart Trust.

Wal-Mart, through the Wal-Mart Trust, directed the purchase of the COLI policies between December 1993 and sometime in 1995. Raymond H. Sapp, a trust officer of Wachovia who served as the Wal-Mart Trust’s Trustee and was involved with creation of the Wal-Mart Trust, attests that: (i) Wal-Mart applied for and was issued the COLI policies in the state of Georgia, (ii) premium payments were made by the Wal-Mart Trust by wire transfer from Georgia to the offices of AIG and Hartford, and (iii) none .of the COLI policies were made, issued, received, paid, or performed in Texas.

Wal-Mart established the Wal-Mart Trust and “structured its COLI program in this way to take advantage of favorable

Georgia

law on ‘insurable interest.’ ”

Based on these facts, Wal-Mart and the Insurer Defendants argue that all of the contacts listed in Restatement § 188 favor

*747

the application of Georgia law.

After consideration of all the parties’ contacts with various states, in light of the contacts’ relative importance to the insurable interest issue, this Court holds that the Restatement’s § 188 factors, to the extent pertinent suggest that Texas insurance law should apply to Plaintiffs’ claims. The detailed analysis follows.

(b)

Place of Contracting

Defendant Wal-Mart contends that its evidence establishes that the COLI policies were applied for and issued in Georgia. Wal-Mart argues that many of the steps in creation of the COLI policies were performed in Georgia, and the place where the last step necessary to making the contract is dispositive. Wal-Mart also contends that “[n]one of the COLI policies it purchased was made, issued, received, paid for, or performed in Texas.”

Wal-Mart asserts that no “individual health information” was required, with respect to any of the insureds before the AIG or Hartford COLI policies were issued.

There is authority for the proposition that the place a contract is made is deemed to be the place of performance of the final act necessary to complete the contract to make it binding on the parties. See

Metropolitan Life Ins. Co. v. Greene,

93 S.W.2d 1241, 1245-46 (Tex.Ct.App.-El Paso 1936, no writ).

The

Greene

case held- that group insurance policies issued and delivered in New York were New York contracts, as between the employer-purchaser, and the insurer, but the law of the state of delivery of the certificates of insurance (either California or Arizona) would govern a dispute between the employee-insured and the insurer over coverage. At best, therefore, Wal-Mart’s authority establishes that the state whose law applies to a dispute between the insurer and the employer that purchases ' a group insurance policy will not necessarily be the same as the state’s whose law governs a dispute between the employee-insured and the insurer. Moreover,

Greene

establishes that the particular-provisions of the insurance contracts and the-location of the insured are material to .the , choice of law determination.

Wal-Mart relies on evidence that representatives of Wal-Mart, AIG, Hartford and the Trust (through Wachovia’s employee, Sapp) signed Wal-Mart’s original-AIG and Hartford COLI policy applications and handed them to AIG and Hartford’s ' agents in'Atlanta on December 30, 1993.

Wal-Mart used the standard Georgia-approved form of life insurance

*748

policy.

Wal-Mart also asserts that the contract for purchase of insurance was “complete” when Sapp signed the Letter of Understanding on behalf of the Trust on December 30, 1993.

Wal-Mart also points to the AIG Letter of Understanding,

which was signed on December 28, 1993 by AIG in an unspecified location, presumably outside Georgia, but' was signed and accepted by Sapp for the Trust on December 30, in Atlanta. Second Sapp. Aff., ¶ 3.

Wal-Mart further contends that the policies were “issued” in Georgia because that is what the AIG Letter of Understanding (setting forth the detailed terms of the relationship between Wal-Mart and AIG) provided,

100

because the initial annual premiums were transmitted by and from the Trust from Atlanta to either AIG or Hartford, and then “the insurance policies were then issued by AIG and Hartford and delivered back to the Trust in Atlanta, Georgia, and accepted by the Trust in Atlanta, Georgia.”

101

Wal-Mart contends that “[a]ll subsequent blocks of polices[ ] were issued to and received by the Trust in Atlanta, Georgia.”

102

Finally, Sapp also explains that the first block of policies (including the one on Sims’s life) were received and “accepted” by the Trust in Atlanta on March 10, 1994.

103

*749

Many of these averments are merely legal conclusions

{e.g.,

the policies were “issued” and “accepted”) that the Court need not and does not accept as conclusive. While Wal-Mart provides important evidence that various actions regarding creation of the COLI policies occurred in Georgia, there also is other important evidence establishing significant contacts-with other states.

For instance, the place that policy premiums were to be paid before the insurer deemed them “received” is material. While-Sapp states that the Trust paid for the policies by wire transfer from Atlanta,

104

he implicitly acknowledges that receipt of these payments by the insurers was at AIG’s office in Delaware and Hartford’s office in Connecticut.

105

The Sims COLI Policy states that payment under the contract was not deemed made until received in the insurer’s home office.

106

In connection with the place of contracting, if one relies on the very last step before the insurance contracts became binding on the purchaser, then that step is the examination during the twenty day rejection period. During that time, the Trust, Wal-Mart and the broker, were permitted to examine the policies and to return them if desired for a full refund, Sapp avers that the “Trust did not thereafter exercise the right to return the policies within 20 days for a full refund of the premiums.”

107

While Sapp’s testimony is intended to- suggest that this examination occurred in Georgia;-this testimony is obviously incomplete. Copies of the policies were retained by the Trustee in Georgia and by the broker, presumably 'in Minnesota.

108

The Trust Agreement required that all' notices be sent tó Wal-Mart in Arkansas,

109

and thus copies of the COLI policies likely were sent there for Wal-Mart’s review, since Wal-Mart was responsible to make all decisions pertaining to the Trust.

110

Nothing suggests that any work by NBG, the broker, or Wal-Mart pertaining to the Trust’s creation was done in Georgia. Wal-Mart’s evidence on this factor thus is inconclusive. Thus, if the truly last step before a contract is binding is significant in this case even though Plaintiffs , did , not sign the contracts and were not involved in their creation, then the Court, concludes that the final acts before the COLI contracts became binding took place in several states, of which Georgia was only one. The Court is. unpersuaded the last, step before the COLI contracts were accepted as final took place in Georgia.

The COLI policy contains a provision immediately above the contracting parties’ signatures that “[n]o policy-will take effect unless and until, while the- Insured is living, the application is approved, the full initial premium is paid, the policy is deliv-

*750

éred and accepted by the owner, and answers and statements in this application continue to be complete and true

at the time .of

such payment and acceptance.”

111

This provision requires that the insureds be alive when the insurance became effective, and that they have not declined the coverage (by declining the special death benefit).

112

Wal-Mart or some contracting party was required to make this determination where the insureds were located, as indicated by the Emerick Memorandum directed to the Location Managers, and the attached December 1993 flyer, announcing the special death benefits. This verification was to occur after the insurer signed the policy and received payment, but before delivery of the policy to the owner. Wal-Mart’s argument that the policies did not require any health evaluation does not ameliorate the concern by the carriers that the insured be alive on the effective date of the policies. This requirement could be satisfied only by Wal-Mart checking on its employees at their places of employment, which for Texas employees, was in Texas.

It also is notable that the AIG Letter of Understanding, which was made a part of the Wal-Mart/AIG COLI policy contracts, provides that the parties’ agreement to purchase insurance does not take effect unless,

inter alia,

AIG

receives

the total first year premium.

113

AIG declared in various places in the parties’ contract documents that payments must be

received in Delaware

at the AIG administrative office.

