                         @ffice of tfp Zlttornep           43eneraI
                                      &ate    of ZEexas
DAN MORALES                              June 9.1992
 ATTORNEY
      GENERAL


    Ms. Georgia D. Hint                      Opinion No. DM-125
    Commissioner
    Texas Department of Insurance            Re: Whether, considering sections 42.001
    P. 0. Box 149104                         and 42.002 of the Property Code and
    Austin, Texas 78714-9104                 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 ask the 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 42.001 of the Property Code; and

              (2) Whether the Texas Insurance Code article 21.22 exemption
              includes individually purchased annuities.

            The resolution of the 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 42.001 of the Property Code to read, in pertinent 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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Ms. Georgia D. Flint - Page 2                   (DM-125)




                 exclusive of the amount of any liens, security interests, or
                 other charges encumbering the property; or

                      (2) the property is owned by a single adult, who is not a
                 member of a 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 of the family of the insured or
a dependent of a single insured adult claiming the exemption is a beneficiary of the
policy.” Id S 42.002(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, if the property is owned by a single adult who is 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 of a life insurance policy to the extent that
a family member of the 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
42.002 of the Property Code. In pertinent part, article 21.22 now reads 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 of insurance 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) of the Propxty Code qwities that the aggregate fair market value is
to be detrrmincd “exctosivcof the alnouot of any IieIq securiv interest& or other charges encumbering
the property.”


                                               p.   649
Ms. Georgia D. Flint - Page 3                  (DM-125)




                     (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 of law to pay any debt or liability of the       insured   or
                 of any beneficiary, either before or after said            money     or
                 benefits is or are paid or rendered; and

                    (4) be fully exempt from all demands in any bankruptcy
                proceeding of the 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 $30,000 for a single adult who is not a member of a family. Unlimited
Exemption of Insurance Benefits From Seizure Under Process: Hearings on S.B.
654 Before 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 articIe 21.22 of the Insurance Code also whoIIy exempts 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 with sections 42.001 and 42.W2 of the Property Code on the matter of
hedth and accident iasttranec poIicies. Accordi&,    we limit our discusion to proceeds and cask or
preswt values paid under a Iife insurance policy.

         %wator Parker pointed out that the S30.000 exemption for pwsonaI property, set in 1973,
quaIIed $78,000 in 1991. Hearings on S.B. 654 Before the Senate Jurisprudence Comm, X&l Leg. 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 property with an aggregate fair market value in the amount of S76W for
persoml property provided for a family and S38,OOO  for psrso~I property ovmed by a 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,OtXlfor personal property provided for a family and m,ooO for personaI property

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Ms. Georgia D. Flint - Page 4                    (DM-125)




The bill changed the language in a number of other parts of sections 42.001 and
42.Ckl2in ways that the legislature hoped would clarity the law, but most of the
changes were nonsubstantive. See id at 2 (testimony of Joseph M&tight, witness);
id at 5 (testimony of Mike Maroney, witness). For example, prior to the 1991
amendments, sections 42.001 and 42.002 provided a limited exemption from seixure
under process for the “cash surrender value” of a life insurance policy. Senate Bill
654 changed the terminology from “cash surrender 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 42.001 and 42.002 of the Property Code, is
equivalent to the “cash surrender value” or “cash value” of a life insurance policy, the
term that article 21.22 of the 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 of the 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 21.22 unquestionably provides that they are wholly
exempt. We therefore proceed to consider whether the cash value of a life
insurance policy is likewise wholly exempt.

       Prior to amendment by Senate Bill 1261. article 21.22 of the 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 1 to 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 654 with these amounts left intacL

         tie “cash surrender value’ of a life insurance contract has been defmed as the cash value (as
determioed byrules set forth in the governing statute and the nonforfeiture section of the insurance.
policy) of a policy that a person ha%ingthe contractual right to do so has surrendered to the insurer. J.
GRPILER & W. BPADLES,LAW AND TtiIHE           LtFE INSURANCE CONnu’3          439 (1974); see 28 TAX.
0 3.8U2(defbhg “cash surrender value” for purposes of regulating variable life insurana contracts);
BIACX’S LAW DICITONARY 197 (5th cd. 1979) (dcfbdng ‘ca%b surrender 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: as s&km 42002 of the Property Code uses
‘present vahe,” and “cash surrender value.’


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Ms. Georgia D. Flint - Page 5                    (DM-125)




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 of the debtor’s total claimed exemptions to
exceed the aggregate amounts allowed by section 42.001 of the 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 1261 to provide
an “unlimimd exemption from seizure of certain 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. 1261 Before 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 file with Texas Senate Staff Services); Hearings on
S.B. 1261 Before 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 21.22 would 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 Under-
writers) (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 of a life insurance policy in article 21.22, section 1 of the Insurance Code
to prevail over the limited exemption provided in sections 42.001 and 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 conflict behwm       sections 42.001
        of the Property Code and article 21.22 of the Insurance Code, article 21.22 of the Imwmme
ad 42.002
code more spwitkdy pertalus to cash values. See Gov’t Code i 311.m)                  (stating that special
provision prevails owr general provision in event of irreconcilable conflict); Attorney  General Gpiion
JM-II37 (1990) at 3 (same). Furthermore, the legislature adopted Senate Bii 1261, amending
artide 21.22 of the Instuaacc Code, after Senate Bii 654, amending sections 42001 and 42.W of the

                                                  p.   652
Ms. Georgia D. Flint - Page 6                     (DM-125)




        In your second question, you ask whether article 2122 of the Insurance Code
exempts from seixure under process individually purchased ammities. You note, as
background, that the exemption in article 21.22 “specifically includes 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 21.22 never 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 21.22 prevails 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 “prcwecds of 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 of Laura 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 of questions from the Committee Chair, Senator Green. See id. at 4-5.


                                                  p.    653
Ms. Georgia D. Flint - Page 7        (DM-125)




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




                                                DAN      MORALES
                                                Attorney General of Texas

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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