United States District Court, D. Arizona
IN THE MATTER OF Juan D. Garcia (deceased) and Teresa A. Garcia, Debtors.
Lawrence J. Warfield, Appellee. Teresa A. Garcia, Appellant, BK No. 0:15-bk-06493-BMW
G. Campbell United States District Judge.
Teresa Garcia appeals an order of the bankruptcy court
sustaining Trustee Lawrence J. Warfield's objection to
her claimed exemption for group life insurance proceeds paid
to her as a surviving spouse. Doc. 8. Trustee asks the Court
to affirm the bankruptcy court's decision. Doc. 9. The
appeal is briefed, and no party has requested oral argument.
Docs. 8, 9. For reasons set forth below, the Court will
reverse the bankruptcy court's decision.
following facts are undisputed. Doc. 8 at 6; Doc. 9 at
On May 26, 2015, Juan Garcia and Debtor Teresa Garcia jointly
filed a Chapter 7 bankruptcy petition. Doc. 8 at 6. On July
18, 2015, Mr. Garcia passed away. Id. Mr. Garcia had
a group life insurance policy through his employer, PepsiCo,
and Debtor became entitled to group life insurance proceeds
of $158, 000.00. Id. On August 11, 2015, Debtor
filed an amendment to the schedules and statements, claiming
that the insurance proceeds were exempt from the claims of
her creditors under A.R.S. § 20-1132. Id. On
February 2, 2016, Trustee filed an objection, asserting that
§ 20-1132 did not apply and that Debtor was entitled to
an exemption of only $20, 000.00 under A.R.S. § 33-1126.
Bankr. Doc. 39. The bankruptcy court sustained
Trustee's objection, and Debtor filed this appeal.
Standard of Review.
28 U.S.C. § 158(a)(1), the Court has jurisdiction over
appeals from final judgments, orders, and decrees of
bankruptcy judges. The Court reviews the bankruptcy
court's conclusions of law de novo and its
findings of fact for clear error. In re JTS Corp.,
617 F.3d 1102, 1109 (9th Cir. 2010). This appeal presents a
purely legal question.
1954, the Arizona legislature enacted a comprehensive
insurance code. See Arizona Insurance Code Act, ch.
64 (Senate Bill No. 1), 21 Ariz. Sess. Laws 80, App'x A
(1954). The Act included a provision aimed at protecting
proceeds of group life insurance policies from the claims of
creditors. Id. at Art. 11, Sec. 32 (page 111 of
App'x A). The provision's language is substantially
similar to the National Convention of Insurance
Commissioners' (“NCIC's”) standard
language proposed in 1918, which has been adopted (either
with the same or similar language) by approximately 25
states. See In re Fahey, 352 B.R. 288, 291 (Bankr.
D. Colo. 2006).
provision relevant to this case was codified as A.R.S. §
20-1132, which reads:
A policy of group life insurance or the proceeds thereof,
payable to the individual insured or to the beneficiary
thereunder shall not be liable, either before or after
payment, to be applied by any legal or equitable process to
pay any liability of any person having a right under the
A.R.S. § 20-1332(A). This appeal presents an issue of
first impression for this Court regarding the statutory
interpretation of this section.
argues that the bankruptcy court erred by holding that §
20-1332 does not apply to her situation, and by denying her
request to exempt all proceeds of her late husband's
group life insurance policy from her creditors. Doc. 8 at 6.
Trustee asserts that the bankruptcy court did not err and
that its decision should be affirmed because § 20-1332
protects the proceeds of a group life insurance policy only
from creditors of the purchaser and the insured, not from
creditors of the beneficiary. Doc. 9 at 5-11.
Liberal interpretation of exemption statutes.
both federal and Arizona law, exemption statutes are to be
liberally construed in favor of a debtor who claims an
exemption. In re Thiem, 443 B.R. 832, 837-38 (Bankr.
D. Ariz. 2011) (citing In re Arrol, 170 F.3d 934,
937 (9th Cir. 1999); Gardenhire v. Glasser, 226 P.
911, 912 (Ariz. 1924); In re Herrscher, 121 B.R. 29,
31 (Bankr. D. Ariz. 1989)). The exemption laws in Arizona
“were not created merely for the purpose of conferring
a privilege on a debtor, but to shelter the family and