United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS January 5, 2004
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
_____________________ Clerk
No. 02-21059
_____________________
SCOTT MAYO; ET AL.,
Plaintiffs,
DOUGLAS SIMS, by Deborah Sims, the independent executrix,
Plaintiff - Appellee,
versus
HARTFORD LIFE INSURANCE COMPANY; ET AL.,
Defendants,
WAL-MART STORES, INC.; WAL-MART STORES
INCORPRATED CORPORATION GRANTOR TRUST;
WACHOVIA BANK OF GEORGIA, N.A.,
Defendants - Appellants.
__________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. H-01-CV-2139
_________________________________________________________________
Before JOLLY, SMITH, and EMILIO M. GARZA, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Wal-Mart Stores, Inc. (“Wal-Mart”) took out life insurance on
its employees and made itself the beneficiary. This interlocutory
appeal arises from a grant of partial summary judgment involving a
dispute over death benefits from one of these company-owned life
insurance (“COLI”) policies. Douglas Sims’ estate sued Wal-Mart on
the ground that the COLI policy taken out in Sims’ name violated
the Texas insurable interest doctrine. We hold that: 1) Texas
law, which requires an “insurable interest” for valid life
insurance policies, governs the dispute; 2) an employer has no
insurable interest in an ordinary employee under Texas law; and 3)
Wal-Mart failed to establish its affirmative defense that the
estate’s claims were barred by limitations. In so holding, we
affirm the district court’s denial of summary judgment for Wal-Mart
and affirm its grant of partial summary judgment for the Sims
estate.
I
In 1993, Wal-Mart established a trust to serve as the legal
holder of life insurance policies insuring the lives of its
employees and naming itself as beneficiary. The instrument
establishing the trust provided that Georgia law would govern the
trust’s construction, validity, and administration, and named
Wachovia Bank of Georgia, N.A. (“Wachovia”) as trustee. Wal-Mart
acted in pursuit of tax benefits related to the deductibility of
premium payments, and was only one of many similarly situated
companies which took this course of action. After Congress and the
IRS eliminated the tax advantages of Wal-Mart’s COLI program, Wal-
Mart unwound the otherwise unprofitable program, surrendering the
last of its policies by 2000.
Wal-Mart’s COLI policies insured the lives of all employees
(also called “associates”) with service time sufficient for
enrollment in the Wal-Mart Associates’ Health and Welfare Plan,
2
unless those associates elected not to participate in a special
death benefit program that Wal-Mart introduced in conjunction with
the COLI program. Fewer than one percent of the 350,000 eligible
employees opted out of the program, which was discontinued by early
1998. Wal-Mart’s COLI program was intended to be “mortality
neutral,” such that the death benefits paid to Wal-Mart upon its
associates’ deaths would fund employee benefit plans and death
expenses, or otherwise be repaid to the insurer as self-correcting
“cost of insurance” adjustments.
Douglas Sims was a Wal-Mart associate from May 1987 until his
death on December 1, 1998, and was insured under a COLI policy from
December 21, 1993 until his death (though the special death benefit
program had been discontinued prior to Sims’ death). On June 28,
2001, after his estate discovered the existence of this policy, it
sued Wal-Mart, alleging a violation of the Texas insurable interest
doctrine. The estate sought, in relevant part, a declaratory
judgment of its rights under Sims’ COLI policy, the imposition of
a constructive trust on the policy benefits, and disgorgement of
the money Wal-Mart unjustly received at some point in 1999.
Wal-Mart moved for summary judgment on the grounds that, in
relevant part, Georgia law applies (and thus Sims has no claim)
and, in the alternative, the Texas statute of limitations bars
Sims’ claim. After the district court denied this motion, Wal-Mart
moved for reconsideration, renewing its choice of law argument and
adding that recent developments in Texas law placed doubt on the
3
public policy underlying the state’s insurable interest doctrine.
Sims then filed a motion for partial summary judgment, seeking a
declaration that Wal-Mart lacked an insurable interest in Sims’
life. Wal-Mart responded with a cross-motion for summary judgment,
arguing that Wal-Mart had an insurable interest in Sims.
The district court granted Wal-Mart’s motion for
reconsideration, but again denied summary judgment on all grounds
in an amended opinion. The court then granted partial summary
judgment in favor of Sims, but certified its order under 28 U.S.C.
