Opinion ID: 7094
Heading Depth: 2
Heading Rank: 1

Heading: H. Robins, 788 F.2d at 1001

Text: 10 Id. (quoting In re Johns-Manville Corp., 40 B.R. at 229) 11 Tringali, 796 F.2d at 560 12 832 F.2d 1391 (5th Cir.1987) 13 Id. at 1398-1400 14 Id. at 1398 15 Id. at 1399 16 Id 17 But see In re Edgeworth, 993 F.2d 51 (5th Cir.1993) (holding that the proceeds of a physician's liability policy were not part of the physician's bankruptcy estate). In the Edgeworth opinion, the panel did include some general language that appears to endorse broadly the policy/proceeds dichotomy introduced in Louisiana World Exposition. For example, the panel suggested that under the typical liability policy, the debtor will not have a cognizable interest in the proceeds of the policy, because the proceeds truly inure to the benefit of third parties. Id. at 56. This language was, however, dicta More importantly, this language confutes the broad understanding--recognized even in Louisiana World Exposition--that when a liability policy provides coverage for judgments against or losses of the bankrupt corporation itself, the debtor owns both the policy and the proceeds of that policy. World Exposition, 832 F.2d at 1399-1400. As indicated infra the vast majority of courts do not bother to distinguish ownership of insurance policies from ownership of the proceeds of those policies, but treat that the two go hand-in-hand. Thus, the scope of the policy/proceeds distinction enshrined in Louisiana World Exposition is still in ferment: Whether that distinction will be extended more broadly has yet to be determined. 18 Louisiana World Exposition, 832 F.2d at 1399-1400 (citing numerous cases) 19 See, e.g., MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 92 (2d Cir.1988); Tringali v. Hathaway Mach. Co., 796 F.2d 553, 560-61 (1st Cir.1986); In re Davis, 730 F.2d 176, 184 (5th Cir.1984); In re Forty-Eight Insulations, Inc., 54 B.R. 905, 907-909 (Bankr.N.D.Ill.1985); In re Johns-Manville Corp., 26 B.R. 420, 436 (Bankr.S.D.N.Y.1983), aff'd 40 B.R. 219, 230-31 (S.D.N.Y.1984) 20 See, e.g., In re Minoco Group of Cos., Ltd., 799 F.2d 517, 519 (9th Cir.1986) ([W]e see no significant distinction between a liability policy that insures the debtor against claims by consumers and one that insures the debtor against claims by officers and directors); A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1001-02 (4th Cir.1986); In re Circle K Corp., 121 B.R. 257, 260, 262 (Bankr.D.Ariz.1990) ([T]he Louisiana World analysis fails to consider the ... Minoco rationale for holding insurance is estate property: the estate was worth more with than without it). But see In re Daisy Sys. Sec. Litig., 132 B.R. 752, 755 (Bankr.N.D.Cal.1991) 21 Tringali, 796 F.2d at 560; In re Forty-Eight Insulations, Inc., 54 B.R. 905, 908 (Bankr.N.D.Ill.1985). Such a race to the courthouse arguably offends one of the most fundamental policies underlying bankruptcy law: preservation of the debtor's estate and the status quo ante long enough to allow a fair, ratable, systematic liquidation of the estate's assets among all claimants. 796 F.2d at 560 22 See generally, Louisiana World Exposition, 832 F.2d 1391 23 Id. at 1399-1400; accord MacArthur Co. v. Johns-Manville Corp., 837 F.2d 89, 92 (2nd Cir.1988); Tringali, 796 F.2d at 560-61; In re Davis, 730 F.2d 176, 184 (5th Cir.1984); Forty-Eight Insulations, 54 B.R. at 907-909; Johns-Manville Corp., 26 B.R. at 436. But see In re Edgeworth, 993 F.2d 51 (5th Cir.1993) 24 See generally MacArthur Co., 837 F.2d at 92 (holding that MacArthur Co.'s rights as an insured vendor were completely derivative of Manville's rights as the primary insured) 25 See World Exposition, 832 F.2d at 1400 (acknowledging that some courts have held that the policies--and in fact the proceeds--of an insurance policy were part of a debtor corporation's estate, even though the policies also extended liability coverage to directors and officers); see also In re Minoco Group of Cos., Ltd., 799 F.2d 517, 519 (9th Cir.1986) (no significant distinction between a liability policy that insures the debtor against claims