Trustee can't sell auto policy back to insurance carrier.

Byline: Pat Murphy

A U.S. Bankruptcy Court judge has ruled that a Chapter 7 trustee could not sell the debtor's automobile policy back to his insurance carrier to settle a dispute over the validity of a pre-petition waiver of coverage of an accident giving rise to personal injury claims by a third party.

The debtor, David DeVeau, hit a pedestrian with his car in 2011 in Florida. The pedestrian, Ashly Rierson, sued the debtor for negligence.

The debtor's insurer, Progressive Select Insurance Co., disputed coverage of the accident. Shortly before filing for bankruptcy in 2015, the debtor settled his coverage dispute with Progressive, executing a release of claims under the policy.

The Chapter 7 trustee sought to set aside the release executed by the debtor, bringing an adversary action against Progressive. The trustee and Progressive subsequently settled the adversary proceeding, with the trustee agreeing to sell to Progressive the debtor's insurance policy "free and clear" of any interests and rights. In exchange, Progressive agreed to pay the estate $825,000, contingent upon the debtor obtaining a discharge of the personal injury claim and certain related claims.

Over Rierson's objection, the trustee filed a motion to approve the compromise of rights held by the bankruptcy estate as a result of the proposed agreement.

[box type="shadow" align="alignright" width="325px"]In Re: DeVeau, David, Lawyers Weekly No. 04-038-19 (10 pages)

THE ISSUE: Could a Chapter 7 trustee sell the debtor's automobile policy back to his insurance carrier to settle a dispute over the validity of a pre-petition waiver of coverage of an accident giving rise to personal injury claims by a third party?

DECISION: No (U.S. Bankruptcy Court)

LAWYERS: David G. Prentiss of New Bedford (debtor)

Alex F. Mattera of Partridge, Snow & Hahn, Boston (trustee)

Philip A. O'Connell Jr. of Dentons US, Boston (creditor Progressive Select Insurance Co.)

Henry Seiden of Delray Beach, Florida (creditor Ashley Rierson)[/box]

But Judge Frank J. Bailey found a number of problems with the agreement between the trustee and Progressive, foremost among them being that the debtor's auto policy was not property of the bankruptcy estate for the trustee to sell.

"It is undisputed that before he filed his bankruptcy petition, DeVeau released and forever discharged Progressive of all liability arising, from among other things, its offer of insurance to DeVeau and the issuance of Policy No. 74082543 to...