For years, large corporations and banks have purchased life insurance policies on the lives of their lower-level managers and hourly employees, often without the employees’ knowledge or consent. Employers make themselves the beneficiaries of the policies and receive the huge benefits when employees die.
Houston attorney Scott Clearman of The Clearman Law Firm is responsible for uncovering this perverse practice in Texas and nationwide.
This insurance is called by a variety of names, such as Business-Owned Life Insurance (“BOLI”), Bank-Owned Life Insurance, Employer-Owned Life Insurance or Corporate-Owned Life Insurance. Some in the insurance industry have called it “dead peasant” or “janitor” insurance.
Why is this a big deal?
BOLI makes big money for many banks and businesses. But this comes at the expense of their employees.
In 2003, the U.S. General Accounting Office reported that one-third of FDIC-insured banks held $56.3 billion in BOLI policies on their employees. As of 2007, banks held $120 billion in BOLI policies.
Bank of American (“BOA”) is an example. In 2008, BOA held BOLI policies with a cash surrender value of $16.2 billion, more than $77,000 in for each of its 210,000 employees. When an employee dies, the insurance company will pay BOA many times $77,000 under the policy.
BOA has announced plans to cut up to 35,000 employees over the next three years. BOA can be expected to keep the policies covering these former employees until their death.
Profits for employers are huge. As United States Representative Gene Green stated, “In some cases, corporations engaged in this activity have as much as 16 percent of their profits generated through the holding of ‘janitor’s insurance.’”
Many oppose BOLI.
People are often offended when they learn an employer has purchased life insurance covering its employees’ lives, without the employees’ knowledge, without their consent, and without giving any benefit to the employees or their families. Based on years of experience, The Clearman Law Firm knows that many people believe that employers owning insurance on their employees’ lives is offensive. As one of Mr. Clearman’s clients said upon learning that Wal-Mart made money when her husband died, “I never dreamed that they could profit from my husband's death.”
Many find it unfair that employers can buy secret insurance on their employees’ lives. Many believe that it is unjust for an employers to use their employees’ personal and private information, such as the employee’s name, age, gender and Social Security number, in order to buy BOLI policies and reap financial gain for themselves.
Powerful forces disagree. Between 2002 and 2007, Texas Congressman Gene Green introduced legislation on four separate occasions that would require an employer to notify its employees in writing if it insured their lives for its own benefit. This legislation has not succeeded.
Rep. Green is not easily deterred. On January 7, 2009, he again introduced the “Life Insurance Employee Notification Act,” H.R. 251. It is expected that the employers, insurers and brokers who reap huge profits from BOLI will again oppose his efforts.
Please contact your representatives in the United States House and Senate in Washington, D.C., and tell them that you support H.R. 251.
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Why don’t employers want their employees to know about the insurance on their lives?
In the case of BOLI insurance, employees and their families may never know about the life insurance policy at all. Attorneys representing employers recognize that banks and other business often fail to tell their employees about this insurance.
And employers have good reason not to tell their employees about life insurance that benefits the corporation rather than the family. This is because some states allow the employee, or his family, to sue the employer and its insurance broker and insurer over these policies.
There are two recognized claims that employees or their families may have against an employer who purchases BOLI insurance, although not all states recognize these claims.
• Invasion of Privacy (living employees only)
If an employee learns of this secret insurance on his or her life, some states allow the employee to sue the employer for invasion of privacy. For example, a federal court in Oklahoma recently found that when buying BOLI, an employer typically provides their insurance broker and insurer with an employee’s name, age, gender and Social Security number. That court held that the employee has an invasion of privacy claim based upon the employer’s unauthorized use of the employee’s confidential information for profit. Thus, employees whose employers have used their identity in this manner may have a claim to recover the profits on the policies made by their employer, its insurance broker and insurer.
In making its ruling, however, the Oklahoma court recognized that the United States Court of Appeals for the Fifth Circuit has opined that Texas law would not afford an employee such a cause of action. It is unknown how Texas courts would rule on this issue because such a claim has not been presented to a Texas state court. It is important to be aware that that state laws can differ.
• Recovery of death benefits from the employer (families of
deceased employees only)
If, after an employee’s death, his or her family learns about the insurance, states such as Texas and Oklahoma allow the family to sue the employer and recover the death benefits the employer has received. The family has this right, through the estate of the deceased, because these states do not allow the employer to have an insurable interest in all of their employees.
Mr. Clearman has brought and served as lead counsel in class actions on behalf of families of deceased employees against Wal-Mart and Fina to recover the money that insurers have paid these employers upon the death of their family member. These cases have settled on a class basis and the estates of these employees received cash payment
Businesses Believed to Own BOLI
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