IN THE FLORIDA SUPREME COURT

Case No. SC09-1956 ____________________________________________________________

WAYNE ATKINSON, as the Executor of the Estate of Rita Atkinson, and

RICHARD ARMATROUT, as the Executor of the Estate of Karen Armatrout,

Appellants,

vs.

WAL-MART STORES, INC. and WAL-MART STORES, INC. CORPORATION GRANTOR TRUST,

Appellees.

____________________________________________________________

On Certified Question from the United States Court of Appeals

for the Eleventh Circuit Case No. 09-12973-H

____________________________________________________________

APPELLEES’ ANSWER BRIEF ____________________________________________________________

EDWARD A. MOSS

EILEEN TILGHMAN MOSS DANIEL B. ROGERS

SHOOK, HARDY & BACON LLP Miami Center, Suite 2400

201 South Biscayne Boulevard Miami, Florida 33131

Tel: 305-358-5171 Fax: 305-358-5171

Counsel for Appellees

i

TABLE OF CONTENTS

Page

TABLE OF CONTENTS ............................................................................................ i

TABLE OF AUTHORITIES ................................................................................... iii

STATEMENT OF THE CASE AND OF THE FACTS ........................................... 1

A. Statement of the Facts ........................................................................... 1

1. Wal-Mart Institutes a COLI Program ......................................... 1

2. Wal-Mart Employees Received a Variety of Information About the COLI Program ............................................................ 3

3. Wal-Mart Ends Its COLI Program .............................................. 4

B. Proceedings in the United States District Court for the Middle District of Florida .................................................................................. 5

C. Proceedings in the United States Court of Appeals for the Eleventh Circuit ..................................................................................... 8

STANDARD OF REVIEW ....................................................................................... 9

SUMMARY OF THE ARGUMENT ...................................................................... 10

ARGUMENT ........................................................................................................... 12

I. FLORIDA LAW DID NOT PROVIDE THE ESTATES WITH STANDING TO SUE WAL-MART FOR THE COLI POLICY BENEFITS WHEN IT RECEIVED THEM IN 1996 AND 1997; AND SECTION 627.404(4), FLORIDA STATUTES, WHICH BECAME EFFECTIVE JULY 1, 2008, DOES NOT APPLY RETROACTIVELY TO PROVIDE THE ESTATES WITH STANDING TO RECOVER THOSE BENEFITS................................... 12

A. Before July 1, 2008, Florida Law Did Not Provide Parties Like the Estates with Standing to Assert Claims Like Those They Assert Against Wal-Mart. ................................................................... 13

ii

B. The Statutory Amendment Adding the New Cause of Action in Subsection 627.404(4) Became Effective July 1, 2008 and Does Not Apply Retroactively to Provide the Estates with Standing to Bring Such an Action Based on Policies Concluded in 1996 and 1997. .................................................................................................... 20

1. Section 627.404(4) is Presumed to Apply Prospectively. ........ 21

2. The Legislature Did Not Clearly Express Its Intent that Section 627.404(4) Apply Retroactively, So the Default Rule of Prospective Application Controls. ............................... 25

3. Retroactively Applying Section 627.404(4) Would be Unconstitutional. ....................................................................... 38

CONCLUSION ........................................................................................................ 43

CERTIFICATE OF SERVICE ................................................................................ 44

CERTIFICATE REGARDING FONT STYLE AND SIZE ................................... 45

iii

TABLE OF AUTHORITIES

Cases Alamo Rent-A-Car, Inc. v. Mancusi, 632 So. 2d 1352 (Fla. 1994)...................................................................... 22-23 Arrow Air, Inc. v. Walsh, 645 So. 2d 422 (Fla. 1994)...................................................... 21-23, 25-26, 41 Basel v. McFarland & Sons, Inc., 815 So. 2d 687 (Fla. 5th DCA 2002) .................................................. 29, 41-42 Bates v. State, 750 So. 2d 6 (Fla. 1999)..................................................................... 21, 25, 29 Brockton v. S. Life & Health Ins. Co., 556 So. 2d 1138 (Fla. 3d DCA 1989) ................................................. 15-17, 30 Chawla v. Transamerica Occidental Life Ins. Co., 2005 WL 405405 (E.D. Va. Feb. 3, 2005) aff’d in part, vacated in part, 440 F.3d 639 (4th Cir. 2006) ..................... 34-36 City of Lakeland v. Catinella, 129 So. 2d 133 (Fla. 1961)............................................................................. 23 City of Sanford v. McClelland, 163 So. 513 (Fla. 1935) .................................................................................. 40 Cooper v. Paris, 413 So. 2d 772 (Fla. 1st DCA 1982) ........................................................ 15-16 Cundiff v. Cain, 707 So. 2d 187 (Miss. 1998) .......................................................................... 42 E.A.R. v. State, 4 So. 3d 614 (Fla. 2009)................................................................................. 28 Gerstel v. Arens, 196 So. 616 (Fla. 1940) ............................................................................. 18-19

Page

iv

Gordon v. John Deere Co., 264 So. 2d 419 (Fla. 1972)............................................................................. 41 Gupton v. Village Key & Saw Shop, Inc., 656 So. 2d 475 (Fla. 1995)............................................................................. 39 Guyana Tel. & Tel. Co. v. Melbourne Int’l Commc’ns, Ltd., 329 F.3d 1241 (11th Cir. 2003) .......................................................... 23-24, 41 Hassen v. State Farm Mut. Auto. Ins. Co., 83 So. 627 (Fla. 1920) ............................................................................... 24-25 Hotelera Naco, Inc. v. Chinea, 708 So. 2d 961 (Fla. 3d DCA 1998) ........................................................ 39-40 In Re Seven Barrels of Wine, 83 So. 627 (Fla. 1920) .................................................................................... 22 Knott v. State ex rel. Guar. Income Life Ins. Co., 186 So. 788 (Fla. 1939) ............................................................................. 13-15 L. Ross, Inc. v. R.W. Roberts Constr. Co., 481 So. 2d 484 (Fla. 1986)............................................................................. 23 Landgraf v. USI Film Prods., 511 U.S. 244 (1994) ......................................................................21, 24-26, 38 Liss v. Liss, 937 So. 2d 760 (Fla. 4th DCA 2006) ............................................................. 19 Lopez v. Life Ins. Co. of Am., 406 So. 2d 1155 (Fla. 4th DCA 1981), approved, 443 So. 2d 947 (Fla. 1983) ........................................................... 13 Macola v. Gov’t Employees Ins. Co., 953 So. 2d 451 (Fla. 2006)............................................................................... 9 Mayo v. Hartford Life Ins. Co., 220 F. Supp. 2d 714 (S.D. Tex 2002) .............................................................. 4

v

McCord v. Smith, 43 So. 2d 704 (Fla. 1949)............................................................................... 39 McMullen v. St. Lucie County Bank, 175 So. 721 (Fla. 1937) .................................................................................. 18 Melendez v. Dreis & Krump Mfg. Co., 515 So. 2d 735 (Fla. 1987)............................................................................. 27 Metro. Dade County v. Chase Fed. Housing Corp., 737 So. 2d 494 (Fla. 1999)...................................................................... passim Old Port Cove Holdings, Inc. v. Old Port Cove Condo. Ass’n One, Inc., 986 So. 2d 1279 (Fla. 2008)..................................................................... 20, 29 Pearsall v. Great N. Ry. Co., 161 U.S. 646 (1896) ....................................................................................... 40 Poss v. Craven, 15 So. 2d 671 (Fla. 1943)............................................................................... 19 Promontory Enters., Inc. v. S. Eng’g & Contracting, Inc., 864 So. 2d 479 (Fla. 5th DCA 2004) ............................................................. 28 Rice v. Wal-Mart Stores, Inc., 2004 WL 1638241 (D. N.H. July 23, 2004) .................................................... 4 Smith v. Pinch, 45 N.W. 183 (Mich. 1890) ............................................................................. 42 State v. Ashley, 701 So. 2d 338 (Fla. 1997)............................................................................. 13 State v. Zuckerman-Vernon Corp., 354 So. 2d 353 (Fla. 1977)............................................................................. 27 State Farm Mut. Auto. In. Co. v. LaForet, 658 So. 2d 55 (Fla. 1995).......................................................................... 38-39

vi

Trs. of Tufts Coll. v. Triple R. Ranch, Inc., 275 So. 2d 521 (Fla. 1973)............................................................21-22, 25, 37 Wiley v. Roof, 641 So. 2d 66 (Fla. 1994)............................................................................... 40 Zack v. State, 753 So. 2d 9 (Fla. 2000)................................................................................. 41 Statutes

§ 2.01, Fla. Stat. ....................................................................................................... 13 § 627.404, Fla. Stat. .......................................................................................... passim Ga. Code Ann. § 33-24-3(d)(2) ................................................................................ 13 Statute of 14 George III, c. 48 (1774) .....................................................13-15, 25, 37 Legislation

Ch. 2008-36, Laws of Fla.. ................................................................................. 27-28 Ch. 2006-122, Laws of Fla.. .................................................................................... 26 Ch. 2005-187, Laws of Fla. ..................................................................................... 26 Ch. 2003-257, Laws of Fla. ..................................................................................... 28 Ch. 2003-154, Laws of Fla. ................................................................................ 26-27

3 Couch on Insurance § 41:5 (3d ed. 1997) ............................................. 16-17

Other Authorities

Herbert Broom, Legal Maxims 24 (8th ed. 1911) .................................................... 21 Bertram Harnett & Irving I. Lesnick, 28 Appleman on Insurance § 174.02[F] (2d ed. 2006) .................................. 17 Lee R. Russ & Thomas F. Segalla,

1

A. Statement of the Facts

STATEMENT OF THE CASE AND OF THE FACTS

In the late 1980s and early 1990s, the accounting rules governing how

employers accounted for and funded their employee-benefit programs changed.

[DE 43-2 at ¶3]1

1. Wal-Mart Institutes a COLI Program

To help employers address these changes, the insurance industry

developed and heavily marketed a new form of corporate-owned life insurance

(“COLI”). [DE 43-2 at ¶3; DE 51 at 3] Employers have used COLI policies for

decades for “key-person insurance” and other purposes. [DE 43-2 at ¶2]

Employers buy such policies on the lives of their employees and receive the

insurance proceeds should the employees die while the policies are in force. [Id.]

Relying on advice from insurers, brokers, and consultants regarding how to

address the changes in accounting rules, Wal-Mart Stores, Inc. (“Wal-Mart”)

adopted a COLI program in 1993. [DE 43-2 at ¶4] Wal-Mart established the Wal-

Mart Stores, Inc. Corporation Grantor Trust (“the Trust”) in Georgia to purchase

COLI policies for all employees who enrolled in the company’s health plan and

chose not to opt out of the COLI program. [DE 43-2 at ¶¶4-6; DE 51 at 1-2] From

December 1993 to July 1995, Wal-Mart, through the Trust, purchased over 1 Record references in this Answer Brief are to the Docket Entry (“DE”) in the record of proceedings before the United States District Court for the Middle District of Florida, followed by the applicable paragraph or page number of the cited document entry.

2

350,000 COLI policies for its salaried and hourly-rate employees around the

United States. [DE 43-2 at ¶¶4, 8; DE 51 at 2]

Wal-Mart did not purchase the COLI policies to provide financial benefits to

the company from the deaths of its employees. [DE 43-2 at ¶27] Rather, Wal-

Mart instituted the COLI program because it had been advised of the substantial

tax benefits it could derive from the tax deductions allowed for interest payments

made on loans Wal-Mart took out to pay the COLI policy premiums. [DE 43-2 at

¶¶27-35; DE 51 at 3]

To purchase the COLI policies, Wal-Mart provided the insurers with basic

employee information, consisting of the employee’s name, social security number,

sex, date of birth, state and zip code of residence, and annual compensation. [DE

43-2 at ¶17; DE 51 at 2] Wal-Mart, through the Trust, then paid all of the

premiums and other costs of the COLI policies. [DE 43-2 at ¶11; DE 51 at 2]

Employees who participated in the COLI program did not incur any costs or suffer

the loss of any benefits they otherwise would have received. [DE 43-2 at ¶11] In

fact, the beneficiaries of employees enrolled in the program through May 1995

received a special death benefit of either $5,000 or $10,000. [DE 43-2 at ¶¶11-14;

DE 51 at 2-3] A $1,000 special death benefit was provided to those who cancelled

medical coverage or terminated their employment. [DE 43-2 at ¶23] Wal-Mart

received the remainder of the proceeds paid by each COLI policy. [DE 51 at 3]

3

2. Wal-Mart Employees Received a Variety of Information About the COLI Program

Wal-Mart informed its employees about the essential characteristics of the

COLI program – including its optional nature – at various times in various ways.

[DE 43-2 at ¶¶18-24] At the inception of the program in December 1993, Wal-

Mart sent a memorandum to its store managers, instructing them to distribute to all

employees enrolled in the company medical plan a “For Your Information”

brochure describing the COLI program, its special death benefits, the fact that

Wal-Mart owned and would obtain financial benefits from the policies, and the fact

that employee participation was optional. [DE 43-2 at ¶¶19-20; DE 51 at 2]

As employees became eligible for the COLI program, Wal-Mart provided

them with a “Personal Choice” form providing similar information about the COLI

program, including their right to opt out. [DE 43-2 at ¶24; DE 51 at 2] Hundreds

of employees across a wide cross-section of Wal-Mart locations choose to opt out

of the program. [DE 43-2 at ¶21]

Wal-Mart also provided employees with notices about the COLI program’s

different special death benefits. Wal-Mart informed employees in February 1994

about the $1,000 special death benefit for those who cancelled medical coverage or

terminated their employment. [DE 43-2 at ¶23] Wal-Mart also advised

employees, via a flyer in May 1996 and then a memorandum to store and personnel

4

managers in February 1998, that the special death benefit for new enrollees had

been cancelled. [DE 43-2 at ¶14]

Wal-Mart additionally provided a toll-free number to its Benefits

Department, where a team of customer service representatives, armed with a set of

“Questions and Answers,” responded to employee inquires about COLI. [DE 43-2

at ¶¶21-22] As time passed and national news reports about Wal-Mart’s COLI

program surfaced in Newsweek, the Washington Post, and the New York Times,

Wal-Mart developed a new set of “Questions and Answers” for its call center. [DE

43-2 at ¶26]2

3. Wal-Mart Ends Its COLI Program

In August 1996, Congress passed the Health Insurance Portability and

Accountability Act, which, among other things, effectively eliminated tax

deductions for interest paid on loans used to fund COLI policies. [DE 43-2 at ¶38;

DE 51 at 3] Because the financial benefits of its COLI program depended on those

2 The Estates allege that Wal-Mart did not provide employees with adequate notice concerning the COLI program, citing Mayo v. Hartford Life Insurance Co., 220 F. Supp. 2d 714 (S.D. Tex 2002). (IB at 1, n.2) Another court addressing this issue has refused to follow Mayo. See Rice v. Wal-Mart Stores, Inc., 2004 WL 1638241, *3 n.3 (D. N.H. July 23, 2004). The court in Rice, which had addressed more than one case concerning Wal-Mart’s COLI program, found “evidence demonstrating that all of its employees received the December 1993 memorandum notifying them about Wal-Mart’s intention to purchase the COLI policies. The notice clearly provided information that Wal-Mart was going to purchase life insurance policies on its employees’ lives, and that it - not the employees’ survivors - would receive the financial gains.” Id. at *3.

5

tax deductions, Wal-Mart began unwinding its program. [DE 43-2 at ¶38; DE 51

at 3] By January 2000, Wal-Mart had fully surrendered all of its COLI policies.

[DE 43-2 at ¶38; DE 51 at 3]

As with other COLI programs, the Internal Revenue Service challenged the

tax benefits to Wal-Mart under its COLI program. [DE 43-2 at ¶40] Wal-Mart

eventually settled with the IRS, with the net result that Wal-Mart lost tens of

millions of dollars as a result of its COLI program. [DE 43-2 at ¶40]

B. Proceedings in the United States District Court for the Middle District of Florida

Rita Atkinson and Karen Armatrout worked as hourly-rate Wal-Mart

employees in Florida and participated in the COLI program. [DE 41-2 at 1-2; DE

51 at 3] When Mrs. Atkinson passed away in 1996 and Mrs. Armatrout passed

away in 1997, Wal-Mart received $66,048.70 and $72,820.30, respectively, in

COLI policy benefits. [DE 41-2 at 1-2; DE 51 at 4]

Approximately 12 years later, on March 5, 2008, Wayne Atkinson, as the

Executor of the Estate of Rita Atkinson, and Richard Armatrout, as Executor of the

Estate of Karen Armatrout, (hereafter collectively “the Estates”) filed a putative

class action against Wal-Mart and the Trust (hereafter collectively “Wal-Mart”)

seeking to recover the proceeds Wal-Mart received from the COLI policies

insuring the lives of its rank-and-file Florida employees, like Mrs. Atkinson and

