IN RE: JAMES E. COX CASE NO. 89-00334
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF KENTUCKY
JAMES E. COX CASE NO. 89-00334
This matter is before the court on an objection by creditors Betty Cummins and Charles Cummins to an exemption claimed by the debtor pursuant to KRS 427.110 and KRS 427.150 in "insurance proceeds, which are being held in escrow by Bradford Co." Also pending is a motion of the debtor for an order approving the exemption as claimed.
In 1986 the debtor filed an action in Franklin Circuit Court seeking damages for loss of affection and companionship arising from the wrongful death of his illegitimate son, who was killed in an automobile accident. The child's mother, Betty Cummins, as executrix of the child's estate and individually, filed an action seeking damages for the wrongful death of her son and for loss of affection and companionship. The two actions were consolidated, and the defendant driver was dismissed after paying $50,000, the policy limits of his insurance coverage, into Franklin Circuit Court.
The plaintiff mother disputed the debtor's right to receive proceeds of the wrongful death actions. That issue was the subject of an appeal to the Kentucky Court of Appeals and thereafter to the Kentucky Supreme Court.
On September 27, 1990, the Kentucky Supreme Court rendered an opinion in the case of Betty Cummins v. James Cox holding that the father of an illegitimate child has standing to prosecute an action for wrongful death of the child. The Kentucky Supreme Court remanded the case to Franklin Circuit Court for a determination of the amount each party should recover.
The debtor filed a petition for relief under chapter 7 of title 11 United States Code on September 25, 1989, and claimed an exemption pursuant to KRS 427.110 and KRS 427.150 in "insurance proceeds, which are being held in escrow by Bradford Co.," referring to the insurance proceeds paid into Franklin Circuit Court in settlement of the wrongful death actions. The creditors filed their objection to the claimed exemption on December 1, 1989. A hearing was held on December 20, 1989.
KRS 427.110 provides as follows:
(1) Any money or other benefit to be paid or rendered by any assessment or cooperative life or casualty insurance company is exempt from execution or other process to subject such money or other benefit to the payment of any debt or liability of a policyholder.
(2) Any money or other benefit to be paid or rendered by any fraternal benefit society is exempt from attachment, garnishment or other process to subject such money or other benefit to the payment of any debt or liability of a member or beneficiary, or any other person who may have a right thereunder, either before or after payment.
KRS 427.110 cannot be invoked by the debtor to exempt funds he may receive in the wrongful death action. Paragraph one of the statute protects only the policyholder from execution on insurance benefits. Paragraph two applies only to benefits paid by a fraternal benefit society, which is authorized to provide benefits only to its members and is not authorized to provide liability insurance coverage. See KRS 304.29-010, KRS 304.29-180.
KRS 427.150(2)(b) provides as follows:
(2) An individual is entitled to exemption of the following property:
. . . .
(b) A payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
The debtor is not entitled to claim an exemption in proceeds from the wrongful death action pursuant to this statute because the debtor was not a dependent of the decedent.
The court finds the objection to the debtor's exemption should be sustained, and the motion of the debtor for an order approving the exemption should be overruled.
By the court -
Willie E. Peale, Jr.
James P. Benassi
Mark Thomas Miller