114

This significant contact with Delaware also undermines Defendants’ arguments that Georgia was the “place- of contracting.”

Wal-Mart’s evidence also invites comment on another aspect of the parties’ relationships. Each of the § 188 factors must be evaluated with reference to the claims and facts of each case. Since Plaintiffs seek rulings on the effect of the insurable interest doctrine, and there is no dispute as to the meaning of the express terms of the COLI polices, the place of contracting factor must include consideration of where and when the Wal-Mart employees accepted or, in Wal-Mart’s rubric, approved Wal-Mart’s inclusion of the employees in, the COLI insurance program.

115

Insurance on Sims’s life was purchased in the first block of policies sold by AIG to Wal-Mart.

116

At the outset of the program, in December 1993, Wal-Mart informed its employees then enrolled in the Wal-Mart Plan that the company would pay for a new Special Death Benefit.

117

The flyer was distributed through Wal-Mart “Location Managers” to all employ

*751

ees, presumably at the employees’ workplaces,

118

which for Sims was in Texas. Thus, Sims’s conversations, his receipt of information (if any), and his act or decision (if any) not to decline the Special Death Benefit occurred in Texas. Wal-Mart argues that notification to employees about the Special Death Benefit served as notice about, and acceptance or approval of, Wal-Mart’s purchase of COLI policies on the employees’ lives. To the extent that Sims made his decision based on the flyer distributed in late December 1993, Sims did so in Texas.

119

Thus, Wal-Mart’s argument that the COLI policies were applied for and accepted in Georgia is a gross oversimplification of the actual events.

Wal-Mart’s evidence does not demonstrate that the “place of contracting” is a significant § 188 factor in this case. In addition to the fact that important events necessary. to the creation of the COLI contracts occurred in several states, including Texas, the claims Plaintiffs assert must be considered closely. Plaintiffs’ claims present the issue of whether Wal-Mart had an insurable interest in Plaintiffs’ (or their decedents’) lives. Each of the choice of law factors must be evaluated “according to their relative importance with respect to the particular issue.” Restatement § 188(2). Thus, even if Georgia were found to be the state with the most numerous contacts under the “place of contracting” factor, it is inescapable that these contacts all are based on the artificial constructs of either the Wal-Mart Trust

a meeting set up by the Camelot Defendants to sign the paperwork in Georgia, each done for the express purpose of taking advantage of favorable Georgia law on in

*752

surable interests, and without any other meaningful connection to that state.

120

Additionally, the location of these devices occurred without any input from the insureds, including Plaintiffs, Texas residents. In view of the policy considerations involved in that doctrine, which must be considered under Restatement § 6, the Court accords the “place of contracting” factor (regarding the creation of the COLI policies

per

se) little weight in the choice of law analysis in this case.

(c)

Place of Negotiation

Defendants argue that the “place of negotiation” factor favors the application of Georgia law to the Wal-Mart COLI policies. Defendants’ sole evidénce for this assertion originally was the superficial testimony of Sapp.

121

Wal-Mart later submitted additional evidence from Sapp and an affidavit from Nystrom, one of the broker’s representatives. Nystrom avers that “negotiations related to the COLI policies took place in Arkansas and Georgia,” and not in Texas.

122

Nystrom further states that he “was involved in-meetings in late 1993” with “Wal-Mart in Arkansas and the [Trust] in Georgia relating to the purchase by the Trust of [COLI] policies insuring Wal-Mart employees.”

123

Nystrom, however, did not sign the policy applications; they were signed by Winer, the person to whom Nystrom reported.

124

Wal-Mart also points to the use of the Georgia standard form of insurance.

125

Wal-Mart again misses the mark. Its evidence does not address explicitly the location of all the negotiations, or even the meaningful ones.

126

Nystrom simply states vaguely that he “knows of no negotiation related to the purchase of the COLI policies” other than in Arkansas and Georgia.

127

*753

Wal-Mart’s evidence fails to point to any single state as the state with significant contacts regarding negotiations of the contracts in issue. One event provides a contact with Texas. Wal-Mart contends in other contexts that Sims approved the purchase of the COLI policy on his life through his failure to decline the Special Death Benefit in December 1993.

128

The Court assumes, for the purposes of the pending motions, that Sims received and acted on Wal-Mart’s request in the December 1993 flyer Wal-Mart distributed through Location Managers at each store. If Wal-Mart’s Location Manager handed Wal-Mart’s request to Sinis and discussed it with him, then these acts occurred in Texas. Under Wal-Mart’s construction of the events, these actions comprise negotiations on the COLI contracts, and reflect a potentially significant contact with Texas as to the Sims Estate’s claim.

129

Wal-Mart’s evidence as to contacts with Georgia (and other states) is significant for what is not included. Nystrom does not state that he attended all meetings or negotiation sessions. He does not mention how many meetings that he attended were in Arkansas as compared to Georgia or the insurers’ home offices iii Delaware arid Connecticut.

130

Wal-Mart submits no affidavit from Winer, president of NBG, who likely was involved in some meetings in light of the enormity of Wal-Mart’s COLI transaction. Nystrom’s affidavit suggests that NBG’s principal place of business, consistent with the contact, information on one of the application forms, was in Minnesota.

131

Some of the broker’s communications likely were conducted or initiated from there. Wal-Mart submits no evidence about the identity of the representatives who negotiated for the Insurer Defendants, no evidence "about the location of these' people’s offices, and no evidence as to when or how the material' terms of the COLI policies, such as the size of the premiums, were agreed to. It is inconceivable that no negotiations took place in the statéfe in which 'the insurers’ home offices are located. There is’ no evidence about who gathered crucial data about the identities of the insureds or how the information was amassed for consideration by the Insurer Defendants in connection with the COLI policies. , Even more striking, Wal-Mart does not include in any affidavit or other evidence from its own representatives non-conclusory factual information about the negotiations for the COLI policies, even though Wal-Mart is the sole beneficiary of the insurance policies in issue and controls all the Trust’s activities.

132

Nor does Sapp, the'Trustee’s officer, include any comments about his own pre-contract negotiations. It is inconceivable that detailed ánalysis and negotiations among representatives of each of the signatories to the COLI contract documents did not occur before the final terms were reached.

Accordingly, Wal-Mart’s evidence fails to demonstrate that Georgia was the primary place of negotiation.

133

If anything,

*754

the supplemental evidence weakens Wal-Mart’s position that Georgia was the “place of negotiation” for choice of law purposes.

Wal-Mart, implicitly; acknowledging this result, argues in the alternative that the place of negotiation was possibly in various states, but not in Texas. This argument does not advance Wal-Mart’s cause. Wal-Mart’s evidence, when considered with the absence of proof on pertinent subjects, leads the Court to find that the place of negotiation does not establish meaningful contacts with any one state.

In any event, to the extent Plaintiffs were not involved in creation of the COLI contracts, this factor is not material in the case at bar. Accordingly, Defendants have failed to establish Georgia in particular as the “place of negotiations” for the Wal-Mart policies. Further, because the parties’ locations and places of negotiations were so widely dispersed, the Court gives the “place of negotiation” factor no weight in its choice of law analysis.

(d)

Place of Performance

Defendants argue that the “place of performance” factor in the § 188 choice of law analysis favors application of Georgia law in this case and, in any event, does not support reliance on Texas law. Defendants contend that the Wal-Mart Trust was located in Georgia, and that all premiums were paid from, and policy proceeds were paid to, the Trust in Georgia.

