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.
For the full story, click here.
“Companies take out life insurance on rank and file employees all the time. The purpose is to eventually recoup the lifetime cost of medical benefits. It’s entirely legit.
Make it illegal to do so, and you will have fewer benefits available to workers.”
Provide single payer health care and then companies won’t have to give medical benefits and be more competitive in the world market. An obvious solution that market Corporatists just can’t seem to get into their heads.
Insurance companies are not in the business of paying claims, but collecting premiums. Unless you’re a corporation then they pay right out without a fight because a corporation has enough money to fight back. They don’t give a damn about the individual insured nor do the corporations they sell these policies to. If your intent to assert otherwise here, many of us here have seen clients (as well as family and/or friends) screwed over by insurance companies so protecting the “rights” of corporations to be greedy scumbag pigs, usually their own corporation if not another? This is not going to be a real popular argument. Make this practice illegal and force insurance companies to do the jobs they are supposed to do and you’ll have benefits for EVERYONE. Why? Because that money won’t be going out to bullshit claims like this one and instead can be used to pay for someone’s chemo, someone who is lying in a bed dying right now because some insurance company “death panel” (term appropriately used) diptstick denied their coverage despite paying premiums all their working life.
Because they are “important” enough to save.
Yeah, insurance company’s and big business sure look out for the little guy don’t they?
Or pay a life insurance policy to the family – they are the ultimate losers, not the corporations. And please, don’t come back with “key personnel” or “the corporation needs the money to pay for stuff for their employees”. That’s a bullshit argument. Especially that last one given how it has been revealed the kinds of obscene bonuses and pay deals the criminals in the upper management of insurance make. Anyone, ANYONE is replaceable. And it has been my experience that those at the top are no exception. Period, end of story.
This kind of behavior is why the system is broken in the first place. Insurance is a great idea. But it has historically been abused in free market systems. Therefore, it should be nationalized. That would 1) remove many if not all the current bad actors by leaving them unemployed (tough) and 2) make rates for all coverage become as low as possible because you have the largest possible pool to spread the risk across: the entire population of the nation (math in action). The only way to make insurance cheaper by increasing the size of the risk pool would be a single global carrier but let’s get real, that’s not happening anytime soon if at all.
But shutting the doors at a bunch of insurance companies sure sounds like a good idea.
So don’t come in here spouting platitudes about how this kind of transaction is best for the little man. It makes you sound like either a corporate or an insurance industry apologist.
Unless you just like walking into a room, saying something that is complete bullshit, and then being ridiculed.
Put them all out of business and make one single payer insurance system for life and health insurance. Let the AIG scumbags and their cohorts stick to issues that don’t directly kill people.
Schilling for the health insurance industry and their corporate scumbag clients? In a blog full of lawyers?
Not the smartest idea I’ve seen today.
This isn’t key person insurance. Companies take out life insurance on rank and file employees all the time. The purpose is to eventually recoup the lifetime cost of medical benefits. It’s entirely legit.
Make it illegal to do so, and you will have fewer benefits available to workers.
Indeed, it’s already starting.
I know I risk sounding stupid here, but can someone explain to me how the family has standing to sue, even if the particular “dead peasant” policy is not legitimate? Any ill-gotten gains is not taken FROM the family, who had the power to get insurance on the departed themselves.
I’m not being rhetorical or trying to be clever. I really don’t get it.
Interesting idea, shari.
I am a litigation paralegal. I think I may have found the critical error in dead peasant.
All issues of death benefits and insurance policies is litigated in Probate Court. The Probate Courts require full disclosure of all life insurance policies. The heirs to the estate are entitled to know who is holding all life insurance policies on the deceased. Without this information, the matter cannot be litigated. It’s a fraud on the court to withhold information about life insurance.
I also believe that given the fact that Congress legislated a tax benefit, this can be easily overturned in the Federal courts on a showing of void for vagueness – that the law is unconstitutional – it becomes burdensome, vague, and unintelligible.
Of course, you’re the lawyer, I’m the paralegal. I’m sure that if someone brought an action in Federal Court to overturn the legislation as it presents a clear conflict with the intent of Probate, that the suit would be successful.
if you knock them off do you still collect?
