USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
For the First Circuit
____________________
No. 95-2320
IN RE: ODA JOSEPH CARON AND LORRAINE NORMA CARON,
Debtor.
____________________
ODA JOSEPH CARON, D/B/A CARON & SONS MOBIL,
F/D/B/A WAKEFIELD COUNTRY STORE AND LORRAINE NORMA CARON,
Appellants,
v.
FARMINGTON NATIONAL BANK
AND LAWRENCE P. SUMSKI, CHAPTER 13 TRUSTEE,
Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Paul J. Barbadoro, U.S. District Judge]
___________________
____________________
Before
Selya, Circuit Judge,
_____________
Aldrich, Senior Circuit Judge,
____________________
and Stahl, Circuit Judge.
_____________
____________________
Grenville Clark, III with whom Gray Wendell & Clark, P.C. was on
____________________ ___________________________
brief for appellants.
David P. Azarian with whom Michael, Jones & Wensley was on brief
________________ _________________________
for appellees.
____________________
April 25, 1996
____________________
STAHL, Circuit Judge. Oda J. Caron and Lorraine N.
STAHL, Circuit Judge.
_____________
Caron appeal the district court's affirmance of the
bankruptcy court's denial of an exemption for the cash
surrender value of an insurance policy on Mr. Caron's life.
Because we find that the courts below correctly interpreted
the applicable New Hampshire statute, we affirm.
Background
Background
__________
Appellants, husband and wife, filed a joint Chapter
13 bankruptcy petition in the United States Bankruptcy Court
for the District of New Hampshire. In their statement of
financial affairs, they listed as an asset a Metropolitan
Life Insurance Company policy on the life of Mr. Caron, and
they claimed the policy's $19,260 cash value as exempt
property pursuant to 522(b)(2)(A) of the Bankruptcy Code.
Because New Hampshire enacted legislation "opting out" of the
federal exemptions, New Hampshire debtors are only permitted
to exempt property pursuant to state-enacted exemptions, not
those specified in 11 U.S.C. 522(d). See N.H. Rev. Stat.
___
Ann. 511:2-a (opting out of federal exemption scheme).
Farmington National Bank, a creditor of the Carons, timely
filed an objection to the exemption claim, in which the
chapter 13 trustee joined.
After a hearing before the bankruptcy court, at
which a copy of the life insurance policy was placed in
evidence, the court ruled that the policy was property of the
-2-
2
estate under 11 U.S.C. 541(a)(1) and that the cash
surrender value of the life insurance policy was not exempt
under New Hampshire law. The Carons appealed that ruling to
the United States District Court for the District of New
Hampshire, which affirmed the order of the bankruptcy court.
This appeal followed.
The sole issue for determination is whether the
courts below erred in holding that the life insurance policy
was not exempt property. The parties agree with the relevant
factual findings made by the bankruptcy court: that at the
time of the filing of the bankruptcy petition, Mr. Caron
owned the life insurance policy and retained the right to
change the beneficiary (his wife and co-debtor Lorraine
Caron) and the contingent beneficiaries (their children), as
well as the right to surrender the policy for its cash value.
Thus, for purposes of this appeal, all that is before us is
the legal conclusion that the policy was not exempt, and our
standard of review is de novo. See T I Federal Credit Union
__ ____ ___ ________________________
v. DelBonis, 72 F.3d 921, 928 (1st Cir. 1995).
________
Discussion
Discussion
__________
In order to determine whether the cash value of the
policy is exempt, we begin with the New Hampshire statute,
N.H. Rev. Stat. Ann. 408:2, which provides:
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
-3-
3
insurable interest therein, the lawful
beneficiary thereof other than himself or
his legal representatives, shall be
entitled to its proceeds and all other
benefits against creditors and
representatives of the person effecting
the same; 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.
The bankruptcy court ruled that the policy was not
exempt, incorporating by reference its discussion of the
issue in In re Monahan, 171 B.R. 710, 715-21 (Bankr. D.N.H.
______________
1994) where it decided three separate cases involving
exemption claims under New Hampshire's life insurance
exemption statute, 408:2.
Because the New Hampshire Supreme Court has not
rendered any decisions construing 408:2, we interpret the
statute as we think that court would interpret it. The
district court agreed with the bankruptcy court that the
plain meaning of the statute restricts the exemption right to
the beneficiary and provides no protection for the
insured/owner of the policy. Because the policy in this case
provided the beneficiary with no right to the proceeds or
other benefits of the policy except upon the death of the
insured, the district court ruled that Mrs. Caron, the named
beneficiary, had no right during the life of her husband to
maintain the policy for her benefit or to surrender the
-4-
4
policy for its cash value, and that her sole interest was as
the beneficiary in the event of Mr. Caron's demise.