§ 1292(b) for interlocutory appeal on the following issues: (1)
which state’s substantive law applies to Sims’ claims; (2) whether
Wal-Mart has an insurable interest in Sims’ life; and (3) whether
the statute of limitations bars Sims’ claims. This court granted
Wal-Mart leave to appeal the district court order.
II
This court reviews grants or denials of summary judgment de
novo, applying the same legal standards as the district court.
Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th
Cir. 1998). The issues we will address are: 1) the choice of
which state’s law to apply; 2) an analysis of the Texas insurable
interest doctrine as it applies to this case; and 3) the applicable
statute of limitations. We take these up in order.
A
First, Wal-Mart contends that the district court erred in
applying the substantive law of Texas rather than Georgia to the
4
parties’ dispute. This court reviews de novo a district court’s
choice of law determination. In re Air Disaster at Ramstein Air
Base, Germany, 81 F.3d 570, 576 (5th Cir. 1996).
In making a choice of law determination, a federal court
exercising diversity jurisdiction must apply the choice of law
rules of the forum state, here Texas. Klaxon v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941); see also Spence v. Glock,
Ges.m.b.H., 227 F.3d 308, 311 (5th Cir. 2000). Texas courts use
the “most significant relationship” test set forth in the
Restatement (Second) of Conflict of Laws (1971) for all choice of
law cases except contract cases in which the parties have agreed to
a valid choice of law clause. Duncan v. Cessna Aircraft Co., 665
S.W.2d 414, 420-21 (Tex. 1984). As the district court correctly
noted, neither Sims nor Wal-Mart asserts that a statutory directive
governs the choice of law determination here, and neither have they
agreed on which state’s law to apply (the trust instrument’s
invocation of Georgia law being of no moment because Sims was not
a party to that contract), so this Court applies the Restatement’s
fact-based analysis. Id.; Maxus Exploration Co. v. Moran Bros.,
Inc., 817 S.W.2d 50, 53-54 (Tex. 1991).
Section 6 of the Restatement lists several general factors to
be used by courts in making choice of law determinations:
a) the needs of the interstate and
international systems;
b) the relevant policies of the forum;
c) the relevant policies of other interested
states and the relative interests of
5
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 determination and application of
the law to be applied.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (1971). The district
court thoroughly and conscientiously analyzed each § 6 factor as it
applies to this case. We have little to add to this analysis, only
emphasizing that Sims’ claim centers on an alleged violation of the
Texas insurable interest doctrine (as it has evolved via common law
and legislative guidance), and that Texas’ interest in seeing its
policy correctly applied far overwhelms any other consideration.
Further, while the Restatement does not provide a specific
analytical schemata for determining insurable interest claims, it
does address choice of law analyses for various kinds of disputes
that can be analogized to this one. These later sections
demonstrate the concrete application of the “most significant
relationship” test, and all incorporate § 6 as the starting point
for any such analysis. Of potential relevance here are: § 145,
governing issues in tort; § 188, governing contract disputes; §
192, governing certain life insurance contracts; and § 221,
governing claims for unjust enrichment.
Wal-Mart frames the issue in this case as a contractual
dispute, and accordingly argues that § 188 should guide this
Court’s choice of law analysis. Section 188 provides that “[t]he
6
rights and duties of the parties with respect to an issue in
contract are determined by the local law of the state which, with
respect to that issue, has the most significant relationship to the
transaction and the parties[.]” RESTATEMENT (SECOND) OF CONFLICT OF LAWS
§ 188(1) (1971). The § 188 inquiry is directed at unearthing and
upholding contracting parties’ intent as to the governing law.
As Sims and the district court point out, however, this case
does not involve a dispute over the “rights and duties of parties”
to a contract. Instead, this case involves the application of
Texas’ common law on insurable interests in the context of an
insurance contract to which Sims was not a party. Section 188's
focus on vindicating the intent of contracting parties, and on
balancing factors surrounding the negotiation and finalization of
their agreement, simply does not resound in this dispute. That is,
properly framed, the contracts between Wal-Mart and its insurer are
only tangentially related to the particular substantive issue
before the court, and there is no dispute over the contracting
parties’ obligations. A § 188 analysis, even one as ably performed
as the district court’s was, thus seems inapposite.
