How "Dead Peasant" Insurance Got Its Name

   Corporate owned life insurance (policies that pay death benefits to an employer when its employees die) has been a frequent subject of debate for several years. These debates include the morality of employers insuring their employees’ lives without consent, to legality under state law, to the policies’ use as a federal income tax sham. And in virtually every debate, the phrases “dead peasant” or “janitor” insurance are used to describe the coverage.

    Defenders of corporate owned life insurance claim that “dead peasant insurance” is an inflammatory description created by the media. A law firm that represents large corporations that bought the insurance argues, for example, that COLI plans have been “christened by the media” as dead peasant policies. Others have argued that the media has “sensationalized” stories with phrases like “janitor” and “dead peasant” insurance.

    These criticisms fairly raise the question “How, in fact, did dead peasant insurance get its name?”

    In 1993, Winn Dixie Stores bought COLI policies on approximately 36,000 of its employees, without their knowledge or consent. The Coventry Group, a large insurance brokerage firm well-versed in COLI transactions, helped place the policies, which were underwritten by AIG Life Insurance Company. On October 30, 1996, Lawrence J. Kramer, the Coventry Group’s vice president and general counsel, distributed a memo stating “Here is a very rough beginning of the booklet we are preparing for Winn-Dixie.  A section on Dead Peasants remains to be written, and Peggy is preparing sample journal entries for various scenarios.” The “dead peasants” referenced in the memo were deceased Winn-Dixie employees whose deaths resulted in policy benefits to the company. A similar memo states “I want a summary sheet that has Surrender in one column, the Exit Strategy 1A in the second column and the Dead Peasants in the third column.”

    These memos were part of the court’s record in a lawsuit in which the United States Court of Appeals for the Eleventh Circuit held that Winn-Dixie’s COLI policies were a sham transaction for federal income tax purposes. The memos were later used by reporters such as Ellen Schultz and Theo Francis of the Wall Street Journal and L.M. Sixel of the Houston Chronicle and incorporated into articles about corporate owned life insurance. Thus, the phrase “dead peasant insurance” is not a creation of the media. It is a term used within the insurance industry to describe employees whose lives are insured by policies of corporate owned life insurance for an employer’s benefit.

     For more information on this topic, contact any of the firm's parters at

Patent Infringement & Future Damages - Let the Juries Decide!

       In “Judge Weighs Jury Consideration of Future Damages in Patent Suits,” (Texas Lawyer, August 11, 2008, p. 5), Lynne Marek writes that U.S. District Judge Ron Clark, who sits in the Eastern District of Texas, has stated that juries may take up the question of “future damages” for ongoing violations of a patent. That is a really good idea!

       A plaintiff in a patent case always wants to recover damages for past infringement. As to the future, however, he might want something different. If he wants to prevent future infringement, he might want an injunction. That has historically been his only remedy. The problem is that if the defendant fails to do the right thing, the plaintiff must go back to court, perhaps many times, to continually enforce his rights. That is a waste of everyone’s time and money. Moreover, recent court decisions have made it more difficult to get an injunction than before.  

       Allowing the jury to find future damages should not prove too difficult or speculative. We have done it for years in personal injury and other cases. There is no conceptual reason why we cannot do it in patent cases as well.

       Judge Clark’s order leaves flexibility as to how to best award future damages from case to case. According to, Judge Clark noted: “In formulating their jury instructions, the parties should consider whether the jury should be instructed regarding a future reasonable royalty rate, lost profits, price per unit, or some other appropriate measure of future damages. Of course, the instructions and question(s) will depend on the evidence submitted, and the theories of recovery pending at that time." 

    If injunctions against future infringement are to be difficult to get, without future damages there will be no relief available to the aggrieved inventor for continued infringement in the future. He will have to return to court to sue again, at a later date, for what happened in the past. What a waste of judicial resources! Judge Clark’s idea will give us a practical way to resolve the infringement once and for all in one trial. What can be wrong with that?

Benefits Of The Contingent-Fee Agreement

       Under a typical contingent-fee agreement, the "contingency" is usually the recovery of money, or something of value, for the client. If that contingency does not occur, the client owes the attorney nothing for his effort. The obvious benefit to the client is that he or she does not have to incur an out-of-pocket expense for attorneys’ fees. This may be particularly valuable to a client who does not have the ability or desire to pay an attorney by the hour to advance the client's case.

