NU Online News Service, March 5, 2004, 11:10 a.m. EST – A Delaware court has dismissed a $150 million lawsuit filed by Wal-Mart against AIG Inc. and Hartford Financial Services Group over corporate-owned life insurance policies.[@@]

Ruling that Wal-Mart’s claims are barred by the statute of limitations, the Delaware Chancery Court ruled Wal-Mart failed to take legal action at the time it should have known that the COLI policies might not produce the results it expected.

There was ample information readily available in the marketplace on the legal and legislative issues surrounding the broad-based COLI policies (sometimes called “janitor’s insurance) that Wal-Mart purchased from AIG and Hartford, the court said.

The court argued that this information was more than enough to put a company of the size and sophistication of Wal-Mart on notice about the risks of those policies well before Wal-Mart decided to pursue its claims.

Under Delaware law, the statute of limitations for tort, contract and fiduciary duty claims is three years. Wal-Mart filed its lawsuit on Sept. 3, 2002. This means that Wal-Mart must have been unaware of its claims before Sept. 3, 1999 for the lawsuit to stand against the statute of limitations, the court noted.

Wal-Mart bought the COLI policies beginning in 1993. It said it purchased the policies, which covered rank-and-file workers, for several reasons, including the tax benefits of paying premiums and other plan costs.

But in August of 1996, Congress enacted the Health Insurance Portability and Accountability Act, which eliminated some of the tax benefits of these policies. The law was retroactive, covering policies bought after June 20, 1986.

The Internal Revenue Service then challenged Wal-Mart’s COLI program, and the company settled with the IRS in August 2002.

In addition, beneficiaries of the insured employees sued the company, charging Wal-Mart did not have an insurable interest in the employees and claiming the employees’ beneficiaries were entitled to the death benefits from the policies.

Subsequently, Wal-Mart filed its lawsuit against the insurance companies, as well as several insurance brokers, claiming that the defendants breached their fiduciary duties by failing to disclose all the risks of COLI plans.

Wal-Mart said it never would have bought the policies if it had known the full extent of the risks it would have faced from the IRS and the insurable-interest litigation.

But the court said that Wal-Mart waited too long to file the lawsuit. Based on the evidence, the court said that Wal-Mart “unmistakably” knew as early as 1996 that the projected benefits of the policies would never be realized. Thus, waiting until Sept. 3, 2002 to file the lawsuit violated the three-year statute of limitations.