Risk Management

Enron Could Recoup Lay Insurance Payment

In October 2001, just two months before the company filed for bankruptcy, it reportedly made a $250,000 premium payment.
Stephen TaubNovember 1, 2006

Enron Corp. has agreed to a deal to collect $250,000 on a life insurance policy covering Ken Lay, who died several weeks after he was convicted of fraud charges, according to the Houston Chronicle.

That is a fraction of the coverage limit on an $11 million death benefit owed under Transamerica Occidental Life Insurance Co. policy, according to the paper.

U.S. Bankruptcy Judge Arthur Gonzalez is scheduled to consider the settlement on Thursday. The Chronicle noted that KLL & LPL Partnership Ltd., a Texas partnership bearing the initials of the late ex-chairman and chief executive officer of Enron and his wife, Linda, bought a life insurance policy for Lay. In a deal struck with the company in 1996, the partnership gave Enron the right to a part of the insurance proceeds if Lay died.

The assignment was intended “to secure the amounts due to [Enron]” under a deal with the partnership, the paper noted. In October 2001, just two months before the company filed for bankruptcy it made a $250,000 premium payment, according to the story.

Under bankruptcy law, payments made by a company within 90 days of a bankruptcy filing can be reversed because they could be deemed to have been unfair to other creditors, the newspaper explained. Presumably, the insurer could have argued that if the premium paid weren’t in force, then the coverage wouldn’t apply.

Enron first sought to recover its premium when it sued Transamerica in 2003. The company reportedly said the insurer agreed to pay Enron the $250,000 premium payment owed under Lay’s coverage. The insurer had earlier paid Enron $1.25 million under the terms of the 1996 agreement with the Lay partnership, according to the Chronicle.

4 Powerful Communication Strategies for Your Next Board Meeting