134

Further, Wal-Mart contends that no performance occurred in Texas. Wal-Mart contends that the death of an insured is “merely a condition precedent to payment.”

135

Defendants’ analysis is superficial and accordingly is not persuasive. The Court finds that the place of performance is an important factor in the § 188 analysis, and that the evidence establishes strong contacts with the state of Texas. Moreover, Wal-Mart’s putative contacts with Georgia are not significant when the realities of the parties’ relationships are analyzed.

The Wal-Mart COLI policies issued by AIG require that all required written notice and requests be sent to the insurer’s Delaware office.

136

Payment of proceeds under those policies occurred only when “proof is received at our [insured’s] administrative office [in Delaware] of [the] Insured’s death.”

137

Nystrom avers that NBG prepared the Death of Insured Notification Forms in Minnesota for execution by Wal-Mart and the Trust. Generally, NBG prepared the death notices after “receiving notice of an employee’s death either from the Wal-Mart benefits department in Arkansas or through computerized sweeps by NBG of national Social Security Administration computerized records.”

138

NBG forwarded the notices for the both the AIG and Hartford policies to a Wal-Mart representative in Arkansas for signature. The Hartford forms also were signed by a Trust representative in Georgia for awhile and later in North Carolina.

139

Some of the Trust’s administrative functions were performed by Wa-chovia in North Carolina starting in or about 1997,

140

but “to [Nystrom’s] knowledge,” none of the forms were signed in Texas.

141

Nystrom states that Wal-Mart

*755

and the Trust specifically chose one state, Georgia, as the “site for the COLI policies” in order to “provide administrative and legal predictability and uniformity for all of the policies.”

142

Wal-Mart focuses on the fact that the insurers paid all policy proceeds to Georgia to the Trust, which forwarded them to Wal-Mart in Arkansas, or otherwise acted at Wal-Mart’s direction.

143

Wal-Mart also includes two conclusory assertions: The “Trust

performed

under the policies by paying annual policy premiums on the COLI policies[; and] AIG and Hartford

performed

under the polices by paying death benefits to the Trust.”

144

The Sims AIG policy and proof of Sims’s death was handled in this fashion.

145

The Court has considered the fact that the nominal owner of the policies, the Trust, was located in Georgia and that all monies relating to- the policies passed through that entity.

146

However, it is clear that all monies paid by the Trust were obtained from Wal-Mart, the Wal-Mart Trust’s activities were conducted at the express direction of Wal-Mart, all funds received by the Trust were forwarded to Wal-Mart, or handled at the express direction of Wal-Mart. The Trust was created for the sole purpose of serving, and in fact served, as a mere conduit in Georgia for the funds paid by. Wal-Mart. The Trust had purely ministerial administrative functions and its existence was solely for the purpose of siting the COLI policies in Georgia. Thus, Defendants establish only that there are superficial contacts with Georgia under the § 188 place of performance factor.

On the other hand, there is evidence thati performance under the WalMart COLI policies involved contacts with several other states. For instance, all premium payments were “received” by AIG and thus were effective only when the payments reached the AIG headquarters in Delaware.

147

If an insurance contract specifies that premium payments are to be made at the insurance company’s home office, the general Texas rule is that the place of performance of the contract is the state in which the insurer’s home office is located.

148

Seiders v. Merchants’ Life

Ass'n, 93 Tex. 194 , 54

S.W. 753,

754 (1900) (holding that place of performance of a life insurance contract was. the state where premiums were made payable, even if the contract was made in another state).

Accord New York Life Ins. Co. v. Baum,

700 F.2d 928, 933 (5th Cir.1983);

see generally Hull & Co., Inc. v. Chandler,

889 S.W.2d 513, 517-18 (Tex.App.—Houston [14 Dist.], 1994);

American National Insurance Co. v. Huckleberry,

638 F.Supp. 233, 235 (N.D.Tex.1986).

*756

Another fact is that Wal-Mart, doing business nationwide, and headquartered in Arkansas, was the named beneficiary of the COLI policies.

149

The “Company Name to Appear on Policy” was “Wal-Mart Stores, Inc.,” with an Arkansas address. Only the “Billing Address” was Wachovia Bank of Georgia, N.A. in Atlanta. None of these aspects of the contract support Georgia as the place of performance.

Finally, Wal-Mart discounts a critical component of the performance of the COLI polices, establishment of right to payment by. the insurer of the benefits upon death of the insured. It is immaterial whether the proof of an insured’s death is called a “condition precedent” (as Wal-Mart argues) or a material part of performance of the insurance contract. The parties agreed that the Insurer Defendants must receive definitive proof of death of an insured before the insurers will pay any policy benefits. This proof, for Texas residents, originates in Texas. Whether NBG obtains notice of an insured’s death from Wal-Mart’s benefits department or the Social Security database, the original source of that information is the records of the state of Texas. Activities in Texas thus are central to performance of payment of proceeds under the COLI policies and Georgia has no connection to this aspect of performance.

Moreover, an incontrovertible corollary relating to performance of the COLI contracts is that the owner’s payment of premiums is due on an insured only during the life of the insured. To determine the status of the Texas resident insured, communication with Texas is necessary.

The Court concludes the place of performance of the contracts is an important factor in the § 188 analysis in this case. The Court, however, finds that the location of the Wal-Mart Trust and other facts on which Wal-Mart relies are not dispositive on this factor. After considering all the evidence of contacts of the parties regarding performance of the COLI policies generally and the Sims Policy specifically, it is apparent that Georgia has only a contrived and superficial connection to these insurance policies with respect to the “place of performance.” In contrast, Texas has a significant relationship to “performance of the contract” insofar as creation of the insurance coverage (the need for the insured to be alive at the inception of the policy) and payment of policy benefits (death of the insured) are concerned. These considerations tip this important factor heavily in favor of Texas.

150

(e)

Location of the Subject Matter of the Contract

Defendant Wal-Mart asserts that the location of the subject matter of the COLI policies favors the application of Georgia law. The Insurer Defendants paid COLI policy proceeds on deceased insureds to the Wal-Mart Trust in Georgia, or possi

*757

bly in North Carolina (where administration of the Trust was transferred in 1997). The only contact with Texas for a named party relating to Wal-Mart is the place of residence of employee Douglas Sims, a Texas resident. Wal-Mart also contends, apparently focusing solely on its own goals, that the subject matter of the COLI contracts is payment of insurance proceeds, not the life of the insured. Wal-Mart ignores the existence of the - responsibilities, risks, and rewards to the insurance carriers and to Wal-Mart during the life of the insureds under the COLI policies. Wal-Mart was obligated to pay premium payments to the Insurer Defendants during each insured’s life.

151

The fact that an insured is alive when the premium is paid is crucial to Defendants. Each COLI policy involved different monetary, duties depending upon whether the, insured was alive or dead. The evidence of, the insured,’s status is derived through periodic scrutiny of Wal-Mart records generated in .each insured’s home state. If an insured leaves Wal-Mart’s employ, then the task of determining if and when the insured has died becomes more complicated, but contact with the insured’s state of residence is required. For Texas residents, the obligation to pay proceeds arises only as a result of an event in Texas, the death of an insured.

152

It thus is the insured’s life that,is the subject matter of the COLI policy. Since Sims and the other Plaintiffs in this, suit are (or were) citizens or residents of Texr as, the location of the subject matter of the COLI policies is Texas. This result is consistent with Texas law. Texas courts have held that the subject matter of a life insurance policy is the life of the insured. Specifically, a life insurance policy that lapsed before the insured died cannot be reinstated after the insured’s death because, the insured’s life — the subject matter of the policy — no longer exists.

