Bill bans ‘dead peasant’ insurance

OLYMPIA – Employers would be barred from taking out life insurance on their rank-and-file employees and making themselves the beneficiaries under a bill that passed the Senate on Wednesday.

The bill, sponsored by Sen. Darlene Fairley, D-Lake Forest Park, passed on a 46-0 vote, with three lawmakers excused.

Fairley said there are no companies currently using the practice, but “we want to prevent them from doing this again.”

Under the bill, employers would not be able to obtain insurance on employees who are not considered key personnel, such as owners or partners – anyone whose death would cause financial loss to the company.

No policy could be taken out on rank-and-file workers unless they gave written consent. If they did not consent, employers could not retaliate against them.

“They must agree to it, you have to inform them and not come and harass them if they don’t want to be insured by you,” Fairley said before the vote.

Last year, Wal-Mart Stores Inc. settled a lawsuit over the practice.

The six families who were part of the lawsuit argued that Wal-Mart never told workers about the life insurance policies, something the company disputed.

Wal-Mart is one of many large U.S. companies in recent years that have taken out policies on the lives of employees, ranging from executives to workers on the bottom rungs of the pay ladder, with the goal of collecting benefits when the employees die.

Companies call the policies corporate-owned life insurance, or COLIs. Critics call them “dead peasant” policies.

“It was just a rather sneaky backdoor investment scheme,” Fairley said.

“The people had no way of knowing that was going on.”

A similar bill is being considered in the House.