Mrs. Armatrout. [DE 2] Count I sought a declaratory judgment that Wal-Mart had

6

no insurable interest in the lives of its rank-and-file Florida employees and sought

imposition of a constructive trust over the COLI policy benefits paid to Wal-Mart

from those employees’ deaths. [DE 2 at ¶¶42-43; DE 51 at 4] Count II, for unjust

enrichment, sought disgorgement of the COLI policy benefits Wal-Mart received

because it allegedly obtained the policies by using employees’ personal

information without their consent. [DE 2 at ¶¶47-50; DE 51 at 4]

The Atkinson Estate filed an amended motion for class certification, seeking

to certify a class of the probate estates of certain rank-and-file Wal-Mart

employees in Florida whose deaths resulted in Wal-Mart’s receipt of COLI policy

benefits. [DE 35-36, 42]3

The trial court denied class certification and dismissed the case because,

under applicable Florida law, the Estates lacked standing to challenge the COLI

program and recover the proceeds of the COLI policies. [DE 51 at 6-11] To reach

Wal-Mart opposed class certification on numerous

grounds, including that the Atkinson Estate and the putative class members lacked

standing under Florida law to seek recovery of the COLI policy benefits, that the

statute of limitations barred their claims, and that the Atkinson Estate failed to

satisfy the class-certification requirements of Federal Rule of Civil Procedure 23.

[DE 43]

3 The amended motion for class certification withdrew the Armatrout Estate’s request for appointment as a class representative. [DE 35 at 1; DE 51 at 4, n.4] The Armatrout Estate remained in the case as a party-plaintiff.

7

this conclusion, the court first found that, because “[a]ll relevant events occurred

prior to January 2000,” the “Florida common law and statutory law in effect in

2000 would be applicable in the analysis of this case.” [DE 51 at 6, n.7] Given the

law applicable to the Estates’ claims, the court observed that the Estates “ha[d] not

and cannot cite any applicable Florida statutory or case law that supports a right to

institute this action against [Wal-Mart].” [DE 51 at 6]

The trial court then recognized that, on July 1, 2008, the Florida Legislature

had “substantially amended” Florida’s insurable interest statute, section 627.404,

Florida Statutes. [DE 51 at 8] Citing the Senate Staff Analysis & Economic

Impact Statement for the enabling legislation, the court found that the statutory

amendments adding the new subsection 627.404(4) “created for the first time in

Florida a statutory right of recovery by an estate against persons who receive

insurance policy benefit if such persons did not have an insurable interest in the

insured.” [DE 51 at 8 (emphasis added)] The court further found “no indication

in the relevant staff analysis or statutory notes that the amendments were meant

to apply retroactively.” [DE 51 at 8 (emphasis added)] The court thus ruled that:

applicable Florida law does not provide [the Estates] with a legally cognizable right to institute an action against [Wal-Mart] seeking: (I) declaratory relief that Wal-Mart lacked an insurable interest; (ii) a constructive trust against the proceeds of insurance policies under the COLI program; or (iii) a claim for unjust enrichment. The sole available remedy under applicable Florida law is to void such policies. For these reasons, the Court concludes that [the Estates] lack[] standing to bring Counts I and II.

8

[DE 51 at 9]

Due to the dispositive nature of the Estates’ lack of standing, the trial court

never considered whether the Atkinson Estate satisfied the class-certification

requirements in Rule 23. [DE 51, passim] For the same reason, the trial court

stated it would not address Wal-Mart’s statute of limitations argument. [DE 51 at

10, n.12] The trial court went on to note, however, that it appeared Counts I and II

would be barred by Florida’s four year statute of limitations. [DE 51 at 10, n.12]

C. Proceedings in the United States Court of Appeals for the Eleventh Circuit

The Estates appealed. [DE 52] The Eleventh Circuit framed “[t]he question

presented in this case [as] whether § 627.404(4) is retroactively applicable and thus

confers standing upon the personal representative of an insured.” Slip Op. at 2.

The Eleventh Circuit thus certified the following question to this Court:

Whether the amendments to Fla. Stat. § 627.404 apply retroactively and enable the representative of an insured to sue for COLI benefits received by a party lacking an insurable interest or whether the amendments create a new cause of action such that a family would lack standing to sue for benefits obtained prior to the enactment of the amendments.

Slip Op. at 7.

9

Wal-Mart agrees with the Estates that the issues before this Court present

questions of law, which this Court reviews de novo. See Macola v. Gov’t

Employees Ins. Co., 953 So. 2d 451, 454 (Fla. 2006).

STANDARD OF REVIEW

10

The Estates make two arguments in their Initial Brief. First, they argue that

the new cause of action in section 627.404(4), Florida Statutes, effective July 1,

2008, applies retroactively to provide the Estates with standing to sue Wal-Mart to

recover COLI policy benefits Wal-Mart had received more than a decade earlier.

Second, the Estates argue that this cause of action existed in Florida even before

the 2008 enactment of section 627.404(4). The Estates are wrong on both

accounts.

The 2008 amendments to section 627.404 do not apply retroactively. To

rebut the presumption against retroactive application of statutes, the Legislature

must unequivocally express its intent that the statute apply retroactively. Here,

there is no proof – much less unequivocal proof – that the Legislature intended for

the new cause of action in section 627.404(4) to apply retroactively. The only

purported proof of retroactive intent which the Estates point to is a statement in the

enabling legislation that the amendments were intended to “clarify existing law.”

That is hardly an unequivocal expression of legislative intent that the statute apply

retroactively – and it did not even refer to the specific amendment creating

subsection 627.404(4). The presumption of prospective application thus controls.

SUMMARY OF THE ARGUMENT

Even if the Legislature had clearly expressed its intent that section

627.404(4) apply retroactively (it did not), such retroactive application would be

11

invalid. Retroactively applying section 627.404(4) would create a new obligation

or penalty and thereby unconstitutionally infringe on Wal-Mart’s vested right to

money it has possessed for more than 10 years.

The trial court, after surveying Florida law, correctly ruled that the law

applicable to the Estates’ claims did not provide them with standing to allege their

claims against Wal-Mart. Although Florida law declares void all life insurance

policies where the policy holder lacks an insurable interest in the life of the

insured, before the 2008 amendments to section 627.404, Florida law did not

permit an insured, or the insured’s representative, to sue for the proceeds of a

policy procured without an insurable interest. The sole remedy under Florida law

before the 2008 amendments was to declare such policies null and void. The trial

court thus properly found that applicable Florida law did not provide the Estates

with standing to allege their claims against Wal-Mart and appropriately dismissed

their claims.

For these reasons, the Court should answer the certified question from the

Eleventh Circuit by holding that the statutory amendment to section 627.404

adding the new cause of action in subsection (4) does not apply retroactively but,

instead, creates a new cause of action in Florida such that the Estates lack standing

to sue Wal-Mart for benefits received prior to the enactment of that statutory

amendment.

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I. FLORIDA LAW DID NOT PROVIDE THE ESTATES WITH STANDING TO SUE WAL-MART FOR THE COLI POLICY BENEFITS WHEN IT RECEIVED THEM IN 1996 AND 1997; AND SECTION 627.404(4), FLORIDA STATUTES, WHICH BECAME EFFECTIVE JULY 1, 2008, DOES NOT APPLY RETROACTIVELY TO PROVIDE THE ESTATES WITH STANDING TO RECOVER THOSE BENEFITS.

ARGUMENT

The Estates contend that they have standing to sue Wal-Mart to recover the

COLI policy benefits paid in 1996 and 1997 because the statutory amendment

adding section 627.404(4), Florida Statutes, which became effective July 1, 2008,

applies retroactively. The Estates further contend that Florida law pre-dating that

statutory amendment already provided for the new cause of action in section

627.404(4). Neither of these arguments has merit. Because an analysis of the pre-

amendment state of Florida law provides context for and informs the retroactivity

analysis, Wal-Mart will address that issue first.

13

A. Before July 1, 2008, Florida Law Did Not Provide Parties Like the Estates with Standing to Assert Claims Like Those They Assert Against Wal-Mart.

Wal-Mart recognizes that Florida law has long prohibited life insurance

policies in which the policy holder has no insurable interest.4

Section 2.01, Florida Statutes, provides that the “common and statute laws

of England . . . down to the 4th day of July, 1776, are declared to be of force in this

state.” Accord State v. Ashley, 701 So. 2d 338, 341 (Fla. 1997). Hence, the British

statute of 14 George III, c. 48 (1774), became part of and still is Florida law. That

See Knott v. State ex

rel. Guar. Income Life Ins. Co., 186 So. 788, 789-90 (Fla. 1939); Lopez v. Life Ins.

