Kyle Edward Beeson and Cynthia Kay Beeson

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
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06/10/06
Kyle Edward Beeson and Cynthia Kay Beeson
04-13654
Memorandum Opinion re: [8-1] Objection To Exemption by Michael J. Caplan .
Received on: 2005-01-24 14:40:05.000
2005-01-24 00:00:00.000
2005-01-24 00:00:00.000
James Burke
Case 04-13654-s7 Doc 20 Filed 01/24/05 Entered 01/24/05 15:06:00 Page 1 of 14

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
KYLE EDWARD BEESON and
CYNTHIA KAY BEESON,
Debtors. No. 7-04-13654 SA
MEMORANDUM OPINION ON TRUSTEE’S
OBJECTION TO EXEMPTION
This matter is before the Court on the Trustee’s
objection to the Debtor Cynthia Beeson’s exemption of the
proceeds from a personal injury, automobile collision under §
42-10-3 NMSA 1978. The Trustee appears through his attorney
Michael J. Caplan. The Debtors appear through their attorney
Ron Holmes. This is a core proceeding. 28 U.S.C. §
157(b)(2)(B). For the reasons set forth below, the Court
finds that Trustee’s objection is well taken in part and will
be sustained.
FACTS
The parties stipulated to the following facts (doc. 16):
1. On March 5, 2003, the Debtor, Cynthia Beeson (“Beeson”),
and Mary Adamson were involved in an automobile collision
in Albuquerque, New Mexico.
2. The police report concerning the collision indicates that
Mary Adamson caused the collision.
3. The owner of the vehicle driven by Mary Adamson was
Darren Adamson.
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Page -2-
4. At the time of said automobile collision, Cynthia Beeson
had automobile insurance provided by State Farm
Insurance.
5. At the time of said automobile collision, Darren Adamson
and Mary Adamson had automobile insurance provided by
Farmer*s Insurance Company of Arizona.
6. Darren Adamson*s policy of insurance with Farmer*s
Insurance Company is a liability policy.
7. Beeson is not a named insured under Darren Adamson*s
insurance policy with Farmer*s Insurance Company.
8. Beeson is not a party to Darren Adamson*s insurance
contract with Farmer*s Insurance.
9. Beeson did not pay the insurance premiums for Darren
Adamson*s insurance policy with Farmer*s Insurance.
10. Beeson*s name is not shown on Darien Adamson*s insurance
policy with Farmer*s Insurance Company.
11. The Debtors paid the insurance premiums for their
insurance policy with State Farm Insurance Company of
Arizona.
12. Beeson is seeking a monetary recovery from Mary Adamson
as the tortfeasor and is expecting to receive all or a
portion of that recovery from Mary Adamson’s insurance
company, Farmer*s Insurance Company of Arizona.
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Page -3-
13. Beeson is seeking a monetary recovery from her own
insurance company, State Farm Insurance, only under that
portion of the coverage entitled “Uninsured/ Underinsured
Motorist Coverage”.
DISCUSSION
1. Under Bankruptcy Code Section 541, all legal and
equitable interests of the debtors become “estate”
property upon the commencement of a bankruptcy case. A
debtor’s prepetition cause of action for personal
injuries becomes property of the estate. Wischan v.
Adler (In re Wischan), 77 F.3d 875, 877 (5th Cir. 1996).
2. Section 522 allows a debtor to “exempt from property of
the estate the property listed in either paragraph (1)
[federal exemptions, unless the state has opted out of
federal exemptions] or, in the alternative, paragraph (2)
[other federal, state and local exemptions applicable on
the date of the filing of the petition].”
3. Property that is properly exempted under § 522
is (with some exceptions) immunized against
liability for prebankruptcy debts. § 522(c).
No property can be exempted (and thereby
immunized), however, unless it first falls
within the bankruptcy estate. Section 522(b)
provides that the debtor may exempt certain
property “from property of the estate”;
obviously, then, an interest that is not
possessed by the estate cannot be exempted.
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Page -4-
Owen v. Owen, 500 U.S. 305, 308 (1991)(Emphasis in
original.) Exempt property is determined on the date of
the filing of the petition. Id. at 314 n.6. See also In
re Bippert, 311 B.R. 456, 465-66 (Bankr. W.D. Tex.
2004)(“In no event can the set of exemptible items in
subsection (d) be larger than the set of items available
for exemptions, i.e., property of the debtor’s estate, as
provided in subsection (b).”)
