Matter of Perkins

• Decision Date: 16 March 1981
• Docket Number: Bankruptcy No. 3-80-01275.
• Parties: In the Matter of Pauline (NMI) PERKINS, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

9 B.R. 809 (1981)

In the Matter of Pauline (NMI) PERKINS, Debtor.

Bankruptcy No. 3-80-01275.

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

March 16, 1981.

Joseph C. Brucker, Springfield, Ohio, for debtor.

James R. Warren, Springfield, Ohio, Trustee.

DECISION AND ORDER

CHARLES A. ANDERSON, Bankruptcy Judge.

PRLIMINARY PROCEDURE

Pauline Perkins filed a voluntary petition in bankruptcy on 7 May 1980. Among assets scheduled was a life insurance policy (No. 97253) on her life with Commonwealth Life Insurance Company, naming as beneficiary her ex-husband and a policy (Certificate No. 5000160) on her life with Modern Woodmen of America, also naming as beneficiary her ex-husband. These policies were claimed as exempt pursuant to the Ohio Revised Code Sections 2329.66(A)(6)(b) and 2329.66(A)(6)(d).

On 30 June 1980 James R. Warren, the Trustee in Bankruptcy, filed an objection to these claimed exemptions. On 11 July 1980, the Debtor filed an amended claim of exemption for the policies, adding Ohio Revised Code Sections 3921.18 and 3911.10; and, a motion to strike Trustee's objections, which was set for hearing on 15 August 1980.

On 14 July 1980, the Trustee filed an objection to the amended claims of exemptions.

FINDINGS OF FACT

The total cash surrender value of both policies in question is in the total amount of $1,170.41 and the named beneficiary was never changed after the divorce of the Debtor.

The life insurance contract (certificate of insurance) with Modern Woodmen was purchased in the same fashion as the Commonwealth policy; namely, on solicitation of insurance agents. At the time of the purchase of the Modern Woodmen policy, the Debtor was never made aware of being a member of any society. Furthermore, she has never participated in any lodge system activities, or ever knew that any ritualistic society even exists. She merely paid her premium charges when due and considered her life insurance in effect as such. The fact that she automatically became a member of a society by purchasing insurance was never brought to her attention.

According to the Debtor, she never heard of or participated in any type of initiation or any ceremony after dealing with the insurance agent for the purpose of purchasing life insurance. She has never been contacted by or in contact with, any officials or members of any fraternal society.

The policy was physically enclosed in a storage envelope provided by the insurer, with logo and printed virtues recited thereon, such as "Modern Woodmen of America, Rock Island, Illinois . . . since 1883 Life Insurance for the entire family;" and "Modern Woodmen of America is named, controlled and operated by and for its members. Patronize it when your needs for life insurance change;" and, "your life insurance contract is valuable property and was purchased to cover the following: Clean up fund — readjustment income — mortgage cancellation — retirement income — education — family security — juvenile insurance — savings."

The documentary evidence, nevertheless, reflects a fraternal society image and format. Modern Woodmen was authorized by the State of Ohio Department of Insurance "to transact in this State, in accordance with the laws thereof . . . the business of Fraternal Insurance as prescribed in the statutes of the State of Ohio."

The 1978 Revision of By-Laws provides, inter alia, that the principal office of Modern Woodmen of America shall be at the city and county of Rock Island, Illinois, and, as follows:

"Sec. 2, NATURE, PURPOSES AND OBJECTIVES" — This Society is a fraternal benefit society incorporated under the laws of the State of Illinois. It is the objective and purpose of the Society to bring together persons of exemplary habits and good moral character into a fraternal benefit society and thereby to provide for the social, intellectual, moral, and physical improvement of its members; to promote fraternal relationships and foster acts of fraternity, charity, and benevolence by and among its members; to encourage and strengthen the concept of the conventional and traditional family unit to assist its members in living in harmony with their environment; and to provide death, disability, annuity, and other benefits, rights and privileges of its members and their beneficiaries as authorized by these By-Laws and in accordance with the laws of Illinois pertaining to fraternal benefit societies.

