Jottings By An Employer's Lawyer

Wednesday, January 07, 2004

5th Cir. Finds For Employee in "Dead Peasant" Insurance Case

Because of tax advantages for deductions of premiums, Wal-Mart and a substantial number of other companies bought life insurance policies on their employees. There has been a recent wave of legal challenges to such COLI (company-owned life insurance policies) policies, with the plaintiffs contending that the company had no insurable interest and the proceeds should go to the employee's estate rather than the company which had named itself as a beneficiary. Given that the employees were often lower paid, the litigation has sometimes been derisively referred to as 'dead peasant' litigation.

Today the 5th Circuit handed Wal-Mart a severe setback when it found that Texas law did govern, refused to certify the question of whether or not the company had an insurable interest in the employee's life to the Texas Supreme Court, and held that the company did not have such an interest. Mayo v. Hartford Life Insurance Company (5th Cir. 1/7/04) [pdf].

This whole area has been yet another cottage industry for mass litigation as evidenced by the August 16, 2002 article in the Houston Chronicle. Although sent back to the trial court for "further proceedings not inconsistent with this opinion", there will no doubt be motions for rehearing, rehearing en banc and certiorari petitions before this case actually makes it back to the trial court.

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