In re Estate of Whitehead

• Decision Date: 09 November 1999
• Docket Number: No. 77A01-9904-CV-134.,77A01-9904-CV-134.
• Citation: 718 N.E.2d 1207
• Parties: In the Matter of the Supervised Administration of the ESTATE OF Richard H. WHITEHEAD, Deceased. United Commercial Leasing Service, Inc., Appellant, v. John S. Elmore, Personal Representative, Appellee.
• Court: Indiana Appellate Court

718 N.E.2d 1207

In the Matter of the Supervised Administration of the ESTATE OF Richard H. WHITEHEAD, Deceased.

United Commercial Leasing Service, Inc., Appellant, v. John S. Elmore, Personal Representative, Appellee.

No. 77A01-9904-CV-134.

Court of Appeals of Indiana.

November 9, 1999.

Paul J. Wallace, David E. Gray, Evansville, Indiana, Attorneys for Appellant.

Robert B. Clemens, Bose McKinney & Evans, Indianapolis, Indiana, Attorney for Appellee.

OPINION

RILEY, Judge

STATEMENT OF THE CASE

Appellant-Creditor United Commercial Leasing Service, Inc. (United) appeals the trial court's approval of the proposed compromise by and between the Supervised Estate of Richard H. Whitehead (Estate), by its Personal Representative, John S. Elmore (Elmore), and Northwestern Mutual Life Insurance Company (Northwestern), as a result of Northwestern's lawsuit filed in the United States District Court Southern District of Indiana, Terre Haute Division.

We affirm.

ISSUES¹

United raises three issues for our review which we restate as follows:

1. Whether the Probate Court had authority to approve the proposed compromise under the Probate Code.

2. Whether the Personal Representative failed to fulfill his duty under Ind.Code § 29-1-14-11 to inquire into the correctness of all claims against the Estate and make all available defenses thereto.

3. Whether the Personal Representative established that it was in the best interest of the Estate under Ind.Code § 29-1-14-18 to compromise the claim with Northwestern.

FACTS AND PROCEDURAL HISTORY

On March 14, 1995, Whitehead Energies, Inc. (Energies), through its president and owner, Richard Whitehead, applied for a five million dollar ($5,000,000) term life insurance policy. The policy listed Energies as the applicant and beneficiary and Whitehead as the insured. Northwestern delivered the five million dollar term life insurance policy to Energies on May 4, 1995.

On May 10, 1995, Whitehead died from gunshot wounds as a result of an apparent murder, however, in February, 1998, William Mahn pled guilty to assisting in Whitehead's suicide, a Class C felony. Shortly after Whitehead's death, Northwestern received a claim from Energies for the proceeds of the life insurance policy.

On June 6, 1995, Whitehead's Estate was opened.

On or about July 13, 1995, Northwestern deposited $5,029,881.98 ("$5 Million Proceeds") into an access fund for Energies.

On July 11, 1997, Northwestern filed suit against Energies in the United States District Court Southern District of Indiana, Terre Haute Division, entitled, The Northwestern Mutual Life Insurance Company v. Whitehead Energies, Inc., Susan Whitehead, John S. Elmore, as Personal Representative of the Estate of Richard H. Whitehead, deceased, Cause No. TH97-208 -CM/F. Northwestern sought return of the policy's "NonProbate Assets," alleging that Whitehead had not been murdered and that he had breached the "Suicide Clause" of his policy. On October 30, 1997, the federal court ruled that the monies distributed to Energies consisted exclusively of the proceeds of a life insurance policy insuring the life of Whitehead, "are not estate assets, are not subject to probate proceedings, and are not to be distributed by the Probate Court." (R.143). On April 30, 1998, judgment was entered in favor of Northwestern and against Energies in the amount of $5,029,881.98.

On May 11, 1998, Elmore filed with the Probate Court a "Petition for Instruction, Authorization and Approval of Settlement." The terms of the settlement were that Northwestern would agree to release all claims against Energies in reference to their $5,029,881.98 judgment in exchange for $2,600,000. In its July 23, 1998 order, the Probate Court approved the compromise settlement. Thereafter, Elmore entered into a compromise settlement with Northwestern for $2,600,000. United, a creditor of Whitehead's Estate, now appeals the Probate Court's approval of the compromise settlement between Northwestern and Elmore, as Personal Representative of Whitehead's Estate.

