Lubin v. Cincinnati Insurance Co.

Summarized by Walter Kelley , Kelley, Lovett, Blakey & Sanders, P.C.
14 years 1 month ago

Citation:

11- 10231 (11th Cir. Feb. 7, 2012) (Unpublished)

Tag(s):

Ruling:

The Chapter 7 trustee for a debtor parent company could not bring a breach-of-contract action against an insurance company for failing to honor a claim submitted by the company’s wholly owned subsidiary, which was in FDIC receivership. The breach-of-contract cause of action belonged exclusively to the FDIC. Although the parent company was a joint insured under the policy, the subsidiary had actually suffered the loss and therefore the subsidiary was the party which had a vested legal interest. Moreover, the breach-of-contract claim was not property of the debtor parent company’s estate pursuant to 11 U.S.C. 541(b)(1) because the joint insured clause only allowed the debtor parent company to sue on behalf of its subsidiary. Any damages recovered would have gone to the subsidiary as it was the entity that had actually suffered a loss.

Procedural context:

Appeal from the United States District Court for the Northern District of Georgia in favor of the FDIC, as receiver for subsidiary bank, dismissing a breach-of-contract action filed by the Chapter 7 trustee on behalf of the bankrupt parent company on the grounds that the FDIC had the exclusive right to bring the claim. AFFIRMED.

Facts:

Integrity Banchares, Inc. (“Bancshares") and its wholly owned subsidiary, Integrity Bank (“Bank”), were both named insureds of a financial institution bond that offered fidelity insurance from Cincinnati Insurance Company (“Cincinnati”). In 2007, Bank sustained a loss that resulted directly from the dishonest or fraudulent acts of its employees. Shortly thereafter, Bank submitted a “proof of loss” claim to Cincinnati. In August 2008, Cincinnati denied Bank’s claim. Later that month, the Bank failed and the FDIC took over as receiver. Bancshares then filed for Chapter 7 bankruptcy. Jordan Lubin was appointed bankruptcy trustee for Bancshares’ estate. Bank did not file bankruptcy. Lubin, in his capacity as trustee, sued Cincinnati for breach-of-contract. Lubin contended that Bancshares, as the parent company for Bank and as a joint insured, was entitled to damages for Cincinnati’s failure to honor Bank’s “proof of loss” claim. The FDIC intervened, taking the position that as receiver for the Bank, it had the exclusive right to pursue the breach-of-contract claim.

Judge(s):

Martin, Hill, & Ebel

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