by consumers and one that insures the debtor against claims by officers and directors); A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1001-02 (4th Cir.1986) (worth of bankruptcy estate increased by including proceeds); In re Circle K Corp., 121 B.R. 257, 260, 262 (Bankr.D.Ariz.1990); but see In re Daisy Sys. Sec. Litig., 132 B.R. 752, 755 (Bankr.N.D.Cal.1991) 26 A. WINDT, supra n. 4, INSURANCE CLAIMS AND DISPUTES, Sec. 5.09 27 A bankruptcy court exercises its broad powers to protect the assets of the bankruptcy estate. In re Davis, 730 F.2d 176, 183 (5th Cir.1984). The bankruptcy estate, in turn, consists of all legal and equitable interests owned by the debtor at the commencement of the bankruptcy case. 11 U.S.C. Sec. 541(a)(1). By definition, the bankruptcy estate does not generally include property that is not owned by the debtor, see id., and non-debtor property thus should not ordinarily be shielded by the powers of the bankruptcy court 28 Davis, 730 F.2d at 183; see also n. 27 supra 29 A. WINDT, supra n. 4, INSURANCE CLAIMS AND DISPUTES, Sec. 5.09 30 37 A.D.2d 23, 322 N.Y.S.2d 12 (1971). Windt refers to the Smoral case as the leading case in the area of defining an insurer's duty to settle when there is more than one insured. A. WINDT, INSURANCE CLAIMS AND DISPUTES, Sec. 5.09 (2d Ed.1988) 31 844 S.W.2d 808 (Tex.App.--San Antonio 1992), rev'd, 881 S.W.2d 312 (Tex.1994) 32 37 A.D.2d at 26, 322 N.Y.S.2d 12 33 See generally id 34 844 S.W.2d at 814-17 35 Soriano, 881 S.W.2d at 317 36 Id. (emphasis in original). But, as the insurer in Soriano did not challenge whether, as a matter of law, its insured could advance a claim for breach of the duty of good faith and fair dealing for the company's failure to settle a third-party claim, the Texas Supreme Court was not in a position to address the existence vel non of such a claim under Texas law; hence its pronouncements and their inferences remain dictum 37 The right of an insured to sue his insurer for breach of good faith is analogous to the right of a party to a contract to sue for breach of contract 38 We also note that there is a wide divergence of opinion concerning the factual predicate that a court must find to conclude that an insurance company has breached its duty of good faith in concluding a settlement. See, e.g., Pekin Ins. Co. v. Home Ins. Co., 134 Ill.App.3d 31, 89 Ill.Dec. 72, 74, 479 N.E.2d 1078, 1080 (1985) (court will only recognize a bad faith claim when an insurer has acted in a vexatious, unreasonable, or outrageous manner towards its insured parties). Clearly, however, whether an insurance company has breached its duty of good faith is a fact-intensive inquiry, and not one for an appellate court acting upon a cold and incomplete record 39 In again cautioning our readership against relying on this opinion as precedential or instructive beyond its narrow holding in the context of the particular facts and circumstances of this case, we are constrained to mention several caveats and pose one or two rhetorical questions. We wonder out loud about the extent, if any, to which the tools of injunctive relief and settlement (or compromise) are appropriate--not only in dealing with the interests of co-insureds in policy proceeds, but also in dealing with the rights of third party creditors of the bankruptcy and non-bankrupt debtors to the extent any one or more of such third party creditors may oppose the settlement confected by a steering committee. The broad latitude afforded bankruptcy courts in fashioning remedies should not be used in a way that tramples on the rights of dissenters among creditors or non-parties to the proceedings. Just as Sec. 105 injunctions in mass tort situations are questionable precedent in guaranty and partnership contexts, we also caution against analogical extension of that which we do today to different situations in bankruptcy, such as guaranties and holders of guaranties or partners (distinct from the partnership) in Sec. 723 situations (who appropriately may be enjoined temporarily but who in most instances may not appropriately be enjoined permanently)