American Bankers Ins. Co. of Florida v. Maness
| Decision Date | 27 November 1996 |
| Docket Number | Nos. 95-2641,95-2642,95-2643,s. 95-2641 |
| Citation | 101 F.3d 358 |
| Parties | , Bankr. L. Rep. P 77,213 AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, Plaintiff-Appellant, and United States Fidelity & Guaranty Company, Plaintiff, v. Jack D. MANESS, Trustee for the Bankruptcy Estate of Joseph L. Houska and Judy C. Houska, Defendant-Appellee, and Joseph L. Houska; Judy C. Houska; Cenit Bank, F.S.B., Defendants. UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff-Appellant, and American Bankers Insurance Company of Florida, Plaintiff, v. Jack D. MANESS, Trustee for the Bankruptcy Estate of Joseph L. Houska and Judy C. Houska, Defendant-Appellee, and Joseph L. Houska; Judy C. Houska; Cenit Bank, F.S.B., Defendants. UNITED STATES FIDELITY & GUARANTY COMPANY; American Bankers Insurance Company of Florida, Plaintiffs-Appellees, v. Jack D. MANESS, Trustee for the Bankruptcy Estate of Joseph L. Houska and Judy C. Houska, Defendant-Appellant, and Joseph L. Houska; Judy C. Houska; Cenit Bank, F.S.B., Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: W. Charles Waddell, III, Waddell & Barnes, P.C., Newport News, Virginia, for Appellant USF&G Clayton Henson Farnham, Drew, Eckl & Farnham, Atlanta, Georgia, for Appellant American Bankers. Robert Vincent Roussos, Roussos & Langhorne, P.L.C., Norfolk, Virginia, for Appellee. ON BRIEF: J.H. Revere, III, Waddell & Barnes, P.C., Newport News, Virginia, for Appellant USF&G Phillip C. Griffeth, Drew, Eckl & Farnham, Atlanta, Georgia, for Appellant American Bankers.
Before HALL, WILLIAMS and MOTZ, Circuit Judges.
In this diversity case, two insurers appeal the district court's holding that the trustee for a bankruptcy estate was entitled to an interest in the payouts from one of two insurance policies covering the debtors' residence. The trustee cross appeals, asserting that the bankruptcy estate was entitled to an interest in the payouts of both policies. Because neither policy (nor the payouts from either of them) constituted property of the bankruptcy estate, the trustee had no right to funds stemming from either policy. Accordingly, we affirm the district court's grant of summary judgment to one insurer, we reverse the court's denial of summary judgment to the other insurer, and we remand for further proceedings.
Although the parties do not dispute the material facts, the facts themselves are complicated. Furthermore, the timing of events is critical to our discussion. Accordingly, we set forth a chronology, which includes only those facts necessary to understand our holding. The opinion of the district court presents the facts in greater detail. See United States Fidelity & Guar. Co. v. Houska, 184 B.R. 494 (E.D.Va.1995).
On August 27, 1991, Joseph and Judy Houska filed a bankruptcy petition under Chapter 11. On October 25, 1991, their creditors held a meeting pursuant to 11 U.S.C. § 341 (1988), at which Mr. Houska confirmed that a policy issued by the Home Insurance Company ("Home") covered the real property at issue here, a residence in Virginia Beach, Virginia. On April 30, 1992, the Houskas converted their Chapter 11 case to one under Chapter 7. On May 20, the court appointed Jack Maness as trustee of the estate, thereby removing control of the estate from the Houskas as debtors-in-possession. The conversion to Chapter 7 prompted another § 341 creditors' meeting, held on June 22. No one mentioned insurance coverage at this meeting.
Prior to the June 22 creditors' meeting but subsequent to the May 20 appointment of the trustee, the Houskas decided to change their homeowners insurance coverage. The Houskas decided to change insurers because Home refused to continue to provide them automobile insurance, and the Houskas, at the suggestion of their insurance agent, hoped to purchase a policy that would provide both car and home insurance at a discounted premium. 1 USF&G agreed to provide this coverage, and the Houskas determined to switch to that insurer. The USF&G policy that the Houskas chose became effective on June 19, 1992. On that date the Home policy expired, as the Houskas had cancelled the plan's automatic renewal. The Home and USF&G policies provided identical limits of liability: $662,000 for the "dwelling," and $496,500 for personal property.
