IN RE STRONG BUILT, INC. (Bankr.W.D.La 2004)

HENLEY HUNTER, Bankruptcy Judge

This matter comes before the Court on a Hearing for injunctive relief by plaintiffs, who seek a temporary stay of litigation in a state court proceeding filed against Clarendon America Insurance Co. ("Clarendon"). This Court makes the following Findings of Fact and Conclusions of Law in accordance with F.R.B.P. 7052. Pursuant to these reasons, the Application for Injunctive Relief is DENIED and the adversary proceeding is DISMISSED.

This debtor, Strong Built, Inc. ("Strong Built") is a supplier of camping/hunting merchandise to Academy, Ltd. ("Academy"). Strong Built filed a bankruptcy case under Chapter 11 on June 7, 2003. Thereafter, plaintiffs herein filed an application for injunctive relief to stay the pre-petition tort action pending in Harris County, Texas of Chad Maywald and Cody Allen Maywald against Academy, under §§ 105 and 362, based on the existence of contractual and statutory indemnity owed to Academy for damages sustained as a result of a products liability action, and pursuant to debtor's insurance agreement, the debtor is bound by a self-insured retainer to fund the first $250,000.00 in defense costs. According to the memorandum in opposition to injunctive relief, Chad Maywald filed suit against the debtor and Academy after being injured while using a product of the debtor, leaving him a permanent paraplegic. He ultimately seeks damages in excess of six million dollars. That temporary stay was granted and is scheduled to expire on or about the time of the upcoming plan confirmation in June of 2004. See Strong Built v. Maywald, 03-3027, Doc. Nos. 31, 32.

Thereafter, Chad and Cody Allen Maywald filed a direct action suit against Clarendon in the Louisiana Nineteenth Judicial District Court in East Baton Rouge Parish, Louisiana, pursuant to La.R.S. 22:655(B)(1)(a), claiming entitlement to the proceeds of an insurance policy issued to Strong Built, which is claimed to provide coverage of one million dollars per claim. No other defendants are named in that suit, and it is important to note herein that the defendants have waived the claims against the assets of the debtor's estate. See Doc. 9. That action was removed to and is currently pending in the United States District Court for the Middle District of Louisiana. The plaintiffs herein seek to extend the automatic stay to Clarendon, as insurer of the debtor, Strong Built. A hearing was held in this matter on May 19, 2004. The matter was submitted for a decision on the memoranda filed by the parties.

In their answer, defendants move for a dismissal under Federal Rule of Civil Procedure 12(b)(1), asserting this Court lacks jurisdiction as to a non-debtor, Clarendon, and cannot use 11 U.S.C. § 105 to enjoin the district court proceeding against Clarendon, citing Lower Brule Construction Co. v. Sheesley's Plumbing Heating Co. Inc., 84 B.R. 638 (D.S.D. 1988). Indeed, the Court is compelled to address the issue of jurisdiction and need look no further in finding that this adversary proceeding must be dismissed.

The defendant in the action sought to be stayed is not the debtor, but rather its insurer, and the claims made therein are not made against property of the debtor's estate, but rather the proceeds of the policy. See In re: Equinox Oil Co., 300 F.3d 614 (5^th Cir. 8/12/02) ("The central question when determining whether insurance proceeds associated with a policy are property of the bankruptcy estate is whether, in the absence of the bankruptcy proceeding, the proceeds of the policy would belong to debtor when the insurer pays a claim."); Houston v. Egdeworth, 993 F.2d 51 (5^th Cir. 1993) (proceeds of a medical malpractice liability policy are not property of the estate); In re: Louisiana World Exposition, Inc., 832 F.2d 1391(5^th Cir. 1987) (proceeds of a directors and officers liability policy were not part of the bankruptcy estate when providing liability coverage to its officers and directors for liabilities and related legal expenses they might incur in relation to their service to the corporation.); See also In re Vitek, Inc., 51 F.3d 530 (5th Cir. 1995).

As the Fifth Circuit has addressed in the case cited herein, Collier Bankruptcy Manual, at section 541.11, notes that "[i]t is well established that money payable as the proceeds of a fire policy taken out before bankruptcy for the debtor's benefit does not arise from the property, but from a personal contract between insurer and insured." Equinox Oil Co., 300 F.3d 614. Furthermore, the Maywalds have waived any claims against the debtor's estate, thereby negating any argument that the debtor is the true party defendant in the district court action. See cf. Reasons for Decision, Strong Built v. Maywald, 03-3027, Doc. No. 31.

Pursuant to the foregoing reasons, the plaintiffs' application for preliminary injunctive relief is DENIED and the adversary proceeding is DISMISSED. A separate and conforming Order will enter. THUS DONE AND SIGNED in Chambers, Alexandria, Louisiana, May 20, 2004.