29 May 2010
Dead Peasant Insurance is sometimes used as a shorthand reference for life insurance policies that insure a company's rank-and-file employees and name the company as the beneficiary. This means that the company receives the life insurance benefits when the covered employees die. This insurance may also be called "janitor insurance," "corporate-owned life insurance," or "COLI."
How did it get the name "Dead Peasant" 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.
How does a person know if he or she is covered by a policy?
It is often difficult for a person to learn whether he or she was covered by a "Dead Peasant" policy. These insurance programs became popular during the mid-1980s and have been an available investment opportunity for large companies since that time. Prior to 2006, however, there was no federal law that required employers to disclose the policies to insured employees. Any disclosure requirements that existed before 2006 were only through state laws, which were ignored in many instances. So, the only way a person could learn about the policies was through the employer's voluntarily disclosure.
If this wasn't bad enough, Wal-Mart has been embroiled in litigation against insurance companies because they lost money trying to profit from the deaths of their "associates:"
"Discount retailing giant Wal-Mart cannot sue its insurers just because it gambled and lost $1.3 billion on getting a tax break from thousands of insurance policies it took out on employees, according to a brief filed by the insurers in the Delaware Supreme Court.
"Press reports have dubbed the 'corporate-owned life insurance' policies at issue in this litigation 'dead peasant insurance' because most of the policies were purchased by companies that employ large numbers of workers at the lower end of the wage scale and most of the policy benefits went to the companies rather than to families of deceased employees.
"Wal-Mart is contending in an appeal that it was entitled to rely on its expert insurance brokers to warn the company of the inherent dangers of buying COLI policies. Wal-Mart has asked the high court to revive its bad-faith and breach-of-duty claims against its insurers, which the Delaware Chancery Court had dismissed."
As of July 2005, six states had outlawed that practice in cases in which the employee is not told, Wikipedia reports. The online encyclopedia also states:
"Wal-Mart is one of those companies under fire from the US Internal Revenue Service and labor organizations for the practice. The IRS considers COLI a tax dodge, and has pursued Dow Chemical, Camelot Music, Winn-Dixie and American Electric Power, among others, to recover tax underpayments.
"The practice of using COLI is still widespread ... According to one source, Hartford Life Insurance estimated that one-quarter of all Fortune 500 companies have COLI policies, which cover the lives of about 5 million employees. Wal-Mart alone has policies on 350,000 employees."