Decision Date31 March 1982
Docket NumberBankruptcy No. 73 B 1129.
Citation19 BR 750
PartiesIn The Matter of D.H. OVERMYER CO., INC. (OHIO) et al., Debtors. Robert P. HERZOG, as Receiver of D.H. Overmyer Co., Inc. (Ohio), et al., Debtors, Plaintiff, v. BIRMINGHAM FIRE INSURANCE COMPANY, Jabco-Anrem Associates, Ltd., Midwest Roofing and Furnace Company, Earl E. Bright, Inc., The Overmyer Company, Inc., and American National Insurance Company, Defendants.
CourtU.S. Bankruptcy Court — Southern District of New York

Finley, Kumble, Wagner, Heine, Grutman & Underberg, New York City, for consolidated debtors.

Booth, Lipton & Lipton, New York City, for receiver.

Hahn & Hessen, New York City, for creditors' committee.

Hansell, Post, Brandon & Dorsey, Atlanta, Ga., for Birmingham Fire Ins. Co.

Posner & Krasnow, New York City, for Midwest Roofing and Furnace Co.

Bricker, Evatt, Barton & Eckler, Columbus, Ohio, for Earl E. Bright, Inc.


JOEL LEWITTES, Bankruptcy Judge.

I The Parties

Robert P. Herzog, as receiver1 of the consolidated2 Chapter XI3 debtors, D.H. Overmyer Co., Inc. (Ohio) et al., has commenced an adversary proceeding against the above captioned defendants to determine the validity and extent of his interest in the proceeds of a check in the amount of $25,698.19 delivered to him by defendant Birmingham Fire Insurance Company ("Birmingham").

The defendants, who have appeared in this action are as follows:4

(1) The Overmyer Company, Inc. ("TOC"), the parent of the consolidated debtors and a debtor in separate arrangement proceedings pending in this Court under docket number 75 B 2427;

(2) D.H. Overmyer Co., Inc. of Ohio ("DHO Ohio"), a subsidiary of Overmyer and one of the consolidated debtors;

(3) D.H. Overmyer Co. Inc. of Georgia ("DHO Georgia"), a subsidiary of Overmyer and one of the consolidated debtors;

(4) Birmingham, a corporation organized under the laws of Pennsylvania with a principal place of business in New York;

(5) Midwest Roofing and Furnace Company ("Midwest") an Ohio corporation with its principal place of business in Ohio; and

(6) Earl E. Bright, Inc. ("Bright") apparently an Ohio corporation doing business in the state of its incorporation.

II Underlying Facts

The plaintiff and the appearing defendants have stipulated to most of the operative facts. Those facts that have been contested, on consent of the parties, are to be decided upon the exhibits annexed to their stipulation.

This Court finds that on March 1, 1972 Birmingham issued its insurance policy No. 148-75-66 to Overmyer. That policy insured various properties against loss from, among other perils, windstorms, with a limit of $250,000 less a $2,500 deductible for each location issued. Such policy was cancelled effective December 31, 1973, for nonpayment of premiums.

One of the insured premises, a warehouse owned by DHO (Ohio), located in Columbus, Ohio, was damaged on May 10, 1973 and sustained damage in the amount of $32,422.19. Overmyer, on April 30, 1974, filed a claim for such loss, covered by the Birmingham policy, in the amount of $29,922.19 ($32,422.19 less the $2,500 deductible). It appears that necessary repairs to the warehouse were subsequently made by defendants Midwest & Bright.

Thereafter, on November 21, 1973, another location insured under Birmingham's policy, a warehouse leased by DHO (Georgia), sustained wind damage in the amount of $58,680. Overmyer filed a proof of loss for such claim in the amount of $56,180 ($58,680 less the $2,500 deductible).

Prior to the damage to the Georgia premises, but subsequent to the loss occasioned in connection with the Ohio property, Overmyer, and many of its subsidiaries, on November 16, 1973, filed petitions for arrangement, in this Court, under Chapter XI of the 1898 Bankruptcy Act.

In accordance with the terms of Birmingham's policy issued to Overmyer, the latter agreed to pay Birmingham a maximum annual premium of $150,000. For the policy year, 1973, during which the two aforesaid windstorms occurred, Overmyer had made only a partial premium payment and thus, as of the date of the Chapter XI filings, the amount of unpaid premiums due and owing to Birmingham was $60,404.

On or about August 26, 1974, Birmingham delivered to the receiver, Herzog, a check in the sum of $25,698.19 made payable to "Robert E. Herzog, Receiver in Bankruptcy," "Roy Babitt, Referee in Bankruptcy,"5 "The Overmyer Company, Inc.," "American National Insurance Co.," "Jabco Anrem Associates, Ltd.," "Jabco Anrem Associates" and "Midwest Roofing and Furnace Co." At the time of delivery of that check to the receiver by Birmingham, the latter filed proofs of claim, in the consolidated Chapter XI cases, totalling $60,606, the amount of the unpaid premiums.