Gibralter Colorado Life Co. v. Taylor,

132 Tex. 328 , 123 S.W.2d 318, 321 (1939);

Baker v. Penn Mut. Life Ins. Co.,

617 S.W.2d 814, 815-816 (Tex.Civ.App.—Houston [14th Dist.] 1981, n.w.h.). “The essential foundation of a life insurance policy is the life of a human being.” Gibralter, 123 S.W.2d at 321 .

The Restatement provides that “[t]he state where the [subject of the contract] is located will, have a natural interest in transactions affecting it.” , Restatement §. 188, cmt. e. Accordingly,.the location of the subject matter of the Sims Policy and the other COLI policies insuring the lives of Texas citizens or residents is Texas.

Public policy considerations prompt the Court in this case to give, the “subject matter of the contract” factor great.significance in .the choice of law analysis. The Texas insurable interest doctrine exists to protect the lives of Texas citizens.

Cheeves,

28 S.W. at 275 (“It is against the public policy of this state to allow any one who has no insurable interest to be the owner of a policy of insurance upon the life of a human being.”);

Griffin v. McCoach,

123 F.2d at 551 (“The [insurable interest] rule in Texas is for the protection of the

*758

lives of its citizens.”)- This Texas public policy is integrally intertwined with the “subject matter of the contracts” in issue, The Texas contacts make this factor weigh heavily in favor of Texas application of Texas law.

(f)

Domicile of the Parties

Defendants argue that the domicile of the parties to the COLI policies favors the application of Georgia law, or the law of several states other than Texas. In support of this argument, Defendant Wal-Mart asserts that the Wal-Mart Trust is located in Georgia.

153

However, as discussed above, the Wal-Mart Trust is an entity entirely controlled and funded by Wal-Mart; the Trust exists merely to perform ministerial functions at Wal-Mart’s direction and to serve Wal-Mart interests in attempting artificially to obtain the protection of Georgia law as to the COLI policies. Accordingly, Wal-Mart’s placement of the Wal-Mart Trust in Georgia (i.e., the Trust’s domicile) does not dictate the application of Georgia law.

It is undisputed that none of the other parties to the contract are domiciled, incorporated, or have their principal places of business in Georgia. The Insurer Defendants are domiciled in Delaware and Connecticut, respectively. Wal-Mart is domiciled in Arkansas. The domicile of Wachovia Bank was Georgia and then North Carolina.

154

The insureds, whom Defendants contend are parties to the COLI contracts, were domiciled in Texas when the policies were purchased.

155

The “domicile of the parties” factor therefore is splintered, making that factor inconclusive. Georgia law has no greater interest in the claims in this suit than the states where the insurers, Wal-Mart or the Texas Plaintiff-insureds are domiciled. Accordingly, Texas has at least as strong a connection as Georgia to this dispute under this choice of law factor.

(g)

Conclusion on the Choice of Law Under Restatement § 188 and § 6

Analysis of the Restatement § 188 factors for contract disputes fails to reveal one single state with clearly the “most significant contacts” to this unique dispute. As between Georgia and Texas, however, Texas has far stronger contacts than Georgia. Texas is the place of Sims’s and the other insureds’ domiciles, the place of the subject-matter of the COLI policies, and the place of the most significant aspects of performance of the contracts. Evidence on the places of contracting and negotiation demonstrates that several states each have limited contacts. These factors accordingly are entitled to little weight.

Even if Defendants are deemed to have shown that important steps in entering into the COLI contracts occurred in Georgia, or that some unspecified negotiations occurred in Georgia, or that certain steps in performing the contracts were performed there, these contacts do not justify application of Georgia law to Plaintiffs’ insurable interest claims against Wal-Mart under all the facts of this case. Defen

*759

dants contrived the connection to Georgia, which otherwise had no relationship to Defendants, by situating the Trust there and performing certain acts there on the thousands of COLI policies covering employees nationwide. To the extent § 188 factors are pertinent, they suggest that Texas has the most significant, contacts with the claims in issue.

The Restatement § 6 factors, which must be considered in all cases, point strongly to Texas as the place with the most significant contacts. The purpose of insurance, the need for certainty, predictability and uniformity of result, as well as other factors, all point to Texas as the state with the most significant interest in the application of its law and public policies to this dispute. When the § 188 factors are considered in light of the § 6 considerations, as the Restatement directs, Texas choice of law principles mandate that Texas law be applied in this case.

(h)

The Fifth Circuit

Baum

Decisions .

Defendants contend that. New

York Life Ins. Co. v. Baum,

700 F.2d 928 (5th Cir.1983)

(“Baum II”),

dictates that Georgia law be applied in this case because that state has the most contacts to the COLI policies in issue.

Baum ,

however, is inap-posite.

156

Baum ,

the. insurer, New York Life, filed an interpleader action in a Texas federal court, seeking a declaratory judgment that the policy was void for lack of an insurable interest, and that no beneficiary should receive the proceeds of the policy.

New York Life Ins. Co. v. Baum,

617 F.2d 1201, 1203 (5th Cir.1980)

(“Baum I”).

The district- court granted summary judgment to New York Life, holding that Louisiana law applied to the life insurance contract, and that under Louisiana law, the contract was void

ab initio

because neither of the contesting beneficiaries had an insurable interest. Id.

157

The Fifth Circuit

*760

reversed, holding there was a material question of fact as to the circumstances of the creation of the insurance policy and designation of beneficiaries.

Id.

at 1204-05 .

On remand, the district court ágain held that Louisiana law controlled, and that none of the contestants had an insurable interest in Cook’s life.

Baum,

700 F.2d at 929-30, 934-35 . The Fifth Circuit reversed a second time, and' directed the district court to pay the proceeds to Baum.

Id.

at 935 . The court of appeals held that Texas contract choice of law analysis applied, and that it favored the application of New York law.

Id.

at 932 .

158

Ultimately, on rehearing, the court vacated its own grant of summary judgment awarding the insurance proceeds to Baum.

New York Life Ins. Co. v. Baum (“Baum III

”), 707 F.2d 870, 871-72 (5th Cir.1983). The court of appeals adhered to its choice of law ruling reversing the district court on all issues concerning New York Life, but concluded that there were material fact questions that precluded summary judgment for Baum over a Texas shell company controlled by Baum’s former business partners, because there was evidence that Baum may have been aware of the incorporation of that entity. Id.

159

Baum II’s

holding as to choice of law is not inconsistent with the result the Court reaches in this case.

Baum

involved a typical contract dispute. The insurer sought to avoid payment of death benefits to parties associated with the two potential beneficiaries of the insurance contract, who were or claimed to be affiliated in business with the insured. In

Baum,

the insured (Cook) was aware of and consented to the owner’s (Baum’s or Media’s) creation of the life insurance policy in connection with a creditor/debtor relationship among the insured, the owner, and the named beneficiary.

See Baum III,

707 F.2d at 872 . All the real parties in interest participated actively in creation of the contract. The court of appeals employed a traditional contract choice of law analysis, which dictated that the places of contracting and performance were the most significant factors under the facts of the case.

Resolution of insurable interest cases is highly fact specific. The

Baum

circumstances are materially different from Plaintiffs’ dispute with Defendants. In the instant case, the insured Plaintiffs were not active participants in creation of the COLI policies. Many Plaintiffs did not even know the insurance had been created.