4. In New Mexico, exemption statutes are liberally
construed. In re Portal, 132 N.M. 171, 172, 45 P.3d 891,
892 (2002). Liberal construction is not a license,
however, for a court to enlarge an exemption or read into
it provisions that are not found there. Hodes v. Jenkins
(In re Hodes), 308 B.R. 61, 65-66 (10th Cir. B.A.P. 2004).
5. In this case, the estate asset Debtor seeks to exempt
actually has two components: Debtor’s prepetition
personal injury action (the “Injury Action”), and
Debtor’s right to pursue her insurance company for
“Uninsured/ Underinsured Motorist Coverage” (the
“Insurance Claim.”).
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1 “Nothing in subsection [522](b)(or elsewhere in the
Code) limits a State’s power to restrict the scope of its
exemptions; indeed, it could theoretically accord no
exemptions at all.” Owen, 500 U.S. at 308.
Page -5-
6. New Mexico law does not contain an exemption for personal
injury actions or their proceeds1. Compare 11 U.S.C. §
522(d)(11)(D) (Federal exemption for a payment, not to
exceed $17,425, on account of personal bodily injury, not
including pain and suffering or compensation for actual
pecuniary loss.); 11 U.S.C. § 522(d)(11)(E) (Federal
exemption for payments in compensation of loss of future
earnings to the extent reasonably necessary for
support.); Colo. Rev. Stat. § 13-54-102(1)(n) (The
proceeds of any claim for damages for personal injuries
suffered by the debtor is exempt except for obligations
incurred for treatment for the injuries or collection of
the damages.); Idaho Code § 11-604(1)(c) (A judgment or
settlement or other rights accruing as a result of bodily
injury of the individual is exempt to the extent
reasonably necessary for support.); In re Kininson, 177
B.R. 632, 634 (Bankr. E.D. Mo. 1995)(Under Missouri law,
tort claims against the person, as opposed to claims
against property, are exempt.) Therefore, Debtor’s
Injury Action is not exempt under New Mexico law.
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2 Section 42-10-3 NMSA 1978 provides:
The cash surrender value of any life insurance
policy, the withdrawal value of any optional
settlement, annuity contract or deposit with any
life insurance company, all weekly, monthly,
quarterly, semiannual or annual annuities,
indemnities or payments of every kind from any life,
accident or health insurance policy, annuity
contract or deposit heretofore or hereafter issued
upon the life of a citizen or resident of the state
of New Mexico, or made by any such insurance company
with such citizen, upon whatever form and whether
the insured or the person protected thereby has the
right to change the beneficiary therein or not,
shall in no case be liable to attachment,
garnishment or legal process in favor of any
creditor of the person whose life is so insured or
who is protected by said contract, or who receives
or is to receive the benefit thereof, nor shall it
be subject in any other manner to the debts of the
person whose life is so insured, or who is protected
by said contract or who receives or is to receive
the benefit thereof, unless such policy, contract or
deposit be taken out, made or assigned in writing
for the benefit of such creditor.
Page -6-
7. Debtor’s Insurance Claim, however, fits within Section
42-10-3 NMSA 19782 as proceeds of an “accident” policy.
In re Portal, 132 N.M. at 173, 45 P.3d at 893. The
Insurance Claim is therefore exempt. Accord In re
Thompkins, 263 B.R. 223, 226 (Bankr. W.D. Tenn. 2001)(In
Tennessee, a debtor’s uninsured motorist coverage is
“accident insurance” and exempt as “accident, health, or
disability insurance.”); In re Hosek, 124 B.R. 239, 241
(Bankr. W.D. Tex. 1991)(In Texas, a debtor’s
uninsured/underinsured motorist coverage is “accident
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Page -7-
insurance” and exempt as “life, health, or accident”
insurance.)
7. Debtor Cynthia Beeson argues that the Injury Action is
also exempt under Section 42-10-3 NMSA 1978. The Court
disagrees for four reasons.
8. First, on the petition date, the date on which exemptions
are determined, the Injury Action was a tort claim – not
an interest in or proceeds of an insurance policy.
Therefore, the only asset that could be exempted “from
property of the estate” is the tort claim. As noted
above, New Mexico does not recognize an exemption for
tort claims. And, Section 42-10-3 deals with insurance
exemptions, not tort claims.
