‘Dead Peasant Insurance’ Was Common Not That Long Ago
Up until relatively recently, it was common practice for companies to receive cash windfalls when their employees died, among many other unethical benefits.
In 2006, the Pension Protection Act was signed into law by George W. Bush, largely putting an end to the highly controversial practice of companies taking out life-insurance policies on employees, no matter their position in the hierarchy. This law forced companies to stop what was arguably one of the most egregious abuses of capitalism in modern history, although it still exists today in a limited form.
Before the 1980s, it wasn’t crazy for companies to take out “corporate-owned life insurance” policies on key employees. If a CEO, for example, died unexpectedly, the company would likely take a serious financial hit, for which they’d receive compensation. This isn’t controversial, and is, in fact, a smart business decision. Although life-insurance is commonly thought of in the context of a family member, the legal basis for corporations buying these policies comes from the fact that the purchaser of the policy was required to have “a significant financial or emotional stake in the [insured’s] survival,” according to the Florida Bar Journal. State and federal laws allowed for this to be interpreted to extend to important company employees.
However, in the 80s and 90s many states revised their laws to only require the purchaser to have an “insurable interest” in the insured person. The vagueness of these new laws led to companies both big and small buying life-insurance on every employee they could, no matter how high or low their position in the company. Some dubbed these policies “janitor insurance.” So, if the janitor, cashier, cart pusher, etc. died, the company received a payout. To make matters worse, companies were incentivized to purchase these policies because the payouts were tax-free, the premiums were tax-deductible, and the policies could be used as collateral. Of course, this is also a smart business decision, but it led to some nasty outcomes for employees.
The term “dead peasant insurance” comes from a leaked memo from Winn-Dixie’s insurance consultant, where he said “I want a summary sheet that has… the Dead Peasants in the third column.” This is an obscure reference to Nikolai Gogol’s 1842 novel, Dead Souls, in which the lead character buys deceased workers from landowners to inflate his estate value and commit massive fraud.
During the 90’s companies bought dead peasant insurance on million of employees, reaping billions of dollars in benefits. For example, it’s been documented that Winn-Dixie purchased policies on 56,000 employees; Wal-Mart: 350,000; Nestle: 18,000; and Procter & Gamble: 15,000.
The Death of Felipe Tillman
In the early 90’s, Felipe worked for Camelot Music. As a lover of all kinds of music, he took the job to not only pay the bills but to be as close as he could to the industry. Unbeknownst to him, Camelot Music’s parent company, CM Holding, insured his life for $340,000. He wasn’t a manager, director, CEO, or anything that could be considered a key employee. In fact, in a speech to the US Senate, Felipe’s brother Spencer said “I found it note-worthy that by the companies’ own admission; the amount spent training employees for this low-level position was less than $500.”
Felipe died in 1992 from AIDS complications. At the time he no longer worked for Camelot Music, yet the company collected their windfall of cash. What did they do with it? $168,000 of it was used for executive bonuses. Spencer Tillman believed this practice was essentially bounty hunting, in which “Men and women go to work, in effect, with a bounty on their heads. They die, for whatever cause and the bounty flows into the coffers of corporations to be used as the executives see fit.”
Felipe’s family was unaware of the insurance policy and received nothing in compensation.
The Murder of William Smith
In December 1991, William was working the nightshift as a clerk in a Stop-N-Go convenience store based in Pasadena, Texas. He merely wanted to make some extra Christmas money. At the young age of 20, he was shot and killed by a robber. The convenience store’s parent company, National Convenience Stores (NCS), had insured his life for $250,000, and to protect themselves against his 18 year old widow Angela from suing, they offered her $60,000 to drop all possible claims. At the time she thought this was generous but later realized she had been duped. She then successfully sued NCS for more than $450,000.
What’s particularly screwed-up about this case is that NCS had the option to pay into the state’s worker compensation system, which would have awarded Angela with much more compensation for William’s death. Instead, they sought to profit from his death by buying dead peasant insurance. And this wasn’t the only case of this kind that NCS was sued for.
Peggy Stillwagoner’s Accident
In 1994, nurse Peggy was driving her Geo Metro to a home-care appointment, when someone crashed into her. Her son Rusty rushed to the hospital where she had been taken, only to witness her being given CPR and eventually passing away. Saddled with heavy medical bills, Rusty turned to his mother’s employer, Advantage Medical Services, Inc., who informed him that they couldn’t help, as they didn’t provide any life-insurance or other such benefits. A Texas judge later described the head of company, Ron Lummus, as denying the existence of such policies “tearfully.”
Peggy’s husband Kenneth got a call a few months later from an insurance investigator, seeking Peggy’s medical records. During the phone call Kenneth learned Peggy’s former company had insured her life for $200,000. The family became enraged, sued, and initially lost. The court ruled that Peggy could be considered valuable enough to the company because could bring in new business, despite the fact that she only worked for the company for 2 months and was replaced the day after she died. The family was later successful when a higher court awarded them nearly $400,000.
Does Dead Peasant Insurance Still Exist?
Yes, but it’s heavily regulated. Thanks to the passage of the Pension Protection Act of 2006, employers are now required to inform low-level employees in writing of such policies, their payout amounts, and get in writing the employees’ consent. However, exceptions exist if the employees are in the top 35% of earners, own at least 5% of the company, or were paid more than $95,000. Major companies have bought life-insurance for some 5 million of employees that meet these exceptions.
However, if these exceptions don’t apply to you, you may want to double check the paperwork you signed when you were hired. It might include dead peasant insurance and may have unknowingly agreed to it.
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