Jones v. Phillips

• Decision Date: 03 December 2020
• Docket Number: Record No. 190643
• Citation: 850 S.E.2d 646
• Parties: Andrea Gail JONES v. Terry M. PHILLIPS, et al.
• Court: Virginia Supreme Court

850 S.E.2d 646

Andrea Gail JONES

v.Terry M. PHILLIPS, et al.

Record No. 190643

Supreme Court of Virginia.

DECEMBER 3, 2020

Noah J. Nelson (The Rahman Group, on briefs), for appellant.

W. Henry M. Jones (Scott D. Stovall ; CowanGates, on brief, Richmond), for appellees.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

In this appeal, we address two questions of first impression in Virginia. The first is whether an insurer's payments on a fire insurance policy were immune from garnishment as "proceeds of the sale or disposition" of property held in trust under former Code § 55-20.2(C), recently recodified as Code § 55.1-136(C).¹ The second is whether the contractual right under the insurance policy to receive fire-loss payments was intangible personal property held by the named insured and his wife as a tenancy by the entirety. Reversing the circuit court, we answer both questions in the negative.

I.

Terry and Cathy Phillips owned their marital residence as tenants by the entirety until 2010 when they retitled the property in the names of separate, revocable trusts as tenants in common. Cathy Phillips's trust owns a 99% undivided interest in the property, and Terry Phillips's trust owns a 1% undivided interest. In February 2018, the residence was severely damaged by a fire. The residence was covered by an insurance policy issued by Chubb & Son, Inc. ("Chubb"), which named "Terry M. Phillips" as the policyholder. See J.A. at 20-95. Cathy Phillips was not specifically named in the policy. One provision in the policy defined "[y]ou" to include Terry Phillips and any "spouse who lives with [him]," id. at 40, and another provision stated that "[i]n case of death" Chubb would "cover your spouse, your legal representative or any person having proper temporary custody of your property until a legal representative is appointed and qualified," and "any member of your household who is a covered person at the time of death." Id. at 83.

Seeking satisfaction of a civil judgment that she had obtained against Terry Phillips, Andrea Jones filed this action to garnish insurance payments from Chubb arising out of the fire damage to the home owned by the reciprocal trusts. Terry and Cathy Phillips filed a motion to quash the garnishment, arguing that the insurance payments were immune from garnishment under Code § 55.1-136(C). That statute protects "proceeds of the sale or disposition" of property that was formerly held as a tenancy by the entirety and then conveyed to separate revocable or irrevocable trusts. See Code § 55.1-136(C). Terry and Cathy Phillips further argued that irrespective of any statutory immunity protecting the reciprocal trusts’ ownership of the property subject to a "sale or disposition," id. , the contractual right to the insurance payments constituted intangible personal property owned by Terry and Cathy Phillips as tenants by the entirety, and thus, these payments could not be seized by a judgment creditor of only one of them.

Jones argued in response that the insurance payments were not statutorily immune from garnishment as "proceeds of the sale or disposition" of trust property under Code § 55.1-136(C) because no "sale" or "disposition" had ever occurred. Jones also contested the alternative argument by Terry and Cathy Phillips that they had acquired as tenants by the entirety the contractual right under the insurance policy to the fire-damage payments.²

Accepting the primary argument by Terry and Cathy Phillips, the circuit court granted the motion to quash and dismissed the garnishment proceeding on the ground that Code § 55.1-136(C) protected the insurance payments from garnishment as "proceeds of the sale or disposition" of property owned by the reciprocal trusts. The court did not address the alternative argument asserted by Terry and Cathy Phillips.

II.

On appeal, Jones argues that the circuit court erroneously held that Code § 55.1-136(C) immunized the insurance payments from garnishment on the ground that they were "proceeds of the sale or disposition" of the property held in trust. For the following reasons, we agree.

A.

"In Virginia, garnishment is regarded ... as an independent suit by the judgment-debtor in the name of the judgment-creditor against the garnishee." Butler v. Butler , 219 Va. 164, 165-66, 247 S.E.2d 353 (1978) ; see also Levine's Loan Off. v. Starke , 140 Va. 712, 714 (1924) ("Garnishment is a statutory proceeding to enforce the lien of a writ of fieri facias on a liability of any other person than the judgment debtor ...."). Garnishment is "substantially an action at law." Lynch v. Johnson , 196 Va. 516, 521, 84 S.E.2d 419 (1954). While "[o]rdinarily, the only adjudicable issue is whether the garnishee is liable to the judgment-debtor, and if so, the amount due," an additional issue may be whether the garnishee has immunity from garnishment. See Butler , 219 Va. at 166, 247 S.E.2d 353.