       The contingent-fee agreement also benefits the client by effectively spreading the risk of litigation. An hourly-rate payment agreement requires the client to assume all of the risk because the attorneys’ fees are a sunk cost. But under a contingent-fee arrangement, the attorney shares that risk and is only paid a fee if he wins the case or obtains a settlement. The Texas Supreme Court recently described the benefits of contingent-fee agreements when it wrote:

This risk-sharing feature creates an incentive for lawyers to work diligently and obtain the best results possible. A closely related benefit is the contingent fee’s tendency to reduce frivolous litigation by discouraging attorneys from presenting claims that have negative value or otherwise lack merit.

     Finally, the contingent-fee agreement has an implicit benefit for the client.  The arrangement ensures that the attorney believes in the client's case and will do the work necessary to obtain a positive result. Faith in the case and the desire to fight for the client may not always be present when attorneys are guaranteed payment—without regard to the success or outcome of the case.  A client who retains an attorney through a contingent-fee arrangement therefore receives the attorney's implicit belief that the case has merit. 

Lawsuit Defense Through A Contingent Fee

    Most people have some idea about how a contingent fee works in a plaintiff’s case. Say you are injured in a car wreck. You find a personal injury lawyer. He advances the case expenses and gets paid a percentage of the money received in a settlement. "No fee if no recovery." This same idea works in complex business lawsuits. If a small business or entrepreneur lacks the money to pay lawyers by the hour, there are firms, like ours, that will take even expensive, complicated, business cases on a contingent fee. This helps level the playing field and gives the little guy access to justice.

       But what happens when the little guy gets sued and has to defend himself? What happens when Goliath sues David?

       Well, there are some options.

  • David might assign part of his company, invention or assets to an institutional investor who will pay for the defense.
  • David might assign part of his company, invention or assets to a law firm that will undertake the defense.
  • David might have a counterclaim that a contingent fee lawyer would assert, and include defense of Goliath’s claim as part of the representation.
  • David might find a lawyer willing to defer payment of an hourly fee until David is able to pay.
  • David might use a "reverse contingent fee."

    Blawgletter Barry Barnett gives some excellent examples in "How to Negotiate a Reverse Contingent Fee."

    Sometimes David can defend against an attack by Goliath by using a combination of these techniques. In one case, I was asked by a small medical device manufacturer to defend it in a "bet the company" patent infringement and unfair competition case. The plaintiff, Goliath, was a huge company, well-funded, and was represented by two large and very able law firms. Goliath wanted to stomp out David like a bug! We looked to see if David had an antitrust counterclaim, but that didn’t work out. David was able to pay some of the trial expenses (such as jury consultants and trial graphics) but we worked "by the hour" hoping that if David could survive, we would somehow get paid.

       The case was tried to a verdict. David won. Goliath’s stock lost half its market cap ($1.5 billion) overnight! We were patient about getting paid. David merged into a large European medical device company, and we were finally paid for our work. It was a win-win, and we were very proud to have helped save the day!

       As Barry explains,

By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment. If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million.


Patent Litigation On A Contingent Fee

            In  “Patent Payday,” (, 2/12/08) Nathan Vardi discusses institutional investors such as Rembrandt IP Management, Altitude Capital Partners and NW Patent Funding that have raised capital to acquire and enforce patent rights. One of the investors, Michael Cannata, sees such funds as leveling the playing field in David v. Goliath battles. He is right.

            According to the 2007 American Intellectual Property Law Association’s “Report of the Economic Survey,” the mean (average) cost of a small patent infringement case in Texas is approximately $3,000,000 through trial! Most individual inventors and entrepreneurs do not have the money to pay hourly lawyers such fees to enforce their rights. Some law firms, including mine, have the ability to take a patent case on a contingent fee, where we advance the case expenses and receive a fee only if we achieve a settlement. Without the institutional investors and contingent fee lawyers, however, the little guy would be simply out of luck in trying to enforce his patent rights. 

            Mr. Vardi mentions pending legislation in the U.S. Senate, pushed by large technology companies, to limit the rights of plaintiffs and make litigation even more expensive. The intent of such legislation is obvious. If the price of admission to the playing field can be made so high that only the big companies can afford to play, the smaller companies can either be litigated to death or acquired on the cheap.

            If the institutional investors can help insure access to the court system by all, then more power to them! They, together with contingent fee lawyers like my firm, can indeed level the playing field.

