United States v. Prudential Insurance Co. of America, 71-2110 Summary Calendar.

• Decision Date: 18 July 1972
• Docket Number: No. 71-2110 Summary Calendar.,71-2110 Summary Calendar.
• Citation: 461 F.2d 208
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

461 F.2d 208 (1972)

UNITED STATES of America, Plaintiff-Appellant, v. The PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.

No. 71-2110 Summary Calendar.^*

United States Court of Appeals, Fifth Circuit.

May 31, 1972.

Rehearing and Rehearing Denied July 18, 1972.

John L. Briggs, U. S. Atty., Jacksonville, Fla., Scott P. Crampton, Asst. Atty. Gen., Tax Div., Fred B. Ugast, Meyer Rothwacks, Crombie J. D. Garrett, Carolyn R. Just, Gary R. Allen, Attys., U. S. Dept. of Justice, Washington, D. C., for plaintiff-appellant; Aaron K. Bowden, Asst. U. S. Atty., of counsel.

Haywood M. Ball, Herman Ulmer, Herman Ulmer, Jr., Ulmer, Murchison, Ashby & Ball, Jacksonville, Fla., for defendant-appellee.

Before JOHN R. BROWN, Chief Judge, and INGRAHAM and RONEY, Circuit Judges.

Rehearing and Rehearing En Banc Denied July 18, 1972.

RONEY, Circuit Judge:

The United States sued the defendant insurance company for the cash loan value of a life insurance policy to satisfy a tax lien against the owner of the policy, a delinquent taxpayer. Although the policy had a cash loan value on the date the Government served notice of levy, by the time the company was required by law to pay the levy, the policy by its terms had no cash loan value. Non-payment of premium had caused the policy to be automatically converted to term insurance with no cash loan value. Holding that the Government can recover only the policy's cash loan value, if any, at the time required for payment, and that it is not entitled to the amount of the cash loan value on the date of notice of levy, we affirm the judgment that the district court entered against the Government and for the insurance company.

This case is controlled by Section 6332(b) of the Internal Revenue Code, which provides a method by which the Government may, by levy, instead of foreclosure, obtain from an insurance company the cash loan value of a delinquent taxpayer's unmatured life insurance contract for the purpose of satisfying, in whole or part, an outstanding tax lien against the insured.¹ This is not a foreclosure action. Neither the Insured nor the policy beneficiaries have been joined as parties to the suit. The Government's case is bottomed squarely on Section 6332(b), which is the only statutory authority for recovery of the cash loan value by levy.

The facts demonstrate the problem. On July 20, 1955, The Prudential Insurance Company of America issued a modified whole life policy insuring the life of Timothy F. Miese. On November 27, 1968, Miese was indebted to the Government for federal income taxes and notice of levy was served on Prudential. The cash loan value of the policy at that time was $1,827.88. The policy was not then in default nor was there any outstanding indebtedness against it. A copy of the notice of levy was mailed to the Insured. Under the statute, the levy was to be satisfied 90 days after service of the notice. Subsequently, before the end of the 90-day period, a premium payment required by the policy became due on December 20, 1968, but was not paid. On January 20, 1969, the 31-day grace period allowed by the policy came to an end and the policy went into default. The policy contained an automatic nonforfeiture clause under which the policy was automatically extended as paid-up term insurance for its face amount of $10,000.00 from the due date of the premium in default until July 31, 2002. The policy contained no other automatic nonforfeiture provisions. It specifically provided that the policy, in its extended form, would not have a cash loan value. Thus when the 90-day period expired on February 24, 1969, and the Government requested Prudential to pay to it the cash loan value of the policy, Prudential declined on the ground that the policy had lapsed for non-payment of premium during the 90-day period and that no cash loan value was payable under the policy.

These facts squarely present the issue of whether the Government was entitled under the law to the cash loan value of the policy on the date of the service of notice of levy, or the value the policy had 90 days thereafter, when payment was required.

Motions for summary judgment were filed by both parties. The district court denied the Government's motion and granted Prudential's motion, dismissing the case. United States v. Prudential Insurance Co. of Amer., 323 F.Supp. 201 (D.C.M.D.Fla.1971). From the district court's dismissal, the Government appealed.

