Brenda D Levesque and Brian A Levesque

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
BRIAN A. LEVESQUE and
BRENDA D. LEVESQUE, 	Chapter 7
Debtors 	Case No. 07-17943-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the “Objection of Chapter 7 Trustee to Debtors’
Claims of Exemption in Three Insurance Policies.” The Debtors filed a Response to the
Trustee’s Objection, and the Court heard the matter on July 30, 2008. At the hearing, the
Trustee represented that two, not three, life insurance policies were at issue and that
because the polices at issue can be surrendered for cash they are not properly claimed as
exempt by Brian A. Levesque and Brenda D. Levesque (the “Debtors”). 	The issue
presented by the Trustee’s Objection is whether under Massachusetts law, the Trustee
sustained his burden of establishing that the Debtors improperly claimed exemptions in
the policies.
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II. BACKGROUND
The Debtors filed a voluntary Chapter 7 petition on December 14, 2007, together
with their Schedules and Statement of Financial Affairs. On Schedule B-Personal Property,
the Debtors listed the two insurance policies at issue as “Whole life insurance policy with
MetLife, policy ending in 289” with a value of $9,492.35 and “Whole life insurance policy
with MetLife, policy ending in 290” with a value of $4,223.75. On C-Property Claimed as
Exempt, the Debtors claimed the two life insurance polices, which were, in fact, issued by
New England Mutual Life Insurance Company, not MetLife, as exempt. In claiming the
policies as exempt, the Debtors cited Mass. Gen. Laws ch. 175, §§ 125 and 126. The Trustee,
having sought and obtained 	extensions of time to object to the Debtors’ claimed
exemptions, filed a timely Objection.
The Debtor, Brian Levesque, is the insured on policy ending in 289, dated April 5,
1990, with a face amount of $35,000. The Debtor, Brenda Levesque, is the insured on the
policy ending in 290, also dated April 5, 1990, in the face amount of $25,000. Except for the
face amount, the policies are identical in all material respects. Brenda Levesque identified
her husband as the primary beneficiary on her policy; Brian Levesque designated his wife
as the primary beneficiary on his policy.
The policies contain the following pertinent provisions:
Claims of Creditors
The Policy and payments under it will be exempt from the claims of creditors
to the extent allowed by law.
Surrender of the Policy
You can surrender the Policy for its Net Cash Value at any time by notice to
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the Company in writing. Upon surrender, the Policy will terminate. The Net
Cash Value will be paid to you in one sum, unless you elect in writing to
apply all or part of the Value to any Payment Option. . . .
Policy Loans
You can borrow all or part of the Loan Value of the Policy from time to time
by written application to the Company. Policy Loans are made on the sole
security of the Policy. The amount available to be borrowed at any time is
equal to the Loan Value less and Policy Loan Balance at the time. 	Policy
Loans may be charged automatically against the Policy to pay premiums. .
.
Loan Value
The Loan Value of the Policy is the amount which with loan interest will
equal the Cash Value of the Policy and of any Paid-Up Additions on the next
loan interest due date, whichever is the smaller amount . . . .
Change of Plan
You can exchange this Policy, if it has not lapsed, for a policy on another plan
of insurance.
Owner
The Owner of the Policy is named in the Application. . . . However, the
Owner can be changed from time to time. The new Owner will succeed to
all of the rights of the Owner, including the right to make a further change
of Owner. . . .
Beneficiary
The Beneficiary is named in the Application. However, the Beneficiary can
be changed from time to time before the death of the Insured. 	The
Beneficiary has no rights in the until the death of the Insured. . . .
Change of Owner or Beneficiary
A change of Owner or Beneficiary must be in written form satisfactory to the
Company, and must be dated and signed by the Owner who is making the
change. . . .
Assignments
An absolute assignment of the Policy by the Owner is a change of Owner and
Beneficiary to the assignee. 	A collateral assignment of the Policy by the
Owner is not a change of Owner or Beneficiary; but their rights will be
subject to the terms of the assignment. . . .
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III. DISCUSSION
A. Arguments
The Trustee argues that the provisions of the policies entitle him to administer them
as assets of the Debtors’ bankruptcy estate. Citing In re Sloss, 279 B.R. 6 (D. Mass. 2002),
he states:
[A]lthough the Massachusetts exemption statutes create an exemption as
against claims of the creditors, both New England policies fail to insulate the
cash value of the life insurance policy from the owner, insured or
beneficiary’s creditors and accordingly, in the context of a joint filing, the
bankruptcy estate should include the cash value of the policies as a non-
exempt assets of the owners-beneficiaries.