This sounds wrong to me. Morally wrong.
Maybe you should go see Michael Moore’s new movie Capitalism. One story he tells is about a 30ish woman who worked in the bakery department, not even a department manager. They took out 2 policies on her. She died of complications from asthma leaving two young children and a husband. Walmart received over $1 million between the policies and gave her family $0. How was she an employee they should have considered taking a life insurance policy on to protect the interest of the company?
The government won’t do anything about it because they are probably doing the same with all of their ” employees” too, not to mention i would imagine they are probably insuring soldiers too so it would be too profitable for them to actually stop the practice, it’s despicable actually but the governments of this world aren’t here for the people anymore, corporations/governments = fascism
Why isn’t the government doing something to stop this practice? If they feel that they must have these insurance policies then they must divide equally with the family any returns. Business has gotten out of control and their greed is what is destroying this country.
I do enjoy the synchronicity this story presents. Post Office machinery mangles the insurance policy payout. Check gets rerouted to the widow. Exposing the behavior of the bank staff and the insurance underwriter’s actions.
“The widow’s law suit is based on Texas law, material omissions can constitute a form of fraud, the suit maintains, so it seeks to have the consent agreement invalidated. If the consent is invalidated, the benefits would flow to Johnson’s estate.” Additional information here:
http://blogs.wsj.com/law/2009/02/24/dead-peasant-policies-the-next-big-thing-in-insurance-litigation/
What I didn’t understand from JT’s post or the link provided to the full story was the basis for the law suit against the bank. I’d like to see Mrs. Johnson prevail.
The last company I went to work for wanted to buy an insurance policy on me (and everyone in the ‘new-hires’) class) with a guaranteed payout of some negligible sum to our estate and a “small” recovery fee to the employer. Right. We had to give written permission and I just said ‘no’ as a reflex.
I didn’t know what that kind of a policy was called at that time but I know I’m a peasant, and peasant’s should never allow themselves to be put in a position where they’re worth more dead than alive.
RCampbell & Bob,
While I am aware of the need at times for businesses to insure key employees, maintaining this insurance on lower level workers, or as in this case terminated workers is ghoulish. If you come from the position that money is money then I guess it makes sense. However, when I was working I would have quit any job that insured me for their benefit, without an equal payout for my family. I was for many years a “key” employee.
The facts of this case particularly state that the bank had demoted and fired this worker. This was not a valued or vital employee, but rather the ghoulish (probably general) procedure of this bank. Morally, to me it is unjustifiable. Yet in this Corporatist age we live in, it seems that amoral behavior wins the day and the good of the corporation is always paramount.
Shameless behavior from shameless people. The financial crisis is terrible but maybe the law of unintended consequences will bring these banking practices into the open. In addition, I stand in complete awe of the cesspool of unfair dealing, trading in death, and downright “un-Christian” behavior in the land of the neo-cons, the Cover-Your-Own Star State. BTW the “fix” seemed “in” with that underwriting decision as Paul from Omaha implies. Probably a ‘lost leader ‘ to get the Bank’s business. You see everybody wins except those who should win. Ain’t capitalism grand?
rcampbell,
Thanks for saving me the typing.
Well said.
Insurable interest?
I used to drop friends off at the airport and then ask them where I could find the machine to buy trip life insurance on them.
Crude.
I’m in insurance,and I’d like to meet the underwriter stupid enough to sign off on a million-plus policy for a cancer patient.
And the policy didn’t have a contestibility period? I have difficulty imagining an insurance company paying a claim on a policy in force less than a year on a cancer death without questioning the underwriting.
In addition, once the employment was terminated, shouldn’t the policy have been terminated by the insurance company? The bank no longer had a financial interest in the insured.
This sounds fishy.
Though I agree there are some terribly unfortunate and seemingly cold-hearted aspects to this story, the practice of an employer insuring the lives of employees with the company as the beneficiary is neither new nor, in my opinion, unsavory in and of itself. At the untimely death of a highly valued employee or, say, a minority partner, the company loses the services of that employee and will have to spend time and money to find, train and fully integrate a replacement. There is also the potential of lost revenue and/or profit depending on the employee’s role.