In re Frederick

• Decision Date: 22 July 2013
• Docket Number: No. 12–15994.,12–15994.
• Citation: 495 B.R. 813
• Parties: In re Robert L. FREDERICK (deceased), Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Ohio

495 B.R. 813

In re Robert L. FREDERICK (deceased), Debtor.

No. 12–15994.

United States Bankruptcy Court,

N.D. Ohio.

July 22, 2013.

Joanne Brown, Cleveland, OH, for Trustee.

Charles J. Van Ness, Mayfield Heights, OH, for Debtor.

MEMORANDUM OF OPINION ¹

ARTHUR I. HARRIS, Bankruptcy Judge.

This matter is currently before the Court on the Chapter 7 trustee's amended objection to the debtor's claim of exemption (Docket # 17) and the debtor's response (Docket # 33). At issue is whether Ohio Revised Code §§ 2329.66(A)(6)(c) and 3917.05 permit the debtor to exempt the proceeds of a group life insurance policy, originally provided by the debtor's employer and covering the life of the debtor's spouse, paid to the debtor as the beneficiary of his deceased spouse. For the reasons that follow, the Court overrules the trustee's amended objection.

JURISDICTION

An objection to a debtor's claim of exemption is a core proceeding under 28 U.S.C. § 157(b)(2)(B). This Court has jurisdiction over core proceedings pursuant to 28 U.S.C. §§ 157(a) and 1334 and Local General Order 2012–7 of the United States District Court for the Northern District of Ohio.

PROCEDURAL HISTORY AND BACKGROUND

Prior to the debtor retiring, the debtor worked at Progressive Casualty Insurance Company (“Progressive”). While working at Progressive, the debtor purchased a group life insurance policy through his employer from Metropolitan Life Insurance Company (“MetLife”). The group life insurance policy provided coverage for the lives of the debtor and his dependent spouse.

In January 2011, the debtor's employment at Progressive ended. MetLife informed the debtor that the debtor's group life insurance policy included two options for the debtor to continue his coverage: portability or conversion. The debtor elected the portability option. The debtor's ported policy became effective in February 2011, and provided coverage for the life of the debtor's spouse in the amount of $20,000. On July 19, 2011, the debtor's spouse died. In September 2011, MetLife placed the proceeds from the group life insurance policy, paid to the debtor as the beneficiary of his deceased spouse, in a new bank account under the debtor's control.

On August 15, 2012, the debtor filed a voluntary petition for bankruptcy under Chapter 7. In the debtor's Schedule C, the debtor claimed an exemption under Ohio Revised Code §§ 2329.66(A)(6)(c) and 3917.05 in the proceeds of the group life insurance policy paid to the debtor as the beneficiary of his deceased spouse. On November 14, 2012, the trustee objected to the debtor's claim of exemption. Also on November 14, 2012, the trustee filed an amended objection to the debtor's claim of exemption, and on December 11, 2012, the debtor responded.

Approximately one month later, on January 8, 2013, the debtor died. On June 5, 2013, the Court held an evidentiary hearing to determine whether the debtor's claim of exemption is proper. At the hearing, the trustee submitted nine exhibits, subject to redactions, and the debtor submitted four exhibits. No witnesses testified. After the evidentiary hearing, the Court took the matter under advisement.

DISCUSSION

Section 541 of the Bankruptcy Code provides that the commencement of a case creates an “estate,” which, subject to a few specifically enumerated exceptions, is comprised of all the legal and equitable interests in property a debtor has at the commencement of the case. See11 U.S.C. § 541. Section 522 of the Bankruptcy Code allows a debtor to claim certain property as exempt from the estate. States may adopt the federal exemptions provided in 11 U.S.C. § 522 or establish their own exemptions. See11 U.S.C. § 522. Ohio has elected to opt-out of the federal exemptions. SeeOhio Revised Code § 2329.662. “Therefore, any property that a debtor domiciled in Ohio seeks to exempt must fall within an exemption authorized under Ohio law or nonfederal bankruptcy law.” In re Schramm, 431 B.R. 397, 400 (6th Cir. BAP 2010).

“The principal purpose of the Bankruptcy Code is to grant a fresh start to the honest but unfortunate debtor.” Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367, 127 S.Ct. 1105, 1107, 166 L.Ed.2d 956 (2007) (internal quotation marks and citations omitted). “Exemptions further this policy goal by allowing a debtor to protect property which is necessary for the survival of both the debtor and the debtor's family.” In re Schramm, 431 B.R. at 400. “As such, exemptions are to be construed liberally in favor of the debtor.” Id. (citing Daugherty v. Cent. Trust Co. of Ne. Ohio, N.A., 28 Ohio St.3d 441, 504 N.E.2d 1100, 1104–05 (1986)). However, a liberal construction of the Ohio exemptions statute does not allow a court to enlarge the statute or strain its meaning. Daugherty, 504 N.E.2d at 1105. The trustee, as the objecting party, has the burden of proving by a preponderance of the evidence that the exemption is not properly claimed. SeeFed. R. Bankr.P. 4003(c); In re Wengerd, 453 B.R. 243, 246 (6th Cir. BAP 2011).

