Articles Posted in Bankruptcy

Although a defendant’s ability to pay or otherwise satisfy a plaintiff’s judgment is always of paramount concern in litigation, this issue can be further complicated when the defendant files for bankruptcy during the pendency of a case. Indeed, although a defendant’s motor vehicle insurer is often obligated to pay all or some of a plaintiff’s recovery, the specter of a defendant’s insolvency and the legal rules that apply when bankruptcy proceedings are initiated can nonetheless still create confusion for plaintiffs. This sort of confusion is highlighted in the Second District Court of Appeal’s recent decision in Whritenour v. Thompson (PDF-embedded link).

The Whritenour case was commenced following a motor vehicle accident in July 2011. The plaintiff sustained bodily injury as a result of the accident and promptly brought a negligence action against the defendant in January 2012. The defendant had bodily injury liability insurance coverage that was capped at $300,000. The insurer obtained defense counsel, who advised the defendant to file for bankruptcy. Heeding the advice, the defendant filed for bankruptcy in September 2012 and listed the plaintiff’s personal injury claim in the bankruptcy petition. The bankruptcy court then issued an automatic stay of the negligence proceedings. In October, the plaintiff filed an emergency motion for relief from the stay of proceedings in the bankruptcy court. The bankruptcy court granted the motion and amended to the stay to permit the plaintiff to “to commence, prosecute, complete […] through final judgment […] claims against [the defendant], for the purpose of pursuing [the defendant’s] insurance carrier and not for the purpose of pursuing personal liability against [the defendant].” Thereafter, the personal injury litigation continued until the defendant filed a motion for summary judgment, which argued that the she had no personal liability, that the plaintiff’s maximum recovery was limited to the $300,000 policy limit, and that, despite an absence of sworn testimony to that effect, the bankruptcy trustee had no intention of pursuing a bad-faith action against the carrier that could increase the scope of the insurer’s possible obligation. The trial court granted the motion, holding that the plaintiff was not entitled to proceed to trial and, by effect, a determination of damages because the plaintiff failed to file an action for bad faith prior to the defendant being discharged in bankruptcy. The plaintiff then brought the current appeal.

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