Birmingham calculated the amount of the $25,698.19 check to the receiver by setting off the unpaid premiums of $60,404 against $86,102.19, the total claims of the two windstorm losses. Birmingham tendered that check in full satisfaction of all claims under its policy with Overmyer. That check was deposited by the receiver on September 4, 1974, in his operating account, by a stamped endorsement. There were no endorsements by any of the other named payees set forth on the check.

Prior to the receiver's deposit of that check and before it cleared, Jabco, Overmyer's landlord of the Georgia warehouse, on August 27, 1974, filed suit against Birmingham in a Georgia state court seeking to recover, as a named insured under the policy, the full amount of the Georgia loss, $56,180.00. Neither the receiver nor Overmyer was made a party to that lawsuit.

Thereafter, on February 18, 1975, Birmingham commenced an action, which it styled as one in interpleader, in the United States District Court for the Northern District of Georgia, Atlanta Division. Birmingham, in that action, named Jabco, Midwest and the receiver as defendants, but not Overmyer. Jabco, asserted a counterclaim for the amount of damage to the Georgia warehouse.

The District Court, by order dated November 7, 1975, dismissed Birmingham's "interpleader" action and granted partial summary judgment to Jabco on its counterclaim ruling that Birmingham did not have the right to setoff unpaid premiums against Jabco's loss in the event Jabco was otherwise entitled to recover against Birmingham.6

Thereafter, by order dated February 23, 1976, the District Court, after reciting that Birmingham and Jabco "have settled this matter between themselves" and "consent to the entry of this order", dismissed, with prejudice all claims by Birmingham against Jabco, all claims by Jabco against Birmingham "and to the extent that there may be any remaining claims not previously disposed of by an earlier ruling of this Court the order of November 7, 1975 such remaining claims are dismissed without prejudice."7

With respect to the remaining defendants8 Midwest and Bright, we find the following facts:

On May 6, 1976, Midwest instituted an action against the receiver in the civil court of the City of New York for the sum of $5,147 in connection with work performed by it in repairing the windstorm damage to the Overmyer warehouse in Ohio. Midwest, although a named payee on the check is concededly not an additional named insured under the policy.

Defendant Bright asserted a claim of $24,707 against the proceeds of the check issued by Birmingham to the receiver for labor, material and equipment furnished by it in repairing the windstorm damage to the Ohio warehouse owned by Overmyer. Bright, although a payee on the check is admittedly not an additional named insured under the policy.

III Discussion

Birmingham's Claims Against The Receiver, DHO Defendants and TOC

(a) Conversion

Birmingham seeks recovery from the receiver of the proceeds of the $25,698.19 check it issued which named several joint payees. It is Birmingham's contention that the receiver, by cashing the check issued by Birmingham, without obtaining the endorsements of his joint payees, is liable to Birmingham for conversion.9

Although conversion contemplates the "disposition of the property of another, without right, as if it were one's own",10 in order to "establish a cause of action in conversion, a plaintiff must show it has an immediate and superior right to possession of the allegedly converted material."11 Accordingly, for Birmingham to prevail on its claim of conversion, it must demonstrate that, as against the receiver, it has a superior right to possess the proceeds of the check.

It has been noted that

"Inquiries to leading ... insurance companies disclose substantial commercial use of negotiable instruments payable to joint payees. Instruments payable `to the order of A and B\' are usually employed when the drawer intends to pass consideration to the named payees jointly...."12
"The purposes which the companies hope to achieve by executing instruments in this fashion are primarily these: (1) to discharge the obligation to all parties on the policy and yet leave it to the parties to make their own proportionate division— an informal type of interpleader which eliminates the company from haggling over amounts due each; (2) to assist lien holders in the collection of their claims against the proceeds; and (3) to simplify internal bookkeeping processes of the companies as an incidental matter."13

Since the purpose here, as well, was, inter alia, to discharge Birmingham's obligation to all parties on the policy,14 it is clear that Birmingham, as drawer, in the absence of a contractual agreement to the contrary,14a no longer can claim any rights or possession to the proceeds payable to the joint payees.

In any event, it has been stated that "a negotiable instrument is the property of the holder or payee, not the drawer."15 Since Birmingham has failed to demonstrate its right to immediate possession of the check, or its proceeds, a necessary prerequisite to establishing a claim for conversion, the receiver is not liable to Birmingham for conversion.16

(b) ...

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