*District Judge of the Southern District of Texas, sitting by designation. 

 

1The term "credit life" commonly refers to "insurance sold to debtors for the purpose of

satisfying any unpaid balance of the debt existing upon death of the debtor during the intended

term of a loan." In re Stiles, 74 B.R. 708, 710 (Bankr.N.D.Ala.1987). 

 

2The promissory note executed by the Washingtons on June 29, 1989 made $16,102.90 in

principal payable to Oak Tree at a 12.5 percent interest rate. The note was to be paid in thirty six

equal monthly installments of $538.70. The proposed plan submitted by the Washingtons on

September 5, 1990 modifies the payment schedule to 36 payments of $444.44. 

United States Court of Appeals,

Fifth Circuit.

No. 91–4686.

In the Matter of Alvin and Eddie Mae WASHINGTON, Debtors.

RTC, as Conservator for Oak Tree Federal, substituted in place and stead of Oak Tree Savings

Bank, S.S.B., Appellant,

v.

Alvin and Eddie Mae WASHINGTON, Appellees.

Aug. 4, 1992.

Appeal from the United States District Court for the Western District of Louisiana.

Before SMITH and EMILIO M. GARZA, Circuit Judges, and KENT, District Judge.**

ELIO M. GARZA, Circuit Judge:

Using their Louisiana residence as security, Alvin and Eddie Mae Washington (the

Washingtons) obtained a loan from Oak Tree Savings Bank, S.S.B. (Oak Tree), on June 29, 1989.

When effecting this loan, the Washingtons elected to take out credit life1and disability insurance

through Oak Tree; this insurance was not a requirement for making the loan. On September 5, 1990,

faced with a threatened suit and foreclosure against their residential property, the Washingtons filed

a joint Chapter 13 petition in bankruptcy court and submitted a plan for paying the debt due Oak

Tree.2 Oak Tree objected to this plan on the grounds that its claim against the Washingtons is

secured "only by a security interest in real property that isthe debtor's principalresidence[,]" and that
 

3Section 1322(b)(2) provides that:

(b) Subject to subsections (a) and (c) of this section, the plan may—

(2) modify the rights of holders of secured claims, other than a claim

secured only by a security interest in real property that is the debtor's

principal residence, or of holders of unsecured claims, or leave unaffected

the rights of holders of any class of claims....

11 U.S.C.A. § 1322(b)(2) (emphasis added). 

 

4Stressing that their proposed plan would satisfy their debt obligation to Oak Tree, the

Washingtons assert that there is a threshold issue we must decide before reaching this primary

issue—whether a claim is modified when all defaults are cured and the creditor is paid the full

value of its claim. The Washingtons did not properly raise this issue below and, therefore, we will

not address it now. See Fransaw v. Lynaugh, 810 F.2d 518, 523 (5th Cir.) ("[W]e will not

consider [this issue] because of our well-established practice of refusing to address issues raised

for the first time on appeal."), cert. denied, 483 U.S. 1008, 107 S.Ct. 3237, 97 L.Ed.2d 742

(1987). 

 

5

See, e.g., In re Ireland, 137 B.R. 65, 70–71 (Bankr.M.D.Fla.1992) (credit life and disability

policies do not constitute "additional security" for section 1322(b)(2) purposes); In re Jackson,

136 B.R. 797, 800–801 (Bankr.N.D.Ill.1992) (boilerplate language securing mortgage by

insurance proceeds and fixtures in addition to residence does not constitute additional security); 

In re Wright, 128 B.R. 838, 844 (Bankr.N.D.Ga.1991) (creditor's rights under security deed to

returned, unearned, and payable insurance premiums upon foreclosure do not constitute additional

security to modify debt); In re Selman, 120 B.R. 576, 579 (Bankr.D.N.M.1990) (credit life and

hazard insurance policies constitute additional security); In re Braylock, 120 B.R. 61, 64

(Bankr.N.D.Miss.1990) (where policy was obtained optionally, unearned premium is refundable

to debtor, and proceeds become available only upon debtor's death, policy is not additional

security interest permitting modification of secured claim); In re Diquinzio, 110 B.R. 628, 629

modification of the original mortgage contract constitutes a violation of 11 U.S.C. § 1322(b)(2).3

The bankruptcycourt found that the insurance theWashingtons elected to take out through Oak Tree

constitutes additional security for section 1322(b)(2) purposes and held that the proposed

modification should be allowed. The district court affirmed. Finding that section 1322(b)(2) bars

modification of the Washingtons' mortgage contract, we reverse.