Our decision in favor of the insurance company is based on the clear language of Section 6332(b). The levy under paragraph (1) constitutes a demand for payment of the amount described in paragraph (2). The amount is there described as "the amount which the taxpayer . . . could have had advanced to him by the insurance company . . . on the date prescribed in paragraph (1) for the satisfaction of such levy." Going back to paragraph (1), it clearly prescribes the date for satisfaction as "90 days after service of notice of levy." Simply stated, the statute thus provides that the levy constitutes a demand for the amount of money which the Insured could have advanced to him under the terms of the policy 90 days after the notice of levy is served on the insurance company. Applying the plain meaning of this statute to the facts of this case: Notice of levy was served on November 27, 1968. Ninety days thereafter was February 25, 1969. The taxpayer could not have had any money advanced to him on that date under the terms of the policy. Since that is the only amount provided in the statute for payment to the Government, it is not entitled to any other amount. To reach a different result would require us to either rewrite the statute, or rewrite the policy. Neither of these alternatives is available to us. Had Congress squarely confronted the particular terms of this policy, it might well have made a different provision to enable the Government to recover. But the defendant is entitled to have the statute applied as it was written, not as it could have been or should have been written, nor even as Congress might have intended to write it. Where the words and meaning of a statute of this kind are clear, there is no room for judicial consideration of Congressional intent. Gemsco, Inc. v. Walling, 324 U.S. 244, 65 S.Ct. 605, 89 L.Ed. 921 (1944).

The Government would have us find the statutory language to be ambiguous and reach a contrary result with the aid of legislative history. However, even a study of this history does not convince us that Congress intended to alter in any way the automatic contractual provisions of the policy.

The Law Prior to the 1966 Amendment

Prior to the addition to the Code of Section 6332(b), in order to make any recovery from a life insurance policy of a taxpayer, the Government was required to proceed by a foreclosure suit against the Insured's total rights in the contract. The courts had consistently held that a tax levy, by itself, could not reach the cash loan value or cash surrender value of an insurance policy. This result was based on the ground that the right of the Insured to demand the payment of such values was not included in "the definition of the property possessed and obligations existing at the time" of the levy within the meaning of 26 U.S.C. § 6331(a) and (b), the sections of the Code which authorized the Government to collect taxes by levy. United States v. Mitchell, 349 F.2d 94 (5th Cir. 1965); United States v. Sullivan, 333 F.2d 100 (3rd Cir. 1964). Unless and until the Insured made a demand for all or part of the cash surrender or loan value, there was nothing to which a lien or levy could attach under those sections. United States v. Penn Mutual Life Ins. Co., 130 F.2d 495 (3rd Cir. 1942); United States v. Home Life Ins. Co., 355 F. 2d 86 (2nd Cir. 1966).

Foreclosure proceedings created problems for both the Government and the Insured. The Government by such action was not permitted to recover the amount of the cash surrender or cash loan value at the time of its levy but was relegated to the recovery of only the cash surrender value on the date of judgment. The rationale was that the lien and levy did not vitiate the contractual obligations and rights of the insurance company and the Insured pending final judgment. On the other hand, all of the Insured's rights in the contract were terminated if the Government succeeded in its foreclosure action. The Insured might be then uninsurable, advanced age might bring increased premiums on new insurance, or other problems could develop which would impose harsh penalties on beneficiaries and family, beyond those necessary to meet the needs of the Government.

The 1966 Amendment

Mindful of these problems in the foreclosure procedure, Congress enacted Section 6332(b) by Section 104(b) of the Federal Tax Lien Act of 1966. See: House Committee Report at H.Rep.No. 1884, 89th Cong., 2d Sess. (1966-2 Cum.Bull. 825); S.Rep.No.1708, 89th Cong., 2d Sess. (1966-2 Cum.Bull. 888).

Section 6332(b) provided special rules for a levy on insurance companies with respect to the life insurance of delinquent taxpayers. It allowed the Government to obtain the cash loan value of an Insured's policy without either instituting foreclosure proceedings or surrendering the policy. By proceeding under Section 6332(b) the Government would, in effect, be "exercising . . . the right of the person against whom the tax is assessed to the advance of such cash loan value." It left the taxpayer all other rights in the policy, including the right to maintain the policy in force, subject to the debt. Thus, there evolved a very simplified procedure for satisfying tax delinquencies of persons with life insurance contracts to the extent of the cash loan value, advantageous both to the Government, which did not have to see the asset dwindle in amount during foreclosure proceedings with no benefit to the Insured, and to the Insured and his family, who could retain the benefits of the...