Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 57-54

1957-1 C.B. 298

IRS Headnote

Where a contract between an insurance carrier and the owner of an airplane provides for the payment of a sum certain to the personal representatives of any individual who dies as the result of an accident while a passenger on the airplane and that such payment shall be conditioned upon the execution of a release of all claims for damages against the insured, the proceeds thereof are not includible in the decedent's gross estate for Federal estate tax purposes under section 2042 of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 57-54

Advice has been requested whether any amounts paid under the terms of a contract entered into between an insurance carrier and the owner of an airplane are includible in the gross estate of a decedent who died as a result of an accident while a passenger on the airplane.

In the instant case, the decedent met her death as the result of an airplane accident while a passenger on the insured's airplane. The insured had purchased a combined aircraft policy of insurance from an insurance carrier (a standard liability policy) under the terms of which the insurance company agreed to pay, among other benefits, on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages, including death, sustained by any passenger as a result of an accident to the airplane. For an additional premium a so-called passenger voluntary settlement endorsement was made a part of the original policy. Under the terms of this endorsement, the insurance company agreed to offer settlement of a specified sum to an injured passenger or to the personal representatives of a passenger who dies as the result of an accident, without regard to the insured's legal liability for damages, provided the person or persons having a cause of action for injury or for the death shall execute a full release of all claims for damages against the insured arising out of the airplane accident. The executor of the decedent's estate accepted the proceeds of the policy of insurance payable under the passenger voluntary settlement endorsement and executed a release of all claims for damages against the insured.

Section 2042 of the Internal Revenue Code of 1954 provides, in part, as follows:

The value of the gross estate shall include the value of all property-

(1) RECEIVABLE BY THE EXECUTOR.-To the extent of the amount receivable by the executor as insurance under policies on the life of the decedent. * * *

Under the terms of the standard liability policy, the insurance company was not required to make any payment until the amount of the insured's obligation to pay had been definitely determined. Under the passenger voluntary settlement endorsement, the company agreed to offer settlement of a specified amount without regard to the insured's legal liability for damages provided the person or persons having a caluse of action against the insured executed a full release for all claims for damages arising out of the accident.

The amount recoverable by the personal representatives under the standard liability policy as damages for the decedent's death under a proved claim does not represent insurance on the decedent's life within the meaning of section 2042(1) of the Internal Revenue Code of 1954. For the same reason, the amount received in settlement under the voluntary settlement endorsement does not become classifiable as insurance on the life of the passenger merely because it is payable in settlement without requiring proof of the insured's legal liability for damages. While the amount was paid pursuant to the terms of a contract between the insured and the insurance company, the decedent's personal representative could not, after accepting the payment, prosecute a calim for damages under any statute imposing a liability for wrongful death. The voluntary settlement endorsement provided that payment was to be conditioned upon the execution of a full release of all claims for damages for the death. The insurer is thus relieved from any liability under the standard liability policy.

In view of the foregoing, it is held that where a contract between an insurance carrier and the owner of an airplane provides for the payment of a sum certain to the personal representatives of any individual who dies as the result of an accident while a passenger on the airplane and that such payment shall be conditioned upon the execution of a release of all claims for damages against the insured, the proceeds thereof are not includible in the decedent's gross estate for Federal estate tax purposes under section 2042 of the Internal Revenue Code of 1954.

However, if the contract between the insurance carrier and the owner of the airplane had provided that the insurance company would unconditionally pay an agreed amount to the estate of any passenger who died as a result of an accident while a passenger on the airplane, the acceptance of such amount would have a constituted insurance receivable by the executor of the decedent's estate and includible in the decedent's gross estate for Federal estate tax purposes under section 2042 of the Code.