Kockos Bros. v. Canadian Fire Insurance

DRAPER, Acting P. J. Does a bankruptcy proceeding, in which no attempt was made to set aside a prior attachment of proceeds of an insurance policy, of itself serve to release the insurer garnishee of liability to the judgment creditor for funds attached? The trial court answered yes by granting defendant’s motion for summary judgment. Plaintiff appeals.

Defendant issued a fire insurance policy in the sum of $15,000 upon property of Future Manufacturing Cooperative, Inc. The insured property was substantially destroyed by fire January 3, 1956. On January 11, 1956, plaintiff herein filed an action against Future to recover $13,501.62 alleged to be due plaintiff upon contract. Writ of attachment issued, and levy was made upon defendant insurer directing it to withhold all sums due to Future. Defendant made no reply to the levy, but concedes that it then held $15,000 due to [470]Future. Future filed its voluntary petition in bankruptcy January 30 and was adjudicated a bankrupt next day. A receiver was appointed and the usual injunction against instituting or prosecuting actions against the bankrupt was issued, but was not served on plaintiff. On February 2, defendant paid the $15,000 in insurance proceeds to the receiver in bankruptcy, receiving from him a receipt stating that “I will . . . request from the court that all assignments and attachments now on these funds at Canadian Fire Insurance Company will be released.” This was never done. Notice to creditors, including plaintiff, was mailed in the bankruptcy proceedings March 5. On April 27 default of Future was entered in plaintiff’s action against it, and judgment upon that default, for $13,501.62 plus interest and costs was entered April 30. In September, plaintiff filed its proof of claim in the bankruptcy proceeding, but no copy of that claim is in the record here. Two years later, on September 24, 1958, a first and final dividend of 20.94 per cent was paid to creditors, plaintiff receiving $2,846.12. The trustee in bankruptcy was discharged December 31, 1958. Writ of execution in the first action was issued and levy made upon defendant October 31, 1958. Return of nothing due was made.

On December 26, 1958, plaintiff filed the present action by which it seeks to recover from defendant insurer the insurance proceeds levied upon January 12, 1956. Shortly thereafter, the bankruptcy proceeding was reopened, a new trustee appointed, and on his petition an order entered by the referee declaring the attachment lien of plaintiff to be void under section 67(a) of the Bankruptcy Act (11 U.S.C.A. § 107 [a]) and permanently enjoining plaintiff from further proceedings against defendant insurer. On petition for review, the United States District Court set aside the referee’s order on the ground that the action of the trustee was barred by the statute of limitations. Rehearing was denied, the court pointing out that defendant insurer was the real party in interest, and that neither the bankrupt estate nor its creditors had an interest in the outcome. Shortly thereafter, defendant insurer moved for summary judgment in this proceeding. The motion was granted, and plaintiff appeals from the ensuing judgment.