Field v. Transcontinental Ins. Co.
| Decision Date | 18 March 1998 |
| Docket Number | CIV.A. No. 97-702-A. |
| Citation | 219 BR 115 |
| Parties | Scott FIELD, Chapter 7 Trustee for Estate of Russell Edger Dangerfield, Plaintiff, v. TRANSCONTINENTAL INSURANCE CO., Defendant. |
| Court | U.S. District Court — Eastern District of Virginia |
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Lynn Perry Parker, John R. Garza, Garza, Regan & Rose, P.C., Rockville, MD, Scott Field, Chapter 7 Trustee, Reznick, Fedder & Silverman, Bethesda, MD, for Plaintiff.
Stephen A. Horvath, Trichilo, Bancroft, McGavin, Horvath & Judkins, P.C., Fairfax, VA, for Defendant.
In this diversity action, a trustee in bankruptcy claims that his debtor was an insured under a policy of insurance and that the insurer's bad faith refusal to defend and indemnify the debtor-insured caused damage to the debtor. The parties have filed crossmotions for summary judgment, which motions have been fully briefed and argued and are thus now ready for disposition.
On October 31, 1995, Malek Manesh was traveling southbound on Route 355 in Rockville, Maryland. At the same time, Russell Dangerfield was driving a Ford Bronco northbound, but in the southbound lane and on the wrong side of the median. Allegedly under the influence of drugs or alcohol, Dangerfield continued to operate his vehicle northbound in the southbound lane, causing a collision with several cars, including Manesh's. As a result, Manesh suffered serious bodily injuries and her vehicle was severely damaged.
Dangerfield had obtained the Bronco under a conditional sales contract with HBL Mercedes ("HBL") ten days earlier pursuant to a "spot delivery," which entitled Dangerfield to use the car while he sought financing to purchase it. At the time of the crash, HBL was insured by defendant Transcontinental Insurance Co. ("Transcontinental") under a garage policy.1 The policy provided that anyone who used a vehicle covered by the policy with HBL's permission was covered by the policy, unless that person was an HBL customer. The policy further provided, however, that in the event an HBL customer did not have his or her own insurance, that customer would be covered under the Transcontinental garage policy. At the time of the crash that is the subject of this suit, Dangerfield did not have auto insurance, although he had indicated to the contrary on the sale agreement.
Manesh and her husband, Mohamman Emdadi, filed a personal injury action against Dangerfield,2 HBL, and Manesh's insurance carrier, Allstate Insurance Co., in Montgomery County, Maryland. All parties except Dangerfield were dismissed from the Maryland suit. Transcontinental refused to defend Dangerfield, to indemnify him, or to settle the claims against him. Dangerfield did not appear at the trial,3 and a default judgment was entered against him in the amount of $1,200,124.80. This judgment has yet to be satisfied.
The present action is brought by the trustee of Dangerfield's bankrupt estate against Transcontinental. Plaintiff-trustee claims that Transcontinental acted in bad faith when it (i) denied Dangerfield coverage under the HBL policy and as required by Va.Code § 38.2-2205(A); (ii) refused to defend Dangerfield; and (iii) refused to settle the claims against him.4 Plaintiff also claims, apparently on a third-party-beneficiary theory, that Transcontinental breached its contract of insurance with HBL.
Four questions are presented on summary judgment. The first and potentially dispositive question is whether this bad faith action belongs to Dangerfield's bankruptcy estate or to Dangerfield individually. Only if the claim belongs to the estate may this action proceed. Assuming the trustee may bring this claim on behalf of the estate, the second question is whether Dangerfield was the "owner" of the Bronco at the time of the accident. If so, then he was not Transcontinental's insured and thus the matter would end because Transcontinental would then have owed Dangerfield no contractual duties. But if Dangerfield was not the "owner," then he was Transcontinental's insured to whom Transcontinental owed contractual duties. In this event, a third question must be resolved, namely whether Transcontinental's refusal to defend and indemnify Dangerfield was in bad faith. The fourth and closely related question is whether Dangerfield suffered any injury as a result of Transcontinental's alleged bad faith conduct.