160

Thus, the place of contracting and payment, the central factors for the Fifth Circuit in

Baum II,

are not dispositive

*761

here.

161

Moreover, despite the

Baum

court’s detailed rulings, there was no analysis of the numerous other factors important to a full choice of law analysis under the Restatement. Thus, the

Baum

cases do not serve as a helpful guide to this Court, and those rulings do not alter the Court’s analysis.

3. The Camelot COLI Policies

Hartford and the Camelot Defendants contend that Georgia law applies to the COLI policies that the Camelot Defendants purchased

from

Mutual, which Hartford acquired. In support of this contention, Defendant Hartford proffers a sparse affidavit of James Van Etten stating that (i) Camelot intended for Georgia to be the situs of its COLI policies, (ii) Camelot intended for Georgia law to govern its COLI policies, (iii) Mutual used forms for the policies authorized for use in Georgia, and (iv) the COLI policies were administered by a third-party administrator. in Georgia.

162

Hartford further asserts:

No part of the negotiations related to the Wal-Mart or Camelot COLI policies took place in Texas. No insurance policies were delivered in Texas, no premiums were paid from Texas, no beneficiaries were Texas residents, and no policy benefits were paid in Texas.

163

Defendant Hartford proffers no other evidence to establish the Camelot COLI policies’ contacts with Georgia. The Camelot Defendants introduce no independent evidence.

164

In response, Plaintiffs have submitted materials from a tax case related to the Camelot COLI policies,

In re CM Holdings, Inc.,

254 B.R. 578 (D.Del.2000).

165

Camelot’s insurance broker testified in that proceeding that the COLI policies had closer ties to Ohio then Georgia.

166

Plain

*762

tiffs also have provided evidence that some activity related to the administration of the Camelot COLI policies occurred in Texas, namely, the Camelot Defendants obtained death certificates in Texas when Texas resident insureds died.

167

The testimony and evidence in

CM Holdings

are not probative on the question of whether Camelot’s COLI policies were issued or delivered in Georgia. At issue in

CM Holdings

was whether Camelot’s COLI policy scheme was a sham transaction for tax purposes.

168

Thé Delaware district court did not address the choice of law question, nor was the question relevant. Plaintiffs were not parties to those proceedings. The issues before that court were materially different from those raised here. The statements and testimony on which Plaintiffs rely were not necessary to and did not form any part of the district court’s holding in

CM Holdings.

Thus, neither Plaintiffs nor Defendants have demonstrated that estoppel should be imposed through application of the Delaware district court’s ruling. The Court has broad discretion to determine whether collateral estoppel should be applied to preclude litigation of an issue.

Copeland v. Merrill, Lynch & Co.,

47 F.3d 1415, 1423 (5th Cir.1995);

J.M. Muniz, Inc. v. Mercantile Texas Credit Corp.,

833 F.2d 541, 543 (5th Cir.1987). Collateral estoppel bars the relitigation of an issue of ultimate fact by the party against whom the issue has been determined by a valid and final judgment.

Hibernia Nat’l Bank v. United States,

740 F.2d 382 , 387 (5th Cir.1984). While mutuality of parties is not required, collateral estoppel can only be applied against parties who have had a prior full and fair opportunity to litigate their claims.

169

Hardy v. Johns-Manville Sales Corp.,

681 F.2d 334, 338 (5th Cir.1982) (explaining

Parklane Hosiery Co. v. Shore,

439 U.S. 322 , 99 S.Ct. 645 , 58 L.Ed.2d 552 (1979)).

The Court engages in an independent choice of law analysis for the Camelot COLI policies and uses the available factual record. The Court finds that virtually no factually specific evidence establishes meaningful contacts between the State of Georgia and Plaintiffs’ claims against the Camelot'Defendants and Hartford. Nothing in the sample Camelot COLI insurance policy reveals any connection with the State of Georgia. The insurer, Mutual, is

*763

listed as having a New Jersey address and other connections to that state as well as Missouri.

170

Premiums paid by the Camelot Defendants were payable at Mutual’s home office in New Jersey.

171

Under the heading “Statement of Policy Cost and Benefit Information” the insurance agent is listed with a Florida address.

172

Camelot was a Pennsylvania corporation that was acquired in December 1997 by Trans World, a New York corporation with its principal place of business in New York. Hartford is a Connecticut insurance company with its principal place of business in Connecticut.

The Court also concludes that the State of Texas has a substantial interest and several important contacts with the dispute concerning the Camelot COLI policies. The Court incorporates, to the extent relevant to the Camelot parties, the foregoing analysis of the Restatement § 6 and § 188(2) factors discussed with respect to Wal-Mart. The Camelot Defendants set up a COLI policy administrator in Georgia that serves a function comparable to the Wal-Mart Trust.

173

The choice of law analysis on the Camelot Plaintiffs’ claims therefore is the same as for the Wal-Mart parties’ contacts with the State of Texas.

The Restatement § 6 and § 188(2) fac-. tors as to the Camelot COLI policies point to Texas as the state with the most significant contacts to the dispute. Although Georgia and the states in which the parties (other than the insureds) are domiciled may have some interest in the dispute, these states’ interests pale by comparison to Texas. The Camelot Plaintiffs are or were Texas residents and/or citizens. Their lives are the subject matter of the COLI policies. Material aspects of the performance under those contracts is in Texas. The Texas contacts with this dispute are stronger than the connection of any other state.

Accordingly, the Court holds that the Camelot Defendants’ and Hartford’s motions for summary judgment are denied insofar as these parties seek to apply Georgia law to Plaintiffs’ claims concerning the Camelot COLI policies. The Court further holds that Texas law should apply to the Camelot Plaintiffs’ claims against the Camelot Defendants and Hartford.

Conclusion on Choice of Law

Having considered all the parties' arguments regarding the choice of law issue, the Court concludes that Georgia law does not apply. Based on the available record, this case is governed by Texas law, including its insurable interest doctrine.

174

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CONTENTIONS RELATED TO SIMS ESTATE’S CLAIMS

ERISA Preemption

Defendant Wal-Mart seeks dismissal of Plaintiff Sims Estate’s claim for the COLI death benefits because the claim relates to an ERISA plan and is therefore preempted by the Employee Retirement Income Security Act, 29 U.S.C. § 1001

et seq.

(“ERISA”).

175

Wal-Mart relies on the proposition that its COLI policies formed part of its employee benefit plan (“Wal-Mart Plan”). Plaintiffs respond that the' COLI policies are unrelated to any part of the Wal-Mart Plan. Plaintiffs further argue that even if the COLI policies were related to the Wal-Mart Plan, the Sims Estate’s claim is not preempted under the ERISA “savings clause.”

176

Alternatively, Plaintiffs contend that they have insufficient factual information on the COLI policies and the Wal-Mart Plan to respond to WaLMart’s ERISA arguments, and move under Rule 56(f) of the Federal Rules of Civil Procedure for a continuance to pursue additional discovery.

177

Wal-Mart has failed to demonstrate that the Sims Estate’s claim for COLI policy benefits, which became payable after Wal-Mart terminated the Special Death Benefit, is related to Wal-Mart’s ERISA plan. The Sims Estate’s claim therefore is not preempted.

1. Standard for ERISA Preemption

To determine whether a particular plan qualifies as an ERISA plan, the Fifth Circuit asks whether the plan “(1) exists; (2) falls within the safe harbor exclusion established by the Department of Labor; and (3) meets the ERISA requirement of establishment or maintenance by an employer for the' purpose of benefitting the plan participants.”

