In re Douglas
| Decision Date | 17 April 1986 |
| Docket Number | Bankruptcy No. 85-40792. |
| Citation | 59 BR 836 |
| Parties | In re Janice June DOUGLAS, Debtor. |
| Court | U.S. Bankruptcy Court — District of Kansas |
Stephen W. Cavanaugh, Fisher, Heck & Wright, P.A., Topeka, Kan., for debtor.
Dale L. Somers, Eidson, Lewis, Porter & Haynes, Topeka, Kan., for Merchants Nat. Bank.
G. Steven Ruprecht, Margolin & Kirwan, Kansas City, Mo., for Western Cas. and Sur. Co.
The issue presented is whether life insurance proceeds payable to a beneficiary are exempt property under Kansas law. I find they may be exempted under § 40-414 of the Kansas Insurance Code. KAN.STAT. ANN. § 40-414 (Supp.1984).
The following constitute findings of fact and conclusions of law. Bankruptcy Rule 7052. This is a core proceeding. 28 U.S.C. § 157(b)(2)(A) and (O).
On July 19, 1985, Janice June Douglas ("debtor") filed a Chapter 7 petition. After an extension of time, the debtor filed her schedules and statement of affairs on August 8, 1985. Schedule B-4 listed the proceeds of three life insurance policies as exempt property. The aggregate amount of these proceeds is $1,114,346.61.1
On August 14, 1985 the court entered an order setting the first meeting of creditors for September 6, 1985. The order stated that objections to the debtor's claimed exemptions must be filed within 30 days of the conclusion of the meeting of creditors. See Bankruptcy Rule 4003(b).2 At the bottom left-hand corner of the order, there is a notation that reads: "CREDITORS— Schedule "A" consists of 27 pages at 50¢ per page." Thirty days from September 6, 1985 was October 6, 1985, a Sunday; therefore creditors had until October 7, 1985 in which to file objections to the original exemptions. Bankruptcy Rule 9006(a).
On September 20, 1985 the debtor filed an amendment to her schedules. Rather than simply listing additional property claimed as exempt, the debtor filed a new Schedule B-4 which included the proceeds of the aforementioned three life insurance policies as well as the proceeds of two previously unscheduled policies.3 The court issued notice of this amendment to all creditors. The notice provided that objections to the amendment were to be filed by October 10, 1985.
On October 10, 1985 Western Casualty and Surety Company ("Western") filed an objection to debtor's amended exemptions. Also on October 10, Merchants National Bank ("Merchants") moved for additional time to object to the debtor's original and amended exemptions. On October 15, 1985 the debtor moved the court to declare exempt the property listed in the original Schedule B-4, stating as grounds that no objections had been timely filed. The debtor's motion was granted on October 17, 1985.
Western moved for leave to object to the original exemptions out of time on November 7, 1985. In reliance on the corner notation on the court's August 14, 1985 notice, Western asserted its belief that only Schedule A had been filed by the debtors and Western claimed to be unaware that an exemption schedule had been filed prior to September 20, 1985. It contends that its October 10, 1985 objection relates to both the original and amended exemptions. It objects to the court's October 17 order on the ground that it received no notice or opportunity to object to the debtor's motion of October 15, 1985.
Merchants' failure to timely object to the original exemption schedule was explained by reliance on a legal assistant who misread the court's September 20, 1985 notice. However, it contends that the amended schedule extended the time to object to all of the exemptions listed therein.
Substantively, both Merchants and Western contend that the proceeds of a life insurance policy are not exempt property to the beneficiary under Kansas law.
Procedurally, it is appropriate to consider both Western's and Merchants' objections as timely as to all of the exemptions claimed in the debtor's "amendment" filed on September 20, 1985. The court's notice of that date gave Western and Merchants until October 10 to object to the exemptions claimed in the debtor's September 20 filing. All five policies are claimed exempt in the September 20 "amendment." Western timely filed an objection to the exemptions claimed in the "amendment" on October 10. Merchants timely sought additional time to object by its motion of October 10. Any procedural confusion resulted from the debtor's decision to restate all of her exemption claims by way of the September 20 "amendment" and from the assertion in the debtor's October 15 motion that no timely objections had been filed notwithstanding the October 10 objection by Western and the October 10 motion by Merchants. For these reasons, the substantive objections to exemptions by Merchants and Western will be considered as applicable to the proceeds of all five life insurance policies.
Kansas has opted out of the federal exemption scheme thus limiting the debtor to exemptions available under Kansas law. KAN.STAT.ANN. § 60-2312 (1983). See 11 U.S.C. § 522(b)(1) (Collier Pamphlet ed. 1985). The Insurance Code of Kansas provides the following exemption for life insurance:
KAN.STAT.ANN. § 40-414 (Supp.1984).
Western and Merchants contend that this Kansas exemption statute protects a life insurance "policy" in the hands of a beneficiary but does not allow an exemption for the "proceeds" or death benefits payable to a beneficiary after the death of the insured. Western and Merchants rely heavily on the fact that the term "proceeds" does not appear in either the body or title of the current statute.4 In support of the argument, they cite an early Kansas decision which interpreted prior Kansas law to include an exemption for the proceeds of life insurance policies. Emmert v. Schmidt, 65 Kan. 31, 68 P. 1072 (1902) (). The objectors argue that the holding in Emmert rested on the legislature's use of the term "proceeds" in the title of 1895 KAN.SESS. LAWS, ch. 163, and that the legislature deleted the term from the title in subsequent amendments, thus evidencing an intent to overturn Emmert and preclude exemption of life insurance proceeds. These arguments fail on careful analysis.
In Emmert the plaintiff, Schmidt, obtained a judgment against both Mr. and Mrs. Emmert. Mr. Emmert died leaving two beneficiary certificates payable to his wife, who received the proceeds of those certificates and deposited them to her bank account. Schmidt attempted to garnish the proceeds to satisfy the debt. As addressed by the Kansas Supreme Court in Emmert, the relevant statute at the time was 1895 KAN.SESS.LAWS, ch. 163, § 1 which read:
The court held that the proceeds in Mrs. Emmert's account were exempt:
That this Act is inartistic in form, inaccurate in language, and imperfect as a model of legislative exactness, will readily be conceded. The question, however, is does the act, aided by the language employed in the title, contain a sufficient expression of legislative will to indicate the intent of that body to exempt to the beneficiary the fund in question? We are of the opinion it does.
Emmert, 65 Kan. at 34, 68 P. at 1073; see also, Pefly v. Reynolds, 115 Kan. 105, 106, 222 P. 121 (1924). This decision was based on a finding by the Kansas court of legislative intent to exempt proceeds in the hands of the beneficiary as evidenced by the language of the act and its title. Emmert, 65 Kan. at 34-37, 68 P. at 1073-74. The fact that the term "proceeds" was used in the title of the law as passed by the Kansas legislature "aided" the court in its holding, but it was not the sole indicator of intent. Id. The court held that any construction of the statute which did not exempt proceeds in the hands of the beneficiaries rendered the relevant portion of the Act without effect and was to be avoided. Id. at 1074.5
Further evidence of the legislative intent, though not discussed in Emmert, can be found by comparing the 1895 statute with the one it replaced. The penultimate clause of the prior statute provided that the "policies and their reserves, or the present value thereof . . . shall be free from . . . the claims or judgment sic of the creditors and representatives of the person or persons whose life or lives are so insured." 1873 KAN.SESS.LAWS, ch. 91, § 77; 1871 KAN.SESS.LAWS, ch. 93, § 77. The amendment of 1895 provided that the value and reserves of...
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