DISCUSSION AND DECISION

Standard of Review

We initially note our standard of review. When a trial court has entered findings of fact and conclusions of law, we engage in a two-tiered standard of review. We must first determine whether the evidence supports the findings of fact and then whether the findings support the judgment. Heiligenstein v. Matney, 691 N.E.2d 1297, 1299-1300 (Ind.Ct.App.1998). The court's findings and judgment will not be reversed unless clearly erroneous. Id. at 1300. Findings of fact are clearly erroneous when the record lacks any facts or reasonable inferences from the evidence to support them. Id. The judgment is clearly erroneous when it is unsupported by the findings of fact and conclusions entered on the findings. Id. In making these determinations, we will neither reweigh the evidence nor judge witness credibility, but we will consider only the evidence favorable to the judgment and all reasonable inferences therefrom. Id.

I. Probate Court Authority

United argues that the Probate Court had no authority to approve the proposed compromise between the Estate and Northwestern. Specifically, United claims that the Probate Court's only statutory authority to approve the compromise of claims against an estate arises under Ind. Code § 29-1-14-18, and Northwestern failed to file a claim within the five month statutory time period for filing claims. Further, United argues that Ind.Code § 29-1-14-1 bars claims against an estate if not filed within five months after the date of the first published notice to creditors for the purpose of quickly identifying and distributing the assets of the estate. Therefore, United contends that because Northwestern failed to ever file a claim in the Probate Court and the proposed compromise was not consummated within five months after the date of the first published notice to creditors, the Probate Court had no authority to approve the proposed compromise. We disagree.

Ind.Code § 29-1-14-1 provides in relevant part that:

(a) Except as provided in IC 29-1-7-7, all claims against a decedent's estate, other than expenses of administration and claims of the United States, the state, or a subdivision of the state, whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract or otherwise, shall be forever barred against the estate, the personal representative, the heirs, devisees, and legatees of the decedent, unless filed with the court in which such estate is being administered within:

(1) five (5) months after the date of the first published notice to creditors.

Ind.Code § 29-1-14-18 provides that:

The personal representative may, if it appears for the best interests of the estate, compromise any claim against the estate, whether due or not due, absolute or contingent, liquidated or unliquidated, but if such claim is not filed such compromise must be consummated within five (5) months after the date of the first published notice to creditors. In the absence of prior authorization or subsequent approval by the court, no compromise shall bind the estate.

In Cardwell v. Estate of Kirkendall, 712 N.E.2d 1047, we considered when a claim against an estate is of such a nature to be governed by Ind.Code § 29-1-14-1. Although Ind.Code § 29-1-1-3 of the Probate Code defines "claim" to include the "liabilities of a decedent which survive, whether arising in contract or in tort or otherwise, funeral expenses, the expense of a tombstone, expenses of administration, and all estate and inheritance taxes," we found that "claim," as used in Ind.Code § 29-1-14-1, has a more restrictive meaning. Id. at 1049. In particular, we held that the term "claim," as used to limit or bar a claim under Ind.Code § 29-1-14-1, refers to "`a debt or demand of a pecuniary nature which could have been enforced against the decedent in his lifetime and could have been reduced to a simple money judgment.'" Id. (emphasis in original).

Here, the demand which Northwestern charged in the United States District Court could not have been enforced against Whitehead during his lifetime and could not have been reduced to a simple money judgment prior to his death. Instead, the life insurance proceeds out of which the present appeal arises were not payable until Whitehead's death. In particular, Northwestern sought the return of fraudulently obtained insurance proceeds, asking the federal court to void its life insurance contract with Whitehead for fraud and his breach of the suicide clause. Because Whitehead's life insurance policy could not become effective until his death, and because Whitehead also could not have breached the suicide clause until his death, Northwestern's lawsuit could not have been enforced against Whitehead during his lifetime. Northwestern's lawsuit did not meet the criteria of a "claim" under the Probate Code, and thus, was not a "claim" subject to the five month statute of limitations provision of the Probate Code.

Further, the federal court properly found that under Indiana law, a life insurance policy functions as a will substitute, and policy proceeds paid out pursuant to the policy contract do not pass under a will or by intestate, and are not subject to probate proceedings. (R. 143). Therefore, the federal court concluded that the money distributed to Whitehead Energies by Northwestern pursuant to the life insurance policy that insured Whitehead's life, are insurance proceeds and did not pass to Whitehead Energies through a will or by intestate succession, and therefore are not estate assets. Id.

Moreover, an exception exists under Ind.Code § 29-1-14-1(f), allowing Northwestern's claim to be filed anytime within the statute of limitations for torts. Ind.Code § 29-1-14-1(f) states in relevant part:

A tort claim against the estate of the tort feasor may be opened or reopened and suit filed against the special representative of the estate within

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