But there may be other grounds, says Myers. For example, to get a policy a company has to provide the employee’s Social Security number and other personal information to the insurer. That may entitle the person’s estate to compensation, a situation similar to that of a celebrity or athlete whose likeness is used on a billboard without his or her permission.
Even where companies did get employees’ permission for the policies, depending on the state there may be grounds for legal action, according to Myers: the consent could have been given under duress, or it could have been a “contract of adhesion,” where you had to give the consent to get or keep a job.
And in some cases, Myers says, a company might not provide enough detail to enable the employee to make an informed decision. “If the employer says, ‘hey, we’d like you to consent to this so we can defray our employee benefit obligations a little bit,’ you might be OK with that,” he says. “But if you’re the safety inspector at a chemical plant and knew you’d be worth half a million dead, you might not have given consent.”
In fact, argues Myers, lawsuits against companies over dead-peasant insurance aren’t all about damages. They’re also about about public policy. “You just don’t want anybody to have an incentive in the early demise of people they’re not really interested in. You can’t take out life insurance on a NASCAR driver in hope that he smashes into the brick wall and dies,” he says.
He continues, “It’s not a matter of thinking that employers are going to hire snipers and murder employees. But they could skimp on safety measures. Think about convenience-store clerks working the graveyard shift in a dangerous area. Maybe you skip the bullet-proof glass or the drop safe. Maybe you don’t have two employees work the shift for safety.”
In one case, the widow of a former employee at Amegy Bank in Houston alleged that the bank had purchased two life insurance policies worth a combined $4.75 million on her husband after learning he had a brain tumor. It later fired him but still collected on the policies when he died. The bank settled the case.
In another case, a widow sued Wal-Mart after a store manager allegedly forced her husband, a salaried employee not eligible for overtime, to work 16-hour shifts several days in a row, at the end of which he died of a heart attack while carrying a television to a customer’s car.
Lane points out that companies buying such insurance, and the lawsuits the practice spawns, should only be judged case by case. “Obviously if there are individual circumstances that are wrongful, that’s not a good thing,” he says. “But the employee never pays any premium. And it’s not unlawful to require giving consent to a COLI policy as a condition of employment. I don’t see why, as a general matter, it’s a public-policy problem.”
Adds Lane, “The guy at the L.A. Times calls it ghoulish because people die. But he’s actually talking about some very fortunate people who have a pension plan. It’s a planning mechanism for the pension plan sponsor to meet its funding obligation.” You can say COLI policies are ghoulish because they’re based on mortality tables, but so is all life insurance, as well as pension-plan funding, Lane notes.