Opinion
No. 32868.
May 4, 1935.
Charles N. Krieg, of Cleveland, Ohio, for Helen Piggott.
Henry B. Johnson and Charles E. Nadler, both of Cleveland, Ohio, for Hugh Wells, trustee.
Petition by the trustee in bankruptcy of the Fay Stocking Company, bankrupt, to review an order of the referee in bankruptcy overruling the objection of the trustee to the allowance of the claim of Helen Piggott.
Order of the referee confirmed; and petition to review dismissed.
To the Honorable PAUL JONES, S.H. WEST, and GEO.P. HAHN, Judges of the District Court of the United States, for the Northern District of Ohio, Eastern Division:
I, Wm.B. Woods, referee in bankruptcy in charge of the above proceeding, do hereby certify:
That in the course of such proceeding an order, copy of which is included herewith and hereinafter referred to, was made and entered on April 4, 1935, and thereafter, feeling aggrieved thereat, a petition for review of such order was filed by Hugh Wells, trustee in bankruptcy.
Prior to bankruptcy, Helen Piggott secured a judgment against bankrupt in a personal injury case for $18,500. Bankrupt was insured for $5,000 in the American Employers' Insurance Company, and question arises in this proceeding whether Helen Piggott has the right to prove in bankruptcy for the total amount of the debt, $18,500, and also to receive the $5,000 from the insurance company.
The claim was allowed for the full amount, and, after several motions, the matter stood on trustee's objection to the allowances of the claim in an amount of more than $13,500. The parties have filed an agreed statement of facts, and the following are the conclusions of law:
(1) That a creditor who has a subsisting and valid judgment for damages on account of personal injury against a person who is thereafter adjudged a bankrupt, is not a secured creditor within the meaning of the Bankruptcy Act (11 USCA), by virtue of said judgment and of the provisions of section 9510-4 of the Ohio General Code, upon failure of the insured to pay such judgment, notwithstanding his right of action exists against the insurance company.
(2) That the fund payable to an injured person by virtue of section 9510-4 of the Ohio General Code on account of personal injury judgment against one who subsequently becomes a bankrupt is not such a fund as is property of the bankrupt estate.
(3) That such judgment creditor is entitled to prove the entire amount of the judgment as a claim against the bankrupt estate without reference to his right to proceed against the insurance company.
(4) That such judgment creditor may proceed against the insurance company without prejudice to his right to receive dividends from the bankrupt estate as a general creditor for the amount of his judgment; and if the insurance fund is paid to the injured judgment creditor prior to the payment of any final dividend, such payment to the insured does not defeat the judgment creditor's right to receive a dividend on his claim from the bankrupt estate, other than to limit the amount of money received from the estate to the difference between the amount of the judgment and the amount received from the insurer.
(5) That where dividends are paid to such judgment creditor prior to the collection of the insurance fund, the rights of the judgment creditor against the insurer are not affected by the bankruptcy proceeding until such time as the amount of the dividends plus the amount of the insurance fund payable under the policy exceed the amount of such judgment; and the trustee in bankruptcy is to be subrogated to the rights of the judgment creditor for any excess due and owing to the judgment creditor.
Memorandum.
The claim of Helen Piggott against the insurance company arises by virtue of the so called "O'Brien Law," Ohio General Code, section 9510-4, which provides: "Up-on the recovery of a final judgment against any firm, person or corporation * * * for loss or damage * * * on account of bodily injury * * * the judgment creditor or his successor in interest shall be entitled to have the insurance money provided for in the contract of insurance between the insurance company and the defendant applied to the satisfaction of the judgment, and if the judgment is not satisfied within thirty days after the date when it is rendered, the judgment creditor or his successor in interest, to reach and apply the insurance money to the satisfaction of the judgment, may file in the action in which said judgment was rendered, a supplemental petition wherein the insurer is made new party defendant in said action. * * *"
From the statute it appears that this fund to be paid by the insurance company is not property of the bankrupt; it is an additional relief which may be resorted to "if the judgment is not satisfied within thirty days."
The question arises that if Helen Piggott may have resorted to the insurance fund, is she to be considered a secured creditor in a bankruptcy proceeding. Bankruptcy Act, § 1(23), 11 USCA § 1(23) provides, "`Secured creditor' shall include a creditor who has security for his debt upon the property of the bankrupt of a nature to be assignable under this act [title]. * * *"
The insurance money in no sense belongs to the bankrupt, it is not assignable by the bankrupt and is in no sense a fund which the bankrupt has anything to do with unless the bankrupt should fail to pay the judgment, which would discharge the insurance company's obligation.
As is said in Collier on Bankruptcy, Page 26, "No creditor is secured in bankruptcy unless there is a lien held by him or accruing for his benefit on the property of the bankrupt. If the security is the property of another, * * * the person holding the same is not a secured creditor. * * *" A creditor's claim may be amply secured, but he is not a "secured creditor" unless the security is on the property of the bankrupt, In re Pan-American Match Co. (D.C.) 242 F. 995, 39 A.B.R. 805; thus In re Lindsley (D.C.) 33 F.2d 223, A.B.R. (N.S.) 552, and Bickley v. Armour Co., 40 Ohio App. 252, 178 N.E. 590, 20 A.B.R. (N.S.) 337, which hold that a creditor holding a guarantee of a third person, is in nowise secured by any property of the bankrupt and is not a "secured creditor."
It seems to be well settled that security given to the surety by a person other than the bankrupt is not regarded as part of the bankrupt estate and does not increase the assets of the estate or exonerate it. An unsecured creditor, not holding security belonging to the bankrupt, may prove his entire claim against the estate, and, if the dividends received on the claim together with the security pledged by a person other than the bankrupt exceeds the amount of the claim, the claimant holds the excess as trustee for the other persons. Gorman v. Wright (C.C.A.) 136 F. 164, 14 A.B.R. 135; In re Hanson Tyler Auto Co. (D.C.) 286 F. 161; Hampel v. Minkwitz (C.C.A.) 18 F.2d 3, 9 A.B.R. (N.S.) 531.
The relationship between the injured person and the insurer created by Gen. Code 9510-4 of the Ohio General Code seems to be an anomaly in the law, as Judge Marshall said in Hartford Accident Indemnity Co. v. Randall, 125 Ohio St. 581, 183 N.E. 433, 435, "An injured person has a potential interest and a substantial right in the policy from the very moment of his injury" which does not develop into a vested right until judgment is secured, so that he is entitled to comply with the terms of the policy and make them effective in his behalf. As the court further pointed out, the word "subrogation" does not appear in the statute, although that principle seems to be involved, and the court further discusses the rights of the insured as against the rights of the insurer.
At common law an injured party had the right to sue either or both of two joint tort-feasors for the full amount of his damage, but could recover the damage only once. The English courts early adopted the principle that a judgment for the full amount of the plaintiff's claim against one joint tort-feasor barred further prosecution of a suit against another. In the United States, however, this rule, adopted by the English courts, was not followed, and instead the rule was adopted that satisfaction of a judgment against one joint wrongdoer bars further prosecution of a suit or further recovery from the other. Lovejoy v. Murray, 70 U.S. (3 Wall.) 1, 18 L.Ed. 129. In that case Mr. Justice Miller of the Supreme Court said, 3 Wall. 1, at page 17, 18 L.Ed. 129: "But when the plaintiff has accepted satisfaction in full for the injury done him, from whatever source it may come, he is so far affected in equity and good conscience, that the law will not permit him to recover again for the same damages."
Under the Ohio statute there is not even the relationship of joint tort-feasor; it does not rise that high. This law provides a new relief so that the insurer can be compelled to pay if the insured fails to pay. So much the more then is the injured party entitled to exhaust his claim to its fullest extent from insured, in this case a bankrupt. The obvious limitation is, and the complete answer is, that payment by the insured satisfies the judgment of the injured party against the insured; and in that event the insured may recover on his policy; the law providing that if the judgment is not paid within thirty days, the insured may then pursue this new relief against the insurer.
The general rule of law is that while there may be several claims or more than one judgment, there can be only one satisfaction, and such principle seems to be applicable to this controversy. 23 Ohio Jurisprudence 1360. Thus where the maker and endorser of a note, or the acceptor hand endorser of a bill of exchange, are both bankrupt, the holder may prove in each bankruptcy proceeding in full, the amount due thereon at the time of the filing of the several petitions in bankruptcy. Ireton v. Lincoln National Bank (C.C.A.) 300 F. 316, 318, 4 A. B.R. (N.S.) 903; where the Sixth Circuit Court of Appeals adopted the language of Judge Hickenlooper, then in the District Court, "Such holder may receive dividends upon such proofs of claim subject only to the limitation that he shall not receive more than the full amount of the claim due him," and authorities cited.
