## Facts

- Bruce Edward Howard Simpson filed a Chapter 7 bankruptcy case in California.
- Shortly before filing, Simpson paid $10,000 to purchase a single-premium “Keyport Index Multipoint Annuity” through his bankruptcy attorney, who also sold financial products.
- Simpson was both owner and annuitant; his two sons were beneficiaries.
- The annuity was equity-indexed (tied to the S&P 500) with a guaranteed minimum return on a portion of the premium.
- The contract stated it was “non-qualified for IRS purposes,” had no loan value, and could be surrendered before an “income date” subject to an early-surrender penalty.
- If Simpson died before the income date, beneficiaries could surrender without the penalty and receive principal plus accrued interest, or keep the annuity until maturity.
- Simpson claimed the annuity as exempt under California’s exemptions for (1) private retirement plans and (2) life insurance.
- The Chapter 7 trustee objected; the bankruptcy court sustained the objection, the Bankruptcy Appellate Panel affirmed, and Simpson appealed.

## Issues

1. Whether the annuity was exempt as “life insurance” under Cal. Civ. Proc. Code § 704.100(a).
2. Whether the annuity was exempt as a “private retirement plan” under Cal. Civ. Proc. Code § 704.115(b).

## Decision

- The Ninth Circuit affirmed the Bankruptcy Appellate Panel and the bankruptcy court.
- The annuity did not qualify as exempt “life insurance” under § 704.100(a).
- The annuity did not qualify as an exempt “private retirement plan” under § 704.115(b).
- The trustee’s objection to the claimed exemptions was properly sustained, and the annuity remained property of the bankruptcy estate.

## Legal Principles

- California exemption rights are statutory; courts apply them in line with legislative purpose and controlling precedent.
- An annuity is not exempt as “life insurance” merely because insurance statutes reference annuities; the functional question is whether the product primarily involves insurance-type risk shifting tied to death, rather than an investment structure with incidental death-related terms.
- “Death benefit” features that primarily remove surrender penalties or accelerate vesting do not convert an investment-oriented annuity into exempt life insurance for purposes of § 704.100(a).
- The § 704.115(b) “private retirement plan” exemption protects retirement plans of the type contemplated by the statute (commonly employer- or organization-based, or tax-qualified arrangements), not any individually purchased investment the debtor labels as retirement savings.
- A product expressly “non-qualified for IRS purposes,” purchased individually in a lump sum shortly before bankruptcy, supports classification as a non-exempt investment vehicle rather than an exempt retirement plan.

## Conclusion

The Ninth Circuit held that a debtor’s last-minute purchase of a nonqualified, equity-indexed annuity was not exempt in bankruptcy under California’s life insurance or private retirement plan exemptions, so the annuity remained available to the estate for creditors.


In re Simpson, 557 F.3d 1010 (9th Cir. 2009)