Blomquist et al v. Horned Dorsett Primavera, Inc. et al
Filing
101
OPINION AND ORDER denying 98 Motion for Reconsideration. Signed by US Magistrate Judge Marcos E. Lopez on 6/3/2015. (MT)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
KRISTEN BLOMQUIST, et al.,
Plaintiffs,
v.
CIVIL NO.: 13-1835 (MEL)
THE HORNED DORSET PRIMAVERA, INC.,
et al.,
Defendants.
OPINION AND ORDER
On May 28, 2015 defendant Horned Dorset Primavera, Inc. (“Horned Dorset”) filed a
motion informing that court that it filed a voluntary petition for relief pursuant to Chapter 11 of
the Bankruptcy Code (see ECF No. 93) and plaintiffs filed a response in opposition requesting
that the court proceed to trial as scheduled against co-defendant Universal Insurance Group, Inc.
(“Universal”) (see ECF No. 94). That same day, the court entered an order staying all
proceedings in this case in light of the bankruptcy proceeding in the United States Bankruptcy
Court for the District of Puerto Rico. ECF No. 96. Pending before the court is plaintiffs’ motion
for reconsideration, in which they request that the court allow the case to proceed against
Universal notwithstanding the automatic stay against Horned Dorset. ECF No. 98. For the
following reasons, the motion for reconsideration is denied.
Section 362(a)(1) of the United States Bankruptcy Code (the “Code”) provides of an
automatic stay “of the commencement or continuation . . . of a judicial, administrative, or other
action or proceeding against the debtor . . .” and § 362(a)(3) of the Code automatically enjoins
“all entities” from “any action to obtain possession of property of the estate or of property from
the estate or to exercise control over property of the estate. 11 U.S.C. §§ 362(a)(1) & (a)(3).
Section 541 of the Code defines “property” as “all legal and equitable interests of the debtor.” Id.
at § 541(a)(1).
Plaintiffs assert that § 362(a) only applies to the debtor, in this case Horned Dorset, and
that “the proceeds of the insurance policy are not property of the estate.” ECF No. 98, at 3.
Therefore, plaintiffs seek to pursue a direct action against Universal Insurance Group, Inc., as
insurer of Horned Dorset, pursuant to 29 Laws P.R. Ann., § 2003. Id. Plaintiffs’ first claim is
correct: “[The] automatic stay of judicial proceedings against debtors when they seek bankruptcy
protection . . . does not extend to non-debtor third parties or co-defendants.” Villafañe-Colón v.
B Open Enterprises, Inc., 932 F.Supp.2d 274 (2013) (citing 11 U.S.C. § 362(a)(1)). Contrary to
plaintiffs’ second assertion, however, the Court of Appeals for the First Circuit has explicitly
found that proceeds of a liability insurance policy are property of a debtor’s estate pursuant to
§ 541(a)(1):
Tringali argues that the proceeds of liability insurance are not
subject to the “automatic stay,” for they are not “property of the
estate.” 11 U.S.C. § 541(a)(1) . . . . We do not agree with the initial
premise of this argument, however, for language, authority, and
reason all indicate that proceeds of a liability insurance policy are
“proceeds of the estate.”
Tringali v. Hathaway Machinery Co., Inc., 796 F.2d 553, 560 (1986) (“Every court that has
recently considered the specific question has held that liability insurance falls within the scope of
§ 541(a)(1).”); see also In re Adelphia Communications Corp., 298 B.R. 49, 52-53 (Bankr.
S.D.N.Y. 2003) (“[I]t is well settled that insurance policies are covered by the automatic stay
provision of the Bankruptcy Code . . . .”) (emphasis in original) (citing MacArthur Co. v. Johns-
2
Manville Corp., 837 F.2d 89 (2d Cir. 1988)).1 In reaching this decision, the First Circuit made
clear that “[t]he language of § 541(a)(1) is broad enough to cover an interest in liability
insurance, namely, the debtor’s right to have the insurance company pay money to satisfy one
kind of debt—debts accrued through, for example, the insured’s negligent behavior.” Tringali,
796 F.2d at 560; see also Villafañe, 932 F.Supp.2d at 280-82 (granting motion to stay all
proceedings against debtor and its insurer pending the outcome of the debtor’s bankruptcy
proceedings) (citing Tringali, 796 F.2d 553). In light of the decision in Tringali, the order staying
all proceedings in this case, including those against Universal as insurer of Horned Dorset, and
vacating the pretrial and settlement conference and trial date (ECF No. 96) stands. Horned
Dorset is reminded that it shall immediately notify the court if the bankruptcy stay is lifted or if
its petition for bankruptcy is dismissed.
IT IS SO ORDERED
In San Juan, Puerto Rico, this 3rd day of June, 2015.
s/Marcos E. López
U.S. Magistrate Judge
1
In arguing that the proceeds of insurance policies are not property of a bankruptcy estate, plaintiffs cite to cases of
the Fifth Circuit Court of Appeals, which has “held that while insurance policies are generally property of the estate,
the proceeds of liability insurance policies, unlike first party policies, are generally not.” Sosebee v. Steadfast Ins.
Co., 701 F.3d 1012, 1023 (5th Cir. 2012) (citing In re Edgeworth, 993 F.2d 51, 55-56 (5th Cir. 1993)). That
statement, however, directly conflicts with the First Circuit’s holding in Tringali that proceeds from an insurance
policy, like the insurance policy itself, are property of the bankruptcy estate. See Tringali, 796 F.2d at 560; see also
In re Mahoney Hawkes, LLP, 289 B.R. 285, 289 (Bankr. D. Mass. 2002) (“I am constrained to follow Tringali and
hold that the proceeds of the Policy are property of the estate.”) (citing Tringali, 796 F.2d at 560).
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