The Debtors distinguish Sloss by noting that it involved an exemption claimed
under Mass. Gen. Laws ch. 175, § 119A. They add that the beneficiaries under the policies
have not changed since the policies were issued.
B. Applicable Law
Sections 125 Mass. Gen. Laws ch. 175 provide in relevant part the following:
§ 125 Creditors or beneficiaries; rights
If a policy of life or endowment insurance is effected by any person on his own life
or on another life, in favor of a person other than himself having an insurable interest
therein, the lawful beneficiary thereof, other than himself or his legal representatives,
shall be entitled to its proceeds against the creditors and representatives of the person
effecting the same, whether or not the right to change the named beneficiary is
reserved by or permitted to such person; provided, that, subject to the statute of
limitations, the amount of any premiums for said insurance paid in fraud of
creditors, with interest thereon, shall enure to their benefit from the proceeds
of the policy; but the company issuing the policy shall be discharged of all
liability thereon by payment of its proceeds in accordance with its terms,
unless before such payment the company shall have written notice, by or on
behalf of a creditor, of a claim to recover for certain premiums paid in fraud
of creditors, with specification of the amount claimed. No court, and no trustee
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or assignee for the benefit of creditors, shall elect for the person effecting such
insurance to exercise such right to change the named beneficiary.
Any person to whom a policy of life or endowment insurance, issued
subsequent to April eleventh, eighteen hundred and ninety-four, is made
payable may maintain an action thereon in his own name.
Mass. Gen. Laws. ch. 175, § 125 (emphasis supplied). Section 126 of Mass. Gen. Laws ch.
175 provides the following:
§ 126. Married woman; beneficiary under insurance contract
Every policy of life or endowment insurance made payable to or for the
benefit of a married woman, or after its issue assigned, transferred or in any
way made payable to a married woman, or to any person in trust for her or
for her benefit, whether procured by herself, her husband or by any other
person, and whether the assignment or transfer is made by her husband or
by any other person, and whether or not the right to change the named
beneficiary is reserved by or permitted to the person effecting such
insurance, shall enure to her separate use and benefit, and to that of her
children, subject to the provisions of section one hundred and twenty-five
relative to premiums paid in fraud of creditors and to sections one hundred
and forty-four to one hundred and forty-six, inclusive. No court, and no
trustee or assignee for the benefit of creditors, shall elect for the person
effecting such insurance to exercise such right to change the named
beneficiary.
Mass. Gen. Laws ch. 175, § 126.
C. Analysis
In In re Perry, 357 B.R. 175 (B.A.P. 1st Cir. 2006), the United States Bankruptcy Panel
for the First Circuit set forth the exemption scheme under the Bankruptcy Code and
considered the burden of proof in the context of an objection to the debtor’s claimed
homestead exemption. It stated:
Section 522 of the Bankruptcy Code allows a debtor to exempt certain
property from the bankruptcy estate that would otherwise be available for
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Rule 4003(c) provides: “[i]n any hearing under this rule, the objecting party has1
the burden of proving that the exemptions are not properly claimed.” Fed. R. Bankr. P.
4003(c).
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distribution to creditors, and § 522(b) allows debtors to choose between the
federal bankruptcy exemptions listed in § 522(d), or the exemptions provided
by their state of residence together with those provided by federal,
nonbankruptcy law. See 11 U.S.C. § 522. If a state has “opted out” of the
federal exemption scheme, its resident debtors are restricted to the latter
option. Massachusetts permits its debtors to elect between the state and
federal exemption alternatives . . . An exemption claim is prima facie valid,
absent a timely objection. See McNeilly v. Geremia (In re McNeilly), 249 B.R.
576, 579 (1st Cir. BAP 2000). As the objecting party, the Trustee had the
burden of proving that the Debtor was not entitled to the claimed exemption.
See Fed. R. Bankr. P. 4003(c). . . .
