May v. Ellis

SUPREME COURT OF ARIZONA
EN BANC

NANCY MAY, ) Arizona Supreme Court
) No. CV-04-0025-PR
Petitioner, )
) Court of Appeals
v. ) Division One
) No. 1 CA-SA 03-0283
HON. LINDSAY ELLIS, JUDGE PRO TEM )
OF THE SUPERIOR COURT OF THE ) Maricopa County
STATE OF ARIZONA, in and for the ) Superior Court
County of Maricopa, ) No. PB2002-002519
)
Respondent Judge, )
)
JACK DAVID and SHANNON DAVID, ) O P I N I O N
)
Real Parties in Interest. )
)
__________________________________)

Petition for Review from the Court of Appeals,
Division One, No. 1 CA-SA 03-0283

Special Action from the Superior Court of Maricopa County
The Honorable Lindsay Ellis, Judge
No. PB2002-002519

VACATED AND REMANDED

GOLDMAN & KAPLAN, LTD. Phoenix
By: Morris A. Kaplan
Mark E. Meltzer
Attorneys for Petitioner

DYER & FERRIS, L.L.C. Phoenix
By: Scott R. Ferris
Charles J. Dyer
Charles M. Dyer
Attorneys for Real Parties in Interest
H U R W I T Z, Justice

¶1 The issue in this case is whether life insurance

proceeds paid to a decedent’s spouse are exempt from claims of

creditors of the estate. We hold the proceeds are exempt from

creditors’ claims pursuant to Arizona Revised Statutes

(“A.R.S.”) § 20-1131 (2002).

I.

¶2 Nancy May survived her husband James Edward May, who

died on April 21, 2002. Nancy petitioned the superior court to

probate her late husband’s estate and was appointed personal

representative. She subsequently filed an estate inventory,

revealing that the estate contained no assets. At the time of

James May’s death, a civil suit was pending against the Mays in

superior court. The suit, filed by Jack and Shannon David,

alleged that the Mays engaged in fraud and odometer rollback

when selling them an automobile.

¶3 The Davids filed a claim against the estate in the

probate proceeding. The superior court allowed the claim,

contingent upon the determination that James was liable to the

Davids. Relying on A.R.S. § 14-6102 (Supp. 2003), which

restricts a non-probate transferee’s claim to certain assets in

favor of the decedent’s creditors, the Davids filed a motion in

the probate court requesting disclosure of James’s non-probate

assets. The court ordered Nancy to file an amended inventory,

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including non-probate assets. The amended inventory revealed

two life insurance policies, each in the amount of $500,000.

Nancy was the named beneficiary on each policy.

¶4 The Davids filed a motion to restrict or bond the life

insurance policy proceeds. The superior court granted the

motion. Nancy, however, had already exhausted the policy

proceeds. The court then found Nancy in contempt and ordered

her to provide an accounting of her expenditures, warning her

that failure to provide a proper accounting could result in her

removal as personal representative and incarceration.

¶5 In November 2003, Nancy filed an unaudited accounting

of her expenditures. On December 3, 2003, the superior court

nonetheless reaffirmed its contempt order and took under

advisement the issue of whether a forensic accounting was

necessary.1 On December 12, Nancy filed a special action in the

court of appeals, which declined jurisdiction. Nancy then

petitioned this court for review of the order of the court of

appeals declining special action jurisdiction, asking us to

decide whether, under A.R.S. § 14-6102(A), the proceeds from the

two life insurance policies can be used to pay her late

husband’s creditors or whether, under A.R.S. § 20-1131(A), these

proceeds are beyond the creditors’ reach.

1
At a status conference in January 2004, the superior court
ordered Nancy to provide a forensic accounting.

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¶6 We granted review of this purely legal question

because the issue is one of first impression and is of statewide

importance. The court has jurisdiction pursuant to Article 6,

Section 5(3) of the Arizona Constitution, Arizona Rule of Civil

Appellate Procedure 23, and A.R.S. § 12-120.24 (2003).

II.

¶7 Since 1954, Arizona law has provided that proceeds of

life insurance policies payable to beneficiaries other than the

decedent are exempt from claims against the decedent’s estate:

When a policy of life insurance is effected by any
person on his own life or on another life in favor of
some person other than himself having an insurable
interest therein . . . the lawful beneficiary thereof
. . . shall be entitled to its proceeds against the
creditors and representatives of the person effecting
the same.

A.R.S. § 20-1131(A) (added by 1954 Ariz. Sess. Laws, ch. 64, §

31). Notwithstanding A.R.S. § 20-1131(A), the superior court

apparently concluded that this case was controlled instead by

A.R.S. § 14-6102(A), enacted as part of an amendment of the

Arizona probate code to conform with certain 1998 revisions in

the Uniform Probate Code (“UPC”), 2001 Ariz. Sess. Laws, ch. 44,

§ 12. Section 14-6102(A) provides:

Except as otherwise provided by law, a transferee of a
nonprobate transfer is subject to liability to the
decedent’s probate estate for allowed claims against
the decedent’s probate estate and statutory allowances
to the decedent’s spouse and children to the extent
the decedent’s probate estate is insufficient to
satisfy those claims and allowances.

