Company's life policies draw suits
Survivors of dead Dow Chemical Co. workers have discovered their loved ones may have been covered by secret life insurance policies, and now they want the
benefits.
The Midland, Mich., company is the latest in a growing list of firms tangled up in lawsuits over so-called "dead peasant" life insurance policies.
"Dead peasant" insurance is whole-life insurance purchased on the rank-and-file employees, with the company receiving the benefit when an employee dies.
In Texas, secretly taking out such a policy is illegal. Policies on workers have been permitted since 2000, but only if employees give their consent in writing.
Dolores Baker, who sued Dow in U.S. District Court in Houston, claims that if the company had a such a policy on her husband -- a security supervisor who retired
from Dow's plant in Freeport in 1993 and died in 1999 -- she should receive the benefit, not the company.
Her suit, recently granted class-action status, said Dow Chemical took out policies on 21,000 employees.
Michael Myers, with the law firm of McClanahan & Clearman in Houston, said if the company paid $10,000 a year in premiums, the benefits to covered employees
could be worth as much as $300,000 each.
Leslie Hatfield, a Dow spokeswoman, said the policies were purchased only on those employees who consented.
The insurance policies came to light when Dow Chemical sued the Internal Revenue Service two years ago to recover $22.2 million in federal income taxes and
interest it believed it overpaid.
The IRS contended Dow had improperly deducted a $30.3 million loan, used to pay the premiums, and $2.7 million in administrative expenses between 1989 and
1991.
Several other companies -- including Camelot Music, Winn-Dixie and American Electric Power -- also sued the IRS over the issue of deductions. In those cases, the
IRS successfully proved the expenses were made solely to avoid federal income tax liability.
Dow bought the polices on 4,051 management level employees in 1988 and another 17,061 policies on its full-time employees in 1991.
Dow was unable to immediately identify where the covered employees worked.
According to Dow's lawsuit against the IRS, the company bought the policies in Michigan, relying on a 1991 Michigan law that gives employers an "insurable interest"
in all their employees.
Texas laws limit those with an insurable interest to close relatives, a creditor or a company wanting to insure a top executive.
U.S. District Judge Nancy Atlas in Houston ruled earlier this year that Wal-Mart improperly used Georgia law when it bought secret life insurance policies on
350,000 employees.
The Wal-Mart employees lived in Texas, worked in Texas and died in Texas, wrote Atlas, and at the time the policies were written, Texas employers did not have an
"insurable interest" in the lives of their employees.
When the beneficiary doesn't have a legitimate interest, the insurance proceeds revert back to the employee's estate under Texas law.
Atlas' decision on Wal-Mart, as well in previous court cases in Texas, opened the door for survivors to recover any insurance proceeds Dow Chemical received in
Texas for deceased employees, Myers said.
Charlie Singletary, business manager for the International Union of Operating Engineers Local 564 in Freeport, said he was shocked to hear Dow bought life
insurance on its employees. The union represents 1,000 employees at Dow Chemical in Freeport.
After an article appeared in the Houston Chronicle earlier this year about secret policies, Singletary shot off a letter to Dow officials.
He said Dow officials told him the company had no such policies on union-represented workers in Freeport. But now, Singletary said, he's beginning to wonder if
that's the case.
"What did you say that lawyer's name is?" he asked.
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