In re Liang
| Decision Date | 26 June 2012 |
| Docket Number | No. 11–43709–MSH.,11–43709–MSH. |
| Citation | 474 B.R. 37 |
| Parties | In re CHUNG–I LIANG and Yu–Chi Chao, Debtors. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
OPINION TEXT STARTS HERE
David M. Nickless, Nickless & Philips, P.C., Fitchburg, MA, for the trustee.
Walter C. Oney, Jr., Esq., Fitchburg, MA, for the debtors.
David M. Nickless, the chapter 7 trustee in this case, has objected to the claim of exemption of the debtors, Chung–I Liang and Yu–Chi Chao, in a life insurance policy owned by the debtor-wife, Yu–Chi Chao. On schedule B accompanying their bankruptcy petition, in which the debtors listed their personal property assets, they identified the life insurance policy as “Met Life flex premium multifunded life insurance [policy number] 200104131 UM” with a cash value of $10,132.39. The parties have stipulated that the beneficiaries under the policy are the debtors, Mr. Liang and Ms. Chao, and that the insured is their minor child.
On the original version of schedule C accompanying their bankruptcy petition, which sets forth the assets the debtors claim as exempt, the debtors listed the policy, along with two other life insurance policies, as fully exempt under the federal exemption scheme of § 522(d) of the Bankruptcy Code, (11 U.S.C. § 101 et seq.). Subsequently they amended schedule C to exempt the value of the three policies under Massachusetts law, specifically Mass. Gen. Laws ch. 175, § 126.1 The trustee objected to the debtors' claims of exemption in the three life insurance policies but prior to the hearing on the objection the debtors filed a second-amended schedule C to claim all three policies as exempt under bothMass. Gen. Laws ch. 175, § 125 and § 126. At the hearing on the trustee's objection, the trustee requested and was granted time to file a memorandum of law, in which he proposed to 1) object to the second-amended schedule C as necessary and 2) brief the relevant issues of law. The trustee subsequently filed a memorandum of law in which he objected to the second-amended schedule C but only as to policy number 200104131 UM, conceding that the other two life insurance policies were now properly exempted.
In order to understand the dispute between the trustee and the debtors it is necessary to examine with some care the statutes upon which the debtors base their exemption claim.
Mass. Gen. Laws ch. 175, § 125 provides in relevant part:
If a policy of life or endowment insurance is effected by any person on his own life or on another life, in favor of a person other than himself having an insurable interest therein, the lawful beneficiary thereof, other than himself or his legal representatives, shall be entitled to its proceeds against the creditors and representatives of the person effecting the same, whether or not the right to change the named beneficiary is reserved by or permitted to such person; provided, that, subject to the statute of limitations, the amount of any premiums for said insurance paid in fraud of creditors, with interest thereon, shall enure to their benefit from the proceeds of the policy; but the company issuing the policy shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms, unless before such payment the company shall have written notice, by or on behalf of a creditor, of a claim to recover for certain premiums paid in fraud of creditors, with specification of the amount claimed. No court, and no trustee or assignee for the benefit of creditors, shall elect for the person effecting such insurance to exercise such right to change the named beneficiary.
Mass. Gen. Laws ch. 175, § 126 concerns life insurance policies where the beneficiary is a married woman and provides:
Every policy of life or endowment insurance made payable to or for the benefit of a married woman, or after its issue assigned, transferred or in any way made payable to a married woman, or to any person in trust for her or for her benefit, whether procured by herself, her husband or by any other person, and whether the assignment or transfer is made by her husband or by any other person, and whether or not the right to change the named beneficiary is reserved by or permitted to the person effecting such insurance, shall enure to her separate use and benefit, and to that of her children, subject to the provisions of section one hundred and twenty-five relative to premiums paid in fraud of creditors and to sections one hundred and forty-four to one hundred and forty-six, inclusive. No court, and no trustee or assignee for the benefit of creditors, shall elect for the person effecting such insurance to exercise such right to change the named beneficiary.
