Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-88

1968-1 C.B. 397

IRS Headnote

The value of amounts recoverable for wrongful death, under the uninsured motorist endorsement of an automobile liability insurance policy prescribed by the Virginia Code, is not include in a decedent's gross estate for Federal estate tax purposes under section 2033 of the Internal Revenue Code of 1954. Further, such recovery does not represent insurance under a policy on the life of the decedent within the meaning of section 2042 of the Code.

Full Text

Rev. Rul. 68-88

Advice has been requested whether the value of an amount recoverable as a settlement for wrongful death, caused by an uninsured motorist, under the terms of an automobile liability insurance contract tract is includible in the gross estate of the decedent under section 2033 or section 2042 of the Internal Revenue Code of 1954.

The decedent was the insured under an automobile liability insurance policy issued in the State of Virginia which included coverage for bodily injury and death caused by uninsured motorists. As required by State law, an additional premium was charged for the uninsured motorist coverage. The decedent died as a result of injuries caused by the uninsured operator of a motor vehicle.

Upon a determination that the uninsured operator of the motor vehicle was unable to pay damages and was in fact judgment-proof, the administrator of the decedent's estate petitioned the local court for approval of a compromise agreement with the decedent's insurer for payment. The court approved such compromise as a reasonable and fair settlement of the claim, and ordered payment of the amount so approved to the administrator of the estate in full and complete satisfaction of all claims under the policy.

It was contended by the administrator that the approved compromise settlement constituted payment for the benefit of the decedent's surviving wife as provided by the wrongful death statute of Virginia even though such payment was made by the decedent's insurer and not by the tort-feasor. In support of this position it was suggested that such payment should be treated in the same manner as the settlement in Revenue Ruling 54-19, C.B. 1954-1, 179, which holds that amounts received by specified beneficiaries in settlement of a claim under a state wrongful death statute are not subject to Federal estate tax nor Federal income tax.

The contract of automobile liability insurance under which the decedent was covered includes an endorsement whereby the insurer agrees to pay `in accordance with section 38.1-381 of the Code of Virginia * * * all sums which the insured or his legal representative shall be legally entitled to recover as damages from the owner or operator of an uninsured automobile because of bodily injury * * * including death resulting therefrom * * * sustained by the insured * * * caused by accident and arising out of the ownership, maintenance or use of such uninsured automobile.' Payment of any amount due under the contract is payable to the insured or his legal representative.

Section 38.1-381(b) of the Virginia Code requires the insurer to undertake to pay the insured all sums which he shall be legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle.

Section 8-633 of the Virginia Code refers to death by a wrongful act and provides, in substance, that notwithstanding the death of the person injured, an action will lie against the person who would be liable for damages for the wrongful act had the deceased merely been injured. Such action shall be brought by and in the name of the personal representative of the decedent for the benefit of his specified kin and not for the benefit of the estate as provided under section 8-634 and section 8-636 of the Virginia Code.

Section 2033 of the Code provides that the value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.

The insured and the insurer were both parties to the insurance contract required by the Uninsured Motorist Law of Virginia. The uninsured motorist endorsement in that contract is protection afforded an insured by reason of a contractual agreement after the liability of such uninsured motorist, known or unknown, has been established by a court of competent jurisdiction. Johnson v. General Motors Corporation , 242 F.Supp. 778 (1965). However, in Virginia it has been the policy of the insurers to settle the vast majority of claims under the uninsured motorist endorsement without going to court. In this con-Lection, the Virginia legislature amended section 8-639 of the Virginia Code by authorizing the personal representative of the decedent to compromise any claim to damages arising from death by wrongful act as provided by section 8-633 including claims under the provision of an automobile insurance policy, before or after action is brought, with the approval of the court wherein any such action has been brought or may be brought. Both Federal and State courts have concluded that the coverage required by the Uninsured Motorist Act does not provide liability insurance for uninsured vehicles. The law is primarily concerned with providing adequate compensation for injuries or death to insured persons when other sources are lacking. Federal courts have analogized the obligation of the insurer to that of a contingent surety for the obligation of the uninsured motorist. Hobbs$ v. Buckeye Union Casualty Co. , 212 F.Supp. 349 (1962); Pulley v. Allstate Insurance Co. , 242 F.Supp. 330 (1965).

Where all automobile liability insurance contracts issued in a state are required by law to include an endorsement indemnifying an insured for damages arising out of an accident with an uninsured motorist, including death, it is apparent that recovery from the insurer on account of the uninsured motorist's liability for wrongful death is provided for. The right of action for wrongful death does not accrue until death occurs, and such action is granted by statute directly for the benefit of the statutory designated beneficiaries and is in no sense derived from the fatally injured person.

In the present case, the right of action against the insurer was compromised as provided by statute, and the statute governs in determining the distribution of the amount recovered. Further, the amount payable by the insurer pursuant to the uninsured motorist provision of the decedent's automobile liability policy did not flow from insurance policies on the life of the decedent as provided in section 2042 of the Code. Rather, it was in settlement of a claim against a tortfeasor under a wrongful death statute and, unlike life insurance, no fixed sum was guaranteed or solely contingent upon the death of the insured. While the amount was paid pursuant to a contract between the insured and the insurer, the decedent's legal representative could not prosecuta a further claim for damages under any statute imposing a liability for wrongful death. Section 38.1-381(f) of the Virginia Code provides that any insurer paying a claim under the endorsement or provisions of paragraph (b) of this section shall be subrogated to the rights of the insured to whom such claim was paid against the person causing such injury, death, or damage, to the extent payment was made. In this connection see White v. Nationwide Mutual Insurance Co. , 245 F.Supp. 1 (1965), affirmed 361 F.2d 785 (1966); U.S. Fidelity and Guarantee Co. v. Byrum , 206 Va. 815, 146, S.E.2d 246 (1966). Therefore, the amount recovered under Uninsured Motorist endorsement on the automobile liability policy as damages for the decedent's death does not represent insurance under a policy on the decedent's life within the meaning of section 2042 of the Code. See Revenue Ruling 57-54, C.B. 1957-1, 298.

In view of the foregoing, it is held that the value of the amount recoverable by the administrator for the wrongful death of the decedent under the uninsured motorist provision of an automobile liability insurance policy prescribed by the Virginia Code is not includible in the decedent's gross estate for Federal estate tax purposes under section 2033 or section 2042 of the Code.