Underinsured Motorists Benefits - Bankruptcy of At-Fault Driver - Easterling v. Progressive Insurance Company


Easterling v. Progressive Insurance Company, [Ms. 1150833, Sept. 15, 2017] __ So. 3d __ (Ala. 2017). In this decision by Justice Shaw, (Stuart, C.J., and Bolin, Parker, Murdock, Main, and Bryan, JJ., concur; Sellers, J., dissents), the Court reverses a summary judgment in favor of Progressive on a claim seeking UIM benefits. Following a 2014 automobile accident, Hershel Easterling (“Hershel”) sued McCartney and his own UIM carrier, Progressive, for personal injuries sustained in an automobile crash. McCartney subsequently filed a suggestion of bankruptcy in the circuit court. Progressive then moved for summary judgment on the UIM claim contending that because of McCartney’s bankruptcy, he could not prove that he was legally entitled to recover beyond McCartney’s liability insurance limits, and therefore, could not recover from Progressive under the UIM policy. The circuit court dismissed the claim for UIM benefits. The Court reversed, holding

The entry of a summary judgment in the present circumstances thus appears to conflict with the legislative policies underlying both Alabama’s UIM statute and the Bankruptcy Code. See 11 U.S.C. § 524(e) (“[D]ischarge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.”); In re Bracy, 449 F. Supp. [] [70,] 71 [(D. Mont. 1978)] (“It seems clear that it is the policy of the law to discharge the bankrupt but not to release from liability those who are liable with him.” (citing 1A Collier on Bankruptcy ¶ 16.15 (14th ed. 1976))).

Ms. *21. The Court further explained that

Essentially, the flaw in Progressive’s logic is this: By virtue of her bankruptcy filing, McCartney has not been relieved of legal liability for the harm she caused Hershel; instead, Hershel may prove the merits of his claim but is merely prevented by law from seeking to collect damages from McCartney for that harm even after his legal entitlement to recover those damages has been established. See Hayden, 477 B.R. [] [260,] 264 [(Bankr. N.D., Ga. 2012)] (“[A] creditor may establish the debtor’s nominal liability for a claim solely for the purpose of collecting the debt from a third party, such as an insurer or guarantor.”). Any injunction against proceeding directly against the debtor, therefore, in no way extends to Hershel’s own insurer.

Ms. *22.

The Court explained that a UIM carrier has available to it substantive defenses that would have been available to the uninsured motorist, such as state-agent immunity or workers’ compensation remedy exclusivity. Ms. *22, n. 8. The Court distinguished those substantive defenses from a bankruptcy discharge which it characterized as a procedural defense.

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