Skip to comments.Attorney: Wal-Mart Collected On Deaths [Life Insurance Policies on People Without Telling Them]
Posted on 07/03/2007 8:28:15 AM PDT by Excuse_My_Bellicosity
TAMPA - When Karen Armatrout died in 1997, her employer, Wal-Mart, collected thousands of dollars on a life insurance policy the retail giant had taken out without telling her, according to a lawsuit filed in U.S. District Court.
Armatrout was one of about 350,000 employees Wal-Mart secretly insured nationwide, said Texas attorney Michael D. Myers, who estimated the company collected on 75 to 100 policies involving Florida employees who died.
Myers is seeking to make the Armatrout lawsuit a class-action case on behalf of the estates of all the Florida employees who died while unwittingly insured by Wal-Mart.
"Creepy's a good word for it," Myers said. "If you ask the executives that decided to buy these policies and the insurance companies that sold them, they would say this was designed to create tax benefits for the company, which would use the benefits for benevolent purposes such as buying employee medical benefits.
"If you asked me, I would say they did it to make more money."
Wal-Mart spokesman John Simley said he could not comment because the company has not been served with the lawsuit.
The company settled two lawsuits with employees represented by Myers in Texas and Oklahoma, one for about $10 million and one for about $5 million. He said Karen Armatrout came to his attention when Wal-Mart mistakenly gave her husband's phone number to an Oklahoman who called the retailer inquiring about the settlement.
Myers said he also has filed a lawsuit against Wal-Mart in Louisiana.
Payouts Up To $80,000
Richard Armatrout, who is retired, does not want to speak publicly about his case, Myers said. Armatrout did not respond to a message left by the Tribune.
Karen Armatrout was 50 when she died of cancer, said Myers, who said she had worked several years in the pharmacy of the store on West Waters Avenue.
Myers said the policy payouts ranged from $50,000 to $80,000, depending on the person's age and gender. They were taken out on all full-time Wal-Mart employees who, in December 1993, were between ages 18 and 70 and participated in the medical benefits plan.
He said the company stopped taking out the policies in 1995 but continued to receive payouts on employees who died, even those who had left Wal-Mart.
Wal-Mart, which said it canceled its policies in early 2000 because it was losing money on the arrangement, says the program was intended to reduce its income taxes to help pay rising employee health care costs. Workers were notified and given the opportunity to opt out, the company said.
The Armatrout lawsuit says the policies were all written in Georgia, where the laws allowed such policies to be obtained.
The lawsuit says Wal-Mart used confidential information it received from employees for use in their employment, such as Social Security numbers and dates of birth, to obtain the life insurance policies.
Myers said this corporate practice is not uncommon. He estimates that up to 25 percent of Fortune 500 companies have taken out such policies on employees. The vast majority of the time, the employees didn't know, Myers said.
The practice evolved over time, Myers said. Corporations started by taking out large life insurance policies on key executives, getting tax breaks when they paid the premiums and collecting the payouts.
IRS Not Pleased, Attorney Says
The amounts of those policies grew to the point that Congress limited how much a company could insure an individual for, Myers said. Insurance companies then suggested buying lots of small policies on companies' work forces, the attorney said. He said the Internal Revenue Service has labeled the practice a sham and has successfully litigated the issue against several corporations.
Myers said his law firm has sued corporations for the practice, including Winn-Dixie and Fina Oil and Chemical. The latest case is its first in Florida.
The practice spread beyond top executives in the 1980s when the industry successfully lobbied states to allow employers to claim an "insurable interest" in the lives of rank-and-file workers.
Many employers seized on the practice because they could borrow against the policies, and the interest paid was tax-deductible. Congress closed that loophole in 1996, but COLI - corporate owned life insurance - remained a popular investment strategy.
The chief appeal was that interest accrues over time on the money in such policies. When a worker dies, the employer collects without paying taxes on the gain.
In 2001, premiums on such policies swelled to $2.8 billion from $1.5 billion the year before, according to a report by CAST Management Consultants of Los Angeles.
Information from The Associated Press was used in this report. Reporter Elaine Silvestrini can be reached at (813) 259-7837 or email@example.com.
