Will Chase And Wells Fargo Benefit From The Deaths Of WaMu And Wachovia's Former Employees?
Washington Mutual and Wachovia have two things in common. First, they were spectacular business failures. Second, they were two of the nation’s largest holders of “bank owned life insurance” or “BOLI” policies. The combination of these two facts creates interesting issues concerning the legality of the BOLI policies and who may benefit from the deaths of the banks’ former employees.
Bank owned life insurance generally refers to policies that a bank purchases on the lives of its employees. But unlike traditional forms of life insurance, the bank designates itself as the policy beneficiary—meaning that the bank is entitled to the policy benefits when the insured employee dies. BOLI policies also remain in force even if the insured person no longer works for the bank. The policies are therefore similar to those often referred to as “dead peasant” or “janitor” insurance.
Washington Mutual and Wachovia had enormous appetites for BOLI policies. As of June 30, 2008, Washington Mutual reported to the Office of Thrift Supervision that it maintained $5.072 billion in BOLI holdings. Wachovia likewise reported a staggering $14.575 billion of BOLI holdings. Notably, those amounts are reported in cash surrender value, meaning that the policies’ benefit amounts are likely substantially higher.
Washington Mutual’s assets were acquired by JP Morgan Chase in September and Wachovia was acquired by Wells Fargo earlier this month. These transactions create interesting questions concerning the validity of the policies on the lives of the former employees and who may profit from their deaths.
Assuming that the Washington Mutual and Wachovia employees consented to the BOLI policies on their lives (a big assumption indeed), Washington Mutual and Wachovia may have had the insurable interest necessary to support the BOLI policies. But what about JP Morgan Chase and Wells Fargo? WaMu and Wachovia employees, especially former employees who left long before the collapse, probably never imagined that Chase and Wells Fargo might one day benefit from their deaths. Thus, two issues surface. First, who will receive the BOLI policy benefits when WaMu and Wachovia’s former employees die? Second, if Chase and Wells Fargo are the expected beneficiaries of those policies, do they have the insurable interest necessary to ensure the policies’ validity?
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