Co. of Am., 406 So. 2d 1155, 1158 (Fla. 4th DCA 1981), approved, 443 So. 2d 947

(Fla. 1983). Insurance polices obtained without an insurable interest are

considered wagering contracts and thus void as against public policy. See Knott,

186 So. at 790. This has been the law in Florida since its inception.

4 As the Estates point out (IB at 11), Wal-Mart established the Wal-Mart Stores, Inc. Corporation Grantor Trust (“the Trust”) in Georgia to purchase the COLI policies. The trust instrument contained a choice-of-law provision for questions regarding the validity, construction, and administration of the Trust, and the Trust applied for and took delivery of the policies in Georgia. [DE 43-2 at ¶¶6 & 8] Accordingly, affirmative defense seven in Wal-Mart’s Answer and Affirmative Defenses asserts that Georgia law governs the policies. [DE 7 at 8] Georgia law provides that a trustee of a trust established by a corporation providing benefits to its employees has an insurable interest in the lives of those employees. See Ga. Code Ann. § 33-24-3(d)(2). Wal-Mart thus disputes the Estates’ contention that it lacked an insurable interest in the lives of its hourly-wage employees. However, for purposes of the class certification briefing before the trial court only, Wal-Mart assumed, arguendo, the Estates’ contention. [DE 43 at 9, n.3]

14

statute prohibits an insurance policy in which the one procuring and benefiting

from the policy does not have an interest in the life of the insured:

Whereas it hath been found by experience, that the making [of] insurances on lives, or other events, wherein the assured shall have no interest, hath introduced a mischievous kind of gaming: For remedy whereof, be it enacted by King’s most excellent majesty, by and with the advice and consent of the lords spiritual and temporal, and commons, in this present parliament assembled, and by the authority of the same, That from and after the passing of this act, no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every assurance made, contrary to the true intent and meaning hereof, shall be nul and void, to all intents and purposes whatsoever.

Knott, 186 So. at 790 (emphasis added) (citing the Summary of British Statutes,

part of the Common Law of Florida under Section 87, C.G.L. 1927, Published

Under Supervision of the Attorney General State of Florida, January, 1931).

As this Court made clear in Knott, the sole remedy provided by the statute of

George III for violating the insurable interest requirement – and thus the sole

remedy provided by Florida law before July 1, 2008 – is that such policies are

“nul[l] and void.” Id. Nowhere in the statute of George III, Knott, or subsequent

Florida case law is the insured, or insured’s successor, given a cause of action to

recover the insurance proceeds. Before July 1, 2008, no statute or legal decision

changed that long-standing Florida law.

15

Since Wal-Mart’s COLI program concluded by 2000, the Florida law in

effect at the time Wal-Mart took out COLI policies on its employees and received

benefits from those policies did not provide the employees or their beneficiaries

with the right to recover those benefits from Wal-Mart. In fact, the law did not

even provide them with the right to contest the policies. As a result, the employees

and their representatives, like the Estates here, lacked standing under applicable

Florida law to complain about Wal-Mart’s COLI program and seek recovery of the

COLI policy proceeds. The only party with standing to contest Wal-Mart’s lack of

an insurable interest was the insurer from which Wal-Mart bought the policy. See,

e.g., Brockton v. S. Life & Health Ins. Co., 556 So. 2d 1138, 1139 (Fla. 3d DCA

1989) (involving an insurer’s claim that it did not have to pay a beneficiary who

allegedly lacked an insurable interest).

The Estates do not mention that Knott and the statute of George III dictate

the sole remedy provided by Florida law for violating the insurable interest

requirement before the 2008 statutory amendments. Instead of addressing that

controlling law, the Estates cite Cooper v. Paris, 413 So. 2d 772 (Fla. 1st DCA

1982), for the proposition that Florida law generally does not allow parties who

violate public policy to benefit from their wrongdoing. But neither Cooper nor any

other case cited by the Estates goes the next step and recognizes a cause of action

for someone like the Estates to recover those benefits from the alleged wrongdoer.

16

Cooper involved a realtor who received an illegal commission on a sale of

property in Florida because he lacked a Florida realtor license. The court held the

realtor’s client could seek restitution for the commission he paid since a party who

violates public policy cannot benefit from their wrongdoing. See id. at 774. The

client’s restitution action against the realtor in Cooper differs materially from the

Estates’ putative action against Wal-Mart because the client in Cooper (i) actually

suffered an injury in the form of the commission he paid and (ii) was a party to the

contract from which the realtor recovered the illegal commission. In stark contrast,

neither the Estates nor their decedents paid a penny for the COLI policies and were

not parties to the insurance contracts that allegedly offend Florida public policy.

Moreover, as previously mentioned, Wal-Mart did not ultimately benefit from its

purported wrongdoing. In the end, the net result of Wal-Mart’s COLI program was

that it lost tens of millions of dollars.

Under Cooper, the insurer may have a cause of action for lack of an

insurable interest, as it paid benefits under its insurance contract with Wal-Mart.

See, e.g., Brockton, 556 So. 2d at 1139. The Estates, however, do not have a cause

of action. Florida law pre-July 1, 2008 was thus in line with the common law of

the vast majority of states that only the insurer had standing to object to the policy

holder’s lack of an insurable interest. See Lee R. Russ & Thomas F. Segalla, 3

Couch on Insurance § 41:5 (3d ed. 1997) (“The majority of courts which have

17

considered the issue hold that only the insurer can raise the objection of want of

insurable interest.”); Bertram Harnett & Irving I. Lesnick, 28 Appleman on

Insurance § 174.02[F] (2d ed. 2006) (“[T]he predominant common law rule is that

only the insurer may raise the issue of lack of an insurable interest, even to the

exclusion of the estate of the insured.”).5

The Estates wrongly criticize the trial court’s reliance on Couch, a leading

treatise on insurance law, for the proposition that the majority common law rule is

that only insurers can contest the lack of an insurable interest. According to the

Estates, Couch “no longer correctly states the ‘majority view,’ if it ever did.” (IB

at 19) The Estates then provide a string-cite of statutes across the country that

provide insureds or their representatives with standing to raise the objection of lack

of an insurable interest, followed by only two states (Texas and Virginia) which

provided such standing through case law. (IB at 19-21) The Estates miss the

point. The trial court correctly cited Couch for the proposition that the “majority

of courts,” like the courts of Florida, did not recognize the cause of action alleged

by the Estates. That those states, and now Florida, have provided such a cause of

5 The Estates argue the law providing “that only insurers have standing to sue, and then only to void the policy, makes no sense in the context of this case.” (IB at 22) They argue that “[s]uch a situation cannot be Florida law” and speculate that insurers, such as AIG in this case, will not contest a beneficiary’s lack of an insurable interest. (Id.) Yet, the Estates’ Initial Brief cites a Florida case where the insurer did exactly that—contest a beneficiary’s insurable interest and thus refuse to pay on a life insurance policy. See Brockton, 556 So. 2d at 1139.

18

action through statute does not change the fact that the majority common law rule

(followed in Florida) was that only insurers, not insureds or their representatives,

had standing to raise the lack of an insurable interest.

The Estates’ contention that McMullen v. St. Lucie County Bank, 175 So.

721 (Fla. 1937), recognized an insured’s heirs’ standing to raise the beneficiary’s

lack of an insurable interest is similarly incorrect. In that case, the heirs of a bank

president sought to recover the proceeds the bank received from policies insuring

the president’s life. The heirs claimed the president had assigned the policies to

the bank “for the purpose of securing certain loans, and that the said loans had

been paid and discharged in full.” Id. at 747. The bank disputed that claim,

contending the policies constituted “keyman insurance.” Id. This Court agreed,

finding that:

the bank procured the policies to protect it against any loss it might sustain in the event of McMullen’s death, he being president of the bank, and against any loss sustained in the event of failure to restore the loans which he as president of the bank had caused it to make to corporations in which he was the directing head.

Id. at 748. The Court had no need to address whether the heirs had a remedy for

the alleged lack of insurable interest because the Court found the bank actually had

an insurable interest in the president’s life.

