In re Zaepfel & Russell
| Decision Date | 09 August 1941 |
| Docket Number | No. 13601.,13601. |
| Parties | In re ZAEPFEL & RUSSELL, Inc. |
| Court | U.S. District Court — Western District of Kentucky |
J. H. Gold, of Louisville, Ky., for Trinity Universal Ins. Co.
Burwell K. Marshall, of Louisville, Ky., for New York Casualty Co.
D. E. Wooldridge, of LaGrange, Ky., for First State Bank of LaGrange.
M. J. Hennessey, of Augusta, Ky., for Farmers State Bank of Augusta.
Peter, Heyburn, Marshall & Wyatt, of Louisville, Ky., for First Kentucky Fire Ins. Co.
This matter is before the Court on various petitions to review the order of the Referee entered on March 12th, 1941, which sustained the claims of the New York Casualty Company and the Trinity Universal Insurance Company, and overruled the claims of the First State Bank of LaGrange, Kentucky, the Farmers State Bank of Augusta, Kentucky, and the First Kentucky Fire Insurance Company.
The question of priority between the claims of the surety companies and the claims of the banks depends upon whether we follow the rule adopted by the Federal Courts or the rule announced by the Court of Appeals of Kentucky. The federal decisions hold that the right of the surety company to subrogation upon payment of the claims against the contractor is superior to the claim of the bank who has loaned money to the contractor for the purpose of paying for labor and material going into the construction of the building. Prairie State National Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412; Henningsen v. United States F. & G. Co., 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 547; Farmers' Bank v. Hays, 6 Cir., 58 F.2d 34.
The Court of Appeals of Kentucky has upheld the priority of the claim of the bank. Movl Construction Co. v. Covington Trust & Banking Co., 258 Ky. 485, 80 S. W.2d 560; Southern Exchange Bank v. American Surety Co., 284 Ky. 251, 144 S. W.2d 203.
The rule announced in the case of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, is not applicable to the consideration of facts in a bankruptcy proceeding. In re Avery, 6 Cir., 114 F.2d 768. The allowance of the claim of the surety is governed by the Bankruptcy Act, § 57, sub. i, Section 93, sub. i, Title 11 U.S.C.A. The order of the Referee giving priority to the claims of the Trinity Universal Insurance Company and the New York Casualty Company over the claims of the Farmers State Bank of Augusta and the First State Bank of LaGrange is affirmed.
The First Kentucky Fire Insurance Company and Sauer Insurance Agency furnished policies of Workman's Compensation and Public Liability Insurance on the two projects, the premiums for which were not paid. These creditors seek preferred claims and object to the allowance of a lien against the unpaid balances in favor of the surety companies, contending that (a) their claims are statutory liens under the provisions of Sections 2492-2494, Kentucky Statutes, and (b) they have such priority by the terms of the bonds executed by the bankrupt and its respective sureties. Section 2492, Kentucky Statutes provides a lien in favor of persons who "furnish labor, material or supplies for the construction" of a public improvement. An insurance premium is neither labor, material nor supplies as the terms are defined in Section 2495-2 of the Kentucky Statutes....
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