Houston widow sues after bank profits on husband's death Lawsuit accuses bank in ‘dead peasant’ case

Around Christmas, Irma Johnson received a stunning surprise in her mail: a check for nearly $1.6 million.

It had her late husband’s name on it along with a life insurance number, her attorney said. But it was made out to Amegy Bank, her husband’s former employer.

Wondering what it was, Johnson called the insurance company and discovered the bank had bought an insurance policy on her husband’s life.

But she wasn’t supposed to know, she said, and only found out because the envelope got mangled in the mail and the postal service tracked her down instead of the bank.

On Monday, Johnson sued Amegy to recover the benefits.

The policies, which often are taken out on the lives of rank and file employees, are known in the industry as “dead peasant” life insurance, said Michael Myers, a lawyer with McClanahan Myers Espey, who is representing Johnson. Coverage often continues for years, sometimes long after employees have left the organization.

“It was news to us that it was even filed,” said Leigh Akin, spokeswoman for Amegy Bank in Houston. “We haven’t had the opportunity to conduct a thorough review. Like any matter with our current or former employees, we commit to taking this very seriously while we do our review.”

She declined to comment further.

Very profitable

Bank-owned life insurance policies are very profitable, said Myers, because banks can write off the premiums and the interest on the loans to buy the policies as a business expense.

In addition, the investment returns and death benefits aren’t subject to federal income tax, said Myers, who represented the families of deceased Wal-Mart employees in Texas who sued the retailer for secretly buying insurance policies on the lives of low-level employees. In 2004, Wal-Mart agreed to pay $10.4 million to the families of 380 employees.

Banks must report the value of their bank-owned life insurance to federal regulators. For the biggest banks, Myers has tallied up the cash surrender value — the amount each policy is worth at a certain moment in time — and he says it’s trillions of dollars.

At the time the insurance policy was written in 2001, Daniel Johnson already had been diagnosed with terminal brain cancer. The project manager had undergone two brain surgeries to remove a tumor and was getting radiation treatments that left him unable to walk or talk.

The bank, which was then Southwest Bank of Texas, criticized his job performance and demoted him, according to the lawsuit. But soon he was told he had been selected by the board of directors’ compensation committee to receive $150,000 in supplemental life insurance.

Less than five months later he was fired, but only after signing the papers, which also named the bank as a much larger beneficiary, Myers said. He died last summer.

Non-key worker

Myers said he will argue that Johnson didn’t have the mental ability to understand what he was signing, nor did the bank reveal what it stood to gain on his death. He is also arguing the bank didn’t have a legitimate reason to insure the lives of non-key employees like Johnson.

Irma Johnson also is still seeking the $150,000 death benefit that Myers said hasn’t been paid yet.

lm.sixel@chron.com