Andrews v. Partridge

Background

Harvey K. Partridge, the bankruptcy trustee for Benajah D. Andrews, sued to claim the proceeds of two life insurance policies after a claim was made by Andrews’ executrix. An involuntary bankruptcy petition was filed February 3, 1910; Andrews died February 15, 1910; he was adjudicated bankrupt April 4, 1910, and a trustee was chosen April 28, 1910. One policy was for $10,000 payable to executors or assigns and the other for $5,000 payable to the estate. At the petition date the $10,000 policy had a cash-surrender value of $14.93 and a loan of $4,481.39; the $5,000 policy had a $100 cash-surrender value. Net proceeds were paid to the trustee under a stipulation until title was decided.

Reasoning

The main question was whether the bankruptcy trustee could take the full death proceeds of the policies even though Andrews died before adjudication. The District Court held the trustee was entitled only to the cash-surrender value as of the bankruptcy filing. The Circuit Court of Appeals reversed and said the proceeds passed to the trustee, treating the policies as part of the bankruptcy estate. The Supreme Court, applying principles from related cases cited in the opinion, concluded that the appeals court’s judgment must be reversed, restoring the lower-court rule limiting the trustee’s claim to the cash-surrender value as of the petition date.

Real world impact

The decision limits what a bankruptcy trustee can claim from life insurance when a debtor dies after a petition is filed but before final bankruptcy adjudication. Executors or estates may keep the larger death benefits while trustees can recover only the policies’ cash-surrender value measured at the petition date.