Irma Johnson, a Texas widow, is suing after she was mistakingly informed that the employer of her late husband Daniel Johnson was to receive $1.6 million after his death under a practice known in the industry as a “dead peasant” insurance policy. Under this common practice, employers take out life insurance on employees and write off the payments as a business expense. They then collect a windfall when one of the “peasants” die.

The postal service triggered the lawsuit by misdirecting the check made out to Amegy Bank, her husband’s former employer.

These policies can continue for years after an employee has left an employer.

Wal-Mart was recently sued over its use of dead peasant policies of low-level employees and agreed to pay $10.4 million to the families of 380 employees. This has led to protests, including this video. The Walmart litigation was protracted and once again the company fought the lawsuit to guarantee bad press and then settled.

When a policy was written in 2001 for Daniel Johnson, he already had been diagnosed with terminal brain cancer. The project manager had undergone two brain surgeries to remove a tumor and was getting radiation treatments. He was unable to walk or talk. It appears that, while most insurance companies would laugh at individuals seeking insurance at such a medical stage, a bank can get a $1.6 million policy without difficulty.

What is particularly galling is that the bank (then Southwest Bank of Texas), criticized his job performance and demoted him. After buying a supplemental insurance policy, he was fired five months later and then died the following summer.

Here is a clip from a Walmart-Amegy corporate retreat. The key is to first insure the peasants before using them for clay pigeons.

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