DAN MORALES

ATTORNEY GENERAL 

### @ffice of tfp Zlttornep 43eneraI &ate of ZEexas June 9.1992

Ms.Georgia D. Hint Commissioner Texas Department ofInsurance P. 0. Box 149104 Austin, Texas 78714-9104 Opinion No.DM-125
Re: Whether, considering sections 42.001 and 42.002 of the Property Code and article 21.22 of the Insurance Code, life insurance policy proceeds and cash values are completely exempt from seizure under process, and related questions (RQ-2Sl)

You have requested our opinion regarding whether and to what extent state law exempts from seixure under process life insurance policy proceeds and cash values, and individually purchased annuities. Specifically,you askthe following:

(1) Whether insurance policy proceeds and cash values are completely exempt from seizure under process or whether those benefits are exempt from seizure to the extent of the maximum amounts set out in section 42.001ofthe Property Code; and (2) Whether the Texas Insurance Code article 21.22 exemption includes individually purchased annuities.
The resolution ofthe first issue you raise requires this office to construe two apparently conflicting statutes, both of which the 72d Legislature amended during its regular session. Senate Bill 654, Acts 1991, 72d Leg., ch. 175, 8 1, amended section 42.001ofthe Property Code to read, inpertinent part, as follows:

(a) Personal property, as described in Section 42.002, is exempt from garnishment, attachment, execution, or other seizure iE
(1) the property is provided for a family and has an aggregate fair market value of not more than $60,000,

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exclusive of the amount of any liens, security interests, or other charges encumbering the property; or (2) the property is ownedby a single adult, who isnot a member ofa family, and has an aggregate fair market value of not more than $30,000,exclusive of the amount of any liens. security interests, or other charges encumbering the Property. Prop. Code 542.001(a). Section 42.002 describes twelve categories of personal property that are exempt under section 42.001(a), including “the present value of any life insurance policy to the extent that a member ofthe family ofthe insured or a dependent of a single insured adult claiming the exemption is a beneficiary ofthe policy.” Id S42.002(a)(12). Thus. under sections 42.001 and 42.002,a person may exempt from seizure under process personal property from any combination of the twelve categories, so long as the aggregate fair market value of the exempted personal property does not exceed either $60,000,if the property is provided for a family, or $30,000,ifthe property isownedby a single adult whois not a member of a family.1 A person whose property is subject to seizure under process could choose to exempt from seizure the present value ofa life insurance policy to the extent that a family member ofthe insured or dependent of a single insured adult claiming the exemption is the beneficiary, but only if the aggregate fair market value of all the personal property the debtor chooses to exempt does not exceed the amounts set forth in section 42.OOl(a)(1).(2).
Senate Bill 1261,Acts 1991,726 Leg., ch. 609,s 1,amended article 21.22 of the Insurance Code in a way that, you contend, conflicts with sections 42.001 and 42.002ofthe Property Code. In pertinent part, article 21.22nowreads as follows:

Notwithstanding any provision of this code other than this article, all money or benefits of any kind, including policy proceeds and cash values, to be paid or rendered to the insured or any beneficiary under any policy ofinsurance issued by a life, health or accident insurance company, including mutual and fraternal insurance+or under any plan or program of annuities and benefits in use by any employer, shalh

thtion 42001(a)(l), (2) ofthe Propxty Code qwities that the aggregate fair market value is to be detrrmincd “exctosivcofthe alnouot ofanyIieIq securiv interest&or other charges encumbering the property.”

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(1) inure exclusively to the benefit of the person for whose use and benefit the insurance is designated in the policy; (2) be fully exempt from execution, attachment. garnishment or other process; (3) be fully exempt from being Axed, taken or appropriated or applied by any legal or equitable process or operation oflawto pay any debt or liability ofthe insured or of any beneficiary, either before or after said money or benefits isor are paid or rendered; and (4) be fullyexempt from all demands in any bankruptcy proceeding ofthe insured or beneficiary.
Ins. Code art. 21.22, 9 1. The Insurance Code thus wholly exempts from seizure under process life insurance policy proceeds and cash values to be paid to the insured or any beneficiary.2
Senate Bill 654 amended sections 42.001 and 42.002 primarily to raise the exemption for personal property from forced sale from $30,000 to $60,000 for a family, and to $30,000for a single adult who isnot a member ofa family. Unlimited Exemption of Insurance Benefits From Seizure Under Process: Hearings on S.B. 654Before the Senate Jurisprudence Comm., 72d Leg. 1(Mar. 26,199l) (statement of Senator Parker, sponsor of bill) (copy on file with Texas Senate Staff Services).’

