Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
An injured motorist wasn’t prohibited from pursuing an uninsured motorist claim against his insurance company because the driver at fault filed a bankruptcy case, the Alabama Supreme Court ruled ( Easterling v. Progressive Specialty Ins. Co. , 2017 BL 326092, Ala., No. 1150833, 9/15/17 ).
The Sept. 15 opinion by Justice Greg Shaw reversed the trial court’s grant of summary judgment in favor of Progressive Specialty Insurance Company.
In December 2014, Hershel and Charlotte Easterling were injured when their vehicle was rear-ended by a car driven by Ashley McCartney. In April 2015 the Easterlings sued McCartney and Progressive, their insurer, for an uninsured or under-insured motorist claim.
During the litigation, Charlotte Easterling died. The court said there was a dispute as to whether her death was related to injuries sustained in the accident.
Before trial, McCartney filed a Chapter 7 bankruptcy case, the court said. In Chapter 7, a debtor’s assets are administered by a trustee for the benefit of her creditors. Most debts are then discharged, meaning that the holder of a claim is permanently barred from pursuing the debtor for payment.
Progressive sought and obtained summary judgment in its favor based on an Alabama law that provides that a plaintiff may recover uninsured motorist benefits only if the plaintiff is “legally entitled to recover damages” from the responsible party. It said that McCartney’s discharge meant that Easterling wasn’t legally entitled to recover damages from her.
The court disagreed. It explained that although the bankruptcy discharge prevented collection of a debt against McCartney, it didn’t prevent establishing the existence of a claim.
“By virtue of her bankruptcy filing, McCartney has not been relieved of legal liability for the harm she caused Hershel; instead, Hershel may prove the merits of his claim but is merely prevented by law from seeking to collect damages from McCartney for that harm even after his legal entitlement to recover those damages has been established,” the court said.
The court found that the bankruptcy code doesn’t prohibit state court claims from continuing against non-debtor parties, specifically including insurance companies which may be liable for coverage.
Nowhere in the opinion does the court discuss the fact that Easterling and other creditors may be entitled to some distribution on account of their claims in bankruptcy, if there are any assets for the trustee to administer.
Justice William B. Sellers filed a dissent to the opinion.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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