An alternative approach, that neither party nor the district
court considered, is to view Sims’ claim as one involving a
tortious act akin to conversion, or the wrongful -- because
allegedly violating the insurable interest doctrine -- taking of
the property of another. Section 145 lists the following contacts
7
to be taken into account in applying § 6 principles: the place
where the injury occurred, the place where the conduct causing the
injury occurred, the domicile of the parties, and the place where
the relationship between the parties was centered. RESTATEMENT
(SECOND) OF CONFLICT OF LAWS § 145 (1971).
The parties “reside” in Texas (Wal-Mart by place of business)
and the employment relationship was also wholly in Texas. The
injury and the conduct causing it took place either in Texas or
Georgia (or both), depending on whether one considers the injury to
be the misappropriation of money, the insuring of a non-insurable
interest, or some other construction of the relevant events. The
plurality of factors favor the application of Texas law,
particularly given that courts evaluate such contacts for their
quality, not their quantity1 -- and that all of the factors must be
considered in the light of § 6.
Sims contends that § 221 provides the best guidance, as this
section “applies to claims, which are based neither on contract nor
on tort, to recover for unjust enrichment.” RESTATEMENT (SECOND) OF
CONFLICT OF LAWS § 221, cmt. a (1971). This view appears to be a
plausible interpretation of the claim. Section 221, after
reiterating the importance of the § 6 factors, adds the following
unjust-enrichment-specific factors: the place where a relationship
between the parties was centered, the place where the enrichment
1
See Gutierrez v. Collins, 583 S.W.2d 312, 319 (Tex. 1979).
8
was received, the place where the act conferring the enrichment was
done, the domicile of the parties, and the place where a physical
thing related to the enrichment was situated during the time of the
enrichment. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 221 (1971).
Sims lived in Texas and was employed by Wal-Mart in Texas.
The enrichment was conferred and received in either Georgia or
Texas (depending on how one characterizes the triggering event,
Sims’ death, as well as the flow of death benefits). The “thing”
related to the alleged enrichment -- and the crux of the insurable
interest dispute -- was (if anything) Sims’ life, which was also,
of course, in Texas. If Sims’ claim is for unjust enrichment, or
if § 221 otherwise applies, then the relevant factors favor Texas.2
Finally, § 192 specifies the choice of law analysis in cases
involving life insurance contracts, but only those that have been
issued to the insured upon his application. RESTATEMENT (SECOND) OF
CONFLICT OF LAWS § 192, cmt. a (1971). Although not wholly on point,
this provision does offer some guidance. It reads in its entirety:
The validity of a life insurance contract
issued to the insured upon his application and
the rights created thereby are determined, in
the absence of an effective choice of law by
the insured in his application, by the local
law of the state where the insured was
domiciled at the time the policy was applied
for, unless, with respect to the particular
2
See also Canton v. Leach Corp., 896 F.2d 939, 943 (5th Cir.
1990) (“Texas has a distinct interest in applying its restitution
policy to a course of action that enriched [the corporation] at the
expense of a Texas citizen.”).
9
issue, some other state has a more significant
relationship under the principles stated in §
6 to the transaction and the parties, in which
event the local law of the other state will be
applied.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 192 (1971) (emphasis added).
If Sims had taken out the policy, therefore, even if it had been
through a Georgia trust, its terms would be governed by Texas law.
We fail to see how the fact that Wal-Mart took it out militates
against this principle.3
In sum, every viable “most significant relationship” analysis
performed in following the forum state’s choice of law provisions
points to the application of Texas law to this case. We thus
AFFIRM the district court on this issue.
B
We now apply Texas’ insurable interest doctrine. Wal-Mart
contends that, even if Texas law applies, the district court erred
in determining that its COLI policy violated the Texas insurable
interest doctrine. The district court concluded that the policy
was void because Wal-Mart lacks a sufficient financial interest in
the lives of its rank-and-file employees.
3
Comment a of § 192 also states that the section “does not
apply to life insurance issued upon the life of someone other than
the applicant; as to such insurance, no more definite rule can be
stated . . . than that stated in § 188.” As we found earlier, §
188, while clearly applying to a dispute between the parties to the
COLI contract, does not help much in the present case. In any
event, as the district court found, the § 188 factors also favor
Texas law.
10
For this diversity action, and because the Texas Supreme Court
has not ruled on the insurable interest doctrine in the light of a
half-century’s legislative amendments, the district court was
required to make an Erie-guess as to how that court would apply
substantive state law. Erie R.R. Co. v. Tompkins, 304 U.S. 64
(1938); Transcontinental Gas Pipe Line Corp. v. Transportation Ins.