The By-Laws contemplate and establish two categories of membership. One category is for "Beneficial members" of "qualified age who have furnished acceptable evidence of insurability." The other category is "Social members" of qualified age who are not Beneficial Members but who support the general objectives and purposes of the Society and desire to become members of a local Camp and pay the required dues . . ."

The Articles of Incorporation specifies, as follows:

"3. This corporation is a fraternal benefit society, without capital stock, organized and carried on for the sole benefit of its members and their beneficiaries and not for profit, having a lodge system with ritualistic form of work and representative form of government. The purpose of the Society shall be to encourage and foster acts of fraternity by and to promote fraternal relationships among its members and to provide death, disability and other benefits, rights and privileges as authorized by its By-Laws and in accordance with the laws of Illinois. It may create, maintain, and disburse funds in accordance with its By-Laws and the laws of Illinois. The payment of benefit in all cases, shall be subject to compliance by the member with the contract, rules and laws of the Society.

"4. The plan which shall be followed in carrying out the purpose of this Society is as follows, to wit: By the organization of local Camps and a National Convention as defined in the By-Laws. The local Camps shall have stated meetings at least once a month, and the National Convention shall meet at least once in four calendar years. The National Convention shall be the legislative and governing body of the Society, having jurisdiction over all subordinate Camps and officers and members of the Society. It shall be the judge of the election and qualification of its own members. It shall possess the power to do and perform any and all acts and things by it deemed essential to the welfare and perpetuity of the Society and in conformity with the laws of the State of Illinois. The Society shall have the power to acquire, hold and convey such real and personal property as shall be requisite for the convenience accommodation of the transaction of its business and such as may come into its possession by reason of its investments or in satisfaction of indebtedness. The Society may create, maintain, and operate for the benefit of its sick, disabled, aged, or distressed members and their families and dependents, hospitals, asylums, homes or sanatoriums, and for such purpose may own, hold or lease personal property and real property located within or without the State of Illinois, with necessary buildings thereon."

The documentary evidence adduced was obtained from Modern Woodmen, after the Trustee's objection, and no such material as the By-Laws and purposes of the organization had ever been seen by the Debtor prior to that time. The Debtor, upon being examined by the Trustee at the first meeting of creditors testified she was not a member of the society.

The certificate of life insurance issued to Pauline Perkins, however, is a typical "legal reserve basis" life insurance contract and in no manner confers any social or other benefits, as recited by the By-Laws. If the insured does not pay her premiums, she then is no longer a "member".

CONCLUSIONS OF LAW

In analyzing the questions of law, it must initially be observed that the question of whether Modern Woodmen of America is legally operating in the State of Ohio as a fraternal benefit society is not a viable issue. By comparing the wording of Ohio Revised Code Section 3921.01 to the Articles of Incorporation, we note very meticulous use of the same semantics. It is obvious that the incorporators were acutely aware of statutory requirements.¹ The thrust of the Trustee's position in this regard need not be explored in detail because of evidence to the contrary, and can be dismissed.

The issue raised of whether or not the life insurance policy ("One-Parent Family Certificate") is exempt cannot be dismissed so readily. This question is fundamentally to be resolved as an interpretation of the Ohio exemption statutes and the rights of the Debtor and her creditors in an insolvency context, without regard to the insurer, (which supplied the documentary evidence without becoming a party to the litigation).

The primary authority upon which Debtor relies is a case precedent under Minnesota law. In the Matter of Heideman, (1975) 5 C.B.C. 518, 1 B.C.D. 1157. This well reasoned decision is worthy of note, even though rendered before adoption of the current Ohio exemption statutes (enacted in haste, to "opt out" of the 1978 Bankruptcy Code federal exemptions) because of at least superficial resemblance to the Ohio statutes pertaining to fraternal benefit societies and an apparent uniformity evolved in such state statutes nationally.

The case precedents relied upon in Heideman place great emphasis upon "the worthy and benevolent design made so prominent in organizations of this character, realizing that the fund accumulated by assessment upon the living was for the relief and assistance of the families of deceased members, not for the benefit of creditors . . ."

There can be little doubt that the underlying, basic...