McNeil v. Time Ins.

*765

Co.,

205 F.3d 179, 189 (5th Cir.2000);

Meredith v. Time Ins. Co.,

980 F.2d 352, 355 (5th Cir.1993).

178

ERISA preempts “any and all State laws insofar as they now or hereafter relate to an employee benefit plan.” 29 U.S.C. § 1144 (a). The Supreme Court has held that the term “relate to” should be expansively construed.

FMC Corp. v. Holliday,

498 U.S. 52, 57-58 , 111 S.Ct. 403 , 112 L.Ed.2d 356 (1990) (“The preemption clause is conspicuous for its breadth. It establishes as an area of exclusive federal concern the subject of every state law that ‘relates to’ an employee benefit plan governed by ERISA.”).

Applying these principles, the Fifth Circuit has found generally that ERISA preempts state law claims in two situations: “(1) the claim addresses areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claim directly affects the relationship among the traditional ERISA

entities

— i.e., the employer, plan administrators, fiduciaries, participants, and beneficiaries.”

Bullock v. The Equitable Life Assurance Society,

259 F.3d 395, 399 (5th Cir.2001);

Cypress Fairbanks Med. Ctr., Inc. v. Pan-American Life Ins. Co.,

110 F.3d 280, 283 (5th Cir.1997).

However, some state law claims may affect an ERISA plan in a manner that is too tenuous, remote, or peripheral to warrant a finding that the law “relates to” the plan.

Nickel v. Estate of Estes,

122 F.3d 294, 297 (5th Cir.1997). For example, in certain circumstances a plaintiff may refer to plan benefits as a measure of damages without invoking ERISA preemption.

Rozzell v. Security Serv., Inc.,

38 F.3d 819, 822 (5th Cir.1994). In order to determine whether a state law claim is preempted by ERISA, the Court must look past the words in the complaint and consider the substance of the claim alleged.

Id.

The Fifth Circuit takes a fact-sensitive approach when making a preemption determination.

E.g., Memorial Hosp. Sys. v. Northbrook Life Ins. Co.,

904 F.2d 236, 246 (5th Cir.1990) (examining the “commercial realities” of plaintiffs position as part of ERISA preemption analysis).

2. Relatedness to Wal-Mart’s ERISA Plan

Starting in December 1993, Wal-Mart offered a $5,000 Special Death Benefit to all employees covered by a Wal-Mart medical plan during 1994 to 1995.

179

The Special Death Benefits were payable to the same beneficiary as the

employee selected

under non-COLI life insurance policies that Wal-Mart bought for its employees through the Wal-Mart Plan.

180

The Special

*766

Death Benefits were described in the Summary Plan Descriptions (“Summaries”) issued by Wal-Mart to its employees for the years 1994 and 1995.

181

The section regarding the Special Death Benefits in each of the Summaries makes no reference to the COLI policies. Instéad, each says that the “special death benefit is

fully paid by

Wal-Mart.”

182

Wal-Mart nevertheless asserts, on the basis of the affidavit of Tom Emeriek, Wal-Mart’s Vice President of Benefits, that the Special Death Benefits were “funded” by the COLI policies.

183

Besides Emerick’s conclusory statement, the sole evidence submitted in support of this assertion is a memorandum dated December 14, 1993 (“Benefits Memorandum”) and the accompanying brochure (“flyer”) announcing the initiation of the Special Death Benefit program in December 1993.

184

Neither of these documents was a formal ERISA-mandated document among the “controlling Wal-Mart Plan documents.”

185

The flyer stated that the “new benefit is being implemented because of financial benefits associated with .a Wal-Mart owned life insurance program which is explained in. the enclosed [flyer].”

186

The flyer also stated:

Wal-Mart is providing these new death benefits as a result of financial gains from life insurance policies Wal-Mart will purchase which will cover the fives of associates who participate in the group health plan. That Wal-Mart owned fife insurance will result in the financial benefits for the corporation. Any net fife insurance proceeds payable to Wal-Mart from this fife insurance as

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a result of the death of an active associate will be contributed to the profit sharing plan.

187

The flyer established, at best, that the “Wal-Mart owned life insurance” is “payable to Wal-Mart,”

188

and that Wal-Mart elected to pay the Special Death Benefit as part of the Wal-Mart Plan.

189

Thus, there is no documentary evidence that demonstrates that the proceeds of the COLI policies

per se

were paid to beneficiaries of the Wal-Mart Plan. At best, Wal-Mart’s evidence establishes that Wal-Mart received some of the proceeds from the COLI policies, that Wal-Mart self-funded the Wal-Mart Plan,

190

and elected to pay from its general revenues the Special Death Benefit.

191

If the Court, nevertheless, assumes that Wal-Mart’s commitment to pay the Special Death Benefit causes the

COLI policies

to be a

part

of the Wal-Mart Plan, Wal-Mart’s ERISA preemption contentions about the Sims Estate’s claim still fail. First and foremost, the Sims Estate does not seek recovery of the Special Death Benefits or any other Wal-Mart Plan benefits. The Sims Estate seeks to recover the COLI policy proceeds as the lawful beneficiary under Texas insurable interest doctrine.

192

The Sims Estate’s claim has no bearing on the Plan or its administration.

193

The Sims Estate’s claim does not

*768

relate to the Wal-Mart’s Plan, and is not preempted by ERISA.

194

This result is bolstered by the cases on which Wal-Mart relies. In

Lee v. E.I. DuPont de Nemours and Co.,

894 F.2d 755 (5th Cir.1990), the plaintiffs sought “to recover benefits defined by their former employer’s ERISA plan, benefits to which they would have become entitled but for an alleged misrepresentation by their employer, during their employment, on which they relied to their detriment.”

Lee,

894 F.2d at 757 . Plaintiffs alleged state law claims of* fraud and negligent misrepresentation for which they sought to recover specifically the additional monthly retirement benefits they would have received if they had retired under the new retirement program.

Id.

at 756 . The Fifth Circuit held preemption applied since the plaintiffs’ putative state law fraud claims “relate[ ] to their former employer’s pension plan and interfere[ ] with the exclusively federal regulatory scheme.”

Id.

at 758 .

195

The Court of Appeals in

Lee

relied on

Cefalu v. B.F. Goodrich Co.,

871 F.2d 1290 (5th Cir.1989), also cited by Wal-Mart. In

Cefalu ,

a former employee sued to recover additional plan benefits based on an alleged oral contract. 871 F.2d at 1291 . The Fifth Circuit held that the plaintiffs’ claim was related to an ERISA plan and preempted because plaintiffs damages “would consist of the pension benefits he would have received had he been employed [by the successor entity].”

Id.

at 1294 .

The

Lee

and

Cefalu

cases are clearly distinguishable from the matters at bar. In each case, the plaintiffs plainly sought policy benefits to which they would have been entitled but for their reliance on their respective employer’s alleged misrepresentations. These were claims to recover benefits under an ERISA plan. In the case at bar, however, the Sims Estate seeks to recover nothing under the terms of the Wal-Mart Plan. Indeed, the Special Death Benefit is entirely irrelevant to the Sims Estate’s claim relating to the COLI policy insuring Douglas Sims. The COLI policy was owned and its benefits were payable to Wal-Mart through the Wal-Mart Trust, not the Wal-Mart plan.