Co., 953 F.2d 985, 988 (5th Cir. 1992) (“[I]t is the duty of the
federal court to determine as best it can, what the highest court
of the state would decide.”).
Wal-Mart’s motion requesting certification of this question --
whether and how the Texas insurable interest doctrine applies to
this case -- to the Texas Supreme Court was carried with the
present appeal. Although the Texas Supreme Court has not recently
addressed the insurable interest doctrine, the question is not so
complex or opaque as to justify certification. Further, this
Court’s familiarity with the doctrine, see discussion infra, and
the unambiguous line of Texas lower court decisions, make
certification unnecessary. Accordingly, we DENY the motion to
certify.
As such, we review the district court’s Erie-guess de novo.
Williamson v. Elf Aquitaine, Inc., 138 F.3d 546, 549 (5th Cir.
1998). In this regard, deference cannot be given to the rulings by
the district court, even though it sits in the state whose law is
being applied. Id. (citing Salve Regina College v. Russell, 499
11
U.S. 225, 238 (1991) (“When de novo review is compelled, no form of
appellate deference is acceptable.”)).
Texas requires a person insuring the life of another to have
an insurable interest in the insured person’s life. Empire Life
Ins. Co. of America v. Moody, 584 S.W.2d 855, 859 (Tex. 1979);
Drane v. Jefferson Standard Life Ins. Co., 161 S.W.2d 1057, 1058-59
(Tex. 1942). The state’s common law insurable interest doctrine
deems 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.” Griffin v.
McCoach, 123 F.2d 550, 551 (5th Cir. 1941). Consequently,
insurance policies procured by those lacking a sufficient interest
in the life of the insured are unenforceable. Going back to 1942,
Texas courts have recognized three categories of individuals having
an adequate interest: 1) close relatives; 2) creditors; and 3)
those having an expectation of financial gain from the insured’s
continued life. Drane, 161 S.W.2d at 1058-59; Tamez v. Certain
Underwriters at Lloyd’s, London, 999 S.W.2d 12, 17-18 (Tex. App.
1998); Stillwagoner v. Travelers Ins. Co., 979 S.W.2d 354, 361
(Tex. App. 1998).
Wal-Mart argues that it has a reasonable expectation of
pecuniary benefit in the continued lives of its employees
sufficient to bring it within the last of the three categories
described in Drane. Texas courts have held, however, that the
state of employment alone does not give an employer an insurable
12
interest. See, e.g., Stillwagoner, 979 S.W.2d at 361 (“The mere
existence of an employer/employee relationship is never sufficient
to give the employer an insurable interest in the life of the
employee.”).
Wal-Mart contends that, in addition to the bare
employer/employee relationship, it possesses an expectation of
financial gain from the continued lives of its employees by virtue
of the costs associated with the death of an employee, such as
productivity losses, hiring and training a replacement, and payment
of death benefits. These are costs that are associated with the
loss of any employee, however, and, as Texas precedent clearly
indicates, employers lack an insurable interest in ordinary
employees. E.g., id. at 362. Indeed, Texas courts have recently
rejected similar arguments based on the costs flowing from an
employee’s death.4 And, as Sims ripostes, Wal-Mart does not claim
that Sims was of any special importance to the company, much less
that Wal-Mart’s “success or failure was dependent upon [the insured
employee].” Stillwagoner, 979 S.W.2d at 362-63.
Given that courts will uphold the insurable interest doctrine
in the absence of contrary legislation, Wal-Mart argues that just
4
See Tamez, 999 S.W.2d at 18-19 (“[A]n employer does not have
a pecuniary interest in the continued life of its employee, unless
that employee is crucial to the operation of the business.”);
Stillwagoner, 979 S.W.2d at 361-62 (“Even in the absence of
evidence we may assume that [decedent’s] death forced some
readjustments which normally accompany the death of an employee.
But an insurable interest does not result from the cessation of
ordinary service.”).
13
such legislative pronouncements have expanded the definition of
insurable interest after Drane. A review of this legislation
shows, however, that while the Texas Legislature has crafted
certain addenda to the insurable interest doctrine, none of these
modifications are relevant to the present case.
In 1951, for example, the Texas Legislature re-codified
article 5048 of the Texas Civil Statutes as article 3.49 of the
Texas Insurance Code.5 This provision allows a business to be
named as beneficiary in a policy insuring the lives of officers,
stockholders, and partners -- the individuals in whom the business
has an insurable interest. Tex. Ins. Code §§ 1103.003-.004 (Vernon
2003). As the district court pointed out, this provision is
inapplicable because Sims was not a stockholder, officer, or
partner of Wal-Mart.
