An Illinois woman who discovered that her deceased husband’s employer had taken out a secret life insurance policy on him has filed a class action lawsuit against drug giant Bristol-Meyers Squibb (2012 revenue: $17.6 billion) alleging that the company lacked an insurable interest in her husband’s life and took out the life insurance policy without his consent. Filed on November 26 in U.S. District Court for the Northern District of Illinois, the lawsuit seeks the proceeds from Bristol-Meyers’ insurance policy and certification as a class action for all of the company’s employees.

After Bruce Simmons died on August 16, 2012, his wife, Gigi Simmons, had to borrow money to cover funeral costs because his life insurance benefits had not yet arrived, according to the lawsuit. When a funeral director contacted Bristol-Myers Squibb on her behalf, he was told “that there was a $6,000,000 policy on Mr. Simmons’ life,” but when the funeral director started asking questions, “the employee refused to give…any additional information and said she probably ‘was not supposed to have said anything about it.’”

That employee was right to clam up. It is unlawful for a person or corporation to buy life insurance on someone’s life unless there is a strong familial or financial reason “to expect some kind of benefit or advantage from the continuance of the life of the assured.” Thus close relatives—spouses, parents and children—may insure one another because they have a strong interest in one another’s lives. Otherwise, the Supreme Court ruled in 1881, “the contract is a mere wager, by which the party taking the policy is directly interested in the early death of the assured. Such policies have a tendency to create a desire for the event. They are therefore, independently of any statute on the subject, condemned as being against public policy.” Warnock v. Davis (1881).

In the case of employers, courts have held that they may have an insurable interest in highly-placed, key employees like a CEO or other corporate officers. Arguing that Bristol-Meyers’ life insurance policy on Mr. Simmons was invalid because the company “did not have an insurable interest” in his life, the complaint states that he “was not an officer of Bristol-Myers. He was not a member of the company's board of directors and was not a key employee. He was not indebted to the company and was not related to Bristol-Myers by blood or marriage. Mr. Simmons was a rank-and-file employee of the company. He was never informed about any policy of corporate-owned life insurance that insured his life and he never consented to such a policy.”

While the case is pending, the $6,000,000 insurance payout is being held by the company as a trustee on behalf of Mr. Simmons’ estate. Mrs. Simmons’ lawsuit asks that other employees unlawfully insured by Bristol-Meyers be allowed either to cancel the policies and receive the moneys paid in their name or to assume the payments and name the beneficiary themselves.

-Matt Bewig

To Learn More:

Class Action Says Bristol-Myers Insures Employees without Consent (by Courtney Coren, Top Class Actions)

Bristol-Myers Insured Employees Without Consent, Suit Says (by Michael Lipkin, Law360)

Widow Says Death Spurred Employer Profits (by Lorraine Bailey, Courthouse News)