In re Crownover, Bankruptcy No. 83-00290(SE).

• Decision Date: 04 September 1984
• Docket Number: Bankruptcy No. 83-00290(SE).
• Citation: 43 BR 22
• Parties: In re Phyllis CROWNOVER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Missouri

43 B.R. 22 (1984)

In re Phyllis CROWNOVER, Debtor.

Bankruptcy No. 83-00290(SE).

United States Bankruptcy Court, E.D. Missouri, Southeastern Division.

September 4, 1984.

Daniel T. Moore, Poplar Bluff, Mo., for debtor.

Jim S. Green, Sikeston, Mo., trustee.

MEMORANDUM OPINION

DAVID P. McDONALD, Bankruptcy Judge.

The question is whether the sum of $6,400 payable to Debtor as a loss payee under a fire insurance policy is non-exempt property of the above bankruptcy estate or whether it is property not subject to bankruptcy administration either because it is not property of the said estate or because it is property of the said estate but is exempt.

These are the pertinent facts, all either stipulated to by the parties or gleaned from other parts of the record:

1. Debtor filed a petition for relief under Chapter 7 of the Code on September 12, 1983.

2. On her schedule B-1, she listed a promissory note and second deed of trust on a house and lot located in Oregon County, Missouri. She also listed these items on Schedule B-4 as exempt property. On both schedules, she valued this note and second deed of trust as being worthless. Her reasons for this evaluation were that she had never received a payment on the property and that she believed the value of the property to be no greater than the amount owed on the first deed of trust encumbering this property.

3. The trustee herein, Jim S. Green, did not at that time object to Debtor's valuation or claim of exemption and, on October 27, 1983, filed his report stating that there was no property in this estate other than exempt property to be administered.

4. On February 8, 1984, the house on the subject property burned down. The insurer that had the fire coverage on this property advised Debtor's counsel that the coverage was sufficient to pay off the note in question. Debtor is entitled to this payment by virtue of being a "loss payee" under the fire insurance policy.

5. On April 13, 1984, after receiving copies of correspondence between the Debtor's counsel and the trustee, this Court sent the trustee a letter inquiring whether he was asserting rights to these proceeds. In a letter received by this Court on April 23, 1984, the Trustee took the position that these proceeds were property of the estate.

6. On May 14, 1984, this Court inadvertently entered its order closing this estate, but on June 15, 1984, entered an order re-opening the estate.

After reviewing these facts, the Court concludes two issues require resolution: (1) are these insurance proceeds property of this estate, and (2) if so, are they exempt?

(1) Property of the Estate

Debtor takes the position that the fire insurance proceeds are solely after-acquired property and, thus, are not part of the bankruptcy estate. Debtor contends that her rights under the fire insurance policy, as of September 12, 1983, were too contingent to be property of the estate.

This Court disagrees with this contention.

Section 541(a)(1) of the Bankruptcy Code provides:

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests of the debtor in property as of the commencement of the case.

(6) Proceeds, product, offspring, rents, and profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.

(7) Any interest in property that the estate acquires after the commencement of the case.

Under Missouri law, the right of loss payee under a fire insurance policy to payment, albeit contingent, is a vested property right. As one Missouri court has stated:

(1) The rule that a mortgagee has a right to sue in his own behalf on an insurance policy issued to his mortgagor when the mortgagee\'s interest appears therein is well-established in Missouri. This court in Hartford Fire Insurance Company v. Bleedorn, 235 Mo.App. 286, 132 S.W.2d 1066, 1070, stated that:

". . . It has also been held that, where the insurance policy provides that the loss shall be paid to the mortgagee as his interest may appear, the right to sue is in the mortgagee alone upon the theory that the clause in the insurance policy gives him the same rights as if the policy had been absolutely assigned to him. Ridge v. Home Ins. Co., 64 Mo.App. 108, 110.

"In Kirchgraber v. Park, 57 Mo. App. 35, 40, the court said: `"A contract of insurance against fire, as a general rule, is a mere personal contract between the assured and the underwriter to indemnify the former against the loss he may sustain. But the assured, by an agreement to insure for the protection and indemnity of another person, having an interest in the subject of the insurance, may unquestionably give such third person an equitable lien upon the money due upon the policy to the extent of such interest." Carter v. Rockett, 8 Paige N.Y., 437; Wheeler v. Ins. Co., 101 U.S. 439 11 OTTO 439 25 L.Ed. 1055; Nordyke & Marmon Co. v. Gery, 112 Ind. 535 13 N.E. 683, 2 Am.St.Rep. 219.\'"

The court in the Hartford case, supra, further held that:

"The rule in Missouri, as applied in the above case is in harmony with the general rule which is stated in Corpus Juris as follows: `Where the insurance is taken out by the mortgagor for the benefit of the mortgagee, or is made payable to the mortgagee as his interest may appear, the mortgagee is entitled to the proceeds of the policy to the extent of his mortgage debt, holding the surplus, if any, after the extinguishment of his debt, for the benefit of the mortgagor; and this

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