## Facts

- James L. Zimmerman owned 95% of Zimmerman Excavating Service, Inc.; his son, Steven Zimmerman, owned 5%.
- In 1975, James obtained a State Farm life insurance policy through agent Robert Houser, naming Steven as beneficiary and James as owner.
- The undisputed purpose of the policy was to fund Steven’s purchase of James’s corporate stock upon James’s death.
- James died April 1, 1980; State Farm paid the proceeds to Steven.
- Because James remained the policy owner, the proceeds were included in James’s taxable estate, increasing state and federal estate taxes by $34,373.97.
- Fort Wayne National Bank, as personal representative of James’s estate, sued State Farm and Houser for negligence in failing to structure or advise on policy ownership consistent with the policy’s purpose.
- After a bench trial, the court found State Farm and Houser negligent and awarded $34,373.97 plus prejudgment interest.
- On appeal, State Farm and Houser challenged the exclusion of agent testimony under Indiana’s Dead Man’s Statutes and the sufficiency of the negligence finding.

## Issues

1. Whether Indiana’s Dead Man’s Statutes barred State Farm’s agents from testifying about transactions and communications with the decedent concerning the insurance application.
2. Whether the insurer and its agent, knowing the policy’s business-succession purpose, breached a duty of reasonable care by failing to advise or structure ownership to avoid foreseeable estate-tax inclusion, proximately causing the estate’s additional taxes.

## Decision

- The Court of Appeals of Indiana affirmed.
- The trial court properly excluded testimony from Houser and another State Farm agent about dealings with the decedent under Indiana’s Dead Man’s Statutes.
- Sufficient evidence supported the finding that State Farm and Houser were negligent in failing to advise or structure the policy to avoid estate-tax inclusion given the known purpose of the coverage.
- The additional estate tax of $34,373.97 (plus prejudgment interest) was a recoverable measure of damages.

## Legal Principles

- In actions involving an estate and matters occurring during the decedent’s lifetime, Indiana’s Dead Man’s Statutes can render certain witnesses incompetent to testify against the estate concerning transactions or communications with the decedent.
- Under Indiana law, an agent who actively represented a principal in making or continuing a contract with the decedent may be disqualified from testifying about that transaction against the estate, even without showing the agent has an adverse interest.
- An insurance agent (and insurer through agency principles) who knows the specific business or estate-planning purpose for a policy may have a duty to exercise reasonable care in effectuating coverage consistent with that purpose, including advising on directly implicated and foreseeable tax consequences.
- Foreseeable, directly caused financial harm from negligent structuring or advice—such as avoidable estate-tax liability—may be awarded as damages.

## Conclusion

The appellate court upheld a judgment against an insurer and its agent for negligently failing to structure and advise on life-insurance policy ownership consistent with a known buy-sell purpose, resulting in avoidable estate-tax liability, and it affirmed exclusion of agent testimony about dealings with the decedent under Indiana’s Dead Man’s Statutes.


State Farm Life Ins. Co. v. Fort Wayne Nat'l Bank, 474 N.E.2d 524 (Ind. Ct. App. 1985)