Transcontinental claims that plaintiff, as trustee of debtor's bankrupt estate, does not have the right to bring the instant bad faith cause of action because the action does not belong to the estate, but instead belongs to Dangerfield individually. Analysis of this claim properly begins with the statutory definition of the bankrupt's estate as including "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). This definition encompasses causes of action that the debtor has against his creditors. See Tignor v. Parkinson (In re Tignor), 729 F.2d 977, 981 (4th Cir.1984) (). A threshold question, then, is whether Dangerfield had a cause of action against Transcontinental on March 1, 1996, the date the petition was filed. In the circumstances, this question is not easily resolved given that although Transcontinental received notice of the claim against Dangerfield two months prior to the filing of the petition, Dangerfield did not request indemnification until October 29, 1996, some eight months after he filed his petition. Thus, Transcontinental claims that a cause of action against it for bad faith refusal to indemnify did not accrue until that request was explicitly denied in writing on November 6, 1996.5 A second possibility, also not easily resolved, is that even if the bad faith cause of action had not yet accrued by the time of the filing of the petition in March 1996, Dangerfield, at the time, could nonetheless have brought a declaratory judgment action against Transcontinental for a coverage determination. Not surprisingly, Transcontinental claims that this possibility is foreclosed by settled principles precluding a declaratory judgment action in the absence of an "actual" or "justiciable" controversy.6 Transcontinental argues that until it actually denied Dangerfield coverage, there was no antagonistic assertion of rights between the parties, and thus no actual controversy. In short, whether Dangerfield had a ripe, viable bad faith or declaratory judgment action at the time of the petition is a difficult question as to which there is no controlling precedent.
As it happens, however, it is unnecessary to resolve the difficult question whether Dangerfield had a prepetition cause of action, either for bad faith refusal to defend, indemnify, and settle, or for a declaratory judgment regarding coverage. This is so because the bankrupt's estate includes not only claims that had accrued and were ripe at the time the petition was filed, but also those claims that accrued postpetition, but that are "sufficiently rooted in the pre-bankruptcy past." Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966) ().7 In the instant case, Dangerfield's right to coverage is certainly "rooted in the prebankruptcy past": the accident occurred on October 31, 1995, four months before he filed his petition, and this is when his right to coverage arose. That Dangerfield did not then request coverage is irrelevant, for, on the date of the accident, he had a contingent right of coverage under HBL's policy. See Segal, 382 U.S. at 379, 86 S.Ct. at 515 ().8 Accordingly, because the bad faith claim is "sufficiently rooted in Dangerfield's pre-bankruptcy past," it is part of the debtor's estate and may be asserted by the trustee. And this is so regardless of whether either a declaratory judgment or bad faith cause of action existed on March 1, 1996. In short, the bad faith action is now part of the debtor's estate, and thus the trustee may bring this action on the estate's behalf.9
An alternate basis for allowing the trustee to pursue this action is the fact that the policy, and thus the rights created by it, existed prior to the filing of the bankruptcy petition. As such, any rights Dangerfield had pursuant to that policy became property of the estate upon the filing of the Chapter 7 petition. See A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1001 (4th Cir.1986) ().10 Indeed, as acknowledged by the Fourth Circuit, in some cases the policy and its attendant rights "may be the most important asset of the estate." A.H. Robins, 788 F.2d at 1001 (quoting Johns-Manville Corp. v. Asbestos Litigation Group (In re Johns-Manville Corp.), 40 B.R. 219, 229 (S.D.N.Y.1984)). Because the estate now owns the rights afforded Dangerfield by the HBL garage policy, the trustee may bring the instant action to enforce those rights.
Given that the trustee is the proper plaintiff here, the next question is whether the policy on which he sues in fact provided coverage to Dangerfield at the time of the accident. The search for this question's answer, of course, must begin with the operative language of the HBL policy, which provides as follows:
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