In re Hilyard Drilling Co., Inc.
Decision Date | 07 June 1985 |
Docket Number | 85-176M.,Bankruptcy No. ED 85-10M. CMS No. 85-120M |
Citation | 58 BR 616 |
Parties | In re HILYARD DRILLING COMPANY, INC., Debtor-in-Possession. UNITED STATES FIDELITY AND GUARANTY CO., Plaintiff, v. HILYARD DRILLING COMPANY, INC., Defendant. UNITED INSURANCE AGENCY, INC., Plaintiff, v. HILYARD DRILLING COMPANY, INC., Defendant. |
Court | U.S. Bankruptcy Court — Western District of Arkansas |
Susan Gunter, Little Rock, Ark., for debtor.
Isaac A. Scott, Little Rock, Ark., trustee.
Ian W. Vickery, El Dorado, Ark., Gregory M. Hopkins, Little Rock, Ark., for United Insurance Agency, Inc.
On January 25, 1985, Hilyard Drilling Company, Inc., (Hilyard), filed a voluntary petition in bankruptcy under the provisions of Chapter 11 of the Bankruptcy Code. For several years prior to the filing of the petition, United Insurance Agency, Inc., a general agent for United States Fidelity Guaranty Company, (USF & G), had arranged Hilyard's insurance needs. These coverages included general liability, worker's compensation, automobile, fire and extended coverage. In the normal course of the prior transactions, all insurance would first be issued by means of a written binder issued by the agent who would send certificates of insurance to various loss payees. The debtor was required to furnish detailed information regarding loss experience, substituted property, payroll, and other information necessary to compute a premium. Some time after the binder had been issued, the debtor would execute a premium finance note with a bank which would pay the premium to United Insurance Agency, Inc., which, in turn, would forward the amount, less its commission, to USF & G. A formal policy would then be prepared and delivered.
In the latter part of 1984, the insurance coverage expired, and the debtor applied for renewal but was unable to negotiate a premium financing arrangement as it had in years past. Due to the fact that the parties were still negotiating, United Insurance Agency, Inc., issued an oral temporary contract of insurance binding USF & G and then sent certificates of insurance to loss payees as it had done in the past. No written binder memorandum was issued. The parties continued to negotiate until around January 25, 1985, when United Insurance Agency, Inc., determined to cancel the coverage because satisfactory arrangements had not been made for the payment of the premium. This bankruptcy immediately ensued.
Procedurally, the status of matters before the Court is unclear, but because of the significant sums involved and the importance of the legal question, and with some agreement of counsel, these procedural defects will be disregarded. The issues presented are whether United Insurance Agency, Inc., and USF & G should be granted relief from the stay to cancel all coverage for nonpayment of premiums. The companies argue, alternatively, that if relief is not granted, the Court should order the debtor to accept or reject the insurance contract as an executory contract under 11 U.S.C. § 365 and, if the contract is assumed, that it be done promptly, that arrearages be cured and that the debtor be required to provide adequate assurance of future performance. The debtor argues that a policy of insurance, and not merely a binder, has been issued. The debtor further argues that the insurance policies are not executory, and that the companies' remedies are to file claims which will be paid under its Chapter 11 plan. The debtor suggests that the companies' claims might be entitled to an administrative priority.
There are two groups of policies and one group1 was paid for by means of a premium finance note which has been sold back to United Insurance Agency, Inc., pursuant to the recourse agreement with the financing bank. These will be dealt with separately.
Prior to the hearing on these motions, the Court, upon application of the debtor, imposed the stay under 11 U.S.C. § 105(a) against the companies and required them to extend coverage pending a determination of these issues on the merits.
Black's Law Dictionary 213 (rev. 4th ed. 1968) defines a binder as follows:
Ark.Stat.Ann. § 66-3219 (Repl.1980) provides, in part, as follows:
The facts here present an example of...
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