Several issues back, I wrote on a subject that dealt with what is referred to as “dead peasant insurance.” A lawsuit was filed recently in a Florida federal court that deals with Wal-Mart’s use of the “dead peasant insurance” concept. That type of insurance has stirred up a great deal of controversy because of how it works. Let’s take a look at the Florida case. When Karen Armatrout died in 1997, her employer, Wal-Mart, collected thousands of dollars on a life insurance policy the retail giant had taken out without ever telling her. She was one of about 350,000 employees Wal-Mart secretly insured nationwide. It has been estimated that the company collected on 75 to 100 policies involving Florida employees who died. The Armatrout lawsuit, filed in U.S. District Court, seeks class action status on behalf of the estates of all the Florida employees who died while being insured by Wal-Mart without their knowledge. But, this is a practice that I believe is nationwide in scope involving corporations other than Wal-Mart.
According to a report in The Tampa Tribune, Wal-Mart settled two similar lawsuits in Texas and Oklahoma – one for about $10 million and the other for about $5 million. Ms. Armatrout, who was 50 years old when she died of cancer, had worked several years in the pharmacy of a Wal-Mart store. The policy payouts in the “dead peasant insurance” ranged from $50,000 to $80,000, depending on the person’s age and gender. They were taken out on all full-time Wal-Mart employees who in December 1993 were between ages 18 and 70 and participated in the medical benefits plan. The company apparently stopped taking out the policies in 1995, but continued to receive payouts on employees who died, even those who had left the employment of Wal-Mart.
Wal-Mart claims that it canceled its policies in early 2000 because it was losing money on the arrangement. The company says the program was intended to reduce its income taxes to help pay rising employee health care costs. It claims that workers were notified and given the opportunity to opt out, which appears to be highly questionable. It’s alleged in the Armatrout lawsuit that the policies were all written in Georgia, where the laws allowed such policies to be obtained by companies such as Wal-mart. The lawsuit alleges that Wal-Mart used confidential information it received from employees for use in their employment, such as Social Security numbers and dates of birth, to obtain the life insurance policies.
Unfortunately, this corporate practice is not uncommon. It is estimated that up to 25% of Fortune 500 companies have taken out such policies on employees. The vast majority of the time, the employees had no idea their lives were being insured. In 2001, premiums on such policies grew to $2.8 billion, having been $1.5 billion the year before. This information comes from a report by CAST Management Consultants of Los Angeles. The Florida lawsuit is being handled by Michael D. Myers, who is with the firm of McClanahan & Clearman, L.L.P., which is located in Houston, Texas.
Source: The Tampa Tribune