Dead Peasant Insurance Policy

Corporate-owned life insurance (COLI), is life insurance on employees' lives that is owned by the employer, with benefits payable either to the employer or directly to the employee's families. Pejorative names for the practice include janitor's insurance and dead peasants insurance, the latter of which refers to the plot of Nikolai Gogol's novel Dead Souls.^[1] When the employer is a bank, the insurance is known as a bank owned life insurance (BOLI).^[2]

COLI was originally purchased on the lives of key employees and executives by a company to hedge against the financial cost of losing key employees to unexpected death, the risk of recruiting and training replacements of necessary or highly-trained personnel, or to fund corporate obligations to redeem stock upon the death of an owner. This use is commonly known as "key man" or "key person" insurance. Although this article refers only to practice and policy in the United States, key person insurance is used in other countries as well.

Primarily in the 1990s, some companies aggressively insured a broad base of employees, as part of general hiring requirements, and never without the employee's written consent. During the hiring process, employees sign many documents, including life, health and welfare coverage agreements or applications for insurance. Additionally, up until 1984, certain premiums for life insurance were leveraged and deducted, in essence creating a transaction with highest possible tax benefits. Even today, when a COLI plan's death benefits are paid to an employees family directly, the company paying the premiums can deduct them from corporate profits and earnings legally. In 2006, the U.S. Congress and the Internal Revenue Service (IRS) set some guidelines and limits on the installation and administration of COLI and BOLI.

Today, COLI is most common for senior executives of a firm, but its use for general employees is still sometimes practiced, primarily as a real economic transaction for Voluntary Employee Benefit Associations (VEBAs).

Continue reading at: https://en.wikipedia.org/wiki/Corporate-owned_life_insurance

Now to get to my reason for posting this article, it gets a lot more interesting, read on.

Although I had heard of “dead peasant” or "janitor" insurance policies or, as they known more euphemistically, corporate-owned life insurance (COLI) policies, Arianna Huffington’s reference to them in her review of Michael Moore’s new film, Capitalism: A Love Story, prompted me to do some research. And what I learned, among other things, is that protracted litigation about the validity of several hundred thousand policies involves three corporations whose names you won't be surprised to hear: Wal-Mart, Hartford Life Insurance Company, and AIG Life Insurance Company. But before I discuss that lawsuit, let me provide some background.

In its simplest form, a dead peasant policy is a life insurance policy that a company takes out on an employee, usually without the employee's knowledge or permission. When the employee dies, his or her employer receives the life insurance benefits. In this post, the Contingent Fee Business Litigation Blog explains how the policies got their name. An earlier post contains a link to an article in the National Law Journal that discusses issues involved in COLI litigation. Also, Mike Myers, whose firm publishes the blog, recently launched a site that answers questions about the policies.

Jere Beasley, in his eponymous blog, describes some of the litigation about the policies and points out that in 2006, Congress passed the Pension Protection Act, which requires employers to obtain the consent of their rank-and-file employees who are insured under a COLI policy.

Continue reading here: http://www.wvbusinesslitigationblog.com/2009/09/articles/insurance/...

Winn Dixie Stores bought life insurance policies on approximately 36,000 of its employees, without their knowledge or consent, and named itself as the policies’ beneficiary. The insurance brokerage firm that placed the policies prepared two memos describing the deceased employees as “Dead Peasants.” These memos were part of the court’s record in a lawsuit in which the United States Court of Appeals for the Eleventh Circuit held that Winn-Dixie’s policies were a sham transaction for federal income tax purposes. The memos were later used by reporters such as Ellen Schultz and Theo Francis of the Wall Street Journal and L.M. Sixel of the Houston Chronicle and incorporated into articles about this type of insurance.

Because a company’s purchase of insurance policies is not a public record, it is virtually impossible to know every company that invested in policies on employees’ lives. The following companies, however, are believed to have been named as the beneficiary of life insurance policies on employees: