251 So. 3d 767
Ala.2017Background
- In Dec. 2014 Hershel and Charlotte Easterling were rear-ended by Ashley McCartney; both were injured and Hershel sued McCartney and Progressive (their insurer) seeking UIM benefits.
- Charlotte died after the suit was filed; Hershel was substituted as personal representative for her estate.
- McCartney filed for bankruptcy (Chapter 7), and she notified the state court; Progressive moved for summary judgment arguing Hershel was not “legally entitled to recover” from McCartney due to the bankruptcy discharge.
- Progressive relied on Alabama caselaw interpreting “legally entitled to recover” to bar UIM recovery when recovery from the tortfeasor is statutorily foreclosed or limited.
- Hershel argued bankruptcy does not eliminate the tortfeasor’s nominal liability and cited § 524(e) and federal decisions permitting plaintiffs to establish liability to recover from a third-party insurer.
- The trial court granted summary judgment for Progressive; the Alabama Supreme Court reversed and remanded, holding bankruptcy discharge prevents collection but does not defeat the insured’s ability to prove the tortfeasor’s liability (the statutory prerequisite for UIM coverage).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a tortfeasor's bankruptcy discharge prevents an insured from being “legally entitled to recover damages” under Ala. Code § 32-7-23(a) and thus bars UIM recovery | Easterling: bankruptcy does not eliminate the tortfeasor’s nominal liability; § 524(e) leaves other entities (e.g., insurer) liable, so he can prove liability and pursue UIM benefits | Progressive: bankruptcy discharge (and injunction) forecloses legal entitlement to recover from the tortfeasor; extend Carlton/Kendall reasoning to bar UIM recovery | Court: Reversed — bankruptcy discharge bars collection but not the insured’s ability to establish the tortfeasor’s liability; that ability satisfies the statutory prerequisite for UIM recovery |
Key Cases Cited
- Kendall v. United Servs. Auto. Ass'n, 23 So.3d 1119 (Ala. 2009) (interprets “legally entitled to recover” to preclude UIM recovery when statutory limits exhaust tortfeasor liability)
- Ex parte Carlton, 867 So.2d 332 (Ala. 2003) (holds workers’ compensation exclusivity bars insured from being "legally entitled to recover" against co-employee for UM/UIM coverage)
- In re Jet Fla. Sys., Inc., 883 F.2d 970 (11th Cir. 1989) (bankruptcy discharge does not bar creditor from pursuing claims against nondebtors, including insurers)
- Houston v. Edgeworth (In re Edgeworth), 993 F.2d 51 (5th Cir. 1993) (discharge ends personal liability of debtor but does not eliminate insurer liability; suits to establish liability may proceed)
- In re Hendrix, 986 F.2d 195 (7th Cir. 1993) (holds near-unanimous authority permitting suits nominally against discharged debtor to establish liability for insurer recovery)