How would you feel if, in the event of your death, your employer got a payout? Michael Moore's new documentary showcases an extraordinary workplace practice – but is it ethical? Does it happen here? asks FIONA REDDAN

DO YOU have a life assurance policy? No? Are you sure? Maybe you have one that you don’t know about, but it’s not your family that will reap the rewards in the event of your demise – no, it’s your employer. It’s something that may come as a surprise to many but, if practices outlined in Michael Moore’s new documentary are as widespread as believed, you may in fact be more valuable to your employer dead than alive.

Moore, the enfant terrible of US cinema, has chosen Wall Street as the target of his new documentary, Capitalism: A Love Story.

While his effort may already have been widely panned in the US, one distasteful practice it has brought to light is the use of so-called “dead peasant” insurance, whereby large corporations insure the lives of their employees and when they die, the companies gets a handsome payout.

The practice has been around for some time. Last February, the Wall Street Journalreported on a case where the widow of a former employee of Texas-based Amegy bank, Daniel Johnson, was suing the company to recover $1.6 million (€1.17 million) in death benefits which the bank received after her husband died in 2008.

Mrs Johnson discovered the existence of the insurance policy when a cheque for the full sum was sent to her – instead of the bank – by accident.

But what exactly is “dead peasant” insurance? Is it legal, and is it happening here?

Firstly, it’s important to distinguish the practice from straightforward corporate life assurance policies such as “key person insurance”, or corporate-owned life insurance (Coli), as it is known in the US, which is a commonly used tool taken out to protect a firm in the event of the death of a top executive.

Given the important role such a person might play in the firm, and the possibility that the viability of the company might be damaged if such a key person is injured or dies, this type of insurance offers some financial protection for a firm. Moreover, in these cases, the individual whose life was being insured would be aware that the policy was being taken out and would have to sign proposal forms.

On the other hand, one type of Coli, the so-called “dead peasant” or “dead janitor” insurance, is frequently used to take out life insurance on employees much further down the corporate ladder. In such cases the employer owns each policy, pays the premiums, and is the beneficiary named to receive the proceeds of the policy on an employee’s death. More sinister is the fact that the employee is often unaware of the existence of the policy.

Michael Myers of Houston law firm McClanahan, Myers and Espey, who appears in Moore’s movie, began representing the families of employees whose lives were covered by Coli in 1995, and has been involved in several high-profile class action cases, including Wal-Mart.

He says the term “janitor” is used because the insurance sometimes extends to employees as far as that level. While he asserts that “generally, you can’t buy insurance on a person’s life unless they sign something agreeing to it”, and that doing so is illegal in almost every state in the US, nonetheless “laws are violated frequently”.

As the policy runs until employees die, and death often takes place some time after a person has left a company, firms routinely check social security numbers to determine when someone dies in order to submit a claim.

Myers estimates that “several million people” are covered by such policies in the US, and the amounts for which they are insured vary quite substantially from employer to employer, but he has seen policies ranging from €50,000 to several million.

Why do they do it? As Myers says, “to make money”. The lump-sum earned by the company when an employee dies is tax free, while tax is also deferred on the investment, and the cover is used by many companies as a tax shelter.

Corporates defend using the technique on the grounds that employees generate significant costs over the term of their employment, particularly in the US, where health insurance is particularly expensive. Availing of such insurance, therefore, either with or without an employee’s consent, is simply a means of defraying the cost of providing such benefits, and it is commonly used to finance an employer’s obligation under a retiree health benefit plan. Moreover, firms can also borrow against the policy to fund benefits.

According to Myers, however, this explanation is a “nice, tidy rationalisation” and is “just not true”. “I’ve never, ever seen a situation where a company deposits funds into a separate account for this purpose. It goes straight into the general treasury, where it is co-mingled with the company’s other revenues,” he says.

Given the controversy the use of such life assurance products has generated in the past, the US authorities have tried to crack down on how they are used. For example, some states now prohibit policies which cover rank and file employees, so-called “dead peasant” insurance, while others require that companies either notify employees or that employees specifically consent to the Coli purchase. However, given that the new rules aren’t retroactive, the practice continues for policies taken out before the changes.

Such insurance obviously raises some very deep ethical issues. After all, there must be something wrong with your employer having an interest in your death. “A primary concern is that, as employers are generally responsible for workplace safety, it is an ethical issue for an employer to have a financial interest in the early death of an employee,” says Myers.

Dr Eleanor O’Higgins, a lecturer in business ethics at UCD, says the practice is totally at odds with respecting another person as a fellow human being. “If a company takes out life insurance on its employee, without that person’s agreement, it shows total disrespect to that other person. It’s the ultimate treatment of a person as a resource, not as a fellow human being,” she says. “It’s like the survival of the fittest; it shows a lack of moral and social responsibility.”

But before you start thinking that your employer wants you dead, you should know that the practice appears to be largely confined to the US.

“I’ve never seen anything that suggests to me that it goes on outside the US,” says Myers, although O’Higgins adds that, given how Ireland has adopted the Anglo-American form of capitalism, “it could happen here”.

According to a spokeswoman for Bank of Ireland Life, one of the largest players in the provision of corporate life assurance products in Ireland, the bancassurer does not offer any such products in the Irish marketplace. Instead, it provides a variety of other products, including personal and corporate shareholder protection, partnership insurance, and key-person insurance – aimed at protecting businesses.

In the case of disability, illness or death of a key employee or executive, a corporate does receive a payout if it has taken out one of the aforementioned insurance policies. This is used to ensure the future viability of the business – and the person whose life is being insured is fully aware that this is the case.