New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The office of General Counsel issued the following informal opinion on October 16, 2001, representing the position of the New York State Insurance Department.

Re: N.Y. Ins. Law § 3212 (b) (McKinney 2000)

Question Presented:

1. What does the term "effected" mean under N.Y. Ins. Law § 3212(b) (McKinney 2000)?

2. If an insurance policy provides that a spouse (husband) is the insured, another person is the owner, and the other spouse (wife) is the beneficiary, are the death benefits payable upon the death of the husband exempt from the reach of the creditors of the spouse under N.Y. Ins. Law § 3212 (b) (McKinney 2000)?

Conclusion:

1. Under N.Y. Ins. Law § 3212(b) (McKinney 2000) the term "effected" appears to be synonymous with the word "purchased".

2. No. If an insurance policy provides that a spouse (husband) is the insured, another person is the owner, and the other spouse (wife) is the beneficiary, the death benefits payable upon the death of the husband are not exempt from the reach of the creditors of the spouse-beneficiary.

Facts:

No specific facts were provided.

Analysis:

1. N.Y. Ins. Law § 3212 (McKinney 2000), which deals with the exemption of proceeds and avails of certain insurance and annuity contracts, provides in relevant part:

(b)(1) If a policy of insurance has been or shall be effected by any person on his own life in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person effecting the insurance.

(2) If a policy of insurance has been or shall be effected upon the life of another person in favor of the person effecting the same or made payable otherwise to such person, the latter shall be entitled to the proceeds and avails of such policy against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured. If the person effecting such insurance shall be the spouse of the insured, he or she shall be entitled to the proceeds and avails of such policy as against his or her own creditors, trustees in bankruptcy and receivers in state and federal courts.

(3) If a policy of insurance has been or shall be effected by any person on the life of another person in favor of a third person beneficiary, or made payable otherwise to a third person, such third person shall be entitled to the proceeds and avails of such policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured and of the person effecting the insurance.

N.Y. Ins. Law § 3212(b)(1),(2) & (3) (McKinney 2000).

N.Y. Ins. Law § 3212 (a) (McKinney 2000) does not provide a definition of the word "effected". However, numerous New York courts that have applied the exemption provisions of N.Y. Ins. Law § 3212(b) (McKinney 2000) have often used the word "effected" synonymously with the word "purchased".

In a seminal bankruptcy court opinion dealing with the exemption provisions of N.Y. Ins. Law § 3212(b), In re Mary Jane Rundlett, 142 B.R. 649 (S.D.N.Y.1992) aff’d, 153 B.R. 126 (S.D.N.Y.1993), Mary Jane Rundlett, the debtor, claimed exemptions under N.Y. Ins. Law § 3212(b) as to proceeds of five life insurance policies on her deceased husband’s life received prior to the commencement of her bankruptcy case. Two of the policies were owned by the debtor, Mary Jane Rundlett, two policies were owned and paid for by the debtor’s deceased husband, and one policy was owned by the deceased husband’s corporation, Private Capital Partners, Inc. ("PCPI").

The Rundlett court, in applying the exemption provisions of N.Y.Ins. Law § 3212(b) (McKinney 2000), stated that when determining whether a life insurance policy was exempted from the reach of creditors the key words in the statute are "effecting such insurance." "If the debtor in this case effected the insurance policies on the life of her late husband, naming herself as beneficiary, the proceeds would be exempt from her creditors." i.e., "where a person buys a policy on the life of another made payable to the purchaser, the proceeds will be immune from attack by the insured’s creditors. If the purchaser is the wife of the insured the proceeds will also be free of any claims made by her creditors." See Chatam Phenix National Bank & Trust Company v. Crosney, 251 N.Y. 189, 167 N.E. 217 (1929), ("effected" defined as "where a person by appropriation or investment of his own money in premiums for insurance upon his own life for the benefit of another creates an insurance fund for the beneficiary.") see also Levine v. Laurdan Mgmt. Corp., 179 Misc. 241, 38 N.Y.S.2d 442 (1942), (The person who "effects" insurance is the one who is the procuring cause of the insurance.)

2. In question number two posited above, N.Y. Ins. Law § 3212(b)(3) (McKinney 2000) would exempt the life insurance proceeds from the reach of the creditors of the insured (i.e., the deceased husband) and, the creditors of the owner of the policy, but it would not exempt the proceeds from the reach of the creditors of the spouse-beneficiary.

In Rundlett, above, one of the issues before the bankruptcy court was whether the death benefits on one policy in the amount of $913,013.78 owned by the deceased husband’s corporation, PCPI, were exempt from the beneficiary wife’s creditors. The court stated that, "where a corporation takes out an insurance policy on the life of a shareholder, the shareholder’s wife (the beneficiary) cannot be regarded as having effected the insurance. ... Therefore, the debtor (the beneficiary) is not entitled to exempt the $913,013.78 proceeds from the policy as against her own creditors." Rundlett, 142 B.R. at 652 (emphasis added).

For further information you may contact Senior Attorney Adiza J. Mohammed at the New York City Office.