Kollar v. Miller

• Decision Date: 30 April 1999
• Docket Number: No. 98-1794,98-1794
• Parties: In re Kevin P. KOLLAR; Lori P. Kollar, Appellants, v. Mitchell W. MILLER, Trustee/Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 175

176 F.3d 175

In re Kevin P. KOLLAR; Lori P. Kollar, Appellants, v. Mitchell W. MILLER, Trustee/Appellee.

No. 98-1794.

United States Court of Appeals, Third Circuit.

Argued March 22, 1999.

Filed April 30, 1999.

Ronald H. Beifeld (Argued), Plymouth Meeting, PA, for Appellants.

Eric L. Frank (Argued), Miller, Frank & Miller, Philadelphia, PA, for Appellee.

Before: BECKER, Chief Judge, COWEN, Circuit Judges, and STAGG, District Judge. ^*

OPINION OF THE COURT

BECKER, Chief Judge.

In this bankruptcy appeal, we must interpret a Pennsylvania statute that exempts certain property from execution on liens or judgments to determine if appellants may exempt a potential tort judgment from their bankruptcy estate pursuant to § 522(b)(2)(A) of the Bankruptcy Code, which permits a debtor to utilize state exemptions. The provision of the state exemption statute at issue here provides that

[t]he following property or other rights of the judgment debtor shall be exempt from attachment or execution on a judgment: ... The net amount payable under any accident or disability insurance.

42 Pa.Cons.Stat. § 8124(c)(7) (1998) (emphasis added). We conclude, as did the Bankruptcy Judge and the District Court, that this provision does not apply to the debtors' prospective tort judgment, despite the fact that such a judgment might be paid by the tort defendant's insurance carrier. Therefore, we affirm the District Court's order affirming the Bankruptcy Judge's order sustaining the objection to the exemption.

I. Factual and Procedural Background

A. The Tort Action and the Insurance Policy

On March 21, 1996, appellant/debtor Kevin P. Kollar suffered injuries when he fell in an appliance store near Reading, Pennsylvania. On April 7, 1997, Kollar and his wife, Lori, filed a civil action against the appliance store in Pennsylvania state court. See Kollar v. Maiden Creek TV & Appliances, No. 97-06591 (Pa.C.P.Ct. [Montg. Co.] filed Apr. 7, 1997). In their complaint, the Kollars alleged personal injuries resulting from the store's negligence and sought unspecified damages in excess of $50,000. ¹

On the date on which Kollar's injuries are alleged to have occurred, the appliance store maintained a business liability insurance policy, with a limit of $1,000,000 per occurrence. The policy obligates the insurance company to pay, inter alia, "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury,' 'property damage,' 'personal injury' or 'advertising injury' to which this insurance applies." Donegal Ins. Pol'y p A.1.a. In addition, the policy covers up to $5,000 of medical expenses for each person injured on the insured's premises. See id. p A.2.a. The policy and its declarations define the "insured" as Maidencreek TV & Appliances Inc., its employees, and persons managing Maidencreek's property. See id. p C.1-2. Under the policy, persons other than the insured may sue the insurance company "to recover on an agreed settlement or on a final judgment against an insured obtained after an actual trial." Id. p E.4.

B. The Bankruptcy Action

On December 23, 1996, about nine months after Kollar's accident at the appliance store, he and his wife filed the present bankruptcy petition under Chapter 13. On May 14, 1997, about a month after the tort action was filed in state court, the Kollars' bankruptcy case was converted into a Chapter 7 proceeding. They then amended schedule B of their bankruptcy petition to include the personal injury action, which they valued at $500,000 to $750,000. See App. at A-15. The personal injury action was also listed as an exempt asset on the Kollars' schedule C, under the provision of Pennsylvania law at issue in this appeal. The trustee objected to the exemption of the tort action, and the Bankruptcy Judge sustained this objection. See In re Kollar, 218 B.R. 349 (Bankr.E.D.Pa.1998). After plenary review of the legal issue regarding interpretation and application of the Pennsylvania exemption, the District Court affirmed the Bankruptcy Judge. See In re Kollar, 223 B.R. 288 (E.D.Pa.1998). This appeal followed. ²

