Assembly OKs Bill to Keep Firms From Reaping Insurance Benefits

Legislation to bar what are called “dead peasant” policies, under which an employer buys life insurance on its rank-and-file employees and then makes the company the beneficiary, has passed in the state Assembly.

On a partisan vote of 42 to 22, with Democrats prevailing over Republicans, the lower house in Sacramento this week adopted the bill written by Assemblyman Juan Vargas (D-San Diego).

Vargas said he would accept an amendment when his bill reaches the Senate that would give employers five years to divest themselves of such policies.

“Benefiting corporations in this way is atrocious,” Vargas said in an interview. “It has led to tremendous abuses.”

Two Republicans, however, said employers often use the benefits from such policies to finance health care for other employees.

Assemblyman Ken Maddox (R-Garden Grove) said, “Employers take out these policies with the consent of their employees.... The benefits are then used to fund the health-care costs of retirees.” The premiums are paid by employers.

Assembly Minority Leader Dave Cox (R-Fair Oaks) said, “It is perfectly proper for a company to ensure that the dollars are there to continue its medical program.”

But Vargas and Assemblyman Paul Koretz (D-West Hollywood) said they had seen no evidence that this is the case. “The death of an employee,” Koretz said, “should never be deemed to be attractive in any way to an employer.”

Vargas suggested that an employer who wants to provide health-care benefits to employees should buy group health insurance policies.

His bill would not bar companies from buying life insurance policies on its executives and making the company the beneficiary.

In another legislative insurance development this week, the Senate passed a bill that would ban the insurance industry from charging higher rates, or requiring 100% down payments, when dealing with people with poor credit history.

The bill by state Sen. Martha Escutia (D-Whittier) passed on a partisan vote of 23 to 14, with Democrats in the majority.

It follows an agreement reached by state Insurance Commissioner John Garamendi with Allstate, under which Allstate is abandoning its policy of using credit scores to determine conditions and prices under which it sells homeowners policies.

That bill now goes to the Assembly for consideration.