- 20 -
A: No, we had not - it was not quite that
simple. It was basically that the fact that the issue
of whether or not it was a motorcycle versus a horse
accident was not conclusively established. We had not
had the opportunity to fully develop those issues. But
looming on the horizon was [Mr. Marsh’s attorney’s]
threat of expanding the lawsuit, plus this very onerous
discovery request [“that would require hundreds of
thousands of hours of manual labor” to comply with]
that had been served on us. And you know, we felt that
we were kind of pushed against the wall basically.
Q: * * * if Mr. Marsh was lying about the cause
of the accident and it was a non-vehicular accident,
the insurance company would have had a defense to
paying out any claims under the policy, correct?
A: Yes it would have had a defense to the claim
under the policy, but not to the other claims.
The insurance settlement in this case was paid by the
insurer to avoid the costs of litigating what it considered to be
a doubtful personal injury claim after the insurance company had
initially and improperly relied on an invalid exclusionary
provision. Petitioner’s claim was actually based on a false
accident report, and this false statement was the basis for his
recovery. Without petitioner’s false statement regarding the
circumstances of the accident there would have been no insurance
recovery. Statutory exclusions from income such as those
contained in section 104(a) are to be narrowly construed. See
Commissioner v. Jacobson, 336 U.S. 28 (1949). We hold that the
$105,000 settlement was not on account of or for personal
injuries within the meaning of section 104(a). We, therefore,
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