Wheeling & Lake Erie Railway Co. v. Keach
799 F.3d 1
1st Cir.2015Background
- Wheeling extended a $6,000,000 credit line to Montreal, Maine & Atlantic Railway, Ltd. (MMA) secured by a security agreement purporting to cover "accounts," "payment intangibles," inventory, and proceeds (including insurance proceeds).
- Wheeling filed a UCC-1 financing statement in Delaware but did not take additional steps (e.g., notice to insurer, loss-payee designation, assignment) to attach or perfect any interest in MMA's insurance policies or payments under them.
- After a July 2013 derailment and catastrophic losses, MMA submitted an insurance claim under a Travelers policy; Travelers denied coverage but later settled for $3,800,000 while MMA was in Chapter 11.
- Bankruptcy court held Article 9 does not apply to rights to payment under insurance policies (Maine UCC insurance exclusion), so Maine common law governs perfection; it found Wheeling failed to perfect and awarded the settlement proceeds to MMA free of Wheeling's claim.
- The Bankruptcy Appellate Panel affirmed, and the First Circuit likewise affirmed, holding the insurance exclusion precludes Article 9 coverage and that Wheeling's steps did not provide the notice required under Maine common law.
Issues
| Issue | Wheeling's Argument | Trustee/MMA's Argument | Held |
|---|---|---|---|
| Does Article 9 (Maine) govern creation/perfection of a security interest in a right to payment under an insurance policy? | The right to payment is an "account" or "payment intangible" under Article 9, so Article 9 governs. | Article 9 expressly excludes interests in or assignments of claims/rights under insurance policies; such rights lie outside Article 9. | Held: Insurance exclusion applies broadly to rights to payment under policies; Article 9 does not govern. |
| If Article 9 is inapplicable, did Wheeling perfect under Maine common law? | Filing the UCC-1 in Delaware that described "accounts, payment intangibles" sufficed or at least raised priority. | Maine common law requires some additional public or effective notice (possession, recordation, assignment, notice to insurer, or other step); mere filing here gave no fair notice. | Held: Wheeling did not perfect; Maine common law requires steps beyond mere execution and the UCC-1 filed was inadequate to notify creditors. |
Key Cases Cited
- In re Barton Indus., Inc., 104 F.3d 1241 (10th Cir. 1997) (discusses Article 9 exclusions for insurance transactions)
- Am. Bank, FSB v. Cornerstone Cmty. Bank, 733 F.3d 609 (6th Cir. 2013) (interprets Article 9 insurance exclusion broadly)
- PPG Indus., Inc. v. Hartford Fire Ins. Co., 531 F.2d 58 (2d Cir. 1976) (treats assignment/insurance interests as outside Article 9)
- United States v. Williams, 553 U.S. 285 (2008) (statutory interpretation canon: noscitur a sociis)
- In re Big Squaw Mt. Corp., 122 B.R. 831 (Bankr. D. Me. 1990) (Maine bankruptcy decision concluding mere retention of a security agreement insufficient to perfect insurance interest)