Wal-Marts COLI Suit Thrown Out

Wal-Mart said it purchased the broad-based policies, which covered rank-and-file workers, for several reasons, including the tax benefits associated with the funding of premiums and other costs of the plans.

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

The Internal Revenue Service challenged Wal-Marts COLI program, which the company settled 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 the beneficiaries were entitled to the death benefits from the COLI policies.

Subsequently, Wal-Mart filed its lawsuit against the insurance companies, as well as several insurance brokers, claiming the defendants breached their fiduciary duties by failing to disclose the full range and magnitude of risks associated with COLI plans.

Wal-Mart said it never would have purchased the COLI policies had it 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 Wal-Mart “unmistakably” knew as early as 1996 that the projected benefits of the policies would never be realized. Thus, the court said, waiting until Sept. 3, 2002, to file the lawsuit violated the 3-year statute of limitations.

Retailer waited too long to file the suit, says Delaware court.

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.