Next, in 1953, the Legislature enacted article 3.49-1 of the
Texas Insurance Code, which was amended in 1999.6 Originally,
insureds of new or existing life insurance policies could grant (in
writing) an insurable interest to “any person” or entity by naming
him or her as beneficiary or owner of that policy. With the 1999
legislation, adults can, as of January 1, 2000, consent in writing
5
The Texas Insurance Code itself was recently re-codified in
“a nonsubstantive revision.” Acts of 2001, 77th Leg., ch. 1419,
eff. June 1, 2003. Thus, effective June 1, 2003, article 3.49
became Tex. Ins. Code §§ 1103.001-.005 (Vernon 2003).
6
Effective June 1, 2003, article 3.49-1 became Tex. Ins. Code
§§ 1103.051-056 (Vernon 2003).
14
to the “purchase” of, or the “application” for, new insurance on
their lives, which policies are purchased or applied for by a third
party. Tex. Ins. Code §§ 1103.054-056 (Vernon 2003). This
provision was not retroactive.7 Though “this subchapter shall be
liberally construed to effectuate [its] purposes,” Tex. Ins. Code
§§ 1103.052 (Vernon 2003), Sims never designated Wal-Mart as a
beneficiary or owner of an insurance policy on his life. Sims also
never provided consent, written or otherwise, for Wal-Mart to take
out insurance on -- or otherwise acquire an insurable interest in
-- his life. As such, article 3.49-1 and its re-codified progeny
are also inapplicable.
Finally, in 1989, the Legislature enacted a provision that,
under certain circumstances, allows an employer to obtain insurance
on the lives of its employees to provide funds to offset fringe-
benefit-related liabilities.8 The COLI policy at issue does not
meet the requirements of the 1989 statute, however, and Wal-Mart
does not contend that it does (Wal-Mart merely cites the statute as
an example of the Legislature’s action in this area). Thus, to the
extent that this provision expanded insurable interests, it did so
in a way that does not affect the disposition of this case.
7
“A policy delivered, issued for delivery, or renewed before
January 1, 2000, is governed by the law as it existed immediately
before the effective date of this Act, and that law is continued in
effect for that purpose.” Acts 1999, 76th Leg., ch. 438, § 3.
8
Effective June 1, 2003,the relevant provision became Tex.
Ins. Code §§ 1131.703 (Vernon 2003).
15
None of these legislative enactments -- which were thoroughly
briefed by the parties and analyzed by the district court -- apply
to the facts of this case, and we have found no other ones that do.
Indeed, Tamez and Stillwagoner were both decided in the light of
the law as it stood in 1998 (the year of Sims’ death), and both
clearly rejected employers’ claims of having insurable interests in
ordinary employees.9
Further, as the district court noted, the insurable interest
doctrine was last taken up by the Texas Supreme Court in 1979 (not
1942, as Wal-Mart implies). Empire Life, 584 S.W.2d 855. Empire
Life quoted and adopted the Drane decision and repeated the
longstanding rule that a putative beneficiary or owner 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.” 584 S.W.2d at 859; Drane, 161 S.W.2d
at 1058-59; Tamez, 999 S.W.2d at 17; Stillwagoner, 979 S.W.2d at
360-61. This Court has also recently acknowledged this Texas line
of cases. DeLeon v. Lloyd’s, London, 259 F.3d 344, 350 (5th Cir.
9
Wal-Mart contends that Tamez and Stillwagoner should not
govern, as both were decided before the 1999 substantive amendment
to then-article 3.49-1 of the Texas Insurance Code. As discussed
supra, however, this statute does nothing to support Wal-Mart’s
position, as Sims never gave the required written consent for Wal-
Mart to be designated as beneficiary.
16
2001) (quoting the Drane rule and its enumeration of the three
valid insurable interest classes).
It is clear that Drane and its progeny have held fast to the
common law insurable interest doctrine, and the Texas Legislature’s
enactments altering that well-established doctrine have been slow
and careful. While the statutory provisions analyzed supra
demonstrate an ever-broadening approach to insurable interests,
there is no indication that the Texas Supreme Court would create
other exceptions without explicit statutory authorization. And, as
the district court concisely put it, it is not the role of federal
courts sitting in diversity to ignore longstanding and consistently
applied Texas legal authorities. We decline to either contradict
state court precedent or expand upon the express language of
legislative enactments.
