Apparently this story was announced at its creation, but that was before the start of this website and well, we’re not tied in closely enough to Oklahoma State University to have known about it otherwise. News today, however, that OSU had filed a claim in Oklahoma court to recover $33M+ in premium payments from a Texas-based life insurance firm called Lincoln National piqued our interest. Our first question was… what is a university doing paying life insurance premiums? We haven’t checked the Supreme Court’s decisions today, but last we looked, universities (unlike corporations) were not persons, and as such, cannot live or die in the sense required by most insurance companies. The answer was a little startling.
In March 2007, Oklahoma State announced its new “Gift of a Lifetime” donorship program, a seemingly-progressive idea that would ‘lock in’ as much as $280M of funding over the next 20-25 years for the athletic department. The premise is undoubtedly macabre: twenty-eight prominent, wealthy and (lest we forget) old OSU donors would allow the university to take out $10M life insurance policies on each of them, with the expectation that when they croak in the next couple of decades, the school would reap the benefits of the policies. In order to start paying the premiums, uber-Cowboy alumnus T. Boone Pickens (who brought the idea to bear) even fronted a loan of $10M to the university.
Sounds like a great idea, right? Everybody has to die, and the odds are greater that those doing the dying are people who are already old. It’s a can’t-miss. The problem is that insurance companies such as Lincoln National aren’t in the business of giving away money, so they use all these neat little actuarial tables with lots of fancy numbers and formulas to figure out how to screw the consumer minimize their risk and maximize their profits. And herein lies the rub. The premiums that Oklahoma State must pay on an annual basis are ridiculously expensive! According to reports out today, OSU paid the first two premiums of $16M+ without so much as seeing the terms of the policies. Some simple math tells you that a yearly outlay of that kind of coin will put you in a hole very fast if those donors are having a particularly healthy year — in fact, a few more years at that rate and the OSU brass may have been pushing Washington a little harder for those ‘death panels’ we heard so much about last summer.
OSU Will Strike Down Upon Thee...
When the third premium came due in 2009, Oklahoma State finally looked at the terms of the policies and didn’t like what it saw. The school canceled the deal, and now they are suing Lincoln National for the $33M of premiums, alleging misrepresentations of the policy terms and “pure conjecture” used to justify the potential payouts. Lincoln National is countersuing OSU for breach of contract. Are you as appalled as we are after reading the last two paragraphs? How can a school’s athletic director (and whoever Mike Holder had to get to sign off on it) pay millions upon millions of dollars to a company without so much as seeing the terms and conditions of the agreement? Look, we’re just as guilty as the next guy for skimming the terms of our cell phone and cable contracts, but those agreements are in the three-figure range, not ten. It reminds us of the ‘memorandum of understanding’ that Mitch Barnhart at Kentucky signed Billy Gillispie to in place of a formal contract — a mistake that ended up costing the university $3M. An equally audacious error here could end up costing Oklahoma State ten times that much, and who will be held accountable for that — Holder? T. Boone? Eddie Sutton’s liver?