Wal-Mart’s arguments regarding ERISA preemption therefore fail. The Sims Estate’s claims for the COLI policy benefits are not related to an ERISA plan. Therefore, the Court need not reach the parties’ arguments regarding the ERISA savings clause. Wal-Mart’s Summary Judgment Motion claiming ERISA preemption is denied.

Statute of Limitations

Defendant AIG argues that the Sims Estate’s claim is barred by the statute of limitations.

196

In response, the Sims Estate argues that its claim is not barred

*769

because that claim did not accrue until death benefits were paid from the Wal-Mart COLI policy on Sims’s life. After reviewing the pertinent authorities,

197

the Court concludes that the Sims Estate’s claim is timely.

1. Length of Limitations Period

AIG argues that the longest possible limitations period applicable to the Sims Estate’s claim is four years, since the Sims Estate seeks a constructive trust. AIG argues that the majority rule in Texas is to apply the residual four year limitations period to claims for a constructive trust. Tex.Civ.Prac. & Rem.Code, § 16.051 (“Every action for which there is no express limitations period, except an action for the recovery of real property, must be brought not later than four years after the day the cause of action accrues.”). The minority rule, according to AIG, is that courts apply the limitations period of the underlying claim in actions for a constructive trust. Under the latter rule, the limitations period would be either two or four years, depending on how the Sims state’s claim is characterized.

198

The Court concludes that the applicable limitations period is four years, whether § 16.051 governs or the limitations period governing the underlying claim applies. All Defendants in this action, including AIG, which incorporates the other Defendants’ arguments by reference, characterize this case as a contract action for choice of law purposes. In Texas, the limitations period for contract actions is four years. Tex.Civ.Prac. & Rem.Code § 16.004(a)(3) (Vernon Supp.2001);

Morriss v. Enron Oil & Gas Co.,

948 S.W.2d 858, 869 (Tex. App.—San Antonio 1997, no writ). Alternatively, Wal-Mart characterizes this case as one for unjust enrichment in its ERISA preemption argument. The Texas statute of limitations for unjust enrichment action is four years. Tex.Civ.Prac. & Rem.Code, § 16.004(a)(3) (Vernon Supp.2001);

Amoco Production Co. v. Smith,

946 S.W.2d 162, 164-65 (Tex. App.—El Paso 1997, no pet.).

199

Accordingly, the Court holds that the Sims Estate’s claims are subject to a four year statute of limitations.

2. Accrual of the Sims Estate’s Claim

AIG argues that the four year limitations period began when the Sims Policy was issued in 1993, more than four years before commencement of this lawsuit, and thus the Sims Estate’s claim is

*770

time-barred. AIG contends that the Sims Estate concedes through its allegations in the Complaint, that its claims for constructive trust accrued when the COLI policies were issued. In response, the Sims Estate attempts to distinguish its claim from those of the Camelot Plaintiffs, who are live individual insureds seeking ownership of the COLI policies currently in force. The Sims Estate argues that it seeks a constructive trust on the death benefits of the COLI policy on Sims’s life, a cause of action that did not accrue until Sims died. Furthermore, the Sims Estate argues that it could not have brought that claim until Sims died since the estate did not exist until Sims death.

The Court is persuaded by the Sims Estate’s arguments.

200

Unlike the Camelot Plaintiffs (who seek declarations that the Employer Defendants lack an insurable interest in their lives and that Plaintiffs are the “lawful owners of the ... COLI policies insuring their lives” while they are alive), the Sims Estate pursues a claim that Wal-Mart has violated the Texas insurable interest doctrine and requests both a declaration of its rights and the equitable remedy that 'a constructive trust be imposed on the death benefits AIG paid to the Trust for Wal-Mart.

201

In order to determine the timeliness of the Sims Estate’s case, the Court first must determine when decedent Sims’s substantive cause of action alleging violation of Texas law accrued. The fact that the estate of a deceased individual may seek both a declaration of rights and the additional relief of a constructive trust on death benefits does not alter the underpinning of all that plaintiffs claims. If Sims’s individual claim that Texas law was violated was time barred while he was alive, then his estate’s claim on the same theory would also be barred.

Russell v. Ingersoll-Rand Co.,

841 S.W.2d 343, 345 (Tex.1992).

The Court concludes that a claim alleging the absence of Wal-Mart’s insurable interest in Sim’s life accrued each day that the questioned COLI policy insuring the insured was in force. The “State of Texas has established a fixed policy with reference to its own citizens, by and through which it refuses to permit one who has no insurable interest in a living person to be and become the beneficiary in an insurance policy written on the life of such living person.”

Cole,

187 S.W.2d at 593 (citing

Cheeves,

87 Tex. 287 , 28 S.W. 274 ). The violation of this Texas legal doctrine is not restricted to the day Wal-Mart contracted for or obtained its interest as the beneficiary of a COLI policy.

202

It would make no sense to restrict the doctrine in this

*771

manner with respect to an insurable interest claim with solely a request for declaratory relief. The insurable interest doctrine is designed to avoid the incentive for murder, an incentive that pertains each day the insured is alive and the insurance violating the insurable interest doctrine exists. Thus, the Court concludes that the cause of action complaining of a violation of the Texas insurable interest doctrine accrues each day a beneficiary who lacks an insurable interest is named in an insurance contract and the insured is alive.

The Sims Estate filed its claim challenging Wal-Mart’s interest in the Sims COLI policy within four years of Wal-Mart’s termination of that insurance policy. Thus, the Sims Estate’s claim concerning the Texas insurable interest doctrine is not time barred to the extent the Sims Estate seeks declaratory relief.

203

The Sims Estate’s claim for constructive trust requires a slightly different analysis. A plaintiffs claim for relief of a constructive trust under the insurable interest doctrine due to designation of invalid beneficiaries accrues only when there is a designation that offends the Texas insurable interest doctrine

and

the insured dies while the insurance policy with that designation is in force. A claim under the insurable interest doctrine for constructive trust cannot accrue prior to an insured’s death, as discussed

infra

in Section VI(B) this Opinion. The Sims Estate filed its claim for violation of the insurable interest doctrine and sought the relief of a constructive trust within four years of Sims’s death and within four years of payment of the Sims Policy death benefits. Thus, the Sims Estate’s request for the remedy of a constructive trust is also timely.

204

*772

AIG’s Motion to Dismiss

1. Overview and Applicable Legal Standards

AIG seeks dismissal of Plaintiff Sims Estate’s claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure' on the ground that the Sims Estate has failed in the Complaint to state a claim against it upon which relief may be granted.

205

This motion is granted without prejudice to Plaintiffs to replead, since there has been no discovery in this case and the authorities on which the Sims Estate and other Plaintiffs base their claim require a fact specific analysis. From the Complaint, it appears that the ,Sims Estate’s claim is primarily against Wal-Mart, an Employer Defendant.. The Complaint contains no specific allegations of wrongful or inequitable conduct

by AIG

against Sims or his estate in particular.

In reviewing a Rule 12(b)(6) motion, the Court must accept as true all well-pled allegations, resolving all doubts in favor of the complainants.

Tanglewood East Homeowners v. Charles-Thomas, Inc.,

849 F.2d 1568, 1572 (5th Cir.1988). Motions “to dismiss for failure to state a claim [are] viewed with disfavor, and [are] rarely granted.”

Southern Christian Leadership Conference v. Supreme Court of State of La.,

252 F.3d 781, 786 (5th Cir.2001) (internal quotation marks and citations omitted). The Court must construe pleadings in an expansive and deferential way at this stage of a suit.

Id.