The Estates again seize of dicta in Gerstel v. Arens, 196 So. 616 (Fla. 1940),

and attempt to distort it into a holding authorizing their claims. Gerstel involved a

19

partnership which took out life insurance on one of the partner’s lives. The dispute

centered around whether, upon dissolution of the partnership, its interest in the

policy remained a partnership asset or vested in the insured. This Court held it

remained a partnership asset, rejecting a claim from the insured’s heirs that the

policy proceeds belonged to the insured’s probate estate. See id. at 619. Contrary

to the Estates’ assertion, the heirs did not claim, and the Court did not adjudicate a

claim, that the proceeds belonged to the probate estate because the partnership

lacked an insurable interest in the partner’s life.

The remaining cases cited by the Estates are equally inapposite. Liss v. Liss,

937 So. 2d 760 (Fla. 4th DCA 2006), involved life insurance provided for in a

divorce agreement to secure payment of alimony and child support. The court

addressed whether the former wife had a sufficient insurable interest in the former

husband’s life to require him to sign papers the former wife needed to procure

additional insurance on his life. Importantly, the former husband never sought to

void the policy or recover its proceeds for lack of an insurable interest. Poss v.

Craven, 15 So. 2d 671 (Fla. 1943), also does not help the Estates. It involved a

mother’s claim to life insurance proceeds which her son had allegedly designated

for her but which his widow received instead. The case has no relevance to the

insurable interest and standing issues at hand.

20

The Estates’ effort to find a Florida case supporting their standing simply

comes up short. The trial court correctly ruled that, although Florida law renders

void insurance policies in which the beneficiary lacks an insurable interest, only

parties to that contract of insurance, such as the insurer, have the legal right to

complain. Neither the insureds nor representatives of the insureds’ probate estates

were parties to the COLI policies in question here; and therefore neither had

standing under applicable Florida law to bring causes of action to contest the

policies or recover their proceeds.

B. The Statutory Amendment Adding the New Cause of Action in Subsection 627.404(4) Became Effective July 1, 2008 and Does Not Apply Retroactively to Provide the Estates with Standing to Bring Such an Action Based on Policies Concluded in 1996 and 1997.

This Court recently restated the appropriate analysis in determining whether

a statutory amendment should be applied retroactively:

In the absence of clear legislative intent to the contrary, a law is presumed to operate prospectively. In determining whether a statute applies retroactively, we consider two factors: (1) whether the statute itself expresses an intent that it apply retroactively; and, if so, (2) whether retroactive application is constitutional.

Old Port Cove Holdings, Inc. v. Old Port Cove Condo. Ass’n One, Inc., 986 So. 2d

1279, 1284 (Fla. 2008) (citations omitted). Here, the presumption that section

627.404(4) applies prospectively controls based on the absence of clear legislative

intent that it apply retroactively. Retroactive application would also be

unconstitutional, as it would impair Wal-Mart’s vested rights.

21

1. Section 627.404(4) is Presumed to Apply Prospectively.

The trial court and the Eleventh Circuit both properly recognized the black-

letter law that statutory amendments are presumed to apply prospectively:

Historically, courts have indulged in the presumption that the Legislature intended a statute to have prospective effect only. The bias against retroactive legislation is deeply rooted in the Anglo-American law. Coke established the maxim, “Nova constitutio furturis forman imponere debet non praeteritas”. (A new state of law ought to affect the future, not the past). Blackstone wrote that it was a matter of justice that statutes should operate in futuro.

Trs. of Tufts Coll. v. Triple R. Ranch, Inc., 275 So. 2d 521, 524 (Fla. 1973).

There are meaningful policy reasons why “[r]etroactive application of the

law is generally disfavored.” Bates v. State, 750 So. 2d 6, 10 (Fla. 1999). The

“presumption against retroactivity is . . . founded on notions of fairness and

separation of powers concerns,” Metro. Dade County v. Chase Fed. Housing

Corp., 737 So. 2d 494, 499 n.8 (Fla. 1999), and “will generally coincide with

legislative and public expectations,” Arrow Air, Inc. v. Walsh, 645 So. 2d 422, 425

(Fla. 1994) (quoting Landgraf v. USI Film Prods., 511 U.S. 244, 272 (1994)). As

one commentator observed:

Retrospective laws are, as a rule, of questionable policy, and contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law.

Bates, 750 So. 2d at 10 (quoting Herbert Broom, Legal Maxims 24 (8th ed. 1911)).

22

The presumptive rule against retroactive application of statutes “applies with

peculiar force,” Trs. of Tufts Coll., 275 So. 2d at 525 (quoting In Re Seven Barrels

of Wine, 83 So. 627, 631 (Fla. 1920)), when the statute “affects substantive rights,

liabilities, or duties,” Arrow Air, 645 So. 2d at 425. “Thus, if a statute attaches

new legal consequences to events completed before its enactment, the courts will

not apply the statute to pending cases, absent clear legislative intent favoring

retroactive application.” Chase Fed. Housing Corp., 737 So. 2d at 499. This rule

applies even where a statute can be called “remedial” because, “if a statute

accomplishes a remedial purpose by creating new substantive rights or imposing

new legal burdens, the presumption against retroactivity would still apply.” Id. at

500 n.9.

Here, the presumption against retroactive application of section 627.404(4)

applies because section 627.404(4) creates a “new substantive right” for insureds

or their representatives to recover benefits received from policies in which the

beneficiary lacked an insurable interest. Id. Section 627.404(4) also imposes a

“new legal burden” on beneficiaries lacking an insurable interest, who are now

subject to claims by insureds or their representatives. Id. “The establishment or

elimination of such a claim is clearly a substantive, rather than procedural, decision

of the legislature because such a decision does, in fact, grant or eliminate a right or

entitlement.” Alamo Rent-A-Car, Inc. v. Mancusi, 632 So. 2d 1352, 1358 (Fla.

23

1994) (holding statutory amendment limiting punitive damages to three times

compensatory damages for misconduct in a commercial transaction was a

substantive change and thus not retroactive).

This case is not like City of Lakeland v. Catinella, 129 So. 2d 133 (Fla.

1961), which is cited by the Estates for the proposition that “[t]here is no

presumption against retroactive application of remedial legislation.” (IB at 9)

Catinella involved a procedural statutory amendment that merely provided for

which entity had jurisdiction to decide a claim. Hence, this Court held it could be

retroactively applied. See Catinella, 129 So. 2d at 136.

This case is, instead, just like this Court’s prior decision in Arrow Air, which

addressed a statute creating a private-sector whistleblower cause of action. As

here, such a cause of action did not previously exist in Florida common or statutory

law and thus constituted a substantive amendment, even though it could be said to

further a remedial purpose. This Court explained that “we have never classified a

statute that accomplishes a remedial purpose by creating substantive new rights or

imposing new legal burdens as the type of ‘remedial’ legislation that should be

presumptively applied in pending cases.” Arrow Air, 645 So. 2d at 424 (citing L.

Ross, Inc. v. R.W. Roberts Constr. Co., 481 So. 2d 484 (Fla. 1986) (statute creating

right to attorney’s fees could not be applied retroactively)); see also Guyana Tel. &

Tel. Co. v. Melbourne Int’l Commc’ns, Ltd., 329 F.3d 1241, 1247 (11th Cir. 2003)

24

(holding amendment expanding those with standing to make a FDUTPA claim

from only “consumers” to anyone was not retroactive because the amendment was

substantive, providing a right to sue where none existed before, and there was no

legislative intent that it be retroactively applied).

In Landgraf, a case upon which this Court relied heavily in Arrow Air, the

U.S. Supreme Court addressed whether new provisions in the Civil Rights Act of

1991 applied retroactively. Although the provisions were designed to serve a

remedial purpose of expanding protections to victims of discrimination, they

attached new consequences to events completed before the Act’s enactment and

thus could not be applied retroactively absent clear evidence of legislative intent to

apply it retroactively. See Landgraf, 511 U.S. at 283.

This Court’s opinion in Hassen v. State Farm Mutual Automobile Insurance

Co., 674 So. 2d 106 (Fla. 1996), which concerned amendments to Florida’s

uninsured motorist statute, is also instructive. Prior to the amendment, an insurer

had no obligation to pay its insured the amount of any settlement offer it refused to

approve in order to preserve its subrogation rights. The amendment required such

payment to preserve the insurer’s right to subrogation. This Court held that the

amendment constituted a substantive change to the law governing an insurer’s right

to subrogation. See id. at 109 (ultimately holding the statute did not apply

retroactively because there was no clear expression of legislative intent sufficient

25

to overcome the presumption against retroactive application of substantive

amendments).

In a remark particularly pertinent to the insurance issues in this case, the

Court stated that “it is generally accepted that the statute in effect at the time an

insurance contract is executed governs substantive issues arising in connection

with that contract.” Id. at 108. Here, the statute in effect at the time Wal-Mart

executed and received benefits from the subject COLI policies, and thus governs

those policies, was the statute of George III. Because it did not provide the Estates

with standing to recover those COLI policy benefits, the Estates simply have no

cause of action.