I

This case involves a single issue: whether credit life and disability insurance is security within

the meaning of 11 U.S.C. § 1322(b)(2), thus allowing the modification of a secured creditor's claim.4

Although other courts have considered this veryissue, theyare divided, and our analysis moves along

the jagged fault line running between their decisions.5
(Bankr.D.R.I.1990) ("[W]e reject (this time without difficulty) the debtors' contention that ITT's

contingent interest in a credit life insurance policy represents additional security which would

entitle the debtor to modify ITT's mortgage payments in its Chapter 13 plan. This argument is

totally without merit."); In re Ross, 107 B.R. 759, 762 (Bankr.W.D.Okla.1989) ("the common,

"boilerplate' language in mortgage instruments, referring to insurance, rents and profits, buildings,

improvements, machinery, equipment and the like, did not constitute additional security")

(emphasis added); Transouth Fin. Corp. v. Hill, 106 B.R. 145, 146–47 (W.D.Tenn., E.D.1989)

(optional credit life and disability insurance written in connection with loan constitutes additional

security for modification); In re Wilson, 91 B.R. 74, 76 (Bankr.W.D.Mo.1988) (where creditor

took security interest in three insurance policies, not only in proceeds but in the return premiums,

insurance constitutes additional security); In re Stiles, 74 B.R. 708, 710 (N.D.Ala.1987) (interest

in policy of insurance on lives of debtors constitutes additional security). 

 

6Courts must rely upon the plain meaning of the statutory language, especially since the

legislative history of the Bankruptcy Code does not offer explicit guidance as to what constitutes

"other security" under 11 U.S.C. § 1322(b)(2). See In re Harris, 94 B.R. 832, 835 (D.N.J.1989)

("The "plain meaning' of the language is the "primary and ordinarily the most reliable, source of

interpreting the meaning of a statute.' ") (citation omitted); see also Ireland, 137 B.R. at 70,

quoting Diquinzio, 110 B.R. at 629. 

 

7Looking to other sections of the Bankruptcy Code for guidance, the Wright court found

"other security" to be an item of collateral upon which a lien or security interest has been

perfected within the purview of applicable state law. Wright, 128 B.R. at 843 (stating that, to

secure a debt, a security interest must arise under the security deed and "only properly perfected

secured claims will be considered relevant in determining whether the § 1322(b)(2) exception

applies"). Accordingly, the court concluded that, in the absence of foreclosure where the creditor

held rights to insurance premiums upon foreclosure, "the rights ... to returned, unearned and

payable insurance premiums do not constitute additional security for debt in the common sense

usage of the term in § 1322(b)(2)." Id. at 844.

Refusing to even discuss the point, the Diquinzio court held: "[W]e reject (this

Our review of these decisions indicates that courts have begun to step over this fissure and

toward a consensus that credit life and disability insurance does not constitute additional security.

See Ireland, 137 B.R. at 70–71; Jackson, 136 B.R. at 800–801; Wright, 128 B.R. at 844; Braylock,

120 B.R. at 64; Diquinzio, 110 B.R. at 629. Strictly interpreting section 1322(b)(2)'s statutory

language,6these courts have reasoned that credit life and disability insurance policies are merely

contingent interests—intereststhat are illusory until the occurrence ofsome triggering event and not

security interests for section 1322(b)(2) purposes. See Jackson, 136 B.R. at 802 ("[T]he boilerplate

language granting the mortgagee the right to receive and use propertyinsurance proceedsin the event

of some destruction of the property does not create an additional type of collateral securing the

mortgage obligation."); Braylock, 120B.R. at 63 ("Credit life insurance onlybecomes available when

an unfortunate event occurs, i.e., the death of the debtor.").7
time without difficulty) the debtors' contention that ITT's contingent interest in a credit life

insurance policy represents additional security which would entitle the debtor to modify

ITT's mortgage payments in its Chapter 13 plan. This argument is totally without merit." 

Diquinzio, 110 B.R. at 629. Relying upon Diquinzio, the Ireland court also summarily

dismissed this point. See Ireland, 137 B.R. at 70–71. 

 

8

See supra note 6 (establishing that we must rely upon the plain meaning of the statutory

language); see also supra note 3 (quoting section 1322(b)(2)). Specifically, the primary purpose

of section 1322(b)(2) is to provide stability in the residential home financing industry and markets,

as was recognized in In re Hall, 117 B.R. 425, 428 (Bankr.S.D.Ind.1990):

[S]ection 1322(b)(2) protects the rights of home mortgage lenders from such

contract modifications as lowering the amount of monthly payments or the

contractual interest rate, which would otherwise be permissible, see In re Ramirez,

62 B.R. 668 (Bankr.S.D.Cal.1986). Interpreting this section to deprive home

mortgage lenders of present value interest to which they would otherwise be

entitled under section 1325(a)(5) would harm rather than protect these lenders,

and thus [would] be contrary to the purpose of section 1322(b)(2). The Court will

not interpret a code provision in a way that is contrary to its purpose when there is

an equally, indeed more, supportable interpretation that furthers its purpose. 

 

9Braylock, 120 B.R. at 63–4:

Practically every deed of trust which encumbers improved real property contains a

provision requiring the borrower to acquire and maintain insurance coverage to

protect against fire and other casualty losses. To hold that this type [of] insurance

coverage constitutes an additional security interest would completely eviscerate

the protective exception for residential lenders found in Section 1322(b)(2). 

Congress would not have enacted a meaningless statute.... [Similarly, c]redit life

insurance only becomes available when an unfortunate event occurs, i.e., the death

of the debtor.

