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(3) Giving notice * * * and discharging or making provision for discharging its liabilities;
(4) Distributing its remainin...
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Estate of Shareholder of Dissolved Corporation Found Entitled to Proceeds of Life Insurance Policy on Former Employee

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Estate of Shareholder of Dissolved Corporation Found Entitled to Proceeds of Life Insurance Policy on Former Employee (from FC&S Legal)

An intermediate appellate court in Illinois, affirming a trial court’s decision, has ruled that the estate of a shareholder of a dissolved corporation was entitled to the proceeds of a life insurance policy the corporation had taken out on the life of a former employee.

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Estate of Shareholder of Dissolved Corporation Found Entitled to Proceeds of Life Insurance Policy on Former Employee

  1. 1. The Insurance Coverage Law Information Center The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center. ESTATE OF SHAREHOLDER OF DISSOLVED CORPORATION FOUND ENTITLED TO PROCEEDS OF LIFE INSURANCE POLICY ON FORMER EMPLOYEE March 3, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal An intermediate appellate court in Illinois, affirming a trial court’s decision, has ruled that the estate of a shareholder of a dissolved corporation was entitled to the proceeds of a life insurance policy the corporation had taken out on the life of a former employee. The Case Julian H. Yudin was the sole shareholder of J.H. Yudin, Inc., an Illinois corporation. Alma Pate was employed by the corporation, which obtained an insurance policy from Prudential Insurance Company of America insuring Ms. Pate’s life for $100,000; she consented to the policy and the corporation was both the owner of the policy and its sole beneficiary. Sometime after the policy was issued, the corporation was voluntarily dissolved. Ms. Pate, however, continued her employment with Mr. Yudin and his associated entities as an office manager and “key employee of Julian H. Yudin, Inc., Julian H. Yudin, and Julian H. Yudin Associates.” No change ever was made to the named beneficiary on the life insurance policy. Further, all premiums for the policy were paid by J.H. Yudin, Inc., Mr. Yudin personally, or J.H. Yudin & Associates. Years after the policy had been issued, Mr. Yudin died and Ms. Pate ceased working; she died shortly thereafter. Michael Merlie, the successor executor of Mr. Yudin’s estate and successor trustee under the Yudin trust, filed a complaint for declaratory judgment naming both Gary Kyger, as the executor of Ms. Pate’s estate, and Prudential as defendants. He alleged that, when J.H. Yudin, Inc., was dissolved, the corporation’s remaining assets were distributed to Mr. Yudin as its sole shareholder and Mr. Yudin’s estate and trust were the successors in interest of all property owned by Mr. Yudin at the time of his death. Mr. Merlie further alleged that among the assets owned by Mr. Yudin and his successors was the life insurance policy J.H. Yudin, Inc., had obtained on Ms. Pate. He asserted claim forms had been submitted to Prudential; however, Prudential indicated the “proper claimant” was Ms. Pate’s estate. Mr. Merlie asked for a finding that Mr. Yudin’s estate was entitled to the life insurance policy proceeds. The parties moved for summary judgment. The trial court found the proceeds payable to Mr. Yudin’s estate. Mr. Kyger appealed. Illinois Law Section 12.30 of the Business Corporation Act of 1983, 805 ILCS 5/12.30, provides as follows regarding the dissolution of a corporation: (a) Dissolution of a corporation terminates its corporate existence and a dissolved corporation shall not thereafter carry on any business except that necessary to wind up and liquidate its business and affairs, including: (1) Collecting its assets; (2) Disposing of its assets that will not be distributed in kind to its shareholders; Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com
  2. 2. (3) Giving notice * * * and discharging or making provision for discharging its liabilities; (4) Distributing its remaining assets among its shareholders according to their interests; and (5) Doing such other acts as are necessary to wind up and liquidate its business and affairs. (b) After dissolution, a corporation may transfer good and merchantable title to its assets as authorized by its board of directors or in accordance with its by-laws. (c) Dissolution of a corporation does not: (1) Transfer title to the corporation’s assets[.] Section 224.1 of the Illinois Insurance Code, 215 ILCS 5/224.1, provides: Employer insurable interest. Notwithstanding any other Section of this Code, an employer or an employer sponsored trust for the benefit of its employees has an insurable interest in the lives of the employer’s directors, officers, managers, nonmanagement employees, and retired employees and may insure those lives on an individual or group basis with the consent of the insured. The consent requirement will be satisfied if the insured is provided written notice of the coverage and does not reject such coverage within 30 days of receipt of such notice. The extent of the employer’s or the trust’s insurable interest for nonmanagement and retired employees shall be limited to an amount commensurate with the employer’s projected unfunded liabilities to nonmanagement and retired employees for welfare benefit plans, * * *. An insurable interest must exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs. The Appellate Court’s Decision The appellate court affirmed. In its decision, it explained that although a dissolved Illinois corporation retained legal title to its assets, shareholders had an interest in those assets. Moreover, the appellate court continued, the legislature had established a five year period within which a dissolved corporation had to wind up its affairs and, at the end of that period, subject to the rights of creditors, a corporation’s assets devolved, by operation of law, to its shareholders. The appellate court also pointed out that J.H. Yudin, Inc., had an insurable interest in Ms. Pate’s life at the time the policy was issued, finding that, as a result, the policy was “not void or against public policy simply because the corporation’s interest ceased at a later time.” Then, the appellate court found that although Section 224.1 did not govern the dispute because it was not added to the Illinois Insurance Code until after the Prudential policy had been issued, it also supported the trial court’s decision. The appellate court observed that Section 224.1 provided that an employer had an insurable interest and could insure certain categories of employees, including the employer’s directors, officers, managers, nonmanagement employees, and retired employees. The law also limited the employer’s insurable interest for nonmanagement and retired employees. The appellate court found that this language referred to the employer’s insurable interest at the time the policy was issued rather than the date of loss. This interpretation, according to the appellate court, was consistent with the provision in Section 224.1 that stated, “[a]n insurable interest must exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs.” Because Ms. Pate was a manager for J.H. Yudin, Inc., at the time the life insurance policy was issued and the corporation had an insurable interest in her life, the change in her employment status prior to the date of loss was “of no consequence,” the appellate court concluded. The case is Estate of Yudin v. Kyger, No. 4–13–0171 (Ill. Ct.App. Feb. 20, 2014). Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com
  3. 3. Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com Copyright © 2014 The National Underwriter Company. All Rights Reserved. NOTE: The content posted to this account from FCS Legal: The Insurance Coverage Law Information Center is current to the date of its initial publication. There may have been further developments of the issues discussed since the original publication. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought. For more information, or to begin your free trial: • Call: 1-800-543-0874 • Email: customerservice@SummitProNets.com • Online: www.fcandslegal.com FCS Legal guarantees you instant access to the most authoritative and comprehensive insurance coverage law information available today. This powerful, up-to-the-minute online resource enables you to stay apprised of the latest developments through your desktop, laptop, tablet, or smart phone —whenever and wherever you need it.

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