Business Men's Assurance Company of America v. Northern California Veneer, Inc., a Corporation, and Dorothy M. Burke

Business Men’s Assurance Company brought this interpleader action for distribution of the proceeds from an insurance policy on the life of Robert Burke. Federal jurisdiction was founded on diversity of citizenship. The claimants are Northern California Veneer, Inc. (Noreal), a creditor of the insured, and Dorothy Burke, widow of the insured.

The district court found that the policy had been purchased for the protection of Burke’s business creditors and that its proceeds were held in trust by Mrs. Burke for the benefit of Noreal, to the extent of Burke’s business debt to Nor-eal. We affirm.

In 1967 Mr. Burke operated a small business from an office in his home. He had obtained a government contract to furnish bomb crates to the Navy, but his weak financial position hampered acquisition of lumber for the crates. He asked assistance of a friend, E. W. Moore, president of Noreal. They agreed that Noreal would purchase lumber on its credit and then invoice it to Burke.

Noreal initially granted Burke an $8,000 line of credit. When Burke needed additional credit, he and Moore agreed that he should purchase life insurance to secure the debt. At Noreal’s suggestion, Burke bought a…