Court Opinion

ID: 4614113
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:54:56.368422+00
Date Added: 2024-06-11T07:54:43.928134
License: Public Domain

THE PENNSYLVANIA COMPANY FOR INSURANCES ON LIVES AND GRANTING ANNUITIES, FLORENCE W. HENDERSON AND D. WEBSTER BELL, EXECUTORS OF THE ESTATE OF J. D. C. HENDERSON, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Pennsylvania Co. for Ins., etc. v. CommissionerDocket No. 44756.United States Board of Tax Appeals29 B.T.A. 1306; 1934 BTA LEXIS 1397; February 28, 1934, Promulgated *1397  1.  No ambiguity appearing on the face of certain insurance contracts, the interpretation of the contracts is a matter for the Board and evidence of the interpretation that would have been given by the insurance company, or of procedure, not provided by the contract, that would have been prescribed in obtaining loans or exercising other privileges, is not admissible.  2.  Where insurance contracts on the life of decedent variously carried loan privileges, cash and paid-up values, and other similar provisions or options, exercisable by the insured, the proceeds of such policies should be included in the taxable estate of decedent, although the contracts contained no express provision authorizing a change or revocation of the beneficiary named in the policies.  Joseph A. Lamorelle, Esq., for the petitioners.  Frank T. Horner, Esq., for the respondent.  VAN FOSSAN *1306  This proceeding was brought to redetermine a deficiency in estate tax upon the estate of J. D. C. Henderson, deceased, in the sum of $22,110.60.  The petitioners allege that the respondent erred in including as a part of the decedent's estate the proceeds of life insurance policies*1398  on the decedent's life aggregating $233,043.15 payable to the decedent's *1307  widow, daughter, and son-in-law and paid to such persons by the respective insurance companies.  The respondent seeks an increase in the deficiency by including in the gross estate the value of certain other life insurance policies aggregating $40,393.77.  The facts were stipulated substantially as follows.  FINDINGS OF FACT.  The petitioners are executors of the estate of J. D. C. Henderson, deceased.  The notice of deficiency was mailed to the petitioners on April 1, 1929.  J. D. C. Henderson, hereinafter sometimes called decedent, died on February 3, 1926, leaving a last will and testament which was duly probated in the office of the Register of Wills in and for the County of Montgomery, State of Pennsylvania.  The insurance policies, hereinafter described and numbered for convenience, were taken out by decedent on his own life.  Policy No. 1. On July 24, 1915, the Penn Mutual Life Insurance Co. issued policy No. 716,837, in which policy the executors, administrators, or assigns of J. D. C. Henderson were named as beneficiary.  On December 19, 1917, the beneficiary named in the*1399  policy was changed, and Margaret K. H. Bell, decedent's daughter, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy were paid by the insurance company to Margaret K. H. Bell.  Policy No. 2. On June 22, 1916, the Penn Mutual Life Insurance Co. issued policy No. 758,261, in which policy the executors, administrators, or assigns of J, D. C. Henderson were named as beneficiary.  On December 19, 1917, the beneficiary named in the policy was changed, and Margaret K. H. Bell, decedent's daughter, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy were paid to Margaret K. H. Bell.  The proceeds of the policies of insurance issued by the Penn Mutual Life Insurance Co. numbered 716,837 and 758,261, totaled $90,885.20.  Policy No. 3. On December 22, 1911, the Berkshire Life Insurance Co. issued its policy No. 85,287, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time*1400  thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $30,331.13, were paid by the insurance company to Florence W. Henderson.  Policy No. 4. On August 4, 1897, the Northwestern Mutual Life Insurance Co. issued its policy No. 375,657, in which policy decedent's *1308  wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,059.91, were paid to Florence W. Henderson.  Policy No. 375,657 became a paid-up policy on August 4, 1916.  Policy No. 5. On January 18, 1912, the Northwestern Mutual Life Insurance Co. issued its policy No. 536,350, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $10,119.80, were paid to Florence W. Henderson.  Policy No. 536,350 became a paid-up policy on January 9, 1922.  Policy No. 6. On January 29, 1912, the Northwestern Mutual Life Insurance Co. issued*1401  its policy No. 912,422, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,059.91, were paid to Florence W. Henderson.  