Opinion
BK-S-03-21264-LBR.
September 30, 2004
ORDER FOR TURNOVER AND ORDER VACATING PRIOR ORDER OF MARCH 8, 2004
The Trustee has filed a motion to compel the Debtor to turnover what he argues is the non-exempt cash values of her two life insurance policies: (1) #8846549 in the amount of $9,900.65, and (2) #8865952 in the amount of $59,274.52. The Debtor has conceded that the non-exempt portion of the cash value of policy #8846549 is $9,900.65 and should be turned over to the Trustee.
An issue remains, however, as to whether any of the cash value of policy #8865952 is exempt under N.R.S. § 21.090(1)(k). The Debtor acquired the policy in 1993. It was "paid up" as of September 9, 2003, which was before the Debtor filed her petition on September 12, 2003. No premiums were due on the day of filing. Before the policy was "paid-up," the premium was $11,350.77 per year. The cash value on the date of filing was $64,993.90.
The Debtor's payment history on the premium has not been supplied for the record. The following excerpt, however, from the deposition testimony of Joseph Pantozzi, a broker for the insurance company, has been supplied by the Debtor as an exhibit to her "Supplement To Opposition" filed on October 18, 2004, at page 6, lines 3-7 of the transcript:
Q: There was no change made in the policy, this is just — it was full 10 years term of the policy and it was paid up as of September 9th?
A: Correct. I wrote this policy originally in 1993 and that's how I structured it in 1993. . . ."
N.R.S. § 21.090(1)(k) provides that the following is exempt from execution:
All money, benefits, privileges or immunities accruing or in any manner growing out of any life insurance, if the annual premium paid does not exceed $1,000. If the premium exceeds that amount, a similar exemption exists which bears the same proportion to the money, benefits, privileges and immunities so accruing or growing out of the insurance that the $1,000 bears to the whole annual premium paid.
The parties disagree as to the interpretation of the statute. The Trustee argues that although the premium is now paid in full, only a portion of the cash value is exempt because the premium exceeded $1,000 when it was paid by the Debtor. He argues that "[i]n light of the fact that the statute refers to insurance premiums paid in the past, the fact that the policy was paid up a few days before the filing of the petition does not change the calculation of the exemption."
The Debtor, however, contends that because the premium was "paid-up" on the date of filing, then under the language of the statute there is no premium due, and therefore the annual premium does not exceed $1,000. She thus argues that all of the cash value of the policy is exempt under the language of the statute.
N.R.S. § 21.090(1)(k) is subject to two reasonable but inconsistent interpretations and is therefore ambiguous. See Gallagher v. City of Las Vegas, 114 Nev. 595, 599, 959 P.2d 519, 521 (Nev. 1998) (definition of "ambiguous" statutory language). Is the entire cash value exempt given that no premium is required to be paid now that the policy is "paid-up"? Or is only a portion of the cash value exempt because, when the premium was in effect, it was more than $1,000?
The Nevada Supreme Court has not yet addressed the issue of how N.R.S. § 21.090(1)(k) is applied when the premium on a policy is "paid-up." In interpreting a state statute, a federal court must apply state rules of statutory construction. In re First T.D. Inv., Inc., 253 F.3d 520, 526 (9th Cir. 2001). Under the Nevada law of statutory construction, when a statute is ambiguous:
The leading rule is to ascertain the legislature's intent, and to accomplish that goal [the court] may examine the context and spirit of the statute in question, together with the subject matter and policy involved. [The] interpretation should be in line with what reason and public policy would indicate the legislature intended, and should avoid absurd results.
Gallagher v. City of Las Vegas, 114 Nev. 595, 599, 959 P.2d 519, 521 (Nev. 1998) (citations omitted). A court should also consult other sources such as legislative history, legislative intent, and analogous statutory provisions if a statute is ambiguous. Madera v. State Indus. Ins. Sys., 114 Nev. 253, 257, 956 P.2d 117, 120 (Nev. 1998). When a state's highest court has not decided an issue, a federal court must use its best judgment to ascertain how the state court would decide the issue. General Motors Corp. v. Doupnik, 1 F.3d 862, 865 (9th Cir. 1993).