You mean my Kelloggs Frosted Flakes are from China and not BC, MI?
The vitamins sprayed on the flakes ARE from China.
“...the Internal Revenue Service has labeled the practice a sham and has successfully litigated the issue against several corporations.”
discostu:Im not saying they werent shunting income to non-taxable streams, Im saying thats not illegal. Tax avoidance is not illegal, you are allowed to use every loophole in the code, thats why theyre there.
the IRS says otherwise... insurance must have a legitimate purpose.
“tax exempt nature of of insurance benefits”.
I’m just sayin’. If it was your business you were running, with thousands of employees or whatever, I’d bet you would think it’s a great idea. Corporations do all kinds of things you and I can’t really do, I’ll give you that. Depreciation is actually income, etc.
Then let them go after WM. At that point WM will pay, either way I don’t really give a crap. It is everyone’s duty to pay as little in taxes as they can legally get away with, I don’t have a problem with anyone that does that, if they crossed the line into illegality then the IRS can go bust them.
Funny, I had no idea that this sort of thing was standard practice for businesses. And if there’s nothing wrong with it, then what’s the current lawsuit about? And why would Wal-Mart be settling $5-$10 million lawsuits instead of fighting it?
Lots of unanswered questions here and a guy sure can’t trust the media to present it without bias.
“Despite protestations from the community and workforce, the historic hometown plant in Battle Creek was closed and 550 jobs were eliminated.” http://www.answers.com/topic/kellogg-company?cat=biz-fin .
They had recently closed part of the plant, firing about half of the employees. The 550 were what was left after that.
“...Kellogg took the extra step of scrutinizing the ingredients it does import from China, such as vitamins, honey, cinnamon, water chestnuts and freeze-dried strawberries.” http://seattletimes.nwsource.com/html/nationworld/2003769764_chinaprod01.html .
If it’s ethical to take out life insurance policies on employees without their knowledge or consent, is it also ethical to take out life insurance policies on customers without their knowledge or consent? Walmart has a bigger financial interest in any given customer than they do in an employee. How much revenue do they lose when a customer dies?
Notice I’m not asking what the law allows. The debate all along has been the ethical implications. Let’s stick to that.
I have worked for wal mart for the last 4 years.
The info has its own paragraph and is quite clear on my hire packet. And yes! There is a little box next to it.
How many people wouldn’t be bothered by somebody taking out life insurance policies on their kids? No big deal, right? (Until it starts hitting close to home.)
The Privacy Act of 1974 says that I have to be notified in writing of the use of my social security number. Wal-Mart had better have letters via registered mail on file. They already settled one lawsuit for $5 million and another for $10 million, so I’m finding it hard to believe that nothing wrong is being done here.
I think you’ve got a point there. Hm.
Like someone else mentioned too, I don’t trust a news organization to soundbyte this even remotely correctly, either.
Not according to Myers:
He said the company stopped taking out the policies in 1995 but continued to receive payouts on employees who died, even those who had left Wal-Mart.If Walmart is still doing this, why would Myers (who is suing them) claim they've stopped?
Per Myers client: “The Armatrout lawsuit says the policies were all written in Georgia, where the laws allowed such policies to be obtained. “
Different state laws plus a decade of new laws on or off the books. That they insure me doesn't bother me a bit.
I smell attorneys wanting money for nothing.
You work for them so of course you will defend them, your paycheck depends on it. (/WM basher logic)
Then the ethical thing is to question any and all companies that participate in this practice and not just single out WalMart. Of course doing that would take some ethics on the part of the writer and the lawyer and would take all the fun out of WalMart bashing..........
Yes, they should have named the other companies that conceal this practice from their employees. The author’s failure to name them doesn’t make it ethical to take out insurance policies on people without their knowledge or consent.
Most people would probably consent to the insurance policy. But it is still unethical to take out a policy on someone’s life without their consent. It is even more unethical to conceal the policy from them.
Interesting non-response. Does Walmart still take out policies on their employees, or not? According to the lawyer suing them, they don’t. I doubt he would lie to cover for them.
