We have written in previous issues about what has come to be known as “dead peasant” insurance policies. These are secret life insurance policies taken out on employees who as a rule don’t know about the policies. Since emerging several years ago, dead-peasant policies have caused a good number of employers to be sued, accused of profiting off the deaths of rank-and-file employees. More recently, the insurance industry and banks have been brought into the litigation. Both are being accused of illegally benefiting off these policies. In the industry, these policies are known as corporate-owned life insurance policies (COLI).
In Oklahoma, a federal judge recently ruled that employees can sue an insurance company for selling and maintaining secret life insurance policies on their lives. The plaintiffs in that case claim that the insurance company unlawfully misused their names, Social Security numbers and other personal information to market and sell their product.
Ironically, some unhappy employers are suing their insurance companies. For example, Wal-Mart Stores Inc. is suing AIG Life Insurance Co. and Hartford Life Insurance Co. over COLI policies that have gone bad. Claiming losses of more than $150 million, Wal-Mart claims the defendants failed to warn the company of the inherent dangers of buying COLI policies. It will be most interesting to see how this litigation comes out.
Banks may also become defendants in dead-peasant lawsuits. It’s my belief that lawsuits against major players in the banking industry, accused of taking out life insurance policies on low-level employees, such as tellers without their consent, are going to be filed. It’s been reported that roughly half of all U.S. banks have admitted to owning bank-owned life insurance (BOLI) policies on employees, at an estimated value of $120 billion. It appears there are a good number of policies on employees that are still being written and purchased by the national banks. Some of the policies are for very large amounts. Bank of America Corp. officials have issued a statement acknowledging that the company uses BOLI policies, but say they are legal. The bank claims this is a legitimate business practice used by many companies.
In 2006, Congress adopted new COLI best practices when it passed the Pension Protection Act, which requires that employers get the written consent of rank-and-file employees insured under a COLI policy. They must also notify the employees of the maximum amount of the policy. This raises the issue of informed consent and how much the employees have to be told about the policies and whether they actually realize the effect of what all they are signing. The legislation followed a series of lawsuits that triggered widespread publicity and controversy. One Wal-Mart class action in Oklahoma resulted in a $10.3 million settlement in 2004; and another Oklahoma case settled for $5 million in 2006. A class action against Fina Oil in Teas settled for $4 million in 2005. I predict there will be many more significant verdicts in the dead peasant lawsuits that are being filed.
Source: The National Law Journal
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