The appellees, Farmington National Bank and the
Chapter 13 Trustee, argue that the New Hampshire statute
distinguishes between the owner/insured of the policy and a
third person beneficiary and clearly specifies that the
person entitled to the exemption is "the lawful beneficiary
thereof," not the insured/owner. The appellees argue that
only when the insured has "parted with all of his beneficial
interest therein" would a life insurance policy be exempt
from the insured's creditors, quoting from and relying upon
In re Bray, 8 F. Supp. 761, 763 (D.N.H. 1934). They reason
__________
that since Mr. Caron, at the time of the bankruptcy filing,
had not "parted with all his beneficial interest" in the
policy, but rather retained ownership and the concomitant
rights to reach its cash value and to change the beneficiary,
he still effectively retained all the beneficial interest.
Mrs. Caron's interest, they assert, was both defeasible by
Mr. Caron and contingent upon his death.
While the statute is not a model of clarity, we
find the reasoning of the bankruptcy court and the district
court to be compelling. We agree that the statute cannot be
read to exempt the policy in favor of an owner/insured, but
only in favor of a beneficiary. And here, the rights of the
beneficiary, Mrs. Caron, do not arise until Mr. Caron's
-5-
5
death, and her prospective rights can be diminished or
terminated by him during his lifetime. As such, because Mr.
Caron was alive at the time the petition in bankruptcy was
filed, Mrs. Caron had no rights in the proceeds, cash value,
or other benefits of the policy. Thus, she had no interest
in the policy that could be exempted by the statute. The
rights and powers under the policy retained by the
owner/insured, Mr. Caron, became the property of the estate
as of the filing of the petition. See 11 U.S.C. 541(a)(1)
___
(all legal or equitable interests of the debtor in property
become property of the estate upon commencement of the case).
Accordingly, neither Mr. Caron nor his wife are entitled to
the statutory exemption.1
While we recognize that generally courts are to
construe exemption statutes liberally to reflect their
remedial purposes, we find reasons here to afford a more
narrow reading. While the result that the Carons seek would
apparently obtain under the analogous federal exemption, 11
U.S.C. 522(d)(7), see In re Monahan, 171 B.R. at 716 & n.8,
___ _____________
legislative history indicates that New Hampshire opted out of
____________________
1. We note, but do not rely upon, the fact that Mrs. Caron
is a co-debtor in this joint bankruptcy, and it appears
therefore that her interest in the insurance policy was an
asset of the estate in any event, subject to the claims of
her creditors if not Mr. Caron's. At most, the exemption
___
statute shelters a policy from the creditors of the insured;
it makes no reference to the creditors of the beneficiary.
See N.H. Rev. Stat. Ann. 408:2.
___
-6-
6
the federal exemption scheme because it was too "liberal,"
overly indulgent of debtors at the expense of creditors.2
Even more persuasive is legislative history indicating that
the New Hampshire legislature specifically chose to delete
language that would have made the Carons' arguments much more
plausible. The statute at issue, as originally proposed,
provided that the exemption was available "whether or not the
right to change the beneficiary is reserved or permitted to
such person [the owner/insured]," but that language was
struck. New Hampshire House Report on House Bill 224,
Journal of the House, April 29, 1931, at 698. We infer from
the deletion that the legislature declined to extend the
exemption to policies where the owner/insured retained the
power to alter the beneficiary. Of like import is the
legislature's deletion of the provision that "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." Id. We infer from
___
this deletion a legislative intent that the statute should
not prevent a bankruptcy trustee from stepping into the
____________________
2. See New Hampshire House Judiciary Comm. Report, Journal
___
of the House, 1981 January Session, April 23, 1981, at 533
(stating that the proposed opt-out statute "prevents New
Hampshire residents from filing with the more liberal federal
bankruptcy law."); Minutes of House Judiciary Committee
executive session April 20, 1981, statement of Representative
Eaton (federal bankruptcy act is "very liberal" and that
state exemptions ought to control instead).
-7-
7
policy owner's shoes to exercise policy rights, such as
reaching the cash value or changing the beneficiary. Thus,
the legislative history strongly suggests a narrow scope for
New Hampshire's life insurance exemption, and the Carons'
exemption claim falls outside that scope.
Contrary to the Carons' arguments, we are not bound
to follow, and need not overrule, the district court
decisions in In re Whelpley, 169 F. 1019 (D.N.H. 1909), and
_______________
In re Bray, 8 F. Supp. 761 (D.N.H. 1934). The Whelpley
___________ ________
decision predates the enactment of the present statute and
the aforementioned legislative choices to set a narrow scope
for the exemption. Moreover, the two-paragraph Whelpley
________
opinion is devoid of analysis. In Bray, the district court
____
held that the life insurance policy was not exempt under the
___
statute at issue here. Bray, 8 F. Supp. at 763. While Bray
____ ____
provides more analytical discussion, it is not clear which
aspects of the insurance policy rendered it non-exempt. It
is just as plausible, in our view, to read Bray as support
____
for the appellees' arguments as it is for the Carons'. Thus,
having considered both Whelpley and Bray, we find them
________ ____
unpersuasive.
Because the language of the exemption statute does
not encompass the insurance policy in this case, the decision
of the district court is affirmed.
________
-8-
8