The overriding purpose of this statutory scheme is to protect the interests of life insurance beneficiaries from the creditors of the person who purchased or owns the policy. This purpose extends to the cash surrender value of whole-life insurance policies. “Massachusetts courts have concluded that in order to fully protect a beneficiary's interest in a life insurance policy, §§ 125 and 126 should be construed to exempt the cash surrender value held by the owner.” In re Sloss, 279 B.R. 6, 15 (Bankr.D.Mass.2002) (citing Rosenberg v. Robbins, 289 Mass. 402, 194 N.E. 291 (Mass.1935); In re CRS Steam, Inc., 217 B.R. 365 (Bankr.D.Mass.1998)).
For a policy to qualify for protection under § 125, the person who effects the policy, who I take to mean the person who originally purchased it (typically the owner), may never be the beneficiary. Mass. Gen. Laws ch. 175, § 125 () (emphasis added). Thus under § 125 if the policy effectuator and beneficiary are the same, the value of the policy is not exempt from the effectuator's creditors. This makes sense.
Section 126, on the other hand, which applies to married women only, is broader. Even if the married woman is the “procurer” of the policy, which I take to mean the effectuator, she may also be the beneficiary and the value of the policy is still exempt. Mass. Gen. Laws ch. 175, § 126 () (emphasis added). This makes less sense without a bit of historical perspective, which will be provided below.
Unlike § 125, which explicitly applies to insurance policies on the life of anyone, § 126 is silent as to who may be the insured under the policy. This omission gives rise to the present dispute. The trustee maintains that § 126 applies only to insurance policies in which a married woman is the owner or beneficiary and her spouse is the insured. Here, while the debtor, Ms. Chao, is the owner and a co-beneficiary of the policy, the insured is her child. This, the trustee argues, takes the policy out of the protection of § 126. The debtors, on the other hand, assert that § 126 protects a life insurance policy for the benefit of a married woman regardless of who is the insured.
Because § 126 does not specify who may be the insured, it is necessary to look beyond the statutory text for guidance. See EMC Corp. v. Comm'r of Revenue, 433 Mass. 568, 570, 744 N.E.2d 55 (Mass.2001) (citing Pac. Wool Growers v. Comm'r of Corps. & Taxation, 305 Mass. 197, 199, 25 N.E.2d 208 (Mass.1940)). The Massachusetts Supreme Judicial Court offers a sensible formula for statutory interpretation in the context of the present dispute:
The imperfections of language to express intent often render necessary further inquiry. Statutes are to be interpreted, not alone according to their simple, literal or strict verbal meaning, but in connection with their development, their progression through the legislative body, the history of the times, prior legislation, contemporary customs and conditions and the system of positive law of which they are part, and in the light of the constitution and of the common law, to the end that they be held to cover the subjects presumably within the vision of the Legislature and, on the one hand, be not unduly constricted so as to exclude matters fairly within their scope, and, on the other hand, be not stretched by enlargement of signification to comprehend matters not within the principle and purview on which they were founded when originally framed and their words chosen.
Pac. Wool Growers, 25 N.E.2d at 209. The SJC's guidance is especially apt where my task is to predict how the SJC would interpret Mass. Gen. Laws ch. 175, § 126 if it had been called upon to resolve this matter. When the state's highest court has not addressed an issue, the following rule applies:
Like a federal court sitting in diversity, a Bankruptcy Court ruling on an issue of state law must rule as it believes the highest court of the state would rule. When the highest court has not addressed the issue, the Bankruptcy Court should not regard lower court rulings on the issue as dispositive. Rather, it should attempt to predict what the highest court would do and to that end should accord proper regard to decisions of other courts of that state.
In re Miller, 113 B.R. 98 (Bankr.D.Mass.1990) (citing Comm'r v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967)).
I begin, therefore, at the beginning. In 1840 New York became the first state in the nation to enact a law permitting a...
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