The Ohio courts have followed such rule, for, notwithstanding a creditor has filed a proof of claim against the estate of bankrupt debtor, he may still file suit against the bankrupt's guarantor, which as Judge Richards said in Bickley v. Armour Co., supra, "the fact that the debt of a bankrupt is secured by collateral other than that of the bankrupt himself does not make it a secured claim within the meaning of the Bankruptcy Act."
There could be no recovery under the provisions of the Ohio statute against the insurance company unless the judgment debtor failed to pay. While there has been a dividend paid in this case, it is now clear that Helen Piggott will never recover from the bankrupt estate the full amount of her judgment, probably not over 40 or 50 per cent., so that it would seem inequitable to reduce her claim by the amount which she might recover from the insurance company.
So far there seems to be no decision or discussion of the question presented here. Manifestly, this creditor should not secure more than the amount of her judgment. As the courts have said repeatedly, there should be no unjustified enrichment, or in other words, while there may be two judgments or two claims allowed, there can be only one satisfaction.
It should also be remembered that the insurance company might have defenses which it could assert to the suit under the Ohio statute; although in the proceeding it has been assumed that the insurance company was ready and willing to pay to the injured the amount of its policy. Also, since the hearing, the referee is advised that the proceedings on appeal in the state court have been concluded and the judgment now stands as a finality.
Herewith I hand up the following papers: (1) Claim of Helen Piggott; (2) objections to claim; (3) agreed statement of facts; (4) brief of Helen Piggott; (5) brief of trustee; (6) journal entry; (7) petition to review.
The trustee of the above bankruptcy challenges an order of the referee overruling the objections of the trustee to the allowance of the claim of Helen Piggott in the sum of $18,500. The amount of the claim sought to be disallowed in part represents a judgment in favor of Piggott against the bankrupt in a personal injury action. The bankrupt was insured for $5,000, and by the laws of the state of Ohio Piggott is entitled to receive the avails of the policy of insurance to be applied to the satisfaction of her judgment. The matter was submitted on an agreed statement of facts. The question certified for review is whether the judgment creditor has the right to prove the face amount of her judgment; and, also, to receive the insurance money.
The right of the judgment creditor to file her claim in bankruptcy is fixed at the time proof is required. That she has a statutory right to receive or sue for money which the insurance company is required to pay does not preclude the proving of the full amount of her judgment as a claim against the bankrupt estate. By the law of Ohio, her potential right to the insurance money became a vested one upon final judgment against the bankrupt.
It was not contemplated by the policy of insurance that the insured should pay the amount of the policy and be reimbursed by the insurance company. Under the provisions of the policy, the insurance company agreed to pay and satisfy judgments rendered against the assured, and to protect the assured against the levy of executions, subject to the limits of the policy. The bankrupt had no property right in the, avails of the ripened policy.
I think that Piggott was not a secured creditor in the bankruptcy sense. The Ohio statute (section 9510-4, General Code of Ohio) provides that the judgment creditor shall be entitled to have the insurance money applied to the satisfaction of the judgment. It does not provide an additional right of recovery against the judgment debtor. It is a supplemental remedy open to the judgment creditor contingent on the final judgment. Neither by the terms of the policy nor the provisions of the statute is the insurance money available to the assured (bankrupt). The right to the insurance money constitutes a potential statutory security for the benefit of persons injured through the fault of the insured, and becomes vested in the injured person for the satisfaction of a final judgment. Since the better reasoning supports the view that the judgment creditor does not have a secured claim against the property of the bankrupt, it follows, under the facts in this case, that the judgment creditor is entitled to prove the face of her judgment. Compare Ivanhoe Building Loan Association v. Thomas A. Orr, Trustee, 55 S.Ct. 685, 79 L.Ed. ___, decided April 29, 1935, and In re United Cigar Stores Co. (C.C.A.) 73 F.2d 296.
Order of the referee will be confirmed, and the trustee's petition to review dismissed.