Posted on 01/09/2010 9:02:59 AM PST by Responsibility2nd
HOUSTON — Irma Johnson never really thought of herself as a crusader.
But the quiet widow from The Woodlands has been featured in a Michael Moore movie, watched her story retold on “Good Morning America” and is trying to let others know that their employers may have purchased secret insurance policies on their lives and stand to profit handsomely when they die.
The industry darkly refers to the policies as “dead peasant” life insurance.
And but for a post office error, Johnson might not have learned that when her husband, Dan Johnson, died of brain cancer in 2008, the bank that had fired him years earlier got $4.7 million in insurance proceeds on his life.
After accidentally destroying an envelope containing a check for nearly $1.6 million made out to Amegy Bank, the post office misdirected it to Johnson's home because Dan Johnson's name also was on the check.
Her attorney, Mike Myers of McClanahan Myers Espey in Houston, said she wasn't supposed to know Amegy had the insurance policy on her husband, a project manager whose annual salary had been about $70,000.
“How could they be profiting off my husband?” Johnson asked recently during an interview with the Houston Chronicle.
Friday, Johnson settled a lawsuit she filed to force the bank to reveal it bought policies in 2001 on more than 40 bankers, including coverage on Johnson, who'd been diagnosed with terminal brain cancer about 18 months earlier and been out sick for several months.
She was asking for the net proceeds Amegy received, $3.8 million— the death benefit minus the premiums it paid — and settled for an undisclosed amount.
“We settled to the mutual satisfaction of both parties,” Amegy Bank spokeswoman Leigh Akin said.
In Amegy's formal response in the lawsuit, the bank said it purchased life insurance policies on a group of vice presidents and other officers to offset the cost of providing employee benefits.
Amegy said taking out such policies is a “common practice among banks and other industries and is recognized and permitted by the applicable banking regulatory authorities.”
The policies were voluntary, the bank noted, and Dan Johnson understood he'd be covered indefinitely, even if he left the bank.
Banks have purchased hundreds of billions of dollars of “bank owned life insurance” on the lives of their employees. The policies typically remain in effect years after an employee leaves the bank, Myers said.
Myers said banks receive significant tax advantages on the policies. They can write off the interest they pay on loans to buy the insurance; money invested in the policies grows tax deferred; and if the insured person dies, the death benefit is tax-free.
“It's a very significant investment return for a company in the 40 percent tax bracket,” said Myers, one of the lawyers who sued Wal-Mart over its dead peasant policies and ended up settling for $15.4 million for surviving family members in Texas and Oklahoma. Cases in other states still are pending.
“There are probably a lot of former Amegy employees who are walking around right now who are worth millions of dollars dead to Amegy and they don't know it,” Myers said.
U.S. Rep. Gene Green, D-Houston, charges that companies buy the policies solely for the tax advantage. He's been pushing a bill that would remove the incentive.
“If you don't have an insurable interest in someone, it's an investment,” he said, and should be subject to regular income tax.
Green also regularly files a bill that would force employers to disclose amounts and beneficiaries of such policies. But the legislation hasn't been a front-burner issue as Congress has wrestled with health care reform, a turbulent economy and other priorities.
Dennis Nixon, chairman and president of Laredo-based International Bancshares Corp., defended the use of bank-owned life insurance policies. A bank employee can generate significant benefit costs over the length of their employment, he said, so the policies can help pay for those costs.
“People who participate in those programs consent to those programs,” Nixon said. “Most people are not concerned about it because it doesn't cost them anything.” He called the practice “as common as street addresses.”
Nixon didn't know how many policies International Bancshares has purchased on its employees' lives, but added he wouldn't disclose the number even if he did know.
Dan Johnson was diagnosed with cancer in 1999 and had to learn to speak and to walk again following operations to remove his tumor. By 2001, he was getting warnings that his once-stellar job performance was suffering and was demoted to a nonsupervisory position, according to the lawsuit.
A few months before he was fired in 2001, Johnson was told that he was eligible to receive extra life insurance, Myers said. If he died or was disabled while working at the bank, his wife would receive $150,000.
What wasn't said in the consent form, according to Myers, was that the bank would receive 67 times Johnson's annual salary. That was material information Amegy should have disclosed to its terminally ill employee, Myers argues.
Myers said he also believes the consent form wasn't valid because the bank bought the policies before obtaining permission from Johnson, and that when it did, he wasn't of sound mind.
Amegy said in its filing that it believes Dan Johnson understood the consequence of his actions. It also said he agreed not to sue in the future in exchange for settling a disability complaint he filed with the Equal Employment Opportunity Commission after his termination.
Irma Johnson, a mother of two young boys, said she was perplexed when she opened the envelope with the big check inside just before Christmas 2008 and called the insurance company. She quickly learned the policy wasn't meant for her. Nor did she ever receive the $150,000 portion that she thought she had coming to her.
Her story was featured last year in “Capitalism: A Love Story,” filmmaker Michael Moore's critical examination of U.S. economic practices.
What's especially upsetting, Johnson said, is that her husband couldn't buy life insurance to protect his own family once he found out about his cancer. Yet his employer could, she said.