The Nevada Legislature has long recognized the partial exemption of life insurance benefits, as a nearly identical version of N.R.S. § 21.090(1)(k) has been the law since at least 1912. There is no legislative history on this provision.
Revised Laws of Nevada § 5288 (1912) provided:
What exempt from execution.
Sec 346. The following property is exempt from execution, except as herein otherwise specially provided:
14. All moneys, benefits, privileges, or immunities accruing or in any manner growing out of any life insurance, if the annual premium paid do [sic] not exceed five hundred dollars, and if they exceed that sum, a like exemption shall exist which shall bear the same proportion to the moneys, benefits, privileges, and immunities so accruing or growing out of such insurance that said five hundred dollars bears to the whole annual premium paid.
Unless specially provided, there is no legislative history available in Nevada before 1965. Generally, beginning in 1965, some but not all standing committees began to keep some minutes of their meetings. In 1973, the Assembly adopted a rule to keep minutes of the standing committee meetings. The Senate adopted a similar rule in 1977.
N.R.S. 21.090(1)(k) exempts life insurance benefits to the extent they are represented by a $1,000 annual premium. With this provision the legislature has made manifest its objective to limit the exemption. There is no reason to believe that the legislature intended a policy be entirely exempt merely because of the circumstance that premium payments are no longer due. To construe the statute in this manner would produce an unjust advantage for some persons, and carve out an exemption with no monetary cap when a policy happens to be "paid-up."
The historical purpose of exemptions is that a debtor retain the basic necessities of life so that he and his family will not be left destitute. As the Nevada Supreme Court has stated: "[T]he real purpose and intent of the exemption laws which are to save for the debtor from his financial wreck a certain amount of necessary property which will enable him to keep himself and family from actual want while attempting a new start in life." I.H. Kent Co. v. Miller, 77 Nev. 471, 476, 366 P.2d 520, 522 (Nev. 1961). Exemption laws are enacted pursuant to the dictates of the Nevada Constitution, Art I, § 14, which provides that "[t]he privilege of the debtor to enjoy the necessary comforts of life shall be recognized by . . . exempting a reasonable amount of property from seizure or sale." N.R.S. § 21.090(1)(k) was presumptively passed to achieve this end: namely, to preserve a portion of the debtor's life insurance benefits to prevent him and his family from being destitute. See Elder v. Williams, 16 Nev. 416 (Nev. 1882) (statutory exemption of two horses and a wagon "was undoubtedly passed in compliance with the constitutional requirement" of Nev. Const. Art I, § 14). It does not seem logical that two policies performing the same function, the only difference being that one policy is "paid-up" while premiums might be still be owed on the other, should be treated differently for purposes of the exemption afforded by N.R.S. § 21.090(1)(k). Rather, it is apparent that the legislature wanted to create an exemption but limit it to an amount determined by a formula which would serve its constitutional purpose.
The legislature has seen fit to limit the exemption amounts of a number of other state law exemptions. For example, a debtor's tools of trade (N.R.S. § 21.090(1)(d)), household goods (N.R.S. § 21.090(1)(b)), and homestead (N.R.S. § 21.090(1)(1); N.R.S. § 115.010)) are not exempted in unlimited amounts under state law.
Accordingly, this Court holds that the non-exempt portion of the cash value of policy #8865952 is $59,267.95, and it is hereby ordered to be turned over to the Trustee. Furthermore, the non-exempt portion of the cash value of policy #8846549, which is $9,900.65, is also hereby ordered to be turned over to the Trustee. All sums shall be turned over within 30 days after entry of this Order. A prior Order granting Popular Leasing's objection to the exemptions of the cash values was entered on March 8, 2004 (submitted by counsel) which wrongly identified the policy number and amount. That Order is hereby vacated.
Under N.R.S. § 21.090(1)(k), the exemption is derived according to the following computation: ($1,000 ÷ $11,350.77) × $64,993.90 = $5,725.95. The amount to be turned over ($59,267.95) is what remains after subtracting the exemption ($5,725.95) from the cash value ($64,993.90).
The result of the Court's calculation is slightly different (by $1.19), but at the hearing of this matter the parties stipulated as to the Trustee's calculation.