8 ABR 338
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In re:
ROBERT BRIAN KINGERY
Debtor.
CASE No. A03-00447-DMD
Chapter 7MEMORANDUM RE EXEMPTIONS AND ABANDONMENT
The trustee has objected to the debtor’s exemption of proceeds recovered from the settlement of the debtor’s prepetition personal injury claim. The debtor has moved for abandonment of his claims for underinsured motorist and medical payment coverage, which he contends are postpetition claims. The trustee’s objection to exemptions will be overruled and the debtor’s motion for abandonment will be denied as to the uninsured motorist claim and as to that portion of his medical coverage claim attributable to prepetition medical expenses resulting from his injuries.
Case Background
Robert Kingery was a cook for the Royal Fork Buffet. He was involved in an automobile accident while driving to work early on the morning of January 31, 2003. Kingery was driving his Ford Escort south on the New Seward Highway near the Tudor Road exit when it was struck on the passenger’s side by another vehicle. Kingery was going around 55 to 60 miles per hour when his car was hit. His Escort spun several times before coming to a stop. Kingery felt pain in his middle and lower back after the accident. It became impossible for him to continue in his line of work and, because his employer couldn’t offer him light duty, he ultimately had to leave his job at Royal Fork.
8 ABR 339
Kingery retained attorney Moshe Zorea to pursue his personal injury claim against the driver of the other vehicle and to assist him with filing bankruptcy. Kingery filed his chapter 7 bankruptcy petition three months after the accident, on April 25, 2003. His initial schedules listed a potential personal injury claim arising from the accident, with a value of zero. No exemption in this personal injury claim was taken on Kingery’s initial schedules.
Trustee Kenneth Battley employed Zorea as special counsel, on a contingency basis, to pursue the personal injury claim for the benefit of the estate. Kingery became dissatisfied with Zorea’s representation. He found new bankruptcy counsel and also searched for another attorney to handle his personal injury claim. He selected Michael Schneider and, in August, 2004, Schneider was substituted as special counsel for Zorea to handle the personal injury claim.
Schneider received a settlement for full policy limits from the insurer of the other driver involved in the accident. After the settlement was approved by the court, Kingery amended his Schedule B to list the gross settlement amount, $73,159.00, as the value of the personal injury claim. He indicated that this claim “[d]oes not include postpetition claims for medical payments and underinsured motorist coverage.” 1 Kingery also amended his Schedule C to claim $18,450.00 of the personal injury settlement exempt under 11 U.S.C. § 522(d)(11)(D) and $9,015.00 exempt using the balance of his § 522(d)(5) “wild card” exemption. The trustee has objected to Kingery’s amended exemption of the personal injury claim, claiming the amendment is too late and is prejudicial to creditors.
The settlement amount is less than the sum total of Kingery’s damages from the accident. At the time of the accident, Kingery had underinsured motorist (“UIM”) and medical coverage under his own insurance policy. Kingery intends to pursue recovery of additional damages from the UIM and medical coverage. He contends these are postpetition claims, not property of the estate, and has moved for their abandonment. The trustee has filed a partial objection to this motion. He concedes that any amounts Kingery recovers against the medical coverage for postpetition medical expenses belong to the debtor. The trustee says any recovery against the UIM insurance or for prepetition medical expenses, however, is property of the estate.
A hearing on the trustee’s objection to exemptions and Kingery’s motion to abandon was held on March 12, 2007. Schneider testified regarding Kingery’s damages and the likelihood of recovering additional damages against the UIM and medical payment coverage. He stated that he believed Kingery had a good chance of recovering the full policy limits of both types of coverage. Even assuming Kingery were to receive full policy limits under the UIM and medical coverage, however, Schneider said Kingery wouldn’t be fully compensated for his damages from the accident. The accident has substantially changed Kingery’s life; the injuries to his back will cause long term pain and have impaired his ability to work in any capacity, let alone his chosen profession.
The Trustee’s Objection to Amended Exemption
Bankruptcy Rule 1009(a) provides: “A voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed. No court approval is required for an amendment, which is liberally allowed. A court may, however, deny the debtors leave to amend “on a
Kingery’s amended schedules were filed before his bankruptcy case was closed. Additionally, there is no showing that he acted in bad faith. In fact, the successful recovery on the personal injury claim can be attributed to Kingery’s post-petition efforts to find another attorney to handle prosecution of this claim. The trustee argues, however, that Kingery’s delay in amending his schedules until after the settlement had been noticed was prejudicial to creditors. I disagree. “Simple delay in filing an amendment . . . does not alone prejudice creditors. Nor does prejudice to creditors occur merely because a claimed exemption, if held timely, would be granted.” 3 Exemptions should be liberally construed to enhance a debtor’s fresh start. 4
Kingery has proceeded in good faith to maximize recovery on his personal injury claim. He should not be penalized for his former counsel’s failure to claim what were fairly obvious exemptions at the time the case was filed. Even after allowance of Kingery’s amended exemptions, the personal injury settlement will provide unsecured creditors with a distribution in this case. These creditors were never assured a distribution; the trustee’s motion to approve settlement of the personal injury claim made no projections regarding a distribution in this case. Under the circumstances, the amended exemption is not prejudicial to creditors. The trustee’s objection will be overruled.