Policy No. 7. On August 16, 1909, the Northwestern Mutual Life Insurance Co. issued its policy No. 800,416, in which policy decedent's daughter, Margaret K. Henderson, was named as beneficiary.  On December 21, 1917, the name of the beneficiary was changed to Margaret K. H. Bell, the decedent's daughter, Margaret K. Henderson, having married D. Webster Bell.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $10,182.90, were paid to Margaret K. H. Bell.  Policies No. 8 and No. 9. On February 17, 1919, the Provident Life & Trust Co. issued two policies, No. 310,851 and No. 310,852, in which policies decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policies was not at any time thereafter changed, and after the death of the*1402  decedent, the proceeds of the policies, amounting to $30,365.23, were paid to Florence W. Henderson.  Policy No. 10. On March 6, 1919, the Prudential Life Insurance Co. issued its policy No. 2,853,321, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $30,125.10, were paid to Florence W. Henderson.  Policy No. 11. On August 17, 1914, the Berkshire Life Insurance Co. issued its policy No. 92,947, in which policy Rebecca Ware was named as beneficiary.  On April 5, 1920, the name of the beneficiary was changed to decedent's wife, Florence W. Henderson.  The *1309  beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $10,110.37, were paid to Florence W. Henderson.  Policy No. 12. On January 18, 1912, the Northwestern Mutual Life Insurance Co. issued its policy No. 555,787, in which policy Florence W. Henderson was named as beneficiary.  On December 26, 1922, the name of the beneficiary*1403  was changed to D. Webster Bell.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $15,233.55, were paid to D. Webster Bell.  Policy No. 555,787 became a paid-up policy on August 13, 1922.  Policy No. 13. On December 19, 1904, the Northwestern Mutual Life Insurance Co. issued its policy No. 603,736, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  On December 26, 1922, the name of the beneficiary was changed to D. Webster Bell.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $15,254.85, were paid to D. Webster Bell.  Policy No. 14. On December 21, 1911, the Northwestern Mutual Life Insurance Co. issued its policy No. 906,804, in which policy Florence W. Henderson was named as beneficiary.  On December 26, 1922, the name of the beneficiary was changed to D. Webster Bell.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $20,315.20, *1404  were paid to D. Webster Bell.  Policy No. 15. On August 8, 1900, the Penn Mutual Life Insurance Co. issued its policy No. 150,616, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $10,077.20, were paid to Florence W. Henderson.  Policy No. 16. On August 22, 1899, the Connecticut Mutual Life Insurance Co. issued its policy No. 229,158, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,026.35, were paid to Florence W. Henderson.  Policy No. 17. On March 30, 1898, the Mutual Benefit Life Insurance Co. issued its policy No. 256,829, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,050.59, were paid to Florence*1405  W. Henderson.  *1310 Policy No. 18. On March 4, 1893, the Northwestern Mutual Life Insurance Co. issued its policy No. 277,963, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,059.91, were paid to Florence W. Henderson.  Policy No. 19. On July 5, 1899, the Northwestern Mutual Life Insurance Co. issued its policy No. 342,295, in which policy decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $10,119.81, were paid to Florence W. Henderson.  Policy No. 20. On April 4, 1893, the Northwestern Mutual Life Insurance Co. issued its policy No. 280,247, in which policy, decedent's wife, Florence W. Henderson, was named as beneficiary.  The beneficiary named in the policy was not at any time thereafter changed, and after the death of the decedent, the proceeds of the policy, amounting to $5,059.91, were paid to Florence*1406  W. Henderson.  Wherever Florence K. Henderson is named in a policy of insurance Florence W. Henderson, wife of J. D. C. Henderson, is the person referred to.  James D. C. Henderson named as the insured in the various policies is the person referred to as J. D. C. Henderson.  J. D. C. Henderson, within 60 days after the completion of the tontine dividend period mentioned in policy No. 277,963 issued by the Northwestern Mutual Life Insurance Co. (No. 18, supra ), exercised the option given him under the ninth condition of the policy, and elected to withdraw in cash the accumulated surplus apportioned by the company to this policy, the voucher bearing the signature of the insured evidencing the payment to the insured in cash of the accumulated surplus apportioned by the company to this policy, being dated March 4, 1913, the voucher being among the records of the Northwestern Mutual Life Insurance Co.  