Miller Estate ( 1960 )

Opinion by

Mr. Justice Cohen,

These appeals are from the decree of the Orphans’ Court of Westmoreland County. The facts in the case are not in dispute since the parties have filed an agreed statement.

On September 8, 1920, Samuel Miller obtained a policy of life insurance from the Northwestern Mutual Life Insurance Company and subsequently designated seven beneficiaries. On December 21, 1949, Samuel Miller was adjudicated a weak-minded person and the First National Bank in Greensburg was appointed guardian of his estate.

On September 8, 1950, the Court of Common Pleas of Westmoreland County decreed that the guardian, “. . . is hereby authorized to borrow the sum of Twenty-four Thousand ($24,000.00) Dollars, from the Union National Bank in Pittsburgh, Pennsylvania, and put up as collateral security the policy of insurance . . . issued ... by The Northwestern Mutual Life Insurance Company. . . An assignment of the policy was duly filed with the insurance company and the authorized loan was made to the guardian. Samuel Miller died testate on February 8, 1952. The insurance company paid $24,447.99 to the bank, that Sum being the amount then due on the loan made by the guardian.

The several beneficiaries named in the insurance policy filed a claim with the estate for $24,447.99, claiming the estate was indebted to them for the proceeds of the insurance policy used to repay the bank loan. The lower court approved the claim and filed a schedule of distribution which provided for partial payment, to the insurance beneficiaries by way of subrogation to the bank’s claim. The award consumed the entire balance of the estate and no distribution was available for the appellants.

Exceptions were filed by the three appellants to the allowance of the claim of the insurance beneficiaries. These appeals have been taken from the decree dismissing the exceptions.

These appeals require us to answer — Are the beneficiaries of an insurance policy entitled to recover from the insured’s estate, by way of subrogation, the proceeds of an insurance policy on the insured’s life, which policy the guardian of the insured, • a weak-minded person, with court approval assigned to a bank as collateral for a loan for the benefit of the weak-minded person’s estate, and the proceeds of which repaid the loan? The court below permitted the recovery and we agree.

The issue which is usually determinative of the problem in this area is the intention of the parties as indicated by the terms of the will, the insurance policy, the assignment and any other pertinent extrinsic evidence. When we apply this test, we find that there is usually no claim against a decedent’s estate under an “insurance policy loan” because, by mutual agreement, the insurance company restricts itself to the proceeds of the policy for repayment of the loan. Thus, there can be no subrogation by the insurance beneficiaries. See Schwartz Estate, 369 Pa. 574, 87 A. 2d 270 (1952); Black’s Estate, 341 Pa. 264, 19 A. 2d 130 (1941). Here, however, the problem is somewhat different since the insurance company did not make the loan; the insurance policy is merely collateral for a loan from a bank. The creditor in this case does have a claim against decedent’s estate as well as against the collateral. Nevertheless, the intention of the parties, if ascertainable, must control.

in Wilson Estate, 363 Pa. 546, 70 A. 2d 354 (1950), where the policy of life insurance, containing the right to assign and to change beneficiaries, was assigned to a bank as collateral for a loan, this Court found, in a case involving inheritance taxes, that the amount of the debt secured by the collateral was a debt of the estate. This conclusion was reached on the basis of decedent’s intent as expressed in the terms of the assignment to the bank. In the Wilson case we went on to say, as dicta, that, “Had the creditor bank used decedent-settlor’s insurance collateral to liquidate its loan, the designated insurance beneficiaries could have enforced their claim against the estate of the decedent under their right of subrogation. . . .” In light of our interpretation of decedent’s intent in that case this dicta was a correct statement of the law.

Although the orphans’ court in Biron Estate, 4 Pa. D. & C. 2d 729 (1955), (relied upon by the defendant) denied subrogation, that case is clearly consistent with the standards set forth by this Court. In Biron Estate the assignment specifically gave the bank the right to apply the proceeds of the policy against the debt and, after the amount necessary to satisfy the loan was deducted, to turn over any balance of the proceeds to the insurance beneficiaries. There could be no question as to decedent’s intent in that case. Similarly, this Court in adopting the orphans’ court opinion in Goldstein Estate, 384 Pa. 1, 119 A. 2d 278 (1956), 4. Pa. D. & C. 2d 606 (1954), sustained the proposition that the decedent’s intent must control as to whether insurance beneficiaries get the net or gross proceeds under a policy which is assigned as collateral for a loan.

In the present case, the loan was negotiated pursuant to an order of the court by the guardian of a weak-minded person. The only evidence of the insured’s intent would be his purpose as expressed at the time he designated the beneficiaries and that intent was that the beneficiaries should have the gross proceeds of the policy.

It is not necessary to decide whether the court or the guardian had the power to interfere with deedent’s intended disposition since the action of the court and the guardian is not inconsistent with decedent’s intent. The loan was made for the benefit of the estate. The remaining unpaid portion at decedent’s death was a claim against the estate, and the life insurance policy was merely collateral for the loan.

Decree affirmed at appellants’ cost.

Mr. Justice Benjamin R. Jones concurs in the result.