National Law Journal profiles COLI and BOLI suits

On January 30, 2009, the National Law Journal published an article by Tresa Baldas that profiles current and potential litigation involving corporate owned life insurance and bank owned life insurance policies (read the article).  The article describes how a recent ruling from the United States District Court for the Northern District of Oklahoma in the case Havenstrite v. Hartford may expose insurance carriers to liability for administering life insurance policies on people without their consent.  The article also addresses the magnitude of the policy benefits from policies of bank owned life insurance and how litigation concerning those policies may be forthcoming.

Examples of Life Insurance Abuse: Man Shoves Boy From a 400 Foot Cliff to Claim Policy Benefits

 

I have previously used this forum to describe instances of life insurance abuse and stress the role that human nature plays in those abusive acts. With the regulation of life insurance practices remaining a noteworthy topic, especially in the context of stranger-owned, bank-owned, and corporate-owned life insurance, these abusive acts should be a constant reminder of the potential harm that may result when a person has an incentive to profit from another’s early death. 

One especially horrific example of such abuse involves a scheme devised by Francis Marion Black, Jr., who was convicted of murdering twelve-year-old Marvin Noblitt to claim life insurance benefits. Black was sentenced to death. The appeals court that affirmed Black’s conviction held that there was no doubt that he formed, planned, and committed the crime. His acts were inhuman and the evidence from his trial supported the conviction.

Black and his wife Guinevere were married in 1934 and promptly lost their savings through poor stock investments.  Black schemed to recapture the losses by adopting a boy, purchasing an insurance policy on the child’s life, and then killing him in a way that appeared accidental. He contacted two insurance companies about policies on the life of a boy he “intended to adopt.”  He requested $50,000 in coverage, but was told that he could insure a child for only $5,000. 

Black and his wife then moved to San Benito, Texas and began asking about a twelve or thirteen year old boy they could adopt. Black met Marvin Noblitt’s mother, told her that he intended to open an ice cream parlor in San Antonio, and wanted to adopt a boy who would work at the store before and after school. Marvin’s mother refused the adoption. But she allowed Black to take him for six months and said she would reconsider the adoption if Marvin liked the arrangement. 

A few days after arriving in San Antonio, Black applied for a $5,000 policy on Marvin from the Acacia Insurance Company, which refused the application. Undeterred, he applied to the Great American Insurance Company for a $5,000 policy. Black lied in the application and stated that he had cared for Marvin since taking him from an orphanage in Oklahoma. Great American issued the policy on May 29, 1938 and named Black as the policy beneficiary. 

Within a week, Black and Guinevere packed all of their possessions and began driving to San Antonio with Marvin. They stopped in Alpine, Texas on June 8th. Black went to a local drug store the next morning and asked about post cards of the Grand Canyon, the local mountain scenery and places of interest within a hundred miles of Alpine.  The pharmacist did not have the post cards, but suggested that Black visit Alpine’s Chamber of Commerce.  He did so and asked about the Limpia, Grand, and Santa Helena Canyons.  The Chamber of Commerce gave him information about the scenic beauty of the country and Agua Frio Springs, located at the foot of a 400 foot cliff.  Later that day, Black went to Agua Frio Springs.

The Agua Frio Springs were on a private ranch and the ranch’s owner appeared at Black’s trial. He testified that the springs were located at the foot of a cliff, approximately 400 feet high.  He also testified that Black, accompanied by his wife and a child, arrived at the ranch on June 9th at about 5 p.m. and asked for permission to look at the springs, the bluff, and the scenery.  He granted Black’s request and, in a very short time, saw two people on top of the cliff rolling stones into the canyon.  About thirty minutes later, Black went to the ranch house and reported that his little boy had fallen off the cliff and was injured.  The rancher drove his truck to the foot of the cliff and brought Marvin’s mangled body back to the ranch house. Marvin’s body was then taken to an undertaker in Alpine. 

Black told the undertaker that he had adopted the boy but had not yet gone through all of the legal formalities. He added that he had taken the boy from Oklahoma about a year earlier and that there was no reason to delay the burial because he did not think he could ever find the boy’s mother.  Black also said that he did not have much money and asked if the undertaker would help him collect a $5,000 insurance policy on the boy’s life.

After the funeral, Black and Guinevere were arrested and charged with homicide. Black made a written confession in which he admitted the killing. The confession stated that Black went to the top of the cliff with the boy, threw a few rocks, and then shoved the boy off the cliff.

Havenstrite v. Hartford: Court Holds That Employees Insured by COLI Policies Have a Claim Against the Insurer

 

     On December 31, 2008, the United States District Court for the Northern District of Oklahoma held that employees whose lives were insured by an employer’s secret policies of corporate-owned life insurance possess a claim against the insurer that administered the policies for misusing the employees’ identities and personal information. (Read the Court’s opinion).

     Corporate-owned life insurance or “COLI” is insurance held by a company on the lives of its employees, or former employees, with the company named as the policy beneficiary. Because the company designates itself as the policy beneficiary, the insurer pays the policy benefits to the company when a covered employee dies.

     The plaintiffs in the case Havenstrite v. Hartford Life Insurance Company alleged that Hartford used their names, Social Security numbers, and other personal information without their consent or knowledge to administer and maintain the secret COLI policies on their lives. They claimed that Hartford violated an Oklahoma statute that provides a recovery against any person who, without consent, uses another’s name in products, merchandise, or goods. They also claimed that Hartford committed a common law invasion of privacy by misappropriating their names and identities when Hartford used that information in its insurance policies and administrative reports.

    Hartford asked the Court in the Havenstrite case to dismiss the claims against it by arguing that the plaintiffs’ names did not have any special value. The Court refused Hartford’s request and applied Oklahoma’s law that “one who appropriates to his own use or benefit the name or likeness of another is subject to liability to the other for invasion of his privacy.” The Court concluded that the plaintiffs adequately alleged that Hartford “appropriated to Hartford’s own use and benefit the commercial value of their names and private personal identifiers by receiving premiums, commissions and service and administration fees.”

     Between five and six million Americans are covered by a COLI policy, according to an attorney for Hartford.  COLI policies are sometimes referred to as"Janitor" or “Dead Peasant” policies.  "Dead Peasant insurance" is a phrase used within the insurance industry to describe the deceased employees whose lives were insured by one of the policies.