Opinion ID: 3064446
Heading Depth: 3
Heading Rank: 2

Heading: A.P. 1993), aff’d, 27 F.3d 386 (9th Cir. 1994).

Text: [3] It is true that the statute has an important parenthetical reference to life insurance “including endowment and annuity policies.” However, we agree with the BAP’s careful statutory analysis in Pikush that this phrase “was intended to clarify that life insurance that includes the essential features of an annuity or endowment policy does not lose its exempt character.” 157 B.R. at 157. As the BAP noted: 3 To the extent the BAP suggested that the analysis was limited to a factual inquiry reviewed for clear error, it was incorrect. See Simpson, 366 B.R. at 70-71 (“Whether an annuity contract qualifies as exempt life insurance under California law is a factual determination that we review under the clearly erroneous standard.”). Statutory interpretation and whether a particular policy qualifies as a life insurance policy are questions of law subject to de novo review. We do, however, review factual findings for clear error. IN THE MATTER OF SIMPSON 2137 Had the California legislature intended to create an exemption for all endowment policies and annuity policies, whether or not they are life insurance policies, it presumably would have enacted a statute that exempted “matured life insurance, endowment and annuity policies.” Id. at 156. [4] Consistent with this analysis, and with our examination in Bernard, we conclude that single-premium annuities are not included categorically within California’s statutory life insurance exemption. B Because section 704.100 applies only to life insurance, we next consider Simpson’s argument that, alternatively, the Keyport Annuity is nonetheless exempt under the statute because it is actually a life insurance policy. After a thorough examination of the record, we conclude that the bankruptcy court did not err in determining that the Keyport Annuity did not constitute life insurance. [5] A single-premium annuity that provides a guaranteed stream of income and has no contingencies that can divest the debtor or his beneficiaries of their right to payment is an investment, not a life insurance policy. Bernard, 40 F.3d at 1032; Pikush, 157 B.R. at 159. To analyze whether a particular annuity falls within this rule, we examine the nonexclusive factors identified by the BAP in Turner v. Marshack (In re Turner), 186 B.R. 108, 117 (9th Cir. B.A.P. 1995), namely: (1) whether the annuity is truly contingent; (2) whether the debtor can accelerate the maturity date; (3) whether the debtor can borrow against the policy; (4) who owns the policy; (5) whether payment of the premium is consistent with an investment or payment; (6) whether the seller was licensed to sell life insurance in the debtor’s state; (7) 2138 IN THE MATTER OF SIMPSON what, if any, is the opinion of testifying experts; (8) what provisions of the application are also part of the policy; and (9) whether a life insurance policy in the debtor’s state must contain a death benefit.4 Id. The BAP considered six of these factors and concluded that the Keyport Annuity was not life insurance based on the following findings: Unlike a life insurance policy, the payments under the Keyport Annuity are not contingent upon the debtor’s life . . . . . . . The Keyport Annuity does not allow for the debtor to accelerate the maturity date . . . . The Keyport Annuity . . . does not allow the debtor to borrow against it.[5] . . . 4 Our court in Turner did not characterize these factors as either exclusive or required, and neither do we. See Turner, 186 B.R. at 117 (describing these questions as “issues which need to be addressed” upon remand to the bankruptcy court for further findings in that specific case). 5 Section 704.100(a) protects debtors only from having to surrender a life insurance policy for its cash value (often at a significant loss). It does not exempt the policy’s loan value. Under section 704.100(b), any loan value above $9700 must be applied to the debtor’s debts. Thus, it appears the statute’s drafters attempted to balance a debtor’s accountability to his creditors against wasteful disposition of his assets. Although the BAP did not provide a detailed analysis under this factor, presumably it recognized that allowing Simpson to claim the Keyport Annuity as exempt life insurance would contradict that intent. The Keyport Annuity has no loan value, while the surrender value is relatively high — around 90% of the single premium Simpson paid. Applying the life insurance exemption to this annuity would protect Simpson from having to surrender the annuity, even though he could do so without incurring a great loss, while providing no loan value to apply toward Simpson’s debts. Such an interpretation would provide a result opposite of that the drafters intended and cannot be deemed logical. IN THE MATTER OF SIMPSON 2139 .... . . . [T]he Keyport Annuity is in the nature of an investment . . . [because], “[i]nstead of creating an immediate estate for the benefit of others, the annuitant [reduced his] immediate estate in favor of future contingent income.” .... [S]imply because the Keyport Annuity contains a death benefit does not make it the equivalent of a life insurance policy . . . . These limited death benefits do not change the fundamental purpose of the Key- port Annuity — to provide the debtor with fixed, periodic payments for life or a stated period of time, without requiring his death to trigger Sun Life’s obligation to pay. . . . Sun Life is authorized to sell life insurance . . . [but this is] not dispositive as to whether the annuity contract qualifies as life insurance exempt under California law. Simpson, 366 B.R. at 72-74 (quoting Payne, 323 B.R. at 728 (alteration in original omitted)). There is no error in the BAP’s conclusions based on the bankruptcy court’s findings, which are sufficient to support the conclusion that the Keyport Annuity is not a life insurance policy.6 [6] Simpson’s primary basis for claiming that the Keyport Annuity is life insurance is that it contains a “death benefit.” 6 The tax status of the Keyport Annuity’s “Death Benefit” is telling. The annuity materials repeatedly state that the death benefit provided to the beneficiaries of the Keyport Annuity is taxable upon receipt. Proceeds paid under a life insurance policy, however, are generally not taxable as income to the recipient. 26 U.S.C.A. § 101 (2006). 2140 IN THE MATTER OF SIMPSON However, we agree with the BAP that the waiver of the earlysurrender penalty and accelerated vesting of accrued interest provide a death benefit that is “limited” at best, and those features do not change the “fundamental purpose” of the Keyport Annuity. Id. at 74. Although we are not the final authority on California law, there is no indication that the California Supreme Court would decide otherwise. As early as 1951, the California state appellate courts described the key differences between annuities and life insurance and explicitly held the two are not the same. See Kuchel v. McCormack (In re Barr’s Estate), 231 P.2d 876, 878-79 (Cal. Ct. App. 1951) (explaining that the risk assumed in an annuity contract is to pay as long as the annuitant lives, whereas the risk in a life insurance contract is to pay upon the insured’s death). Nowhere did the court indicate that the presence of a nominal death benefit was dispositive of its analysis. Finally, we must reject Simpson’s argument that the California Insurance Code settles this matter. While he is correct that it defines life insurance to include the granting, purchasing, or disposing of annuities, the California Supreme Court has expressly held that this statutory classification is only for the purpose of regulating annuities under the Insurance Code, but does not require classification of annuities as insurance for other purposes. Id. at 879. Thus, this definition is not dispositive here.