2. The Legislature Did Not Clearly Express Its Intent that Section 627.404(4) Apply Retroactively, So the Default Rule of Prospective Application Controls.

The presumption against retroactive application of section 627.404(4) is

controlling because the Legislature did not express its intent – much less, express

its intent “in language to[o] clear and explicit to admit of reasonable doubt” – that

section 627.404(4) be applied retroactively. Trs. of Tufts Coll., 275 So. 2d at 524.

“[A]ny basis for retroactive application must be unequivocal and leave no doubt as

to the legislative intent.” Bates, 750 So. 2d at 10. This Court has agreed with the

U.S. Supreme Court that:

Requiring clear intent assures that [the legislature] itself has affirmatively considered the potential unfairness of retroactive

26

application and determined that it is an acceptable price to pay for the countervailing benefits. Such a requirement allocates to [the legislature] responsibility for fundamental policy judgments concerning the proper temporal reach of statutes, and has the additional virtue of giving legislators a predictable background rule against which to legislate.

Arrow Air, 645 So. 2d at 425 (quoting Landgraf, 511 U.S. at 272-73).

“In order to determine legislative intent as to retroactivity, both the terms of

the statute and the purpose of the enactment must be considered.” Chase Fed.

Housing Corp., 737 So. 2d at 500. Analyzing the terms and the purpose of section

627.404(4) fails to reveal any unequivocal proof that the Legislature intended the

statute to apply retroactively.

(a) The Terms of Section 627.404(4) Do Not Demonstrate a Clear Intent to Apply It Retroactively.

The Legislature could have provided an express provision in the enabling

legislation for the amendments to section 627.404 that they apply retroactively.

The Legislature has done so before. See, e.g., Ch. 2006-122, § 7, Laws of Fla.

(“The amendments made by this act to s. 29.008(4), Florida Statutes, apply

retroactively to July 1, 2004.”); Ch. 2005-187, § 11, Laws of Fla. (“Sections 1

through 10 of this act shall take effect [June 10, 2005] and shall apply retroactively

to October 1, 2001.”); Ch. 2003-154, § 21, Laws of Fla. (“The amendments to

section 95.031, Florida Statutes, are remedial in nature and shall have retrospective

27

effect.”). But, here, the Legislature did not include express language as to

retroactivity.

Instead, the Legislature provided that the statutory amendments to section

627.404 “shall take effect July 1, 2008.” Ch. 2008-36, § 3, Laws of Fla. The trial

court correctly recognized that simply including an effective date, without more, is

evidence that the Legislature did not intend the statute to apply retroactively. [DE

51 at 8-9 (citing State v. Zuckerman-Vernon Corp., 354 So. 2d 353, 358 (Fla.

1977)] See also Melendez v. Dreis & Krump Mfg. Co., 515 So. 2d 735, 736 (Fla.

1987) (holding amendment eliminating the products liability statute of repose was

not retroactive because the Legislature included only an effective date for the

amendment and there was thus no clear legislative intent that it apply

retroactively).

An example of a clear manifestation of legislative intent as to retroactivity is

found in this Court’s decision in Chase Federal Housing Corp. In that case, the

newly-enacted statutes provided that their immunity provisions applied “regardless

of when the drycleaning contamination was discovered” and applied to clean-ups

“commenced before or on or after” the statute’s effective date. Chase Federal

Housing Corp., 737 So. 2d at 501-02. The amendments to section 627.404 do not

include any language remotely similar to these clear expressions of retroactive

intent.

28

The only evidence the Estates point to as purported evidence of Legislative

intent as to retroactivity is the statement in the enabling legislation that “[t]he

amendments to s. 627.404, Florida Statutes, made by this act are intended to clarify

existing law.” Ch. 2008-36, § 2, Laws of Fla. But a statement that a statute is

intended to “clarify existing law” is not an unequivocal expression of legislative

intent that leaves no doubt as to retroactive application.

In Promontory Enterprises, Inc. v. Southern Engineering & Contracting,

Inc., 864 So. 2d 479 (Fla. 5th DCA 2004), the Legislature expressed a clear intent

to apply the statute at issue retroactively. The Legislature did provide in the

enabling legislation that the statute at issue was intended to “clarify existing law.”

Id. at 484 (quoting Ch. 2003-257, § 1, Laws of Fla.). But the Legislature then went

further and made its intent unequivocal by expressly stating that the amendments

“shall apply retroactively to all actions.” Id. If a statement that a statute is

intended to “clarify existing law” were a clear expression of intent to apply the

statute retroactively, there would have been no need for the Legislature to add that

express statement as to retroactivity. See E.A.R. v. State, 4 So. 3d 614, 633 n.32

(Fla. 2009) (applying the basic rule of statutory construction that the Legislature

does not include useless language or provisions). By not including such an express

statement as to retroactivity in the enabling legislation for the amendments to

29

section 627.404 at issue here, the Legislature certainly expressed no clear intention

to apply those amendments retroactively.

This Court has never held a mere statement by the Legislature that a statute

is meant to “clarify existing law” to be an unequivocal expression of the intent to

confer retroactivity. Instead, arguably ambiguous expressions of intent have

repeatedly been held insufficient to overcome the presumption against

retroactivity. See, e.g., Old Port Cove Holdings, 986 So. 2d at 1284-85 (holding

statute that abrogated the common law rule against perpetuities did not reflect, or

even imply, an intent to apply retroactively and thus applied prospectively only);

Bates, 750 So. 2d at 10 (holding statute did not apply retroactively due to absence

of “unequivocal language that the Legislature intended this amendment to apply

retroactively”); Basel v. McFarland & Sons, Inc., 815 So. 2d 687, 693 (Fla. 5th

DCA 2002) (holding arguable expression of Legislative intent to retroactively

apply amendment to joint and several liability statute was insufficient; “what is

necessary in this regard is an explicit or clear intent by the legislature that the

amendment be applied retroactively”).

Most importantly, the enabling legislation’s statement about “clarif[ication

of] existing law” did not even apply to the specific amendment adding the cause of

action in subsection 627.404(4), as there was no existing Florida law to “clarify”

relating to such a cause of action. As discussed above, there were no conflicting

30

judicial decisions – or non-conflicting ones, for that matter – regarding whether

such a cause of action existed in Florida. Rather, as is reflected in the legislative

history (discussed below), the statement about “clarif[ication of] existing law”

referred to the other amendments to section 627.404 that clarified the existing –

and confusing – law in Florida as to when an insurable interest exists.

The Estates’ Initial Brief itself proves this point by contrasting one statement

of the common law definition of an insurable interest with the amended definition

of insurable interest in subsection 627.404(2)(b)(3), which clarified the common

law definition. (IB at 12-13) “Insurable interest was described at common law as

‘a cognizable interest, whether pecuniary or arising from natural affection, in the

life of the insured.’” (IB at 12 (citing Brockton, 556 So. 2d at 1139)) The

amendments to section 627.404 clarified that:

An individual has an insurable interest in the life, body, and health of another person if such individual has an expectation of a substantial pecuniary advantage through the continued life, health, and safety of that other person and consequent pecuniary loss by reason of the death, injury, or disability of that person.

§ 627.404(2)(b)(3), Fla. Stat. (eff. July 1, 2008). As of July 1, 2008, estate

planning and insurance professionals had a clear, clarified definition regarding

when an insurable interest exists under Florida law.

The legislative history of the amendments to section 627.404 clearly

demonstrates that the amendments were intended to clarify when an insurable

31

interest exists, not to “clarify” whether insureds or their representatives have a

cause of action to recover proceeds received by a beneficiary that lacked an

insurable interest. The sponsor of the enabling legislation in the Florida House of

Representatives explained the purpose of the amendments to the House’s

Committee on Insurance as follows:

Members, I am pleased to present today House Bill 375, and this relates to insurable interest. Members, currently the circumstances under which a person may insure the life or health of another is not currently addressed in statute. It has been set forth in various court decisions. Basically, what this bill does is codify when and how one can insure the -- the life of another person.

There is one amendment to this bill . . . Basically, the amendment describes certain very specific circumstances when someone can insure the life of another, for instance, dealing with a person who is acting in a fiduciary capacity as a trustee or a guardian or other fiduciary capacity; a charitable organization; a retirement fund; and a business. This is in addition to what are listed as specific instances in the original filed bill.

