Originally created 01/10/04

Wal-Mart settles lawsuit over insurance policies on workers



DALLAS -- Wal-Mart Stores Inc. has settled a lawsuit over its practice of taking out life insurance on employees and making itself the beneficiary.

The settlement with families of employees who died was reached hours before a federal appeals court ruled against the giant retailer. Terms of the deal, reached Monday, were not disclosed.

Although only about six families were part of the lawsuit, a lawyer for the families said the settlement could benefit relatives of several hundred other Wal-Mart employees.

The families who sued claimed that Wal-Mart never told workers about the life insurance policies, and they were enraged that the company profited but they received nothing from the proceeds.

"A large percentage of the population doesn't approve of the morality or the ethics of this type of conduct," Mike Myers, a Houston attorney for the families, said Friday. "My clients' reaction, when they found out, was stunned and disbelief, turning to frustration and anger."

Lawyers for Wal-Mart referred inquiries to the company in Bentonville, Ark. Company officials did not immediately comment Friday on the settlement.

The families sued in 2001. A federal court judge ruled in their favor, finding in effect that Texas law limited such insurance policies to key employees.

Wal-Mart appealed to the 5th U.S. Circuit Court of Appeals in New Orleans, but lawyers for the company and the family members reached a settlement hours before the court issued its ruling on Monday, upholding the victory by relatives and saying that Wal-Mart "unlawfully took funds that, under Texas law, rightfully belonged" to a dead worker's estate.

Wal-Mart is one of many large U.S. companies in recent years that have taken out policies on the lives of employees, ranging from executives to workers on the bottom rungs of the pay ladder, with the goal of collecting benefits when the employees die. Companies term the policies corporate-owned life insurance, or COLIs. Critics call them dead-peasant policies.

Wal-Mart set up a trust in 1993 and named itself as beneficiary on policies for 355,000 employees. The company has said it lost money on the transactions, and it unwound the policies in 2000 after Congress and the Internal Revenue Service took away tax advantages of the program.

Hartford Life Insurance Co., which sold the policies to Wal-Mart and was the original defendant in the lawsuit, was not involved in the settlement.