%k note that articIe21.22of the Insurance Code also whoIIyexempts from seizure under prowss policy pmcwds and cash values to be paid under any he&b or accident insurance policy, as well as under any Iifc insurance policy. As sections 42.001 and 42.002 of the Property Code only exempt from seizure under process the present value of a Iife insurance policy, article 21.22 of the Iasurance Code does not conflia withsections 42.001and 42.W2ofthe PropertyCode on the matter of hedth and accident iasttranec poIicies. Accordi&, we limit our discusion to proceeds and cask or preswt values paid under aIifeinsurance policy.
%wator Parker pointed out that the S30.000exemption for pwsonaI property, set in 1973, quaIIed $78,000in 1991. Hearings on S.B. 654 Before the Senate Jurisprudence Comm, X&lLeg. 1 (Mar. X,1991) (statement of Senator Parker, sponsor of bii) (copy on fde with Texas Senate Staff Services); see ubo id (testimony of Neal Miier, witness). This, in Senator Parker’s original biII,he proposed to exempt personal propertywith an aggregatefair market value in the amount ofS76W for persoml property provided for a familyand S38,OOO for psrso~I property ovmed bya single adult who is not a member of a family. By the time the Senate had engrossed the bii howw, the exemption had been cut to S60,OtXl for personal property provided for a family and m,ooO for personaI property p. 650Ms. Georgia D. Flint - Page 4 (DM-125)

The bill changed the language in a number of other parts of sections 42.001 and 42.Ckl2 in ways that the legislature hoped would clarity the law, but most of the changes were nonsubstantive. Seeid at 2 (testimony ofJoseph M&tight, witness); id at 5 (testimony of Mike Maroney, witness). For example, prior to the 1991 amendments, sections 42.001and 42.002provided a limited exemption from seixure under process for the “cashsurrender value” of a life insurance policy. Senate Bill 654changed the terminology from “cashsurrender value”to “present value.” We do not understand this change to be substantive. Accordingly, the “present value” of a life insurance policy, discussed in sections 42.001and 42.002ofthe Property Code, is equivalent to the “cashsurrender value”or “cashvalue”ofa life insurance policy, the term that article 21.22ofthe Insurance Code uses.’
We note that sections 42.001 and 42.002 do not provide any exemption for life insurance policyproceedr, they exempt only the cash value ofthe life insurance policy. On the other hand, article 21.22 expressly exempts life insurance policy proceeds. Thus, the two codes do not conflict on the matter of whether proceeds are exempt from seizure; article 21.22unquestionably provides that they are wholly exempt. We therefore proceed to consider whether the cash value of a life insurance policy islikewisewhollyexempt.
Prior to amendment by Senate Bill 1261.article 21.22ofthe Insurance Code exempted from seixure under process “money or benefits of any kind to be paid or rendered to the insured or any beneficiary” under any life insurance policy. Acts 1987,7Oth Leg., ch. 5. g 1.at 22. In 1988,the United States Bankruptcy Court for the Northern District of Texas interpreted the former language from article 21.22, section 1to exempt from seizure only proceeds paid to the policy beneficiaries. not cash surrender values. In re Brothers, 94 B.R. 82, 83 (Bankr. N.D. Tex. 1988). Consequently, according to the Brothers court, cash surrender values were exempt
(footoote continued) owaed by a single adult who is not a member of a family. Both houses of the legislature theo passed senate bill 654withthese amounts leftintacL
tie “cashsurrender value’ ofalifeinsurance contract has been defmed as the cashvalue (as determioed byrules set forth in the governing statute and the nonforfeiture section of the insurance. policy) ofapolicythat a person ha%ing the contractual rightto do so has surrendered to the insurer. J. GRPILER& W. BPADLES, **LAW** ANDTtiIHE

LtFE **INSURANCE CONnu** **’ 3**  439 (1974); see 28 TAX. 03.8U2 (defbhg “cashsurrender value” for purposes of regulating variable life insurana contracts); BIACX’SLAW **DICITONARY** 197 (5th cd. 1979) (dcfbdng ‘ca%bsurrender value’ and ‘cash value option ’). Throughout the remainder of this opinion, we use the term “cash values with the understdiug that it is quivalcnt to “present **value:** ass&km 42002of the Property Code uses

‘present vahe,” and “cashsurrender value.’

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under section 42.002(7) of the Property Code (now section 42.002(12)) only to the extent that they did not cause the value ofthe debtor’s total claimed exemptions to exceed the aggregate amounts allowedby section 42.001ofthe Property Code. Subsequent to the Bmthm decision, the legislature amended article 2122, section 1 expressly to exempt the cash value, as well as the proceeds, of any life insurance policy. The legislature made clear its intent in enacting the amendments to article 21.22. The legislature proposed and enacted Senate Bill 1261to provide an “unlimimd exemption from seizure ofcertain life.