The Court may dismiss the Sims Estate’s claim against AIG only if it has shown “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitled him to relief.”

Conley v. Gibson,

355 U.S. 41, 45-46 , 78 S.Ct. 99 , 2 L.Ed.2d 80 (1957);

Southern Christian Leadership Conf.,

252 F.3d at 786 .

2. Allegations in the Complaint

Plaintiffs allege that Wal-Mart purchased approximately 278,558 COLI policies from AIG, pursuant to a “scheme” by which, Wal-Mart insured the lives of its employees, including many Texas citizens.

206

Plaintiffs allege generally that certain employers “bought COLI policies, not to insure against the loss of a key employee, which was a lawful and well-established practice in the insurance industry, but as an investment and as a means to improperly avoid federal income tax liability.”

207

According to Plaintiffs,

the corporate employer insured the lives of a vast number of its employees without its employees’ knowledge or consent. Generally, the corporate employer borrowed money from the insurer to pay the premiums, claiming a tax deduction for the often exorbitant interest it paid. Upon the death of a covered employee, the insurer paid the corporate employer the death benefit,' which the corporate employer claimed as tax-free. The corporate employer would then use some of the death benefit to repay the premium loans.

208

*773

Plaintiffs further allege that Douglas Sims was employed by Wal-Mart from 1987 until 1998, when he died.

209

He was insured by one of the COLI policies purchased by Wal-Mart from AIG, and he allegedly never consented to this insurance or to the designation of Wal-Mart as the policy beneficiary.

210

Plaintiffs, on behalf of the Sims Estate, allege that Wal-Mart never had an insurable interest in Sims’s life,

211

but AIG paid Wal-Mart the death benefits under the COLI policy after Sims’s death.

212

On the basis of these factual allegations, Plaintiffs claim generally that the Employer Defendants hold the COLI policies and all their benefits in constructive trust for the benefit of the Texas citizen-insureds,

213

that the Employer Defendants have been unjustly enriched,

214

and that the Employers that bought COLI policies have unclean hands.

215

3. Analysis

Initially, the Court finds that Plaintiffs have failed in their Complaint specifically to allege that AIG has committed a wrong against the Sims Estate or has been unjustly enriched by the sale of the Sims Policy to Wal-Mart. Thus, AIG’s motion has merit and will be granted. However, Plaintiffs are granted leave to amend the Sims Estate’s claim, should they insist on doing so. This result is in the interest of justice since Plaintiffs, describe in oral argument one or more theories against AIG that are not specifically pleaded.

216

Leave to amend also is necessary because the Court cannot conclude definitively, as a matter of law, that the Sims Estate cannot state a claim on which relief can be granted against AIG. AIG in support of its Motion to Dismiss argues that the Sims Estate’s claim is unsustainable because the rule articulated in

DeLeon v. Lloyd’s London, Certain Underwriters,

259 F.3d 344, 350-53 (5th Cir.2001), prohibits double recovery from insurers under the insurable interest doctrine. According to AIG,

DeLeon

stands for the proposition that an insurer is relieved from all liability once it pays death benefits to the named beneficiary, and thus the appropriate remedy is for the estate to seek the death benefits from the beneficiary through a constructive trust. In addition, AIG argues that the Sims Estate cannot state a claim against it for unjust enrichment and that it was not unjustly enriched at the expense of the Sims Estate!

The Sims Estate responds by citing several cases in which Texas courts allowed a deceased insured’s estate to recover death benefits from an insurer which already had paid death benefits to a beneficiary.

See Manhattan Life Ins. Co. v. Cohen,

139 S.W. 51 (Tex.Civ.App.—San Antonio 1911, writ ref'd);

National Life & Accident Ins. Co. v. French,

144 S.W.2d 653 (Tex.Civ. App.—Amarillo 1940, no writ). While it is highly unlikely that the Sims Estate can prevail on any claim based on these cases, the Court cannot conclude as a matter of

*774

law that the Sims Estate has no legal claim against AIG.

217

The first of these cases,

Cohen ,

involved unique circumstances that made rote application of other Texas authority inappropriate. In

Cohen ,

the estate of the deceased insured sued the insurance company that paid death benefits to an assignee who did not have an insurable interest in the life of the insured.

218

The trial court awarded death benefits to the estate. The court of civil appeals affirmed. In doing so, the appeals court focused on two facts as justifying an exception to the general rule: (i) the insurer’s knowledge of the estate’s claim at the time it paid the death benefits to Hilsman, and (ii) the indemnity bond given by Hilsman to the insurer.

219

The court’s reliance on the insurer’s indemnification agreement with Hilsman, the original recipient of the benefits, suggests that the court did not intend the insurer to have to bear the expense of the benefits twice. It is noted that

Cohen ,

which was decided long before seminal insurable interest cases in Texas,

220

has been cited only once for the proposition on which Plaintiffs attempt to rely. Specifically, in

Stillwagoner ,

the Tyler Court of Appeals stated in

dicta

without any analysis: “If the insurance company with knowledge of the estate’s adverse claim and the reasons therefore pays proceeds benefits to a beneficiary without an insurable interest this can afford no defense to the action by the estate of the insured for the entire amount due on the policies.”

Stillwagoner v. Travelers Ins. Co.,

979 S.W.2d 354, 858 (Tex.App.—Tyler 1998, no pet.).

Plaintiffs also rely on

French,

144 S.W.2d 653 (Tex.Civ.App.—Amarillo 1940, no writ), a case decided in 1940, in which the Amarillo Court of Civil Appeals affirmed the trial court’s holding that an insurer was liable to a deceased insured’s estate for $125 in death benefits after the insurer already had paid these benefits to the named beneficiary who did not have an insurable interest in the insured’s life under Texas law. It appears that the insurer did not have notice of the estate’s claim when it originally paid the death benefits. However, significantly, there is no indication that the insurer raised the prior payment as a defense. Also, in

French ,

the

*775

named beneficiary paid many of the premiums (which were a mere twenty-five cents per month), and thus had some equitable claim to at least some of the death benefits.

221

Moreover, the

French

decision has not been cited by any Texas or other courts as reliable precedent.

At best, the cited cases demonstrate that Texas courts might, in certain highly unusual situations, when necessary to do equity, hold an insurer liable for death benefits to the estate of an insured even if the insurer already has paid the benefits to the named beneficiary.

222

It is far from clear that Plaintiffs can allege the necessary circumstances in this case. Wal-Mart appears to be financially viable, there is no indication of any indemnification agreement between Wal-Mart and AIG, and there is no evidence or allegation that AIG knew of the Sims Estate’s claim to the . policy proceeds when it paid them to Wal-Mart.

223

, In sum', the Sims Estate’s claim against AIG rests on an exceedingly slim reed.

Nevertheless, at this early stage in the proceedings, the Court is constrained to permit an amendment of the Complaint, if the Sims Estate insists, in light of the fact-sensitive inquiry required by

Cohen .

It is not “beyond doubt” that the Sims Estate can prove no set of facts in support of its claim which would entitle it to relief.

Conley v. Gibson,

355 U.S. 41, 45-46 , 78 S.Ct. 99 , 2 L.Ed.2d 80 (1957);

Southern Chris

*776

tian Leadership Conf. v. Supreme Court of Louisiana,

252 F.3d 781, 786 (5th Cir.2001). Therefore, the Court grants the Sims Estate the opportunity to replead its claim against AIG, subject to the admonishment that Plaintiffs are not to reargue matters addressed comprehensively in this Opinion.