Origin Of The Insurable Interest Doctrine

     It is well-understood in modern society that a person may not use an insurance policy to profit from another's loss of life or property. One cannot, for example, insure the life of a NASCAR driver with the hope that he will be killed in the next race. Likewise, one cannot insure his neighbor’s house and then burn it down to receive the policy benefits. Modern laws exist to remove the incentive for wrongdoing through insurance policies. But using life and property insurance contracts to benefit from another person's misfortune has not always been prohibited. And that which we now accept as forbidden was, at one time, commonplace.

     The insurable interest doctrine, as recognized today, originated in English statutes designed to remove insurance contracts from the environment of gambling and the misconduct commonly associated with one having the ability to profit from another’s loss. As described in the Appleman insurance treatise, English underwriters of the eighteenth century insured marine risks without requiring the policy beneficiary to have an interest in the vessel or its cargo. The practice created an incentive to destroy the insured property by those expecting to receive insurance benefits from the loss. The English Parliament reacted to the situation in 1749 by enacting the Statute of George II (19 Geo. 2, ch. 37 (1746)), which recognized that “a mischievous kind of gaming or wagering” had caused “great numbers of ships, with their cargoes, [to] have . . . been fraudulently lost and destroyed . . . .” The statute sought to remedy the situation by declaring that assurances for shipping risks not supported by an interest, or by way of gaming or wagering, would be “null and void to all intents and purposes.”

     According to Appleman, enterprising Englishmen insured the lives of famous persons reported to be seriously ill and the “unfortunate gentlemen” accused of crimes punishable by death. The amount wagered was the policy premium and the gamble, obviously, was whether the insured person lived or died. 

     The wagers had a substantial, negative impact on the persons whose lives were insured. In his 1761 publication “The Mystery and Inquiry of Stock Jobbing,” Thomas Mortimer wrote:

The inhuman sport affected the minds of men depressed by long sickness; for when such persons, casting an eye over a newspaper for amusement saw that their lives had been insured in the Alley at 90 per cent, they despaired of all hopes; and thus their dissolution was hastened.

In 1774, Parliament enacted a statute (14 Geo. 3, ch. 48 (1774)) to discourage the “mischievous kind of gaming” on human life:

no insurance shall be made . . . on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest . . .. 

            The English Statutes of George II and George III form the fundamental principles of the insurable interest doctrine by requiring owners of property and life insurance to have an “interest” the subject matter of those contracts. The insurable interest requirements were promptly announced in the United States, even though American courts did not embrace the English statutes and, in some instances, rejected them. In the 1806 case Russel v. Union Ins. Co., the United States Supreme Court addressed the necessity of an insurable interest in property insurance.  Similar opinions soon followed in the context of life insurance.

How Much Are Citigroup's Former Employees Worth Dead?

     Since the beginning of 2008, Citigroup has made thousands of employee layoffs and is poised to discharge thousands more by year’s end. The layoffs may ultimately total between 17,000 to 24,000 employees due to subprime and credit-related losses, according to CNBC.

     The layoffs raise the interesting question, “how much are Citigroup’s former employees worth dead?”

     Citibank, N.A., like many national banks, invests heavily in policies of bank owned life insurance or “BOLI.” BOLI policies insure the lives of the bank’s employees, but unlike traditional life insurance name the bank as the policy beneficiary. When the bank employee dies, the insurance benefits are paid to the bank. 

     Banks, like Citibank, are required to report their life insurance holdings through reports filed with the Federal Financial Institutions Examination Council and report those holdings on line five of a schedule called “RC-F—Other Assets.” Those reports demonstrate that Citibank has acquired billions of dollars of BOLI coverage on the lives of its employees since 2006. Citibank possessed $2.215 billion in BOLI coverage as of March 31, 2006, $3.325 billion as of March 31, 2007, and $3.99 billion as of December 31, 2007. Notably, banks report their life insurance assets in terms of cash surrender value, meaning that the policy benefits due from employee deaths are likely far greater than the amount reported on the schedules. 

     BOLI policies remain in force even if the insured person’s employment with the bank ends. Thus, Citibank will receive insurance benefits upon the deaths of its former employees who were insured by a BOLI policy. As the employees who were laid off in 2008 die, policy benefits will flow to Citibank. And from a pool of 17,000 to 24,000 former employees, those benefits may be significant, even by Citibank’s standards.