* * * *

Members, let me just reiterate that this is really codifying and providing additional protections, codifying what has been in existence for approximately 500 years throughout the world and the last couple hundred of years in Florida.

We are putting into statute so that there is certainty as to what an insurable interest is, rather than leaving it to a particular interpretation. Interpretation from court decision to court decision can be different from one court to another, from one district to another.

This provides certainty. This is what exists now. Without the bill, we have basically very little definition of what insurable interest is in

32

Florida. This brings us in line with that has been decided, substantially, in court cases, and how insurable interest is defined throughout the country.

[DE 49-23 at 2:7 – 3:6, 34:12 – 35:5 (emphasis added)] The sponsor of the

enabling legislation in the Florida Senate similarly explained the purpose of the

amendments to the Senate’s Banking and Insurance Committee as follows:

Senate Bill 648’s intent [is] to clarify a Florida law relating to an insurable interest required for purchasing life insurance policies and other insurance contracts as recommended by the Real Property, Probate and Trust Law Section of the Florida Bar.

Current law prohibits the issue of a life insurance policy to someone who does not have an insurable interest in the insured. But the statutes [and] the case law provide very little guidance in determining on whether an insurable interest exists.

The bill designs -- defines the various circumstances that constitute an insurable interest.

[DE 49-24 at 4:18 – 5:7 (emphasis added)]

The sponsors of the amendments to section 627.404 thus both made clear

that the amendments they sponsored were intended to clarify Florida law regarding

when an insurable exists. They never stated that their proposed amendments were

intended to “clarify” Florida law on whether insureds or their representatives had a

cause of action to recover proceeds from policies obtained without an insurable

interest. During the debate over the amendments before Senate Judiciary

Committee, a speaker remarked that:

33

Florida Statute 627.404 says that you cannot purchase an insurance product for a party that you do not have an insurable interest in. But the term “insurable interest” is left vague, undefined by the case law in Florida.

There has been a recent federal law that gives us a pause as to whether some of the estate planning products that people have purchased would be valid in Florida or would be recognized in Florida if we don’t codify what current case law is in Florida.

[DE 49-25 at 2:10-20 (emphasis added)] Again, no one expressed any “pause” as

to whether insureds or their representative have a cause of action, just “pause” as to

when an insurable interest exists.

The Estates cite the Staff Analysis for the Senate Judiciary Committee

concerning the statutory amendments. (IB at 8) But the Staff Analysis merely

provides further support for the proposition that the amendments were intended to

clarify Florida law as to when an insurable interest exits. The first paragraph of the

“Summary” to the Staff Analysis states that:

This bill is expressly intended to clarify current Florida law relating to insurable interests and the purchase of life insurance. Florida case law has interpreted Florida law as prohibiting the issuance of a life insurance policy to someone who does not have an insurable interest in the insured, but the statutory and case law provides very little guidance on determining whether an insurable interest exists. The bill contains the recommendations of the Real Property, Probate and Trust Law Section of the Florida Bar.

34

[DE 49-15 at 2]6 The Staff Analysis explains how “life insurers and estate

planners remain concerned given the lack of clarity under current Florida law,” as

exemplified by Chawla7

The Estates specifically cite the Staff Analysis’s discussion of the current

situation concerning COLI policies. (IB at 8) But that section of the Staff

Analysis merely discusses the existence of litigation (notably, not in Florida) over

whether companies taking out COLI policies have a sufficient insurable interest in

their employees. [DE 49-15 at 4] The Staff Analysis notes that “[m]any of these

so-called ‘janitor insurance’ cases have been decided against the corporations

because of an absence of an insurable interest in the lives of the insured

employees.” [DE 49-14 at 4-5] The Staff Analysis then explains that the “primary

concern” motivating the statutory amendments is to clarify the uncertainty as to

when an insurable interest exists, both for estate planning, “as well as the COLI

issues.” [DE 49-14 at 5] Importantly, the Staff Analysis never states that the

purpose of the amendments was to “clarify” whether an employee’s heirs have a

litigation in Virginia over whether an insurable interest

existed and thus whether life insurance benefits should be paid. [DE 49-14 at 4]

6 The Staff Analysis provided to the Senate Judiciary Committee addressing the proposed amendments [DE 49-15] contains nearly identical language to the Staff Analysis provided to the Senate Banking and Insurance Committee [DE 49-14]. 7 See Chawla v. Transamerica Occidental Life Ins. Co., 2005 WL 405405 (E.D. Va. Feb. 3, 2005), aff’d in part, vacated in part, 440 F.3d 639 (4th Cir. 2006).

35

cause of action to recover proceeds received from a COLI policy by a company

that lacked an insurable interest in the life of the employee.

As noted above, the amendments were instigated by the Real Property,

Probate, and Trust Law Section of the Florida Bar, which had prepared a White

Paper on Proposed Revisions to the Florida Statutes Section 627.404. [DE 49-21]

The purpose of the White Paper, prepared by the Bar Section’s Estate and Trust

Tax Planning Committee, was to clarify when an insurable interest exists and

thereby provide guidance in an uncertain area of Florida law. The White Paper

noted the consequences of an uncertain definition of insurable interest, pointing to

the Chawla litigation in Virginia and the COLI litigation in New Hampshire,

Texas, and Oklahoma. [DE 49-21 at 9-10] With respect to COLI litigation, the

Florida Bar Section’s Estate and Trust Tax Planning Committee explained that:

The starting point for many COLI matters is an inquiry by a court or by insurance regulation authorities is [sic] whether there is an insurable interest; this, in turn, requires reference to the insurable interest statute of the state law whose governs. The Committee is concerned that Florida’s current insurable interest statute is in need of substantial revision if it is to provide meaningful guidance for planners, insurance professionals and regulatory bodies called upon to consider ongoing COLI issues.

[DE 49-21 at 10-11 (emphasis added)]

The Florida Bar Committee’s White Paper then discussed the specific

amendments proposed to section 627.404. [DE 49-21 at 11-15] Notably, when

addressing the proposed amendments defining when an insurable interest exists,

36

the Committee states that one proposed subsection “will make insurable interest

law clear in the context of partnership, corporate and limited liability company

redemption and cross-purchase agreements.” [DE 49-21 at 12 (emphasis added)]

The Committee says that another proposed insurable interest definition subsection

is “the Chawla fix, and clarifies that, in Florida, a trust, and its trustee, have an

insurable interest in the life of the trust grantor.” [DE 49-21 at 13 (emphasis

added)] Importantly, the Committee uses no language about clarifying Florida law

when addressing the new cause of action proposed to be added as subsection

627.404(4). [DE 49-21 at 14] That is because the purpose of section 627.404(4)

was not to “clarify existing law” as to whether Florida recognized that cause of

action. Instead, as the sponsor of the statutory amendments explained, the purpose

of section 627.404(4) was “providing additional protections.” [DE 49-23 at 34

(emphasis added)]

In short, the Estates’ argument – that the “clarify existing law” phrasing in

the enabling legislation unequivocally demonstrates the Legislature’s intent that

section 627.404(4) apply retroactively – is wrong. Far from being the required

clear expression of retroactive intent, that language does not even apply to

subsection 627.404(4).

Reviewing the terms of section 627.404(4) actually shows that the

Legislature did not intend for it to apply retroactively. It provides that an insured

37

or his or her representative “may maintain an action” where a beneficiary

“receives” benefits from a policy in which the beneficiary lacked insurable interest

at the time the policy was made. § 627.404(4), Fla. Stat. (eff. July 1, 2008)

(emphasis added). This Court must assume that the Legislature’s use of “receives”

and its omission of the past tense “received” was intentional. See Trs. of Tufts

Coll., 275 So. 2d at 526 (looking to verb tense used in statute as evidence of

Legislature’s retroactive intent). Accordingly, the Legislature did not intend for

section 627.404(4) to retroactively provide a cause of action for the Estates to

recover COLI policy benefits Wal-Mart received over a decade ago.

(b) The Purpose of the Amendment Adding Section 627.404(4) Does Not Demonstrate an Unequivocal Intent to Apply that Provision Retroactively.

As previously explained, the Legislative history reflects that the purpose of

the amendment adding the new cause of action in section 627.404(4) was to

“provid[e] additional protections” against using life insurance policies as wagering

contracts beyond those protections already provided in Florida under the statute of

George III (i.e., declaring the policies null and void). [DE 49-23 at 34]

Retroactively applying that new cause of action to cause disgorgement of benefits

received from such policies over a decade ago would not further the amendment’s

purpose to discourage companies from taking out these policies now or continuing

to hold policies already in place. In any event, “the mere fact that ‘retroactive

38

application of a new statute would vindicate its purpose more fully . . . is not

sufficient to rebut the presumption against retroactivity.’” Chase Fed. Housing

Corp., 737 So. 2d at 500 (quoting Landgraf, 511 U.S. at 285-86).