375 B.R. at 177-78 (footnotes omitted).1
This Court need not write on a blank slate with respect to the whole life insurance
policies that the Debtors have claimed as exempt. 	Six years ago, the court in Sloss
considered Mass. Gen. Laws ch. 175, §§ 125 and 126 in the context of a trustee’s objection
to the debtor’s claimed exemptions in a number of whole life insurance policies with
provisions similar to those present in the New England Mutual Life policies at issue in this
case. 	See generally Sloss, 279 B.R. at 10-11 (‘[t]he owner retains the right to change the
beneficiary or even assign ownership in the policy.”). After rejecting the applicability of
Mass. Gen. Laws ch. 175, § 119A, the court summarized the provisions of section 125:
The availability of the § 125 exemption is limited by two caveats. First, any
policy premiums paid in fraud of creditors will not be protected by the
exemption. Second, the protected beneficiary must be part of the class
designated in the statute. Section 125 does not protect all beneficiaries; only
those originally named at the time the policy was first “effected.” Id. at 14
(citing Bailey v. Wood, 202 Mass. 562, 565, 89 N.E. 149, 150 (1909); McCarthy
v. Griffin, 299 Mass. 309, 311, 12 N.E.2d 836, 837 (1938); and In re CRS Steam,
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The court explained:2
The Rosenberg case, decided by the Massachusetts Supreme
Judicial Court, was the first to apply the then newly
amended statutes. Rosenberg, 289 Mass. at 405, 194 N.E. at
292. In attempting to reach and apply the cash surrender
value of the policy that named the insured’s wife and child
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Inc., 217 B.R. 365, 369 (Bankr. D. Mass.1998)). The court added: “[t]hose who
claim the protections of § 125 but became beneficiaries after the policy was
issued cannot prevail.”
Id. (citing McCarthy, 299 Mass. at 311, 12 N.E.2d at 837).
In addition to parsing the statutory language of section 125, the court in Sloss noted
that section 126 “operates to protect a married woman’s interest as a beneficiary from the
insured’s creditors. . . ” and “affords greater protections to a beneficiary who is a married
woman, as the exemption is available regardless of whether the policy was originally
‘effected’ with her as a beneficiary.” Id. (citations omitted).
The court in Sloss next turned to the “quandary” presented by the statutes’ focus on
the rights of beneficiaries as opposed to the rights of policy owners. It observed:
Applying those sections to whole life insurance policies which, on the one
hand, offer death proceeds to beneficiaries and on the other, provide
guaranteed policy values to owners, presents a certain quandary. What is the
effect of these beneficiary exemptions upon the separate cash value interests
held by the owner-insured of a life insurance policy?
Id. at 15. The court resolved the issue as follows:
. . . Massachusetts courts have concluded that in order to fully protect a
beneficiary’s interest in a life insurance policy, §§ 125 and 126 should be
construed to exempt the cash surrender value held by the owner.
Id. (citations omitted). 	The court then held that “if a beneficiary’s interest is protected by2
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as beneficiaries, the plaintiff-creditor conceded, and the
court peripherally acknowledged, that the newly amended
§§ 125 and 126 prevented creditors from forcing the
debtor-insured to surrender the policy for cash. Id. at 406,
194 N.E. at 293. In the Beach case, a bankruptcy case decided
by the United States District Court for the District of
Massachusetts under the former Bankruptcy Act, and in CRS
Steam, a bankruptcy case decided by former Bankruptcy
Judge Queenan under the Bankruptcy Code, the Rosenberg
decision was ruled conclusive. . . .
279 B.R. at 15.
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§§ 125 or 126, the cash surrender value of the policy is protected and exempt from the
bankruptcy estate as well.” Id.
Based upon the foregoing authorities, the Court concludes that the Trustee failed to
establish that the Debtors improperly claimed the life insurance policies as exempt. As
reciprocal beneficiaries of the policies at issue, the Court finds that the Debtors are entitled
to the protections afforded them by Mass. Gen. Laws ch. 175, §§ 125 and 126. The Court
acknowledges that, if the terms of the policies were contained in a trust instrument, the
Trustee most likely be able to obtain a determination that the trust res was property of the
estate. See generally In re Tosi, 383 B.R 1 (Bankr. D. Mass. 2008). The statutes upon which
the Debtors rely to claim the life insurance polices exempt, however, specifically address
the very issues present here, namely whether a creditor, or a trustee standing in the shoes
of a creditor, can obtain the insurance proceeds to the detriment of the beneficiary.
Sections 125 and 126 of chapter 175 prevent just such a result absent fraud on creditors,
which the Trustee did not allege.
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IV. CONCLUSION
In accordance with the foregoing, the Court shall enter an order overruling the
Trustee’s Objection.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: August 21, 2008
cc: Jenny L. Redden, Esq., Stephen E. Shamban, Esq., Matthew Swanson, Esq., Brian R.
Lewis, Esq.
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