9. Second, a debtor can only exempt “from property of the
estate.” Section 522(b). Debtor had no interest in
Adamson’s Farmer’s insurance policy and no claim directly
against Farmer’s. “The general rule is that there is no
privity between an injured party and the insurer of the
negligent defendant in the absence of a contractual
provision or statute or ordinance to the contrary;
therefore, the injured party has no claim directly
against the insurance company.” Raskob v. Sanchez, 126
N.M. 394, 395, 970 P.2d 580, 581 (1998). See also Little
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Page -8-
v. Gill, 134 N.M. 321, 324, 76 P.3d 639, 642 (Ct. App.
2003)(The Mandatory Financial Responsibility Act does not
allow an injured third party to maintain a direct action
against a tortfeasor’s insurance in the absence of
permissive language in the insurance contract.); Hovet v.
Lujan, 133 N.M. 611, 617, 66 P.3d 980, 986 (Ct. App.
2003)(The Mandatory Financial Responsibility Act does not
create a common-law third-party beneficiary relationship
between an injured person and the tortfeasor’s liability
insurer.), aff’d 135 N.M. 397, 89 P.3d 69 (2004).
Therefore, neither the policy or any claim against
Farmer’s is property of the estate. Debtor cannot,
therefore, exempt any interest in the Adamson’s policy or
a claim against Farmer’s.
10. Third, a plain reading of the statute suggests that the
exemption is not available. The statute exempts all
payments of every kind from “any life, accident or health
insurance policy, annuity contract or deposit ... issued
upon the life of a citizen of resident of the state of
New Mexico, or made by such insurance company with such
citizen.” Section 42-10-3 NMSA 1978 (emphasis added.)
The statute covers all proceeds from life policies, and
proceeds of accident and health policies and annuities
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3 Debtors urge the Court to extend the holdings of In re
Portal, 132 N.M. 171, 45 P.3d 891 (2002) and Finch v. Schrock
(In re Schrock), 119 B.R. 808 (Bankr. D. N.M. 1990). In
Portal, the Supreme Court found that uninsured motorist
coverage was accident insurance. Schrock dealt with life
insurance. Both of these types of insurance are clearly
within Section 42-10-3's exemption. Neither case justifies
adding language to the statute.
4 Although Debtors admit that the policy is a liability
policy, Fact 6, they argue that it is also an accident policy,
and that the plain language of the statute states that “any
accident policy upon whatever form” is protected. Debtors’
Brief, doc. 15, at 3. In Compton v. Powers (In re Powers),
112 B.R. 178, 180 (Bankr. S.D. Tex. 1989), the debtor made an
identical argument. Under Texas law “[n]o money or benefits
of any kind to be paid or rendered to insured or any
beneficiary under any policy of insurance issued by a life,
health, or accident insurance company ... shall be liable to
execution, attachment or garnishment...” Debtor admitted that
the payor of his benefit was a casualty or liability insurance
company, but argued that casualty and liability insurance were
synonymous with accident insurance because under both types,
the insurer’s obligation to pay rests on the happening of an
“accident.” The Court found the debtor’s argument
“misguided.”
(continued...)
Page -9-
made with the beneficiary.3 Farmer’s had no contract with
the Debtor.
11. Fourth, even if the Court were to construe the Injury
Action as an insurance claim because it may be paid by
Farmer’s, this is not the type of insurance exempted by
Section 42-10-3 NMSA 1978. Section 42-10-3 NMSA 1978
contains exemptions for “life, accident or health”
policies. The Adamson’s insurance policy is a liability
policy.4 (See fact 6.) “[Section 42-10-3], however, does
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4(...continued)
Accident and liability insurance are not synonymous.
Indeed, insurance authorities recognize a clear
distinction between the two types of insurance.
Accident insurance refers to personal insurance; in
other words, the policy covers financial loss
resulting from bodily injury to a specified insured
or beneficiary. Furthermore, it is the insurance
contract between the insured individual and insurer
which is the basis for a right to payment and not
the mere occurrence of an accident. In contrast,
casualty or liability insurance focuses on
protecting an insured against liability for damages
committed by the insured against a third party’s
person or property. The injured third party is not
a party to the contract nor a beneficiary but is
merely the recipient of the proceeds. Insurance
authorities are unanimous on this distinction
between accident and liability insurance.
