## Facts

- Wal-Mart created a grantor trust in 1993 that purchased hundreds of thousands of corporate-owned life insurance (COLI) policies on employees; the trust was the owner and beneficiary and was controlled for Wal-Mart’s sole benefit.
- Douglas Sims worked for Wal-Mart in Texas from 1987 until his death in 1998; he was a non-officer, hourly employee.
- A COLI policy on Sims had annual premiums of about $3,200 and paid roughly $64,000 in death benefits to the Wal-Mart trust.
- Wal-Mart ended the COLI program in 1998 after federal tax changes reduced expected tax advantages.
- The Sims estate alleged it did not know about the policy until 2001, after learning Wal-Mart had collected the death benefit.
- The estate sued in federal court seeking a declaration that Wal-Mart lacked an insurable interest under state law, that the policy was void, and that proceeds should be returned through constructive trust and disgorgement.

## Issues

1. Whether Texas or Georgia law governed the dispute over the COLI policy.
2. Whether, under the governing law, Wal-Mart had an insurable interest in the life of a non-officer, hourly employee.
3. Whether the estate’s restitutionary claims were barred by the Texas statute of limitations.

## Decision

- The Fifth Circuit affirmed the district court’s partial summary judgment for the Sims estate on the issues presented.
- Texas law applied under Texas choice-of-law rules because Texas had the most significant relationship to Sims and the dispute.
- Under Texas law, Wal-Mart lacked an insurable interest in Sims’s life, rendering the policy void as against public policy.
- Wal-Mart did not establish its limitations defense as a matter of law at the summary-judgment stage; summary judgment on limitations was properly denied.

## Legal Principles

- In diversity-related state-law disputes, Texas applies the “most significant relationship” test to select governing law.
- Under Texas insurable-interest doctrine, an insurable interest generally requires a recognized relationship (e.g., close family ties, creditor-debtor status, or a showing of pecuniary loss from the insured’s death).
- The employment relationship alone does not create a blanket insurable interest allowing an employer to be the beneficiary of life insurance on ordinary, non-key employees.
- A life insurance policy issued without an insurable interest is void under Texas public policy.
- Limitations is an affirmative defense; the defendant bears the burden to prove accrual and expiration dates with undisputed evidence to obtain summary judgment.
- Texas treats unjust enrichment and similar restitutionary claims as subject to a two-year limitations period running from receipt of the challenged funds, absent a conclusive record showing untimeliness.

## Conclusion

The Fifth Circuit held that Texas law governed and that Wal-Mart, as an employer-beneficiary, lacked an insurable interest in a rank-and-file employee’s life, making the COLI policy void; it also held Wal-Mart failed to prove the estate’s claims were time-barred on summary judgment, and it affirmed and remanded for further proceedings.


Mayo v. Hartford Life Ins. Co., 354 F.3d 400 (5th Cir. 2004)