Martinez v. OGA Charters, L.L.C.

Claims exceeding policy limits convert insurance proceeds into estate property, Fifth Circuit holds.

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Case Type:
Case Status:
17-40920 (5th Circuit, Aug 24,2018) Not Published
The proceeds of a liability insurance policy are estate property when claims against the policy exceed policy limits. In affirming the bankruptcy court's ruling, the Fifth Circuit explained circuit precedent and clarified the treatment of insurance proceeds in bankruptcy. Existing precedent did not foreclose the possibility that insurance proceeds could be estate property based upon the "secondary impact" of claims exceeding policy limits. The Debtor had an equitable interest in having the proceeds applied to satisfy as many creditors' claims as possible.
Procedural context:
Direct appeal from the Southern District of Texas bankruptcy court following entry of summary judgment in favor of the Chapter 7 Trustee and the non-settling claimant creditors, ruling that the insurance proceeds were estate property.
The debtor was a bus owner in an involuntary chapter 7, which resulted from an accident causing nine fatalities and more than 40 injuries. Before bankruptcy, the families of some victims settled with the insurer for amounts that would exhaust the $5 million liability policy limit. The petitioning creditors included non-settling families of victims.

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