The Debtor’s Motion to Abandon
Property of the estate consists of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 5 Causes of action belonging to a debtor at the time the petition is filed are considered property of the estate. 6 At the time Kingery filed bankruptcy, his personal injury claim against the other driver involved in the accident was unquestionably an asset of his bankruptcy estate. Kingery contends that claims he has against his own insurer, however, are postpetition claims and not assets of the estate.
At the time of the accident, Kingery’s automobile insurance policy had UIM and medical payment coverage. As a result of the accident, he holds claims against this policy for additional damages and medical expenses. Kingery contends these are new, post-petition claims which are not property of the estate. He says the UIM claim didn’t accrue until after the settlement with the other driver’s insurer for full policy limits, an event which occurred post-petition. Kingery relies on Curran v. Progressive Northwestern Ins. Co. 7 and John’s Heating Serv. v. Lamb 8 for this contention. I find these cases unpersuasive.
In Curran, the court interpreted AS 28.20.445 9 and held that an insured must “exhaust” or “use up” all underlying liability coverage before recovering UIM benefits.
Nor does the Lamb case assist Kingery in his assertion that the UIM and medical payment coverage claims are postpetition claims. In Lamb, 13 the court discussed the application of the “discovery rule” to toll a statute of limitations when an element of a cause of action is not immediately apparent. In that case, a heating company had performed negligent work on a residential furnace. After the work was done, the Lambs began having health problems, but couldn’t attribute these problems to the faulty furnace until after they had been diagnosed as suffering from carbon monoxide poisoning. It took the Lambs several months to obtain this diagnosis and, when they finally filed suit, the heating company raised the statute of limitations in defense. The court held for the Lambs, stating that “The Lambs
Kingery’s situation is distinguishable from Lamb. Under the provisions of his own policy, he had UIM and medical payment coverage at the time of the accident. His claims against these two types of coverage arose prepetition, at the time of the accident, by virtue of the provisions in the insurance contract. Kingery’s UIM claim is an asset of the bankruptcy estate. It hasn’t been transformed into a postpetition asset simply because a precondition for recovery of damages wasn’t satisfied until after the bankruptcy filing. Kingery’s medical payment coverage claim is also an asset of the estate, but only to the extent of any damages recovered for medical expenses he incurred prepetition. Damages paid for postpetition medical expenses are not estate property.
Conclusion
For the foregoing reasons, the trustee’s objection to the debtor’s amended exemptions will be overruled and the amended exemption will be allowed. The debtor’s motion to abandon will be granted solely as to that portion of his medical payment coverage claim attributable to postpetition medical expenses. The balance of his medical coverage
DATED: March 30, 2007
BY THE COURT
DONALD MacDONALD IV
United States Bankruptcy Judge
N O T E S:
1. Amended Sched. B, ¶ 16, filed Dec. 18, 2006 [Docket No. 41].
2. Martinson v. Michael (In re Michael), 163 F.3d 526, 529 (9th Cir. 1998) (citations omitted, emphasis in original).
3. Id., citing Doan v. Hudgins (In re Doan), 672 F.2d 831, 833 (11th Cir. 1982).
4. Martinson, 163 F.3d at 529.
5. 11 U.S.C. § 541(a)(1).
6. Compton v. Chatanika Gold Camp Properties, 988 P.2d 598, 602 (Alaska 1999); Briggs v. Newton, 984 P.2d 1113, 1117-18 (Alaska 1999); Bonha v. Hughes, Thorsness, Gantz, Powell & Brundin, 828 P.2d 745, 754 (Alaska 1992).
7. 29 P.3d 829 (Alaska 2001).
8. 129 P.3d 919 (Alaska 2006).
9. Under AS 28.20.445, UIM coverage “may not apply to bodily injury, sickness, disease, or death of an insured or damage to or destruction of property of an insured until the limits of liability of all bodily injury and property damage liability bonds and policies that apply have been used up by payments, judgments or settlements.” Curran, 29 P.3d at 832, citing AS 28.20.445 (emphasis in original).
10. A contingent claim is one in which the liable party is required to pay only upon the occurrence of an extrinsic event which triggers liability for payment to the claimant. See Siegel v. Federal Home Loan Mtg. Corp., 143 F.3d 525, 532 (9th Cir. 1998).
11. Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 784-785 (9th Cir. 2001); McCarthy, Johnson & Miller v. North Bay Plumbing, Inc. (In re Pettit), 217 F.3d 1072, 1078 (9th Cir. 2000); Neuton v. Danning (In re Neuton), 922 F.2d 1379, 1382-83 (9th Cir. 1990).
12. Hamilton, 270 F.3d at 785.