Alliance Well Serv., LLC v. J.S. Ward & Son, Inc. (In re Alliance Well Serv., LLC)
| Decision Date | 27 October 2017 |
| Docket Number | Adv. No. 17–1008 t,Case No. 16–10078 t11 |
| Parties | IN RE: ALLIANCE WELL SERVICE, LLC, Debtor. Alliance Well Service, LLC, Plaintiff, v. J.S. Ward & Son, Inc., Defendant. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of New Mexico |
Nephi D. Hardman, William F. Davis & Assoc., P.C., Albuquerque, NM, for Plaintiff.
Nancy S. Cusack, Hinkle Shanor LLP, Santa Fe, NM, for Defendant.
Before the Court is whether Defendant was within its rights to retain Plaintiff's insurance premium refund, sent to Defendant as Plaintiff's insurance agent. Defendant received the refund from the insurer and applied it to amounts Plaintiff owed under a confirmed plan of reorganization. The parties filed cross motions for summary judgment on the issue. Having reviewed the motions, supporting affidavits, and briefs, and having heard arguments of counsel, the Court concludes that Defendant's retention of the refund was improper.
For the limited purpose of ruling on the cross motions for summary judgment, the Court finds no genuine dispute as to the following facts:
Plaintiff is in the business of maintaining and servicing oil and gas wells. Defendant is an insurance agency licensed by the State of New Mexico.
In August 2015, Plaintiff's one-year insurance policy issued by St. Paul Fire and Marine Insurance Company ("St. Paul") was set to expire. The policy included property, inland marine, general liability, and "umbrella" coverage. St. Paul informed Defendant that the policy would be renewed only on an "agency bill" basis, requiring that the entire premium be paid up front, and that Defendant collect any amounts due from Plaintiff.
The premium for the renewal policy was $134,042.00. The portion of the premium relating to general liability coverage was an estimate; the ultimate amount was to be determined by an audit conducted after the policy term.
St. Paul issued a one-year renewal policy (the "St. Paul Policy") to Plaintiff effective August 1, 2016. Defendant was shown as St. Paul's authorized representative. The policy contract provided that, if the audit ultimately revealed an overpayment, St. Paul would refund the overpayment to Plaintiff.
Lacking the cash to pay the premium in full, Plaintiff borrowed the money from Defendant and signed an Insurance Premium Finance Agreement. Under the agreement, Plaintiff granted Defendant a security interest in Plaintiff's right to a refund of any unearned premium. The mechanism set out in the agreement, like most premium finance agreements, allowed Defendant to cancel the policy if a loan default occurred, and then collect the refunded unearned premium and apply it to the loan balance. The agreement provides in part:
Defendant sold the agreement to Western Bank of Artesia ("Western Bank") on a "full recourse" basis, i.e., if Plaintiff defaulted under the agreement, Defendant agreed to buy it back at par. Western Bank paid Defendant $134,042.00 for the agreement. The proceeds were used to pay the premium for the St. Paul Policy.
Defendant's agency contract with St. Paul included an accounting and collection procedure used for "agency bill" insurance arrangements like Plaintiff's. Defendant was required to provide St. Paul a monthly accounting showing the premium due, premium payments collected, deductions for cancellations, refunds, and similar items. If the accounting showed that the insured owed money to St. Paul, Defendant was required to remit the amount due, whether or not it had collected the funds.
In August 2015, Defendant also renewed an automobile and rig insurance policy issued by Mountain States Mutual (the "Mountain States Policy"). Plaintiff did not pay the entire premium at policy inception; on December 22, 2015, Defendant received notice from Mountain States that the policy had been cancelled for non-payment. Defendant contacted Mountain States and learned that Plaintiff would have to pay $41,374.34 immediately to reinstate the Mountain States Policy. Defendant so informed Plaintiff.
Again because Plaintiff lacked the cash, Plaintiff and Defendant entered into a new premium finance agreement on December 24, 2015, replacing the existing agreement. The new agreement financed both the Mountain States reinstatement premium and the unpaid balance of the existing agreement. These totaled $122,480.06. Like the first premium finance agreement, Defendant sold the new agreement to Western Bank, on a full recourse basis. The first agreement was deemed paid in full as part of the transaction.
Plaintiff filed this Chapter 11 case on January 19, 2016. On January 28, 2016, Western Bank demanded that Defendant buy back the new insurance premium finance agreement. Defendant did so, paying Western Bank $123,483.41.
Between March 3, 2016, and July 14, 2016, Plaintiff paid Defendant $88,595.42 ($561.66 per day) in court-ordered adequate protection payments on account of the premium finance agreement.
On August 11, 2016, Plaintiff filed a plan of reorganization (the "Plan"). The Court confirmed the Plan on October 7, 2016. The confirmed Plan provides, in part:
Since March 3, 2016, Debtor has paid to J.S. Ward semimonthly payments equal to the daily rate of $561.66, in order to adequately protect J.S. Ward from the loss of value of its collateral. Debtor proposes to continue these adequate protection payments to J.S. Ward under the Plan until the secured portion of J.S. Ward's claim is paid in full ... [Thereafter] J.S. Ward shall be required to file and serve a Notice of Outstanding Balance Due on its claim within thirty days. If J.S. Ward does not file and serve such notice within thirty days of the expiration of the insurance policies, no fraction of its claim will be classified as a general unsecured claim and J.S. Ward will have no further distribution on its claim.
The Plan also includes a "Confirmation Injunction:"
Except for those creditors or claimants to whom the Reorganized Debtor is affirmatively required to make payments under this Plan, entry of the Confirmation Order will permanently enjoin all persons who have held, hold, or may hold Claims or Interests on and after the Effective Date ... (c) from creating, perfecting, or enforcing any encumbrance of any kind against the Debtor or the Reorganized Debtor or against the property of the Debtor, the Estate, or the Reorganized Debtor with respect of any such Claim; (d) from asserting any setoff, right of subrogation, or recoupment of any kind against any obligation due from the Debtor or the Reorganized Debtor, or against the property of the Debtor, the Estate, or the Reorganized Debtor with respect to any such Claim. This Confirmation Injunction shall survive closure of this bankruptcy.
Finally, the Plan provides:
On November 7, 2016, Defendant filed a Notice of Outstanding Balance Due, showing a total amount due of $46,269.12, which included the unpaid loan balance of $34,887.99 and $11,905.90 in attorney fees and related legal expenses.
On November 9, 2016, St. Paul notified Defendant that it had completed its audit of the St. Paul Policy, and that Plaintiff had overpaid by $48,032.00.1 Instead of sending the overpayment (the "Refund") to Plaintiff, on or about January 16, 2017, St. Paul transferred the Refund to Defendant. Defendant wrote to Plaintiff the next day, asserting a security interest in the Refund and stating that it would apply the Refund to its remaining claim against Plaintiff. Plaintiff disagreed and demanded that Defendant turn the Refund over immediately. Defendant refused the demand.
There is no dispute about who owns the Refund: Plaintiff does. The...
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In re Williams
...258 B.R. 323, 327 (D. Vt. 2000) (quoting Ruiz); In re Enright, 2015 WL 4875483, at *3 (Bankr. D.N.J) (same); In re Alliance Well Service, LLC, 577 B.R. 389, 394 (Bankr. D.N.M. 2017) (citing In re Myers, 362 F.3d 667, 672 (10th Cir. 2004)). Here, even though most of Mr. Williams' payments to......