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Recent Pennsylvania Superior Court Decision On the Effect of Bankruptcy Discharge is News to Bankruptcy Practitioners

Gubbiotti v. Santay, __ A.3d ___, 2012 WL 2389449 (Pa. Super 2012). (J. Panella).

PERSONAL INJURY ALERT:

Automobile accident victims filed a negligence action against the other driver for injuries sustained.  While the case was pending the defendant filed a Chapter 7 bankruptcy and received a bankruptcy discharge.  Thereafter, the defendant filed a motion for summary judgment arguing that the plaintiffs could not seek recovery from the driver’s auto insurer after the suit was discharged as no judgment was rendered on the claim.  The Court of Common Pleas granted the motion for summary judgment.  On appeal, the plaintiffs argued that a defendant’s discharge did not impede their ability to pursue an action to collect damages from the auto insurer citing 40 Pa.C.S.A. §117.  Surprisingly, the Superior Court affirmedThe Superior Court reasoned that the plain language of §117 permits the garnishment of an insurance company for a judgment entered against an insolvent or bankruptcy insured.  The Court indicated that the provision does not permit an action against the insured, which would clearly violate the discharge order, but rather permits an action directly against the insurer where a judgment has been entered.  In this case, no judgment has been entered.  Therefore, 40 Pa.C.S.A. §117 is inapplicable.  This decision is in direct conflict with Bankruptcy Court decisions which allow personal injury plaintiffs to proceed in personal injury actions to establish liability to collect against third party insurers.  See In re Futches, 430 B.R. 342 (Bankr.E.D. Pa. 2009).  The Bankruptcy Courts have noted that while a defendant’s bankruptcy may discharge a defendant’s personal liability, it does not discharge the claim and therefore plaintiffs could proceed against third parties to collect insurance proceeds.   See also The Loewen Group, Inc., 2004 WL 1853137 (E.D. Pa. 2004) and Philadelphia Forrest Hills Corp. v. Bituminous Casualty Corp., 208 Pa. Super. 461 (1966).  The ruling is being appealed and it is expected that the Superior Court will not have the last word on this issue, but in the meantime, but it may lead to problems for plaintiffs and their counsel.

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Scott F. Waterman
110 West Front Street
Media, PA, 19063 USA
484-441-6543