J. D. C. Henderson, within 60 days after the completion of the tontine dividend period mentioned in policy No. 280,247 issued by the Northwestern Mutual Life Insurance Co. (No. 20, supra ), exercised the option given him under the ninth condition of the policy, and elected*1407  to withdraw in cash the accumulated surplus apportioned by the company to this policy, the voucher bearing the signature of the insured evidencing the payment to the insured in cash of the accumulated surplus apportioned by the company to this policy, being dated April 4, 1913, the voucher being among the records of the Northwestern Mutual Life Insurance Co.  *1311  The following policies became paid up on the dates indicated: NumberCompanyDate paid up150,616 (No. 15, supra)Penn Mutual Life Ins. CoAug. 2, 1918229,158 (No. 16, supra)Connecticut Mutual Life Ins. CoAug. 19, 1918256,829 (No. 17, supra)Mutual Benefit Life Ins. CoMar. 30, 1917342,295 (No. 19, supra)Northwestern Mutual Life Ins. CoFeb. 26, 1915In each of the policies Nos. 1 to 14, inclusive, the insured reserved the right to change the beneficiary.  In policy No. 11 he exercised that right.  The policy also grants the right to successive and subsequent changes of the beneficiary.  None of the policies Nos. 15 to 20, inclusive, contained a provision authorizing a change of beneficiary.  All were 20-payment policies.  They contained the*1408  following respective provisions as to payment: No. 15: "Unto Florence W. Henderson, his wife, if she survives him, otherwise to his executors, administrators or assigns." No. 16: "To Florence K. Henderson, wife of the said insured, if she survive him, if not, to his executors, administrators or assigns." No. 17: "To Florence K. Henderson, wife of James D. C. Henderson - in case she survives the insured.  Otherwise to the said insured, his executors, administrators and assigns, * * * upon due and satisfactory proof of interest and of the death of the insured." Nos. 18, 19, and 20: "Unto Florence K. Henderson, beneficiary, wife of James D. C. Henderson * * * provided, that if the said beneficiary shall not survive the said insured, then such payment shall be made to the executors, administrators or assigns of the said insured." Policy No. 15 contains the following provisions: VIII.  NON-FORFEITURE PROVISIONS.  If this Policy shall lapse for non-payment of premium after three years' premiums have been paid in cash, the Company will, subject to the other conditions of the Policy, guarantee the following options: FIRST. - Extend, without participation, the*1409  full amount insured by this Policy, for the number of years and days named in the table of values given below.  Or, SECOND. - Upon written application by the owner of this Policy and the legal surrender of all claims thereunder to the Company at its Home Office within thirty days after such lapse, will grant non-participating paid-up insurance, payable at death, for the sum named in the table of values given below.  Or, THIRD. - In lieu of said paid-up Policy, the Company will, on surrender as aforesaid within thirty days from the date of lapse, pay the cash surrender value named in the table of values below.  IX.  LOAN VALUE.  The Company will, at any time after three years' premiums have been paid in cash, while the Policy is in force by payment of premiums, lend thereon upon its satisfactory assignment as collateral security, the sum named in the table of values given below.  No loans will be made for a less sum than Fifty Dollars, and only in multiples of Five Dollars, and shall be diminished by any indebtedness outstanding against the Policy.  *1312  In Policy No. 16 appears the following paragraph: Or, at the end of any period (reckoned from the above date) specified*1410  in the Table of Cash Values printed hereon and hereby made a part of this Policy, said Company will pay to the person or persons thereunto designated in the aforesaid application the Cash Value stipulated in the said Table, but only upon surrender and release hereof by such person or persons within thirty days after the end of such period.  In the application for insurance, which was specifically made a part of the policy, is the following question and answer: To whom is the Policy or its cash value to be made payable in case of maturity or surrender within the lifetime of the insured?  Myself.  The periods specified in the table of cash values are periods of 10, 15, 20 years, and so on, in multiples of 5 up to 20 years.  