We therefore reject Wal-Mart’s challenge to the Texas
insurable interest doctrine, and find that its COLI policy on the
life of Douglas Sims violated Texas law.10 The district court’s
ruling on this issue is AFFIRMED.
C
10
In such a case, once the named beneficiary (the one lacking
an insurable interest) is paid, Texas law applies the equitable
remedy of constructive trust to enable recovery by the wronged
party. DeLeon, 259 F.3d at 350-51; Cheeves v. Anders, 28 S.W. 274,
275-76 (Tex. 1894); Tamez, 999 S.W.2d at 15-16 and n.1;
Stillwagoner, 979 S.W.2d at 360. In this manner -- and if there is
no procedural bar such as the statute of limitations discussed
infra -- the lawful beneficiary, Sims, recovers the proceeds
unlawfully procured by Wal-Mart.
17
Now that we have found that Sims has presented a valid claim
under Texas law as properly applied, we must look at whether such
a claim is barred by the relevant statute of limitations. The
district court’s determination of the proper limitations period is
subject to de novo review. In re Hinsley, 201 F.3d 638, 644 (5th
Cir. 2000). This limitations determination requires more than mere
checking of calendrical tables, however, as it is perhaps the most
complex issue presented in this appeal.
In analyzing limitations, the district court first determined
that, however the claim forming the basis for this action is
characterized, the applicable limitations period was four years.11
It then ruled that Sims’ request for a declaratory judgment that
Wal-Mart lacked an insurable interest in Sims’ life and thus
violated Texas law was timely because the claim was brought within
four years of Wal-Mart’s termination of its COLI policy (thus
ending a continuing violation). The district court also found that
Sims’ request for a constructive trust was timely because it was
brought within four years of Sims’ death.
The first step in evaluating the district court’s limitations
analysis is to determine the correct statute of limitations to
apply. To that end, the applicable limitations period (like the
11
The district court ruled that either Tex. Civ. Prac. & Rem.
Code § 16.004(a)(3) (West 2003) (statute of limitations for
contract claims is four years) or Tex. Civ. Prac. & Rem. Code §
16.051 (West 2003) (residual statute of limitations is four years)
applies, not specifying which.
18
choice of law) should be determined with reference to the theory on
the basis of which the Sims estate pursues its claims. The
district court characterized this action as comprising two claims,
one for declaratory judgment and one for a constructive trust
arising out of unjust enrichment related to a contractual dispute.
This analysis is somewhat an inversion of legal principles: Both
declaratory relief and constructive trusts are remedial devices
rather than causes of action themselves. See, e.g., Okpalobi v.
Foster, 244 F.3d 405, 423 (5th Cir. 2001) (en banc); DeLeon, 259
F.3d at 351; Meadows v. Bierschwale, 516 S.W.2d 125, 131 (Tex.
1974) (“[c]onstructive trusts, being remedial in character”).12
Further, as we stated earlier, the contracts between Wal-Mart and
its insurer are only tangentially related to the particular claim
before the court; there is no dispute over the contracting parties’
obligations.13 What, then, is the underlying cause of action?
There is clearly only one, though it can be stated in two
ways: Sims claims that Wal-Mart engaged in either unjust
enrichment or conversion stemming from the insurable interest
violation. See, e.g., Heldenfels Bros., Inc. v. Corpus Christi,
832 S.W.2d 39, 41 (Tex. 1992) (“A party may recover under the
unjust enrichment theory when one person has obtained a benefit
12
See also Bado Equip. Co. v. Bethlehem Steel Corp., 814 S.W.2d
464, 477 (Tex. App. 1991) (constructive trust remedy unavailable
when underlying claim is barred by statute of limitations).
13
See discussion in Part II-A, supra.
19
from another by . . . taking of an undue advantage.”); Green Int’l
Inc. v. Solis, 951 S.W.2d 384, 391 (Tex. 1997) (“Conversion is the
wrongful exercise of dominion and control over another’s property
in denial of or inconsistent with his rights.”). By taking out an
insurance policy on Sims’ life without his knowledge or consent --
and collecting the policy’s proceeds at Sims’ death -- Wal-Mart
unjustly profited from the death of someone in whom it had no
insurable interest. Stated another way, Wal-Mart, having violated
the insurable interest doctrine, unlawfully took funds that, under
Texas law, rightfully belonged to Sims’ estate.