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See also A.R.S. § 14-6101(A) (1995) (defining a “provision for a

nonprobate transfer on death in any insurance policy” as

“nontestamentary”).

¶8 While the superior court did not explain its

reasoning, it appears that the judge agreed with the argument

advanced by the Davids that § 14-6102(A), the later enacted

statute, was meant to render the exemption in § 20-1131(A)

inapplicable to the extent that the assets in the decedent’s

estate were insufficient to satisfy creditors’ claims. In

advancing that argument, the Davids rely primarily on UNUM Life

Insurance Co. of America v. Craig, 200 Ariz. 327, 26 P.3d 510

(2001).

¶9 UNUM involved a dispute over the proceeds of life

insurance policies. As the court noted,

[t]here are currently in force two statutes governing
distribution of insurance proceeds upon simultaneous
or near-simultaneous deaths. The one [A.R.S. § 14-
2702] requires survival by 120 hours; the other
[A.R.S. § 20-1127] requires that the beneficiary meet
a more subjective standard of proof with complex
evidence that the beneficiary survived the insured if
only by a few moments.

Id. at 333 ¶ 29, 26 P.3d at 516. Because the named beneficiary

in UNUM survived the insured only by moments, the statutes were

in irreconcilable conflict. Id. We therefore turned to the

legislative history of the two provisions at issue. Id. at 330-

33 ¶¶ 14-27, 26 P.3d at 513-16. We concluded that in adopting

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the UPC, which contains the 120 hours requirement in § 14-2702,

the legislature implicitly repealed the conflicting provision in

§ 20-1127. Id. at 333 ¶ 29, 26 P.3d at 516. We therefore held

that § 14-2702, requiring survival by 120 hours, was “the

applicable rule of survival for a designated beneficiary of an

insurance policy.” Id. at 335 ¶ 38, 26 P.3d at 518.

¶10 Although we concluded in UNUM that the two statutes

could not be harmonized, we recognized that our first duty when

confronted with such claims of conflict is to “adopt a

construction that reconciles one with the other, giving force

and meaning to all statutes involved.” Id. at 333 ¶ 28, 26

P.3d at 516. In this case, we have no difficulty in doing so.

¶11 Section 14-6102(A), the UPC provision, begins with a

critical phrase: “Except as otherwise provided by law.” Thus,

§ 14-6102(A), which allows a decedent’s creditors to look to

non-probate transfers to satisfy their claims, only applies when

there is no other “law” to the contrary. Section 20-1131(A) is

precisely such a “law.” It expressly provides that life

insurance proceeds are not subject to creditors’ claims.

Therefore, life insurance proceeds are not among the non-probate

transfers available to satisfy the claims of creditors under §

14-6102(A).

¶12 Because there is no facial conflict between §§ 14-

6102(A) and 20-1131(A), the superior court erred in concluding

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that the former somehow implicitly repealed the latter. See

UNUM, 200 Ariz. at 329 ¶ 11, 26 P.3d at 512 (noting our duty to

“harmonize” the language of purportedly conflicting statutes in

order “to give effect to each”). Indeed, the official comments

to the UPC directly buttress this conclusion. The comment to

UPC § 6-102, the counterpart of A.R.S. § 14-6102, expressly

provides that

[t]he initial clause of subsection (b), “Except as
otherwise provided by statute,” is designed to prevent
a conflict with and to clarify that this section does
not supersede existing legislation protecting death
benefits in life insurance, retirement plans or IRAs
from claims by creditors.

UPC § 6-102 cmt. 2. When, as here, “a statute is based on a

uniform act, we assume that the legislature intended to adopt

the construction placed on the act by its drafters,” and

“[c]ommentary to such a uniform act is highly persuasive.”

UNUM, 200 Ariz. at 332 ¶ 25, 26 P.3d at 515 (internal citation

omitted).

III.

¶13 For the reasons above, we hold that the life insurance

proceeds paid Nancy are not part of James’s estate, and

therefore are not subject to the Davids’ claims. The superior

court’s orders requiring an accounting of those proceeds and its

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order of contempt are vacated, and this case is remanded for

further proceedings consistent with this opinion.2

Andrew D. Hurwitz, Justice

CONCURRING:

_
Charles E. Jones, Chief Justice

______
Ruth V. McGregor, Vice Chief Justice

_
Rebecca White Berch, Justice

_
Michael D. Ryan, Justice

2
The Davids seek attorneys’ fees, citing A.R.S. § 14-
1302(B) (Supp. 2003). Because they are not the prevailing
parties, we deny the claim.

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