Policy No. 17 contains the following provisions: At the end of any Policy year during the whole of which this Policy shall have been in force, or within one month from default in Premium payments, the owner shall have the following options: 1.  To surrender the Policy to the Company at its office in Newark, New Jersey, for its Cash Surrender Value.  2.  To surrender the Policy to the Company at its office in Newark, New Jersey, for a Non-participating*1411  Paid-up Policy payable at the time this Policy would be payable if continued in force.  3.  If the Policy be not surrendered as above, the insurance will be Automatically Extended from date of default in Premium payments, without any action by the owner of the Policy and without participation in surplus, for a sum equal to the amount of the Policy and existing Dividend Additions, if any, less any indebtedness to the Company hereon.  LOANS.  At any time while this Policy is in force the Company will loan up to the limit secured by the Cash Surrender Value, upon receipt of the Policy and a Certificate of Loan satisfactory to the Company.  The rate of interest charged shall not exceed six per centum per annum.  The loan may be paid off at any time while the Policy is in force.  If interest be not paid when due, it shall be added to the principal, provided the entire indebtedness then outstanding shall be within the limit secured by the Cash Surrender Value; otherwise non-payment of interest shall render the Policy null and void after one month's notice shall have been mailed to the last known address of the Insured and Assignee, if any.  Policies No. 18 and 20 contain the following*1412  pertinent conditions: 9th.  Upon the completion of the Tontine Dividend Period, provided this policy shall not have been terminated previously by lapse or death, the said insured, and his assigns if creditors, shall, without the consent of any other person named within as beneficiary, have the option either: First, to withdraw in cash the accumulated surplus apportioned by the Company to this policy; Secondly, to apply, in reduction of the subsequent premiums falling due upon this policy, the value of said surplus, distributed in uniform annual installments, provided that in any year in which the amount derived from such installment, together with the annual dividend on this policy, shall exceed the amount of premium due thereon, the excess shall be paid in cash; and provided *1313  further, that in case of non-payment of premium, after the expiration of the Tontine Dividend Period, the then value of said installments yet unpaid shall be applied, if sufficient, to pay such premium, the amount of the annual installment being thereafter reduced in proportion; Thirdly, on furnishing satisfactory proof that the insured is then in good health, to apply said surplus*1413  to the purchase of a non-forfeitable participating paid-up addition to the face of this policy; or, without proof of good health, to apply said surplus to purchase an annuity at the Company's published rates; Fourthly, to surrender this policy and receive therefor in cash its entire share of assets, that is, the accumulated reserve, together with the surplus apportioned, which reserve the Company guarantees shall not be less than ($1,266.45) dollars, in addition to said surplus; or Fifthly, to surrender this policy and apply said entire share of assets to the purchase of a non-participating paid-up policy, payable in case of death to the beneficiary therein named, if any, or otherwise to the executors, administrators or assigns of the said insured; provided, that if the amount of such paid-up policy shall exceed the amount hereby insured, such paid-up policy shall not be issued unless satisfactory proof be furnished that the insured is then in good health.  Policy No. 19 bears notation in writing indicating that it is in partial substitution for a former policy, part of the terms of which are to remain in force.  The original application and former policy are not in evidence. *1414  OPINION.  VAN FOSSAN: In addition to the facts set out in our findings of fact the parties conditionally stipulated the contents of certain letters written by various officials of the several insurance companies to the executors or their attorneys purporting to interpret or construe various provisions of the several insurance contracts and to indicate the position the companies would have taken had certain questions been presented to them for decision.  Mutual reservations were made to preserve the rights of the parties on appeal in event of the respective admission or rejection of the offered evidence.  