Legg v. St John
| Decision Date | 06 January 1936 |
| Docket Number | No. 54,54 |
| Citation | 297 U.S. 695,56 S.Ct. 336,80 L.Ed. 345,296 U.S. 489 |
| Parties | LEGG v. ST. JOHN |
| Court | U.S. Supreme Court |
Messrs. Wm. Marshall Bullitt, of Louisville, Ky., and Henry Roberts, of Bristol, Va. (Mr. J. K. Brown, of Bristol, Tenn., on the brief), for petitioner.
Mr. robert Burrow, of Bristol, Tenn., for respondent.
Mr. Clayton Scyphers, of Bristol, Va., for respondent, pro hac vice, by Special leave of Court.
The question for decision is whether the bankrupt of his trustee is the person entitled to future monthly disability benefits payable under a contract entered into before the adjudication.
On March 8, 1934, Legg, a resident of Tennessee, was, on his petition, adjudged a bankrupt. He then held a policy in the Metropolitan Life Insurance Company by which it agreed, in consideration of an annual premium of $425.83, to pay upon his death either $24,000 in 240 monthly installments, or the single sum of $17,452, as commuted value. By a supplementary contract issued the same day and attached to the policy, the company, for an annual premium of $49.39, agreed, among other things, to pay a monthly benefit of $174.52, upon due proof that the insured had become totally and permanently disabled before the age of 60. By this provision, if Legg was 'pre- vented thereby from engaging in any occupation and performing any work for compensation or profit,' the company undertook to:
'1. Waive the payment of each premium falling due under said Policy and this Supplementary Contract, and,
Legg had become totally and permanently disabled several years before the adjudication. The company had treated its obligation as matured; had waived the payment of premiums on both the policy and the supplementary contract; and, until the adjudication, had paid to him monthly the disability benefits. The bankrupt asked to have the life insurance policy and also the future disability benefits payable under the supplementary contract exempted from the operation of the assignment to the trustee. The latter set aside as exempt the life insurance policy and its cash sur ender value, but reported that the obligation of the company to make the benefit payments was an asset of the estate. The bankrupt excepted to the report in so far as it denied these to him. The referee ruled that the right to receive them vested in the bankrupt at the time of the adjudication; and that this right given by the supplementary contract is not insurance within the meaning of the laws granting exemptions. He accordingly overruled the exception of the bankrupt, but he directed that of the $174.52 payable monthly, the bankrupt should receive $40 as income exempt under the Tennessee law; and the trustee the balance, namely, $134.52. The trustee acquiesced in the decision; the bankrupt sought review. The District Court confirmed the referee's order; and its judgment was affirmed by the Circuit Court of Appeals. In re Legg, 76 F.(2d) 841. This Court granted certiorari; conflict in decisions being alleged. Legg v. St. John, 295 U.S. 728, 55 S.Ct. 916, 79 L.Ed. 1679.
The bankrupt contends that the 'Supplementary Contract' covering disability is not a separate and distinct contract, but an integral part of the life insurance policy; that the obligation to pay disability benefits is insurance within the meaning of section 70a of the Bankruptcy Act (11 U.S.C.A. § 110(a); that it did not pass to the trustee, since that feature has no cash surrender value; and that if it be held that the contract for disability benefits has a cash surrender value, its amount should be ascertained and the bankrupt be given the opportunity, by paying such value to the trustee, to hold the obligation free from the claims of creditors. The bankrupt contends further that any future disability payments are in the nature of future earnings or after-acquired property, and, hence do not pass to the trustee. Finally, he insists that the obligation of the company to pay disability benefits is property exempt under the law of Tennessee. All of these contentions are, in our opinion, unsound.
The applicable statutes are these:
The Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 544, 548, provides, in section 6 (11 U.S.C.A. § 24), that it shall not affect the allowance of exemptions to the bankrupt prescribed by the laws of the state of his domicile; and in section 70a (11 U.S.C.A. § 110(a) that: 'When any bankrupt shall have any insurance policy which has a cash surrender value payable to himself, his estate, or personal representatives, he may, within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own, and carry such policy free from the claims of the creditors participating in the distribution of his estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets.'
The Tennessee Code (1932) provides:
'8456. Insurance on husband's life, effected by himself, goes to wife and children.—Any life insurance effected by a husband on his own life shall, in case of his death, inure to the benefit of his widow and children; and the money thence arising shall be divided between them according to the statutes of distribution, without being in any manner subject to the debts of the husband.
First. As Legg had become totally and permanently disabled before the adjudication, the co pany's obligation to make benefit payments monthly thereafter was property of the bankrupt which passed to the trustee, unless specially exempted by the law of Tennessee, or by section 70a of the Bankruptcy Act (11 U.S.C.A. § 110(a). It was not exempted by section 70a, because the obligation to pay disability benefits is not 'insurance' within the meaning of that section. The term 'insurance' as there used referred only to legal reserve life insurance, the kind of insurance to which a cash surrender value was a common incident. For such value specific detailed provision is commonly made in life policies. Compare Burlingham v. Crouse, 228 U.S. 459, 33 S.Ct. 564, 57 L.Ed. 920, 46 L.R.A.(N.S.) 148; Cohen v. Samuels, 245 U.S. 50, 38 S.Ct. 36, 62 L.Ed. 143.1 The effect of the pro- vision in section 70a is to assign to the trustee the cash surrender value of the life insurance policy. Everett v. Judson, 228 U.S. 474, 33 S.Ct. 568, 57 L.Ed. 927, 46 L.R.A.(N.S.) 154. No provision is made in the 'Supplementary Contract' for a cash surrender value of the obligations thereby assumed; and none is provided by law or custom. Provision for the payment of disability benefits in connection with such life insurance was not introduced in the United States until about twenty years after the passage of the Bankruptcy Act.2
Second. The fact that the disability benefits are provided for in a 'Supplementary Contract' issued on the same day as the policy and physically attached thereto does not make them life insurance. The life policy and the contract were executed as distinct instruments. The 'Supplementary Contract' was to operate for some purposes as if a part of the life policy.3 But for all other pur- poses it is a...
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