Kohut v. United Healthcare Insurance Co. (In re LSC Liquidation, Inc.)

Case Type:
Case Status:
No. 16-2324; File Name:17a0415n.06 (6th Circuit, Jul 18,2017) Not Published
Sixth Circuit affirmed bankruptcy court's decision and found that the bankruptcy court did not abuse its discretion in modifying its order under Rule 60(b) to clarify that health insurance policies were assumed and assigned as part of an asset sale. The Court found that modification under Rule 60(b)(1 was appropriate because the motion was filed within one year after the sale order was entered and the bankruptcy court exercised its discretion to amend the order after considering the relevant factors.
Procedural context:
Debtor filed Chapter 11 and sought the sale of its assets. A health insurance company received notice that its policies were eligible to be assumed and assigned. The assets were sold and the sale order provided that it could be modified (if the modification was not material) although it did not specify the subject policies were assumed and assigned.. A liquidation plan was confirmed and it rejected all contracts that had not been assumed or assigned. The health insurance policies were not listed. Three months after confirmation the debtor, buyer and health insurer entered into a letter agreement stating that the parties all agreed that the subject policies were assumed and assigned to the buyer. The justification was that the sale order could be modified. Later, the health insurer asked the bankruptcy court to modify the sale order to approve the letter agreement. The bankruptcy court approved the motion over an objection and the district court affirmed.
Following the sale and plan confirmation, there was confusion over whether the buyer had been assigned the policies in question. The health insurer asked the debtor and then sent a termination notice after it received no reply. The buyer contacted the health insurer as the buyer had been paying the premiums. Following the execution of the letter agreement, the committee appointed pursuant to the confirmed plan demand payment from the health insurer for pre-petition payments paid by the debtor to the health insurer. The committee sued the insurer and the adversary was stayed pending a decision on the motion to amend the sale order. The committee objected to the motion. The Sixth Circuit accepted that the bankruptcy court attempted to correct a substantive error when it found the health insurance policies were not include in the sale order. The neglect was excusable and the motion was filed in a reasonable time and no prejudice ensued.
Suhrheinrich, Batchelder and Stranch, Circuit Judges

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