The stipulation went only to the authenticity of the letters and did not purport to cover their competency, relevancy, or materiality as evidence.  On consideration of the matter we are of the opinion that the evidence is inadmissible and have omitted the same from our findings.  The statements found in the several letters written at the instance of the petitioners are of various purport.  Some are mere statements of the contents of the policies, but largely they represent the interpretation the company would have given to the contract provisions.  As such they are in the nature*1415  of opinion evidence on a matter not requiring or permitting opinion evidence.  The contracts are not, in our opinion, ambiguous or obscure.  Their interpretation is a matter for the tribunal in which the controversy is being adjudicated.  In short, we believe the questions to which these letters were *1314  addressed are among the questions which we have to decide by our own examination of the contracts.  To admit the letters as evidence would be to abdicate pro tanto our own functions.  What the company would or would not have done in various given situations does not determine the legal rights of the parties.  See . Assuming an unfavorable interpretation by the company, the legal rights of the beneficiary would have been fixed by the courts to which resort would have been open.  The respondent relies on , to support his contention that the proceeds of policies Nos. 1 to 14, inclusive, in excess of $40,000 are subject to inclusion in the decedent's gross estate by reason of their containing clauses reserving to the insured the right to change*1416  the beneficiary.  The petitioners challenge the inclusion, for tax purposes, of the proceeds of all policies, whether containing such reservation clause or not, taken out prior to the enactment of the Federal estate tax act, or prior to the Federal estate tax act in effect at the time of the decedent's death, and cite , to sustain their view of the case.  In , we discussed at length the effect of the decision in the Frick case upon facts similar to those in the case at bar in that policies antedating the revenue acts were involved, and there held that "where the decedent reserved the right to change the named beneficiary, or to revoke a prior assignment, the proceeds of life insurance policies taken out by him upon his own life should be included in his gross estate," applying the rule laid down in  See also ; affd., *1417 ; ; ; ; ; affirmed as to that point, . We do not believe , to be controlling in the instant case.  The proceeds of policies numbered 1 to 14, inclusive, should be included in the gross estate.  The respondent asserts that he erred in his original action in excluding the proceeds of policies Nos. 15 to 20, inclusive, from the taxable estate and now contends for an increased deficiency.  In none of these policies was the right to change the beneficiary reserved.  Respondent maintains, however, that each of these policies carried provisions that were valuable to the decedent in his lifetime and prevented the estate from vesting in the beneficiary until the death of the decedent.  We are of the opinion the respondent is correct in his present position as to five of the policies.  As appears in *1315  our findings of fact, five*1418  of these policies variously carried provisions for loan privileges, cash and paid-up values and other similiar provision or options, exercisable by the insured.  They were all 20-payment life policies.  We are cited to no statutory provision in the law of Pennsylvania requiring the consent or joinder of the beneficiary in applications for loans or in exercising the other privileges granted the insured by the policies.  On the contrary, it has been held that the insured may borrow under the "cash loan" clause without the beneficiary's consent, notwithstanding the latter's vested interest. . See also provisions of the Insurance Law of Pennsylvania, par. 510, Title 40, Purdon's Pennsylvania Statutes Annotated.  This fact distinguishes the case of , which was controlled by the laws of New York.  The proceeds of these policies should be included in the taxable estate. ;*1419 ;As to policy No. 19 a different situation obtains.  This policy bears no provisions comparable to those just referred to.  On the margin of the policy is a notation in handwriting indicating that the present policy superseded a former policy and referring to the original application.  No copy of the former policy or application was submitted.  Since the burden of proving the facts as to this policy was assumed by respondent when he asked affirmative relief, he must abide the consequences of the failure of proof.  Decision will be entered under Rule 50.