Because this Court is of the opinion that the drafters of § 1322(b)(2) did not

contemplate that a credit life insurance policy, naming the creditor as the

beneficiary, would be considered an additional security interest, this Court ... is not

persuaded that one optional credit life insurance policy, where the unearned

premium is refundable to the debtor and where the proceeds of which would only

become available on the debtor's death, is an additional security interest which

negated the protective exception found in § 1322(b)(2). 

 

10The Stiles court implicitly rejected the assertion that such insurance is essentially

"boilerplate" in nature and incidental to the underlying obligation by holding that a lender's

assertion that such life insurance is merely a contingent interest was "defeated by its own conduct

The plain meaning of section 1322(b)(2)'s language establishes that its purpose is to protect

creditors.8 As recognized by the Braylock court, interpreting "additionalsecurity" to include optional

credit life and disabilityinsurance would defeat this purpose forsuch insurance has become a standard

accompaniment for mortgage loans.9 Oak Tree, like thousands of other lenders, routinely offers

optional credit life and disability policies to its borrowers.10 Beyond being wholly optional, the
in accepting it as collateral." Stiles, 74 B.R. at 710. Similarly, relying upon Stiles, the Selman

court questioned "Why would [the creditor] be named as payee/beneficiary of the two policies if

not to further secure its position?" In re Selman, 120 B.R. 576, 578 (Bankr.D.N.M.1990).

We disagree. Although it may be in the creditor's interest for its borrower to

purchase such insurance to assure that the borrower's obligation will be satisfied in the

event of misfortune (creditors, therefore, often go so far as to arrange and encourage such

insurance), we do not find that this constitutes "accepting it as collateral." Even when

their creditors are the beneficiaries, such insurance policies assure borrowers that—as is

generally true with life insurance—should misfortune occur, their estates will be free from

the burden of their debt obligation. 

 

11The significance of this variable was recognized in Braylock, 120 B.R. at 63. Noting that

"[t]he promissory note clearly indicates that credit life insurance was not required to obtain the

loan", the Braylock court held "[this court] seriously doubts that the voluntary election by a

debtor to obtain a credit life insurance policy, even though the lender is designated the policy

beneficiary, creates a "security interest.' " Id. 

 

12The Ireland court, in reviewing the relevant case law on this point, acknowledged the

significance of this variable:

As stated by the district court in In re Diquinzio, 110 B.R. 628

(Bankr.D.R.I.1990), a credit life policy was not additional security, and its

existence did not permit modification of the debtors' mortgage. Id. at 629. 

Additionally, the Diquinzio court distinguished cases such as United Companies

Fin. Corp. v. Brantley, 6 B.R. 178 (Bankr.N.D.Fla.1980), where a life insurance

policy was separately pledged as additional security. In United Companies Fin.

Corp., the court noted the rationale behind its ruling was specific to the

circumstances of that case. The court noted that the life insurance policy pledge

document was entitled "Assignment of Life Insurance Policy as Collateral."

Ireland, 137 B.R. at 70–71. 

decision to obtain this coverage isrevocable: The Washingtons can terminate their policy at any time

during the term of their mortgage without seeking Oak Tree's permission.

Although it is conceivable that a credit life and disability insurance policy that (1) is a

prerequisite for obtaining a loan,11 (2) wasseparatelypledged as additionalsecurity,12 and (3) contains
 

13The significance of this variable is acknowledged in the cases the Washingtons rely upon for

the proposition that a creditor's interest in an insurance policy constitutes additional security. See

In re Transouth Fin. Corp. v. Hill, 106 B.R. 145, 146 (W.D.Tenn.1989); In re Wilson, 91 B.R.

74, 76 (Bankr.W.D.Mo.1988); In re Stiles, 74 B.R. 708, 710 (Bankr.N.D.Ala.1987). These

courts acknowledged that the underlying mortgage documents contained an express written

clause specifically assigning creditors any proceeds—including unearned, returned, or premium

refunds—which might become payable. See Transouth, 106 B.R. at 146; Wilson, 91 B.R. at 76; 

Stiles, 74 B.R. at 710. 

 

14The Braylock court acknowledged the significance of such language when, in distinguishing

the case before it from Wilson, 91 B.R. at 74, the court noted that the loan documentation in

Wilson contained specific language perfecting a security interest in the policies at issue. See

Braylock, 120 B.R. at 63–64; see also Wilson, 91 B.R. at 76. 

an assignment of interest13 or (4) contains other language perfecting a security interest in the policy14

might serve as "additional security" for section 1322(b)(2) purposes, this is not the case before us.

The Washingtons' credit life and disability policy satisfies none of these conditions. Therefore, we

find that, in the absence of misfortune, the Washingtons' insurance policy is at best illusory

security—security contingent upon events that may never occur, and we conclude that such illusory

security is simply not enough to divest Oak Tree of its section 1322(b)(2) protection.

II

For the foregoing reasons, we REVERSE.

 * * * * * *