Page:The Green Bag (1889–1914), Volume 24.pdf/460

 Bankrupt's Insurance Policies more in the nature of a power or privi lege to make a valid contract. It is a status and not a property right. The common law upon motives of public policy held that there must be an insurable interest in the life which was in•sured. Who has such an insurable interest was frequently a matter of some discussion and possible doubt. An interest which is insurable must be an interest in favor of the continuance of the life and not an interest in its loss or destruction.6 There is no insur able interest on the life of the bankrupt in the bankrupt's estate.6 Whatever rights the trustee in bank ruptcy has to the bankrupt's life insur ance policies are given to him by sec tion 70 of the Bankruptcy Act of 1898, which reads in part as follows: The trustee of the estate of a bankrupt. . . shall be vested by operation of law with the title of the bankrupt as of the date he was adjudged a bankrupt, except insofar as it is to property which is exempt, to all ... (5) prop erty which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him; Provided, that when any bankrupt shall have any insurance policy which has a cash surrrender value pay able to himself, his estate or personal repre sentatives, he may within thirty days after the cash surrender value has been ascertained and stated to the trustee by the company issuing the same, pay or secure to the trustee the sum so ascertained and stated, and continue to hold, own and carry such policy free from the claims of the creditors participating in the distribution of the estate under the bankruptcy proceedings, otherwise the policy shall pass to the trustee as assets.

Until the case of Holden v. Stratton, 198 U. S. 202, was decided, the courts in many cases held that the presence of a cash value in a policy determined whether or not a policy passed to the trustee. 4 Holmes v. Gilman, 34 Northeastern 205; also In re Judson. 192 Fed. Rep. 834. 0 Re McKinney, 15 Fed. Rep. 535.

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That caes definitely fixed the law as up holding state exemptions and decided that the proviso in section 70a 5 did not enlarge the trustee's rights, but gave to the bankrupt the additional privilege of redeeming from the trustee a policy which would otherwise pass to him. There were two bankrupts, Daniel H. Holden and his wife, Lizzie Holden. J. A. Stratton was the trustee of both estates. There were two policies upon the life of Holden both payable to his wife if living at his death, otherwise to his personal representatives. The bankrupts claimed the policies by vir tue of an exemption law of the state of Washington, while the trustee re sisted this claim upon the ground that the policies had a cash surrender Value of $2,200, which it was the duty of the bankrupts to pay the trustee as a con dition precedent to the exemption of the policies. The referee sustained the position of the trustee, but was reversed by the District Court. The Circuit Court of Appeals again upheld the trustee and the referee, and the case finally reached the highest court. The bankrupts were residents of the state of Washington and claimed the benefit of the broad exemption law of that state, which provided "that the proceeds or avails of all life insurance shall be exempt from all liability for any debt." The Circuit Court of Appeals held that the allowance of state exemptions secured to the bankrupt by section 6 of the Bankruptcy Act was modified by the proviso in section 70a of the Act. The United States Supreme Court took up this question and discussed it exhaustively, carefully considering the conflicting ' views in the Circuit Court decisions. As a re sult, the leading case of Steele v. Bull, 104 Fed. Rep. 968, was affirmed and the case of Re Scheld, 104 Fed. Rep.