. .insurance benefits.” Senate Comm. on Economic Dev.. Bill Analysis. S.B. 1261,72d Leg. (1991). Furthermore, the legislature was keenly aware of the limitation the Property Code placed on proceeds and cash values of life insurance, and intended that article 2122 of the Insurance Code override the Roperty Code’s limitations on exemptions. See Hearings on S.B. 1261Before the Senate Economic Dev. Comm.. 72d Leg. 1 (Apr. 25, 1991) (statement of Senator Parker) (stating that proposed amendments to article 21.22 remove limitation that restricted exemption from seizure for life insurance benefits) (transcript on filewithTexas Senate Staff Services); Hearings on S.B. 1261Before the Senate Economic Dev. Comn~, Subcomm. on Ins., 72d Leg. 1 (Apr. 15. 1991) (statement of Senator Harris, sponsor of S.B. 1261) (stating that proposed amendments to article 21.22would clarify article so that insurance policy benefits Gould not be subject to any caps”) (transcript on file with Texas Senate Staff Services); ia! (statement of Dean Davis, Texas Association of Life Underwriters) (stating that existing article 21.22 “runs afoul of.

. .what is exempt in the Property Code when it comes to bankruptcy”). The legislature also was aware of bankruptcy situations, such as the situation in Bmthers, in which creditors would attempt to cap, pursuant to sections 42.001 and 42.002 of the Property Code, the amount of life insurance proceeds and cash values exempted from seizure. See id (statement of Senator Harris); id (testimony of Dean Davis). In accordance with the legislature’s express intent, we construe the total exemption provided for the cash value ofa life insurance policy in article 21.22,section 1ofthe Insurance Code to prevail over the limited exemption provided in sections 42.001and 42.002 of the Property Code.5 Life insurance proceeds and cash values thus are wholly exempt from seizure under process.

slncidentaUy, we note that to the extent of any irremmilabie conflictbehwm sections 42.001 ad 42.002

ofthe PropertyCode and article21.22ofthe Insurance Code, article21.22ofthe Imwmme code more spwitkdy pertalus to cash values. See Gov ’t Code i 311.m) (stating that special provision prevails owr general provision inevent ofirreconcilable conflict);Attorney General Gpiion JM-II37 (1990) at 3 (same). Furthermore, the legislature adopted Senate Bii 1261, amending artide 21.22of the Instuaacc Code, after Senate Bii 654, amending sections 42001 and 42.W of the p. 652Ms.Georgia D. Flint - Page 6 (DM-125)

In your second question, you askwhether article 2122 ofthe Insurance Code exempts from seixure under process individually purchased ammities. You note, as background, that the exemption in article 21.22 “specificallyincludes benefits under any plan or program of ammities and benefits in use by any employer but omits a reference to individually purchased annuities.” See Ins. Code art. 21Z 5 1. We note that Senate Bill 1261’sproposed amendments to article 21.22never included a proposal to exempt from seixure individually purchased annuities. Additionally, we iInd no legislative history indicating that the legislature ever discussed, in the context of Senate Bill 1261, providing complete exemption for individually purchased ammities.~ In our opinion, these facts conclusively indicate that the legislature intentionally excluded individually purchased annuities from the exemption provided in article 2122.

SUMMARY
Article 21.22 of the Insurance Code wholly exempts from service under process life insurance proceeds and cash values. The complete exemption provided by article 21.22prevails over the limited exemption provided to the cash value of a life insurance policy under sections 42.001 and 42.002 of the

(footnote continued) Properly Code. See Attorney General Opinion JWlYi7 (1990) at 4 (stating that stahtte latest in euactmeut prevails). %terestingly, Scnate Bii 654, wbicb amended sections 42001 and 42.002 of the Property Code, origbdy provided a total exemption from seizure to the “prcwecdsof any life, health, or awideul iusuraoa. or enmity poky either before or tier beii paid..

.to the benef&ry, a member of the family or a dependent of an insured person.’ See Hear@ 011S.B. 654 Before the Senate Jnris+ce Comm, 72d Leg. 3 (Mar. 26,199l) (testimony ofLaura Smreker,Texas Bankers Ass ’n) (trausai~ oa 6Ie with Texas Senate Staff Services). She tesIi6ed that the proposed unlimited exemption of proceeds from annuity pokies would provide ‘some opportunities for debtors to take othenvk non-exempt property..

.aad convert those into exempt property that is, is exempt without **IilllhiOU....** fIps abeady extremely dIf6eult to collect uasaaed debt iu this state and we’re very eollcorucd IhaI provi~ Illese temptatloa6 to debtors to wllvert property ia this maMer is going to leave the red that there’s (going to] be virtually no assets available to pay tuasewd debt if the d&a... defauIts ou his baus and is unable to pay.’ Id at 34. Ms. Smreku’ s testimony generated a number ofquestions fromthe Committee Chair, Senator Green. Seeid. at 4-5.

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Property Code. Article 21.22 of the Insurance Code does not exempt from seizure under process individually purchased annuities.

DAN MORALES Attorney General ofTexas
WILL PRYOR First Assistant Attorney General
MARYKELLER Deputy Assistant Attorney General
RmEAHIcKs Special Assistant Attorney General
MADELEINE B.JOHNSON Chair, Gpinion Committee Repared by Kymberly Oltrogge Assistant Attorney General

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