Appeal, No. 44, Jan. T., 1952, from decree of Orphans' Court of Delaware County, 1950, No. 351, in Estate of George J. Schwartz, deceased. Decree reversed.
Morris H. Fussell, for appellants.
David F. Maxwell, with him Edmunds, Obermayer & Rebmann, for appellees.
Before Drew, C.j., Stern, Stearne, Bell, Chidsey and Musmanno, JJ.
OPINION BY MR. JUSTICE ALLEN M. STEARNE
The question involved is whether a "policy loan" upon a life insurance policy is a debt of such a nature as enables the designated beneficiary, upon the insured's death, to require the loan to be repaid from the insured's general estate, thus enabling the beneficiary to receive the full insurance proceeds. The court below ruled that it was such a debt and directed its repayment. This appeal followed.
George J. Schwartz, the decedent, was insured by two policies of life insurance, each in the amount of
$5,000. In one policy decedent named two of his daughters beneficiaries, and in the other he designated his first wife. Neither policy reserved the right to change beneficiaries. But each policy obligated the company to make "loans" to the insured to the limit of its cash surrender value. "Loans" were granted in the aggregate amount of $3,466.80.
By his will the testator-insured directed his executors "to pay my funeral expenses and all my just debts as soon after my decease as may conveniently be done." It was upon the theory that the "policy loans" created a debtor-creditor relationship between the insured and insurer, that the learned court below decreed that the beneficiaries were entitled to reimbursement from the general estate in order that they should receive the full face amounts of the policies.
In support of its ruling the court below relied upon our decision in Wilson Estate, 363 Pa. 546, 70 A.2d 354, wherein we decided that in an assessment of transfer inheritance tax, credit must be allowed for an indebtedness of the decedent-insured where a loan was made to him by a bank, and his life insurance policy, payable to designated beneficiaries, was pledged as collateral security. We said, p. 551: "Decedent (settlor) merely assigned the insurance policies as collateral for his loan. As with any other collateral, when a loan is repaid the collateral is returned to the owner. 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, to the same extent as if they had been the original creditor."
In the case now before us, contra-distinguished from the facts in Wilson Estate, supra, the "debt" was owed to the insurance ...