477 B.R. 260
Bankr. N.D. Ga.2012Background
- Debtor filed Chapter 7 on March 8, 2010; discharge entered January 5, 2011.
- FDIC, as receiver for Community Bank of West Georgia, seeks to name Debtor in suit to recover insurance coverage from Travelers Companies, Inc.
- Policy is Bankers Professional Liability Insuring Agreement; covers defense costs and Loss for Wrongful Acts.
- Debtor argues policy excludes coverage due to discharge; FDIC argues insurer may be liable to defend and pay claims.
- Columbia Gas is cited by Debtor; court distinguishes based on defense costs and trigger for insurer obligation.
- Court grants modification or declaratory relief to permit FDIC to name Debtor as nominal defendant; defense costs covered; fresh start not prejudiced.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is modification of the discharge injunction required? | FDIC seeks modification to name Debtor; necessary to proceed. | Columbia Gas would bar insurer liability due to discharge; fewer grounds to modify. | Modification (or equivalent relief) granted; proceed with nominal defendant. |
| Is the insurer contractually obligated to pay defense costs and liability despite the discharge? | Policy requires defense and Loss coverage for Claims against insureds. | Discharge prevents liability collection from Debtor; insurer may not be liable. | Yes; insurer obligated to defend and pay defense costs under the policy. |
| Is the Debtor a necessary party to establish liability for insurer to pay? | Debtor’s involvement necessary to establish insurer’s liability to FDIC. | Debtor should not bear costs or be improperly burdened post-discharge. | Debtor is a necessary party; absence would impede relief to insurer. |
| Does 'legally obligated' for covered losses apply to a discharged debt? | Discharge does not negate insurer’s obligation if policy covers wrongful acts. | Discharge negates debtor’s legal obligation to pay; Columbia Gas aligns with this. | Discharge does not necessarily eliminate obligation; policy language can apply post-discharge. |
| Would modification prejudice Debtor’s fresh start? | FDIC would not recover from Debtor; insurer defense costs covered. | Any ongoing action could affect Debtor’s fresh start. | Modification does not prejudice fresh start; defense costs borne by insurer; Debtor safe from collection. |
Key Cases Cited
- In re Jet Florida Systems, Inc., 883 F.2d 970 (11th Cir. 1989) (discharge does not bar establishing debtor's liability to collect from insurer)
- In re Edgeworth, 993 F.2d 51 (5th Cir. 1993) (discharge injunction does not prevent liability determination to enable insurer payment)
- In re Doar, 234 B.R. 203 (Bankr.N.D. Ga. 1999) (discharge injunction effects and insurer obligations context)
- In re Hendrix, 986 F.2d 195 (7th Cir. 1993) (cases permitting nominal defendant to establish liability for third-party recovery)
- In re Columbia Gas Transmission Corp., 219 B.R. 716 (S.D. W.Va. 1998) (distinguished; discounting insurer’s liability where excess policy and discharge affect coverage)
- Dowse v. Southern Guar. Ins. Co., 263 Ga.App. 435, 588 S.E.2d 234 (Ga. App. 2003) (agreement not to enforce judgment does not release insurer from coverage)