Absent an applicable common-law or statutory exemption, see, e.g. , Code §§ 8.01-512.4 and 38.2-3339, insurance payments are not exempt from garnishment. "An insurance contract to cover risks like liability or fire insurance builds no cash value and is payable only upon the happening of the named contingency. If the insurance company's obligation to distribute the proceeds becomes fixed and definite, then the company could be summoned as garnishee prior to payment to the insured." Doug Rendleman, Enforcement of Judgments and Liens in Virginia § 4.8[B], at 4-51 (3d ed. 2014); see also Kent Sinclair & Leigh B. Middleditch, Jr., Virginia Civil Procedure § 15.7[C], at 1265 (6th ed. 2014) (observing that "insurance proceeds[ ] may be garnished").

B.

Under the common law, "where a tenancy by the entirety in the fee simple is once created the property is completely immune from the claims of creditors against either husband or wife alone." Vasilion v. Vasilion , 192 Va. 735, 740, 66 S.E.2d 599 (1951). In 2000, the General Assembly "broke new ground" by authorizing "a husband and wife to convey certain tenancy by the entirety real estate to ‘their joint revocable or irrevocable trust, or in equal shares to their separate revocable or irrevocable trusts’ without losing its tenancy by the entirety status." J. Rodney Johnson, Wills, Trusts, and Estates , 34 U. Rich. L. Rev. 1069, 1076 (2000) (quoting Code § 55-20.1 (2000) ).³

Recently recodified as Code § 55.1-136(C), the statute extends that immunity to "any proceeds of the sale or disposition" of tenancy-by-the-entirety property conveyed to trusts, thus granting those proceeds immunity as if they were tenancy-by-the-entirety property. In this case, the parties concede that the residence was not sold. The only remaining question is whether the insurance payments were proceeds of a disposition of the residence.

In the vocabulary of law, a "disposition" is defined as "[t]he act of transferring something to another's care or possession" or "the relinquishing of property," Black's Law Dictionary 592 (11th ed. 2019) (emphasis added),⁴ and the "[a]ct of disposing; transferring to the care or possession of another" or "[t]he parting with, alienation of, or giving up property," Black's Law Dictionary 471 (6th ed. 1990) (emphasis added).⁵ By including "disposition" in Code § 55.1-136(C), the legislature expanded the immunity from creditors to all forms of transferring property outside the context of a voluntary sale. Such dispositions could include foreclosures, judicial sales, condemnations, and any other voluntary or involuntary transfers of property.

Virginia law has never considered an insurance payment for property loss to be an implied transfer of anything to the insurer. As we have said in other contexts, an insurance policy is a "personal contract" that "inures to the benefit of the party with whom it is made, and indemnifies him against loss; and ... the amount paid by the company ‘is in no proper or just sense the proceeds of the property.’ " Thompson v. Gearheart , 137 Va. 427, 434, 119 S.E. 67 (1923) (emphasis added) (citation omitted); see also Lynch , 196 Va. at 522, 84 S.E.2d 419 ; Clements v. Clements , 167 Va. 223, 233, 188 S.E. 154 (1936). We see no reason to take a different conceptual course in this case.

That said, we acknowledge that "disposition" is sometimes used in another sense — to describe a person's "temperament or character" or "personal makeup," Black's Law Dictionary 593 (11th ed. 2019). For example, one might say that an emotionally damaged man has a hot-headed disposition. But we would hardly say that a fire-damaged house has a smoldering disposition or, for that matter, any "disposition" at all. A house, in common vernacular, does not have a good or a bad disposition. Such an anthropomorphic understanding of "disposition" cannot be fairly attributed to the carefully worded text of Code § 55.1-136(C).

Employing the established legal meaning of "disposition," we conclude that the garnishment immunity provided by Code § 55.1-136(C) does not apply to Chubb's insurance payments. The reciprocal trusts, as property owners, did not sell or otherwise dispose of the property. Chubb did not acquire any ownership interest (or any legal or equitable interest at all) in the fire-damaged house. No disposition of the house — according to the word's most common legal usage — ever occurred because the fire was not an "act of transferring" the property to the insurer or to anyone else. See Black's Law Dictionary 592 (11th ed. 2019).

C.

Our dissenting colleagues offer several procedural and substantive rejoinders that warrant a brief response.

1.

The dissent's procedural objections begin with the contention that Jones does not argue the transfer definition that we embrace. See post at 662. We disagree. On appeal, Jones contends that "insurance proceeds are not a disposition under § 55-20.2" because "the property has been neither sold, nor devised, nor given away." See Appellant's Br. at 22 (altering capitalization). These are all actions that involve...