Id. (citations omitted.) See also 10 Couch on Insurance §
139:1 (“‘Accident insurance’ describes the broad category of
insurance contracts that provide coverage for the ‘health’
consequences of an ‘accident,’ or some variation thereof.); §
139:4 (Accident insurance does not encompass the insured’s
legal liability to third parties.); § 139:5 (Accident
insurance is first party insurance under which the insureds
themselves receive the proceeds when a covered loss occurs.
Liability insurance is the classic third party insurance under
which the proceeds are frequently paid to third parties
injured by the insured, and even when paid to the insured, are
paid only to enable the insured to pay the third party or to
replace sums the insured has paid to the third party. Both
accident insurance and liability insurance use the concept of
“accident” as the trigger of coverage.)
Page -10-
not encompass proceeds from liability insurance policies.
It is restricted to life, accident, and health insurance.
Accident insurance should not be confused with liability
insurance.” Wright v. First National Bank in
Albuquerque, 122 N.M. 34, 38, 919 P.2d 1099, 1103 (Ct.
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Page -11-
App. 1996)(Hartz, J., concurring.), rev’d in part on
other grounds, 123 N.M. 417, 941 P.2d 498 (1997).
Therefore, even if the Court were to accept Debtor’s
classification of the Injury Action as an insurance
claim, it would not be exempt under the statute.
Accord Kollar v. Miller, 176 F.3d 175, 179 (3rd Cir.
1999)(A potential tort judgment is not exempt under
Pennsylvania’s exemption for “the net amount payable
under any accident or disability insurance”, even if the
judgment would be “derivative from the insurance proceeds
of an accident or disability policy.” “Pennsylvania’s
exemption statute does not exempt from a bankruptcy
estate a tort claim, even one that might be paid by an
insurance carrier.”) And see id. at 182:
Third, we believe that it is illogical (as well
as potentially disruptive of the bankruptcy
process) for the right to an exemption under
state law to turn on the possibility that a
putative tort judgment will be paid by a
defendant’s insurance carrier. For one, we can
find no indication that the Pennsylvania
legislature intended a debtor’s exemptions to
turn on the fortuity of whether a tortfeasor who
injures the debtor happens to have insurance
coverage. If we were to accept the [Debtors’]
argument, they could avail themselves of the
section 8124(c)(7) exemption, while other
debtors in the exact same position could not do
so if they were injured by a tortfeasor without
insurance coverage. Given the language and
context of the insurance provision, we cannot
conclude that Pennsylvania has created an
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5 Section 66-5-205.3(A)(2) states that a motor vehicle
insurance policy shall “insure the person named in the policy
and a person using such motor vehicle with the express or
implied permission of the named insured against loss from the
liability imposed by law for damages arising out of the
ownership, maintenance or use of the motor vehicle within a
jurisdiction....”
Page -12-
exemption whose availability turns on whether a
tort victim will be reimbursed from the
wrongdoer’s own bank account or from an
insurer’s.
12. Debtors’ final argument is basically a policy argument
that the New Mexico Mandatory Financial Responsibility
Act (“Act”) should be construed to classify the insurance
required by the Act as “accident” insurance, so that it
would be exempt under Section 42-10-3 NMSA 1978. First,
the insurance required by the Act is liability insurance5.
“Thus, the public policy of this State expressed through
the MFRA is that persons may not operate uninsured, non-
owned vehicles without first either giving evidence of
ability to respond to damages or purchasing a liability
policy with minimum coverage requirements.” Slack v.
Robinson, 134 N.M. 6, 13, 71 P.3d 514, 521 (Ct. App.),
cert. granted, 134 N.M. 123, 73 P.3d 826 (2003), cert.
quashed, 135 N.M. 321, 88 P.3d 263 (2004). Liability
insurance is not accident insurance. See footnote 4
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Page -13-
above. Second, this policy argument should be addressed
to the New Mexico legislature, not this Court.
CONCLUSION
For the reasons set forth above, the Court finds that the
Trustee’s objection to the Debtor Cynthia Beeson’s exemption
claim for her personal injury claim is well taken and should
be sustained.
Honorable James S. Starzynski
United States Bankruptcy Judge
I hereby certify that on January 24, 2005, a true and correct
copy of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Ronald E Holmes
112 Edith Blvd NE
Albuquerque, NM 87102-3524
Michael J Caplan
827 E Santa Fe Ave
Grants, NM 87020-2458
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103-0608
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