On August 7, 1992, fire destroyed the Virginia Beach residence. Local authorities determined that someone had intentionally set the fire, but as of the time of the district court opinion, authorities had not yet brought arson charges.
There were two deeds of trust on the property. Household Mortgage Corporation ("Household") held the first deed of trust. The USF&G policy listed the Houskas as the insured and Household as the named mortgagee. Household also had a contractual relationship with American Bankers Insurance Company ("American Bankers") compelling American Bankers to "force place" an insurance policy on any property in which Household was the mortgagee if either party determined that no other insurance covered it. In March 1993, after the fire loss, American Bankers mistakenly issued a policy that retroactively covered the Houskas' residence at the time of the fire. The American Bankers policy similarly lists the Houskas as the insured and Household as the named mortgagee. 2
After the fire, the Houskas filed claims under both the USF&G and American Bankers policies, claiming losses of $1,243,096.01 for the dwelling and $647,350.05 for their personal property. 3 In view of the Houskas' claims that some of the real property and some of the personal property were exempt, the Houskas and trustee ultimately agreed to divide their claims. The Houskas abandoned any claim to insurance proceeds payable on the loss of real property, and agreed to pursue insurance payouts for the loss of the personal property only. In return, the bankruptcy trustee, Maness, agreed to drop all claims to insurance payments due on the loss of personalty and seek payment from the insurers solely for the damage to the real property.
Collectively, the insurers paid the named mortgagee, Household, at least $571,633.91, 4 and in return, Household assigned the mortgage to them. Thereafter, on March 22, 1994, the insurers filed a complaint for declaratory judgment against the Houskas. The insurers alleged that the Houskas intentionally burned the house and falsely testified under oath as to the value of the destroyed property. For these reasons, the insurers asked the court to declare the policies void and the insurers not liable to the Houskas under the policies.
Both insurance policies have a provision which mandates that all claims be brought within two years of the date of loss. Although the record indicates that by March of 1993 the bankruptcy trustee, Maness, knew of the likely refusal of the insurance claim, at no time during the two years following the loss did he attempt to bring a claim on behalf of the estate. In December 1994, after the two year period had ended, the district court urged the trustee to intervene because the attorney for the Houskas sought leave to withdraw and the court feared that the Houskas would be proceeding pro se. Maness filed a motion to intervene; the court granted that motion on January 27, 1995.
The insurers moved for summary judgment against Trustee Maness on the grounds that he had failed to bring suit within the two year period required by the policy and was barred from recovery by the Houskas' arson and fraud. The insurers also argued that, in any event, the trustee had no interest in the insurance policies because they were issued post-petition. Maness filed a cross motion for summary judgment. He maintained that his claim was timely and moreover, that as the bankruptcy trustee, under this court's holding in Kremen v. Harford Mut. Ins. Co. (In re J.T.R. Corp.), 958 F.2d 602 (4th Cir.1992) (per curiam), he was not subject to the insurers' defenses of fraud and arson that were available against the Houskas.
In ruling on the summary judgment motions, the district court held that "[u]nder Virginia law, payments pursuant to a contract of insurance protecting against damage to property are not considered to be proceeds derived from the property itself...." 184 B.R. at 501. For this reason the court determined that Trustee Maness had no interest in the proceeds of the American Bankers insurance policy, which had been issued post-petition, and so granted summary judgment to American Bankers with regard to the proceeds of that policy. Although the USF&G policy had also been issued post-petition, the court refused to apply the same rule to it. Instead the court concluded that the trustee had an interest in the USF&G policy because it was a "replacement policy" for the Home policy that became part of the bankruptcy estate at the time of petitioning. For this reason, the court denied summary judgment to USF&G. 5
Upon the motion of the trustee, the district court certified its order for interlocutory appeal to this court pursuant to 28 U.S.C. § 1292(b) (1994). Both insurers and the trustee then noted appeals, and we agreed to consider the case.
Our review of these summary judgment orders is de novo and we view all evidence in the light most favorable to the non-moving party. Pittman v. Nelms, 87 F.3d 116, 118 (4th Cir.1996). The critical question in this case is whether the payouts of the USF&G and American Bankers policies are the property of the bankruptcy estate. If the payouts are not the property of the bankruptcy estate, the trustee has no interest in or right to those funds. On the other hand, if the payouts are the property of the bankruptcy estate, the trustee does have an interest in them and can make claim to them.
In determining what property is included in the bankruptcy estate, we look initially at what property the debtors (the Houskas) possessed at the time they filed their Chapter...
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