First-of-Its-Kind Statute Interpretation Defends Corporate Trustee from $10M Insurance Policy Claim  

Mark D. Bradshaw successfully defended trustee client M&T Bank from claims alleging breach of fiduciary duties regarding the lapse of a $10 million life insurance policy held within a trust. Notably, Mark’s successful arguments in this decade-long case are first in the country to construe a statutory “exculpation” of a life insurance trustee for the selection and administration of a life insurance policy.

As trustee, M&T Bank administered an irrevocable trust that included certain life insurance policies, including a $5 million policy that had its premiums funded by the Grantor’s employer and the investment returns on the policy’s cash value. This policy was later exchanged for a $10 million policy, with increased premiums. Due to market conditions, the investment returns did not sustain the payment of the policy premiums. Despite good faith attempts by the trustee to convince either the Grantor or his employer to further support the policy, neither would agree to do so. Because additional premium payments were required but were not made, the policy lapsed, and the trustee’s performance came under fire. Mark successfully argued that, based on a provision of the Pennsylvania Estate and Fiduciaries Code regarding the acquisition and administration of life insurance policies, the trustee was without liability for this result.

Skeptical at first, President Judge Edward E. Guido of the Cumberland County Court of Common Pleas ultimately agreed with Mark’s arguments based on the statute and dismissed all objections against the client. This case represents the first time this provision of the Probate, Estates & Fiduciary Code protecting the trustee of a life insurance trust has been interpreted by a court, despite having been passed nearly 25 years ago.