The applicable limitations period for Sims’ claim -- whether
it is formally labeled “unjust enrichment” or “conversion” -- is
two years, not four. Tex. Civ. Prac. & Rem. Code § 16.003(a) (West
2003); Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 737 (Tex.
2001); HECI Exploration Co. v. Neel, 982 S.W.2d 881, 885 (Tex.
1998); cf. American Nat’l Ins. Co. v. Villegas, 32 S.W.2d 1109,
1110 (Tex. Civ. App. 1930) (holding that suit to recover premiums
paid by plaintiff lacking insurable interest was governed by two-
year limitations period).14
Thus, the district court erred in holding that unjust
enrichment claims -- such as Sims’ claim here -- are governed by
the same four-year limitations provision as contract claims, Tex.
14
The court in Villegas was interpreting Tex. Civ. Stat. art.
5526 (Vernon 1925), which, in the current codification, is §
16.003.
20
Civ. Prac. & Rem. Code § 16.004(a)(3). In fact, as cited supra,
the Texas Supreme Court has recently re-affirmed its (also recent)
holding that a different provision, Tex. Civ. Prac. & Rem. Code §
16.003(a), with a two-year limitations period, applies to unjust
enrichment claims. Horwood, 58 S.W.3d at 737; HECI, 982 S.W.2d at
885.15
Now that we have established the correct limitations period,
we must determine when this period started, and whether it ended
before June 28, 2001, the date this suit was filed. In determining
when claims accrue, Texas follows the “legal injury” test, under
which “[a] cause of action generally accrues, and the statute of
limitations begins to run, when facts come into existence that
authorize a claimant to seek a judicial remedy.” Johnson & Higgins
of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex.
1998).16 The legal injury here arose when Wal-Mart received the
15
Sims’ attempts to distinguish Horwood and HECI lack merit.
Sims argues that HECI was governed by the portion of § 16.003(a)
relating to property damage (the facts of the case included damage
to an oil reservoir), and that Horwood’s affirmation of HECI is
dicta in that the case was ultimately decided on a waiver of the
limitations defense. Both these contentions are belied by the
plain text of the respective decisions. HECI, 982 S.W.2d at 885
(“[A] two-year statute of limitations [bars a] claim for unjust
enrichment.”); Horwood, 58 S.W.3d at 737 (“HECI . . . noted that a
two-year statute governed unjust enrichment claims.”).
16
See also S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996) (claim
accrues when “a wrongful act causes some legal injury, even if the
fact of injury is not discovered until later, and even if all
resulting damages have not yet occurred”). This test is premised
on Texas policies so powerful that the fact that even a legitimate
claim is precluded “is not reason enough to justify a judicial
exception to the statute.” Robinson v. Weaver, 550 S.W.2d 18, 20
21
proceeds of the illegal policy, as this is when Wal-Mart received
funds that should have gone to Sims’ estate -- and when the
appropriate remedy (a constructive trust) arises.17
The limitations period on Sims’ claim would therefore have
ended two years after Wal-Mart received the policy proceeds from
its insurer. Wal-Mart has failed to produce facts, however, to
show that the statute of limitations had run when this suit was
filed; it failed to produce the date -- beyond a bare contention
that it was at some point in 1999 -- when it received the money.
And limitations is a defense that must be pled and proven by the
party asserting it to the same standard as a substantive claim,
Fed. R. Civ. P. 8(c), which in this case is the summary judgment
standard.18 Wal-Mart may or may not have received the policy
proceeds more than two years before June 28, 2001, but Wal-Mart has
not provided any evidence of this.
In short, Wal-Mart has failed to carry its burden of proof.
The district court thus did not err in denying Wal-Mart summary
judgment on the limitations defense, and its ruling on this issue
is AFFIRMED.
III
(Tex. 1977).
17
See discussion at conclusion of Part II-B, supra.
18
Summary judgment is proper where the pleadings and summary
judgment evidence present no genuine issue of material fact and 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 (1986).
22
For the foregoing reasons, Wal-Mart’s motion to certify to the
Texas Supreme Court is DENIED, the rulings of the district court
are AFFIRMED, and this case is REMANDED for proceedings not
inconsistent with this opinion.
MOTION TO CERTIFY DENIED; AFFIRMED AND REMANDED.
23
Mayo v. Hartford Life Insurance
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