II. Discussion

A. Background Bankruptcy Principles

None of the facts of this case just recited are in dispute. We will therefore focus on the narrow legal issue dividing the parties. Under the bankruptcy laws, a bankruptcy estate encompasses a wide variety of assets. See 11 U.S.C. § 541(a) (1994). It includes, with certain exceptions not relevant here, "all legal or equitable interests of the debtor in property as of the commencement of the case," id. § 541(a)(1), as well as "[a]ny interest in property that the estate acquires after the commencement of the case," id. § 541(a)(7). These provisions have been interpreted broadly, and include an interest in a cause of action. See Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487, 490 (3d Cir.1997) ("The Bankruptcy Code defines a bankrupt's estate broadly to encompass all kinds of property, including intangibles and causes of action."); see also H.R.Rep. No. 95-595, 95th Cong. 2nd Sess at 175-76 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6135-37 (noting that the new Bankruptcy Act defined the debtor's estate to include "all interests, such as interests in real or personal property, tangible and intangible property, choses in action, causes of action"). The estate is determined at the time of the initial filing of the bankruptcy petition, and not at the time a Chapter 13 bankruptcy is converted to a Chapter 7 bankruptcy. See 11 U.S.C. § 348(f)(1)(A) (1994).

Once the estate is defined, however, the bankruptcy statute permits an individual debtor to exclude certain assets from the estate. See id. § 522(b). The debtor may choose to exempt those assets permitted by the statute itself, see id. § 522(d), or those assets exempted under state and local law, see id. § 522(b). ³ The Kollars chose the latter option. Therefore, they may exempt those assets that Pennsylvania law permits a debtor to keep beyond the reach of its creditors. ⁴

B. The Insurance Exemption

The sole issue on this appeal is whether the Kollars' potential tort judgment falls under one of the Pennsylvania exemptions. As an initial matter, we note the obvious. If Pennsylvania case law has definitively interpreted the relevant statutory provision and determined whether it applies to a case such as this, our task is simple: we apply the interpretation of state law by the state's own courts. However, state case law on the provision at issue here is virtually nonexistent. Therefore, we look to the language of the entire exemption statute and to principles we can glean from that statute in order to predict how the Pennsylvania Supreme Court would interpret this provision.

The relevant provision of state law is section 8124 of title 42 of the Pennsylvania Consolidated Statutes. That provision, titled "Exemption of particular property," includes three categories of properties that are exempt from execution on a judgment or a lien, and concomitantly are exempt from a debtor's Chapter 7 bankruptcy estate if the debtor chooses to assert state exemptions. The categories are "goods," 42 Pa.Cons.Stat. § 8124(a), ⁵ "retirement funds and accounts," id. § 8124(b), ⁶ and "insurance proceeds," id. § 8124(c). The category at issue here is the final one, insurance proceeds.

The Pennsylvania statute lists ten types of insurance proceeds that are exempt from execution. These include unemployment and workers' compensation benefits, proceeds of group insurance policies, and amounts paid under certain life insurance policies. In addition, as noted above, the subsection of the statute relevant to the present appeal provides that:

The following property or other rights of the judgment debtor shall be exempt from attachment or execution on a judgment: ... The net amount payable under any accident or disability insurance.

Id. § 8124(c)(7). The Kollars claim that, because any judgment that they receive in their tort action will be "derivative from the insurance proceeds of an accident or disability policy," Appellants' Br. at 16, their tort claim is covered by section 8124(c)(7) and is exempt from the bankruptcy estate. One bankruptcy court opinion supports them. See In re Lowenthal, 203 B.R. 576 (Bankr.E.D.Pa.1996) (discussed infra note 10). The trustee disagrees. Like the Bankruptcy Judge and the District Court, we also disagree, and hold that Pennsylvania's exemption statute does not exempt from a bankruptcy estate a tort claim, even one that might be paid by an insurance carrier. We find support for our holding on a number of levels.

1.

First and foremost, the exemption at issue here is an insurance exemption, not a personal injury or tort exemption. The Pennsylvania statute provides exemptions in three clearly delineated categories: goods, pensions, and insurance proceeds. The category at issue, insurance proceeds, includes a number of items that are paid directly to a debtor as a result of his or her own insurance coverage, including group or social insurance coverage (e.g., life insurance, fraternal society benefits, unemployment compensation). We can find no basis for concluding that the Pennsylvania legislature intended to add to this coherent category a wholly unrelated item--the proceeds of tort litigation--if such proceeds happened to be paid by the defendant's insurance carrier. We note further that section 8124(c)(7) exempts amounts payable under "any accident or disability insurance." The appliance store's insurance policy, which the Kollars invoke as the basis for their exemption, arguably is not even an "accident or disability insurance" policy, but rather is a business liability policy. We need not belabor this distinction, however, as our conclusion would not change even if the policy in this case was more clearly an "accident or disability insurance" policy.

It is instructive that the federal bankruptcy exemptions, as well as...