Lawsuits Abound Over Corporate-Owned Life Insurance Policies

Corporate-owned life insurance policies are policies that companies take out on employees, in secret in the past, to earn tax breaks and future revenues.  While these policies were common at one time, laws now commonly limit them to high ranking employees and require that the employee consent.  These current limits, however, do not have a retroactive effect on policies in place before the laws

Currently, a widow is suing the former employer of her deceased husband for collecting over $1.5 million on his death from a policy taken out on her husband’s life months before he was fired.  The widow alleges that the employer took advantage of his condition, which was impaired due to brain cancer, when he signed a consent form for what he thought was a policy in his favor, which terminated when he was fired. 

As this case illustrates, the result of these policies is litigation, litigation, litigation:

Corporate-owned life insurance . . . has landed a number
of employers in court in recent years. Employees have sued employers for
buying insurance on workers’ lives; most cases have settled and others are
pending. Meanwhile, employers have sued insurance companies for not
warning them of the risks of buying the coverage. And recently, a federal
judge ruled that employees have legal grounds to sue an insurance company
for selling insurance on their lives.

Ellen E. Schultz, Million-Dollar Check, Widow Got None, Wall St. J., Feb. 24, 2009; see also Ashby Jones, ‘Dead Peasant’ Policies: The Next Big Thing In Insurance Litigation, Wall St. J. Law Blog, Feb. 24, 2009.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this issue to my attention.