“To let him go,” she said, shaking her head, “and then to cash in on him like that.”
Express-News Business Writer Patrick Danner contributed to this report
The idea sounds pretty ghoulish, but THEY were the ones paying the premium, were they not?
I don’t understand how the bank could buy life insurance on him after he’d already been diagnosed with brain cancer.
More generally, it sounds like this practice only exists because of certain quirks in the tax code. Those should be revisited.
I read a murder mystery book about this and how the employers got impatient and jumped the gun on collecting. It was fiction, but the concept was frightening. I was soothed by the fact that it was a ridiculous concept of employers purchasing life insurance on employees for the rest of their life except key employees such as CEOs and such... needless to say, the plot takes a whole new and very real twist right now.
Only in the twisted fantasies of a Marxist.
Doesn’t seem quite right — but does seem very dangerous to the individual involved — for a corporation to place a bet that one of their employees will die.
Especially if they then fire the employee, negating any worth the individual would have to them other than the death benefit.
No wonder insurance costs are high.
Perhaps the employee should know the policy exists.
It seems kind of weird, but I don't see how she could complain about it. She nor her husband never paid the premiums, I can't think of an argument why she deserves any of the reimbursement - other than that she's a suehappy money grabber.
It is a strange story, but she didn’t pay the premiums, so I don’t see how she could collect. Sad story all round.
Nope. HE was paying for it, because it was compensation that he would have otherwise received (or been able to receive) if not used for this purpose. It's just like the liberal argument on employer-paid health care premiums. The liberals say these don't hurt the worker, because they aren't coming out of the paycheck of the worker. But they are. They are part of the total compensation package (and in some cases can even be taxed). They figure into the total cost of the employee, and if not mandated could be actually paid to the employee as salary.
The reality is that anything the company pays for you could easily be paid to you... if not for regulations or policies that make it necessary or beneficial for the employer to compensate you in that fashion.
It strikes me that this is more evidence that the banks and the insurance companies were in bed together before the financial crisis broke.
Several very sticky points. After he found out he had cancer, the man was unable to buy a life insurance policy. Yet the bank was able to take out a large policy on his life. What kind of business sense is that? No sane insurance company working to make money would allow that to happen. They must have had some sort of sweetheart deal or investment deal with the bank that made it worth their while.
Another sticky point. They fired this buy for disability. Namely, he had cancer. Then, years later, they collected his life insurance. If the purpose of the policy is to protect them against sudden loss of a valuable executive, how does that work out? He’d been fired years earlier because they considered him to be worthless to the company.
At the heart of the meltdown was relationships between insurance companies and banks—notably AIG, Goldman Sachs, and J. P. Morgan. Is this dead peasant business connected to those sorts of deals? It strikes me as very odd that they would pay out five million on a policy written AFTER the guy was known to have cancer.
Comments.....
http://www.chron.com/disp/discuss.mpl/business/6802388.html
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Seems like most people are taking knee-jerk reactions; “Banks and insurance companies are EVIL!!!!”
One commenter had a good question about HIPAA violations.
I see nothing wrong here. If banks and insurance companies can conspire this way, then should we change the laws and socialize the banking and insurance industries like Obama is socializing the medical industry?
“More generally, it sounds like this practice only exists because of certain quirks in the tax code. Those should be revisited.”
What???
To the best of my knowledge, it is not against the law to have insurance on another person - and why in the world would you want the tax code looked at over this??
Are you liberal?
sounds like they settled (paid her off) to avoid bad PR.
“Dead Peasant” sounds so much more sinister than “Key Man” insurance.
a previos employer insured me for $500,000 to cover the busines impact if I died. That’s $500K for them to cover lost profit and replacement cost.
So, he was valuable enough to insure, but worthless to keep employed when he had cancer? That is sickening.
And this guy - earning $70K was insured for $4.7 million.
You were only insured for half a million? You must be a loser.
(JUST KIDDING!!!)
There are multiple harms - the first is that the company was able to use his life as an investment at all without his consent. The second is that he and his wife were denied insurance coverage for him after he was diagnosed, but the company wasn't. And the third is that he was fired upon diagnosis and denied further pay, whereas that same diagnosis meant the company could invest in a sure payoff based solely upon his certain death.
In addition, there is the ominous fact that the company stood to, and did, make millions off of his death, which can be seen as an abiding danger to his life - especially since he did in fact wind up dead. The cancer is presumed to have been outside of the ability of the company to produce... but what if it wasn't? Would the company tell if they could pull something like this off? What incentive is there for the company to reduce, or even divulge, cancer-causing work environment issues they might know about, if they stand to make millions from everyone who dies?
The harm, therefore, is massive both specifically and generally. In fact, I would say that anyone eligable for dead peasant status has a suit against their company just because of the unknown, but proveably potential threat to their lives, that they are working under.
It's not personal. It's business.
Actually, it is only ghoulish if the bank bought the policy because they knew the man was dying and that they could profit. If they bought the policy along with a group of policies and he was the only one who was dying, its not so ghoulish. What is ghoulish is that the bank “let him go”, knowing that they would be re-reimbursed when he died.
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