413. "'Peasant insurance' a Corporate Shame." The Atlanta Journal and Constitution (January 30, 2003) p. 13A

At least once a week I buy my lunch from Au Bon Pain. It never occurred to me that its employees are subject to what I consider a screaming unethical conduct.

In the year that just ended, the company that owns these food outlets, Panera, made $3 million by pocketing the death benefits after several of its employees died --- without giving their families a red penny.

And Panera is hardly the only American corporation that fattens its bottom line in this ghoulish manner. Take CM Holdings Inc. When one of its employees, Felipe M. Tillman, died, the company received life insurance benefits amounting to $339,302; his family received a big, fat nothing.

The Wall Street Journal, which reported Tillman's fate, found that numerous corporations purchase corporate-owned life insurance (COLI) policies on millions of employees, typically without their knowledge.

Among the corporations that have bought such insurance, nicknamed "janitors' " or "dead peasants' " insurance, are AT&T, Dow Chemical, Nestle USA, Procter & Gamble, Walt Disney and Wal-Mart.

Corporations gain not merely from the tax-free life insurance benefits they receive when current or former employees die but also can borrow money against these policies. Many companies even deducted the interest on these loans from their taxes.

In 1996 Congress moved to limit such deductions, and the IRS has sued some 80 corporations, including Winn-Dixie and American Electric Power, to collect back taxes on such loans.

Still, companies benefit. They are not taxed on gains within a life insurance policy; in effect, these policies amount to tax-free investments for businesses.

Critics have compared these life insurance policies to those purchased by some American slaveholders on the lives of their slaves, who also were unaware of such policies held by their owners.

The business of selling COLI policies is thriving, with premiums growing from $1.5 billion in 2000 to $2.8 billion in 2001. Insurance executives maintain that such policies are "perfectly legal."

Facing congressional curbs, the insurance lobby has placed ads in Capitol Hill newspapers extolling the importance of COLI, calling it "business life insurance" on the grounds that such coverage is essential for the well-being of the corporations involved.

Herb Perone of the American Council of Life Insurers told the San Francisco Chronicle: "Nobody gets upset when a company insures its plant or its fleet of cars or land or any other business asset. To think that your labor force is not a business asset is extremely shortsighted."

Mark Elam, the acting president of the American Council of Life Insurers, wrote to The Wall Street Journal that corporations use the benefits they gain from the employee's death to help finance health care for retirees. He cited no evidence to this effect.

In fact, in the case of Felipe Tillman, as well as many others, The Wall Street Journal reports that death benefits were used to fatten executive compensation.

In response, U.S. Rep. Gene Green (D-Texas) introduced a bill that merely called for notifying employees when companies purchase COLI policies on them, and not for changing this obnoxious practice. But he was not even able to get a hearing on his bill in the House.

Whether you call it dead peasants' insurance or use the less stigmatizing term COLI, the ghoulish practice would make a fine case study for the budding ethics programs that are being rushed into the curriculum of business schools since Enron.

Even Scrooge would have second thoughts about fattening corporate coffers and executives' benefits while widows and orphans are left to fend without a dime, even for funeral costs.

Amitai Etzioni is a professor at George Washington University and author of "The Moral Dimension: Toward a New Economics."


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