Delaware Business Litigation Report

Court of Chancery Dismisses Wal-Mart's Claims Regarding Corporate-Owned Life Insurance Policies

Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611 (Del. Ch. 2005). Wal-Mart brought suit against all the parties involved in its purchase of corporate-owned life insurance ("COLI") policies. Its complaint alleged a broad range of legal and equitable claims against the insurance brokers and providers, all seeking to recover from them the losses it incurred in connection with this risky tax avoidance scheme. On consolidated motions to dismiss brought by the insurers and brokers, the court concluded that the retailer failed to state a claim upon which relief could be granted. The court, therefore, granted the defendants' motions to dismiss. Nearly nine years after it began purchasing COLI policies, Wal-Mart filed this action to recover its losses resulting from the failed COLI program. Wal-Mart claimed that since the COLI policies "failed in their fundamental purpose," namely, to secure substantial financial benefits for Wal-Mart, the parties involved in Wal-Mart's purchase of the COLI policies should share in the loss. Wal-Mart asserted that the defendants owed it the "highest duties of care, including a duty of good faith, a duty of full disclosure, a duty of loyalty, and a duty to meet the exacting standards of their respective professions." Wal-Mart alleged that the defendants breached their fiduciary duties in "developing, promoting, recommending, advising, selling, and administering" the COLI plans. Furthermore, Wal-Mart argued that had certain disclosures been made it would not have entered into the COLI plans. Wal-Mart alleged that the defendants did not disclose the "full range and magnitude" of the risks involved in the COLI plans. Wal-Mart complained that it relied to its detriment on the defendants in their alleged roles as fiduciaries, experts, advisors, agents, and providers of the COLI plans. In dismissing Wal-Mart's claim for unjust enrichment, the court held the doctrine of commercial frustration inapplicable because that doctrine in Delaware only functions to excuse future performance of a contract, at least among sophisticated parties, and cannot serve as a basis to reallocate known, or obviously foreseeable, risk of loss post-contractually. The court also dismissed Wal-Mart's claims for breach of fiduciary duty because the relationship between Wal-Mart and the insurers, and the relationship between Wal-Mart and the brokers, were merely normal, arm's-length business relationships. The equitable fraud claim was also dismissed because such a claim is viable only if the defendants had a duty to speak. Because the defendants did not owe fiduciary duties to Wal-Mart, they had no duty to speak. Similarly, the professional negligence claim was also dismissed because since the defendants did not owe Wal-Mart any fiduciary duties, this claim failed as a matter of law. Share