I agree it would be unethical to do it without consent, but according to the article and at least one WM employee on this thread the employees are/were told and did have to consent to it.
What bothers me here is that although the article states that at least 25% of Fortune 500 companies engage in this practice, the article and many people on this thread just automatically pile on WalMart.
The Walmart bashing bothers me too, but not nearly as much as the practice of taking out life insurance policies on people without so much as telling them. This thread is swamped with people defending the practice, as though it’s perfectly ethical. It’s not.
According to the lawsuit, the employees were not informed.
Even if some of these details turn out to not be what was reported, I still say the practice described is unethical. And several posts on this thread defend the practice. That’s where I have the problem. If Walmart engaged in it, it was wrong. If they didn’t engage in it, the practice described is still wrong. And I have a real problem with people who think it’s okay to do it.
And thus we have a she said/he said type situation.
As I said, such a practice without consent is unethical, however, I'm going to take the word of an employee that actually signed such a consent form over that of a lawyer who makes his living seeking publicity for his practice of filing such lawsuits.
Why is this article focusing on WalMart, the reason is right in the article if you read btween the lines. To avoid lengthy litigation and bad PR, even unwarranted PR, this shark in a suit is looking for WM to settle out of court. On a scale of unethical behavior, I think that is even worse.
I'm glad to see you say that (but I'm not at all surprised you have those values).
You and I are in agreement, but concerned about different things. I agree that Walmart was unfairly singled out, and might not even be guilty of the practice at all. It's just another opportunity to bash Walmart.
But what bothers me even more, are the FReepers who say it's ethical to take out life insurance policies on people without their knowledge. Do these people have any moral code at all?
Maybe the problem is they had KEYMAN insurance on a woman ?
“If you asked me, I would say they did it to make more money.”
Then the insurance underwriter for the insurance policies did it to lose money?
They don’t have to net the expenses with proceeds? I’m calling B.S.
Yeah, big surprise on the money-making part, like they’d purposely do something to lose money?
Expenses and proceeds are basically a wash ... this is more or less money laundering , turning taxable into non-taxable based on a fraudulent use of insurance which does not have an otherwise meaningful purpose.
we (consumers) pay all the taxes anyway. You think prices wouldn't go up if they were not sheltering income?
Exactly. Companies routinely do this to cover expenses replacing the worker. I don't see any ethical problems here...
Better check closely, I would wager that this policy originated while Hitlery was on the board. Double check to see if she was a beneficiary through stock options.
However, “Key-employees” usually know that they are insured by the company. This smacks of Hitlery redirecting the money to her “benevolent” benefit.
What difference would it make if you knew?
350,00 Key employee’s WOW! I would like to find just one when I need help inside their lousy stores...
Companies do lots of things without your knowledge. They spy on your emails, they do credit checks and criminal checks.
Welcome to the modern world...
If insuring people without their knowledge and consent is such a good thing, then states should buy insurance on plane loads of people and sell the premiums as lottery tickets. Or hadn’t you noticed that they no longer sell those insure anybody policies at vending machines in airports.
Key employees know that they are insured by the company and give their consent.
Does the insurance remain in force even after the employee is outsourced?
If so, we're literally worth more to them dead than alive.
Wal-Mart, which said it canceled its policies in early 2000 because it was losing money on the arrangemen, says the program was intended to reduce its income taxes to help pay rising employee health care costs. Workers were notified and given the opportunity to opt out, the company said. Myers said this corporate practice is not uncommon. He estimates that up to 25 percent of Fortune 500 companies have taken out such policies on employees. The vast majority of the time, the employees didn't know, Myers said.
From the article:
Workers were notified and given the opportunity to opt out, the company said.
Ding-ding-ding! We have a winner.
I believe most of the problems we have in this country stem from nosey people so busy minding others’ business that they end up letting their own go.
Ding-ding-ding! Another winner.
Somehow not that many get it.
How would this effect you at all?
All of a sudden, I would have a great deal more confidence in my job security.
The part that has me questioning Wal-Mart’s fair play here is the fact that they’ve been successfully sued over this. I’m not sure if it’s legit or they got an O.J. jury. To me, there’s a lot of unanswered questions.