Matter of Heins, Bankruptcy No. 1-87-02568.

• Citation: 83 BR 504
• Decision Date: 08 March 1988
• Docket Number: Bankruptcy No. 1-87-02568.
• Parties: In the Matter of Jerry L. HEINS, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

83 B.R. 504 (1988)

In the Matter of Jerry L. HEINS, Debtor.

Bankruptcy No. 1-87-02568.

United States Bankruptcy Court, S.D. Ohio, W.D.

March 8, 1988.

Thaddeus A. Muething, Cincinnati, Ohio, for debtor, Jerry L. Heins.

Norman L. Slutsky, Cincinnati, Ohio, for trustee, Norman L. Slutsky.

ORDER RE: DEBTOR'S CLAIMED EXEMPTION IN PROCEEDS OF LIFE INSURANCE POLICY

RANDALL J. NEWSOME, Bankruptcy Judge.

This Chapter 7 case is before the Court pursuant to the trustee's objection to the debtor's claimed exemption in the proceeds of a life insurance policy issued to the debtor's stepfather, and under which the debtor was named beneficiary.

A hearing on the trustee's objection and the debtor's response thereto was conducted on December 14, 1987, and briefs were filed thereafter.

The facts are not in dispute. The debtor, Jerry Heins, was the stepson of one Harold W. Atherton. Mr. Atherton named Mr. Heins as beneficiary under a group life insurance policy provided to Atherton by his employer, General Motors Corporation. Prior to the filing of the debtor's bankruptcy petition Mr. Atherton died and the debtor was paid $4,886.15 by the insurance company. The parties have stipulated that the debtor was not a dependent of the deceased.

Mr. Heins now claims the entire sum exempt under the provisions of Ohio Revised Code §§ 2329.66(A)(6)(c).

That section provides that

"The person\'s interest in a policy of group insurance or the proceeds of such a policy, as exempted by section 3917.05 of the Revised Code,"

is beyond the reach of creditors. Revised Code section 3917.05, referred to above, provides that

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.

As both parties have noted, and the Court confirms, there is no available case law interpreting O.R.C. § 3917.05. In order to understand this section, it must be read together with § 3911.10,¹ the statute exempting a debtor's individual life insurance policy and its proceeds, and in the context of § 2329.66's general exemption scheme.

The purpose of Ohio's general exemption statute, as it applies to debtors in bankruptcy is "to provide . . . the necessary `fresh start' to regain self-respect and resume a productive role in the economy." In re Bloom, 5 B.R. 451, 453 (Bankr.N.D. Ohio 1980). 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. When such intended beneficiaries of the exemption no longer exist, then the purpose of the statute also ceases. As noted in Hoffman v. Weiland, 64 O.App. 467, 471, 18 O.O. 206, 208, 29 N.E.2d 33, 35 (1940), when "the allowance of the exemption would protect none and would defeat a creditor, the right ceases to exist."

In the case before us, the trustee objects to the claimed exemption, asserting that since the proceeds of the policy were paid directly to the beneficiary and were not "paid to any employee" as required by § 3917.05, the debtor is prohibited from claiming the exemption.

The debtor argues that rather than concentrating on the "when paid to any employee" language the Court should look to the provision stating that no policy or proceeds thereof shall be "seized, taken, appropriated, or applied by any legal or equitable process or operation of law, to pay any liability of such employee, or his beneficiary . . ." (emphasis supplied).

The correct focus of the inquiry is whether Mr. Heins is of the class intended to be protected by the insurance exemption provisions.

Reading these statutes together, we find a clear policy of protecting an insured debtor, dependents of the insured debtor, and creditors of the insured debtor for whose benefit the policy or its proceeds was assigned, from attempts by the creditors of the insured debtor to pursue the policy or its proceeds in satisfaction of their claims. Despite the phrase in § 3917.05 indicating that liabilities of the beneficiary may not be paid out of the proceeds of a life insurance policy, we do not believe that the legislature intended to give the same protection to a beneficiary who becomes a debtor as it did to an insured who becomes a debtor.

At least one commentator agrees with this view. In Nadler, Exemptions, 16 Ohio St.L.J. 63, 68-69 (1955), the author, in explaining § 3911.10, states that

All policies of insurance and endowment or annuity contracts on the life of a debtor taken out for the benefit of or made payable, by change of beneficiary, transfer, or assignment, to his wife, children, dependent relative, creditor, or to a trustee for the benefit of any of them, are exempt from the clams of the insured\'s creditors. The proceeds of such policies

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