In the end, there is no clear, unequivocal expression from which this Court

can find beyond a reasonable doubt that the Legislature intended section

627.404(4) to apply retroactively. The default rule of prospective application

therefore controls. The July 1, 2008 amendment adding section 627.404(4) does

not retroactively provide the Estates with standing to assert claims to money Wal-

Mart received over a decade ago.

3. Retroactively Applying Section 627.404(4) Would be Unconstitutional.

This Court does not even need to reach the constitutional issue in this case

because the legislative intent analysis above is dispositive. But if the Court does

get this far, it should easily conclude that retroactive application of section

627.404(4) would create a new obligation or penalty and thereby unconstitutionally

infringe on Wal-Mart’s vested rights.

“Generally, due process considerations prevent the State from retroactively

abolishing vested rights.” Chase Fed. Housing Corp., 737 So. 2d at 503.

Consequently, “[e]ven when the Legislature does expressly state that a statute is to

have retroactive application, this Court has refused to apply a statute retroactively

if the statute impairs vested rights, creates new obligations, or imposes new

39

penalties.” State Farm Mut. Auto. In. Co. v. LaForet, 658 So. 2d 55, 61 (Fla.

1995); see also Gupton v. Village Key & Saw Shop, Inc., 656 So. 2d 475, 477 (Fla.

1995) (“[A] substantive law that interferes with vested rights -- and thus creates or

imposes a new obligation or duty -- will not be applied retrospectively.”). That is

especially true where “vested rights are adversely affected or destroyed or when a

new obligation or duty is created or imposed, or an additional disability is

established, in connection with transactions or considerations previously had or

expiated.” McCord v. Smith, 43 So. 2d 704, 708-09 (Fla. 1949) (emphasis added).

As discussed above, section 627.404(4) provides for a new cause of action in

Florida, and thereby creates a new right in estates to recover COLI policy

proceeds. If applied retroactively, it would also create a new obligation for Wal-

Mart to disgorge COLI policy proceeds it has possessed in connection with

transactions completed more than a decade ago. Such retroactive application of

section 627.404(4) is plainly unconstitutional. See LaForet, 658 So. 2d at 61

(holding new subsection in insurance statute allowing additional damages for first-

party bad faith claim could not be applied retroactively, even though Legislature

stated amendment was intended to clarify existing statute, because it was a

substantive change that added new penalties for conduct predating the

amendment’s enactment); Hotelera Naco, Inc. v. Chinea, 708 So. 2d 961, 962 (Fla.

3d DCA 1998) (holding statutory amendment providing for additional damages

40

could not be retroactively applied, despite express statement that it apply to all

pending actions, because it was a substantive change in the law that affected

existing rights).

The Estates argue that section 627.404(4) constituted a mere remedial

change in the law, and did not impair any of Wal-Mart’s vested substantive rights,

as insurance policies in which the beneficiary lacks an insurable interest have

always been against Florida public policy. This argument misses the mark.

First, the Estates’ argument fails to recognize that retroactively applying the

statute to their claims would force Wal-Mart to disgorge money it has possessed

for over a decade pursuant to insurance contracts that were completed and fully

performed more than 10 years ago. Wal-Mart thus has a vested substantive right to

the money, as “[a] vested right has been defined as an ‘immediate, fixed right of

present or future enjoyment’ and also as ‘an immediate right of present enjoyment,

or a present fixed right of future enjoyment.’” City of Sanford v. McClelland, 163

So. 513, 514-15 (Fla. 1935) (quoting Pearsall v. Great N. Ry. Co., 161 U.S. 646,

673 (1896)).

If applied as the Estates suggest, section 627.404(4) is akin to an amendment

reopening a statute of limitations that has expired, which is patently improper. See

Wiley v. Roof, 641 So. 2d 66, 68-69 (Fla. 1994). It is also like a statute that adds

new conduct as an aggravating factor supporting the death penalty, which could

41

not be applied retroactively to events preceding the statutory amendment. See

Zack v. State, 753 So. 2d 9, 25 (Fla. 2000). The Estates’ approach could also be

analogized to creating long-arm jurisdiction over a claim that did not exist at the

time the conduct underlying the claim occurred, which this Court held improper.

See Gordon v. John Deere Co., 264 So. 2d 419, 420 (Fla. 1972).

Second, the Estates’ argument, at best, only tells half the story. Section

627.404(4) creates an entirely new substantive cause of action for the Estates to

sue Wal-Mart to recover the policy proceeds. Legislation that “creat[es] a new

cause of action” that at common law “has never been recognized within this state”

is one that “directly affects substantive rights and liabilities.” Arrow Air, 645 So.

2d at 424; see also Guyana Tel. & Tele. Co., 329 F.3d at 1247 (“Retroactive

application would affect substantive rights by creating rights where none existed

before.”).

In Basel, 815 So. 2d 687, the Fifth District Court of Appeal addressed

amendments to the joint and several liability statute, which specified when liability

was joint and several and provided for caps on joint and several liability depending

on percentages of parties’ fault. The court recognized that “the change in joint and

several liability affects a defendant’s existing legal obligation to pay economic

damages and a plaintiff’s right to recover such damages from a particular

defendant where joint tortfeasors are involved.” Id. at 694. “[T]he 1999

42

amendment alters the size of Basel’s enforceable judgment against certain of the

defendants.” Id. at 695. Accordingly, the court concluded that “the 1999

amendment must be applied prospectively.” Id. at 696.

No other state has retroactively applied its statutory cause of action to

provide insureds or their representatives with the right to recover proceeds

previously paid from policies in which the beneficiary lacked an insurable interest.

See, e.g., Cundiff v. Cain, 707 So. 2d 187, 189 (Miss. 1998) (holding trial court

improperly applied “a statute not in effect at the time the policy was taken out or

the benefits paid” to authorize action to recover benefits paid from a policy

obtained without an insurable interest); Smith v. Pinch, 45 N.W. 183, 184 (Mich.

1890) (holding that, under Michigan common law, an insured’s heirs could not

recover the proceeds of a policy in which the policy holder lacked an insurable

interest, and the fact that Michigan had subsequently created a statutory cause of

action did not change that result). The analysis above dictates that Florida’s new

section 627.404(4) should likewise not be applied retroactively.

43

For the foregoing reasons, this Court should answer the certified question

from the Eleventh Circuit by holding that the statutory amendment to section

627.404 adding the new cause of action in subsection (4) does not apply

retroactively but, instead, creates a new cause of action in Florida such that the

Estates lack standing to sue Wal-Mart for benefits received prior to the enactment

of that statutory amendment.

Respectfully submitted, SHOOK, HARDY & BACON LLP Counsel for Appellees Miami Center, Suite 2400 201 South Biscayne Boulevard Miami, Florida 33131 Tel: 305-358-5171 Fax: 305-358-5171 By:

CONCLUSION

/s/ Daniel B. Rogers EDWARD A. MOSS Florida Bar No. 057016 EILEEN TILGHMAN MOSS Florida Bar No. 570524 DANIEL B. ROGERS Florida Bar No. 195634

44

I HEREBY CERTIFY that a true and correct copy of the foregoing has been

served by U.S. Mail this 28th day of December, 2009 to:

CERTIFICATE OF SERVICE

Michael D. Myers Robert H. Espey, II MCCLANAHAN MEYERS ESPY, LLP 3355 West Alabama, Suite 210 Houston, Texas 77098 Tel: 713-223-2005 Fax: 713-223-3664 Counsel for Appellants

Major B. Harding John Beranek Jason B. Gonzalez Erik Matthew Figlio AUSLEY & MCMULLEN 227 South Calhoun Street P.O. Box 391 (zip 32302) Tallahassee, FL 32301 Tel: 850-224-9115 Fax: 850-222-7560 Counsel for Appellants

Craig P. Kalil Carlos F. Osorio ABALLI MILNE KALIL & ESCAGEDO, P.A. 2250 Sun Trust International Center One Southeast Third Avenue Miami, FL 33131 Tel: 305-373-6600 Fax: 305-373-7929 Counsel for Appellants

/s/ Daniel B. Rogers Daniel B. Rogers

45

Appellees certify that the size and style of type used in the Answer Brief is

Times New Roman 14-point font.

CERTIFICATE REGARDING FONT STYLE AND SIZE

Daniel B. Rogers /s/ Daniel B. Rogers

623251 v1