At issue here is whether Ohio Revised Code §§ 2329.66(A)(6)(c) and 3917.05 permit the debtor to exempt the proceeds of a group life insurance policy, originally issued by the debtor's employer and covering the life of the debtor's spouse, paid to the debtor as the beneficiary of his deceased spouse. Section 2329.66 provides in pertinent part:

(A) Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment,or sale to satisfy a judgment or order, as follows:

....

(6) ...

....

(c) The person's interest in a policy of group insurance or the proceeds of a policy of group insurance, as exempted by section 3917.05 of the Revised Code[.]

Ohio Revised Code § 2329.66(A)(6)(c). Section 3917.05 provides:

No policy of group insurance, nor the proceeds thereof, when paid to any employee thereunder, is liable to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any legal or equitable process or operation of law, to pay any liability of such employee, his beneficiary, or any other person who may have a right thereunder, either before or after payment.

Ohio Revised Code § 3917.05.

While neither party addressed the issue, the Court needs to make a determination as to whether the beneficiary of a group life insurance policy must be a dependent of the deceased-insured for the exemption in § 3917.05 to apply. Several courts have read into §§ 2329.66(A)(6)(c) and 3917.05 a requirement that the beneficiary be a dependent of the deceased-insured. See In re Lewis, 327 B.R. 645 (Bankr.S.D.Ohio 2005); In re North, 108 B.R. 180 (Bankr.S.D.Ohio 1989); Matter of Heins, 83 B.R. 504 (Bankr.S.D.Ohio 1988).

Heins was apparently the first case to adopt the requirement that the beneficiary be a dependent of the deceased-insured for the exemption in § 3917.05 to apply. The Heins court reasoned that “[i]n order to understand [§ 3917.05], it must be read together with § 3911.10, the statute exempting a debtor's individual life insurance policy and its proceeds, and in the context of § 2329.66's general exemption scheme.” Heins, 83 B.R. at 505 (footnote omitted). The Heins court concluded that for the exemption in § 3917.05 to apply, the beneficiary must be a dependent of the deceased-insured. Id. (“The insurance exemptions found at § 2329.66(A)(6)(c) & (d), i.e., §§ 3911.10 and 3917.05, when read together, appear to provide protection to a debtor, a debtor's spouse, child or other dependent relative, or creditor named as beneficiary, thus primarily evidencing a legislative intent to benefit the insured debtor and those dependent upon him.”).

In North, the court agreed with the decision in Heins and found its analysis “to be well reasoned and thorough.” North, 108 B.R. at 183. The North court rejected the argument by the debtor in its case that “the court in Heins inappropriately engrafted the dependency requirements of O.R.C. [§ 3911.10] and 11 U.S.C. § 522(d)(11)(C) on O.R.C. § 3917.05.” Id. (citation and internal quotation marks omitted). In explaining its reasoning for rejecting the debtor's argument, the North court characterized the debtor's assertion as conclusory and stated that “the Debtor failed to support the allegation with legal argument, case law, or legislative history.” Id. (“The Court is not [persuaded] by mere conclusory remarks and, as such, the Debtor's motion is not well-taken.”).

In Lewis, the court agreed with Heins and North “that the intent of Ohio Revised Code § 3917.05 is to protect the dependent beneficiaries of an employee by allowing an exemption pursuant to Ohio Revised Code §§ 2329.66(A)(6)(c) and 3917.05.” Lewis, 327 B.R. at 650. The parties involved in Lewis “agreed that [the debtor] was a dependent at ‘all times relevant’ to the exemption issue.” Id. (citation omitted). Therefore, the Lewis court would have had the same result whether it did, or did not, challenge the conclusion in Heins and North that a beneficiary must be a dependent of the deceased-insured for the exemption in § 3917.05 to apply.

In In re Fahey, 352 B.R. 288 (Bankr.D.Colo.2006), the court interpreted a Colorado statute exempting group life insurance policies with language similar to Ohio Revised Code § 3917.05, seeColo.Rev.Stat. Ann. § 10–7–205, and disagreed with the decision in Heins. The Fahey court was not persuaded that limiting “the scope of the exemption by adding a requirement that the beneficiary be a dependent of the insured” was warranted by the language of the statute. Fahey, 352 B.R. at 295. “[L]anguage present in one statute should [not] be engrafted onto a separate statute passed at a separate time.” Id. at 296 (citation omitted). The Fahey court further reasoned that “[i]t is within the discretion of the General Assembly to make a policy distinction between proceeds of group life insurance and proceeds of individual life insurance.” Id.

After considering the cases discussed above, this Court is not...