DEBTOR CASE NO. 92-60474





VS. ADV. NO. 93-6043







This matter is before the Court on the Motion for Summary Judgment filed by defendant American Alliance Insurance Company ("American Alliance") on August 18, 1995. This matter was tried on May 4 and 6, 1994, and a Judgment was entered on December 20, 1994. The Court declined at that time to rule on the question of whether the plaintiff could recover from American Alliance on the basis of the claims of a co-insured, namely defendant Bill Abrams, because the plaintiff had not amended his Complaint to assert such interests. That question is now before the Court.

After judgment was entered herein the plaintiff filed a Motion to Alter or Amend on December 30, 1994. The plaintiff then filed a Motion for Leave to File a Third

Amended Complaint on January 18, 1995. American Alliance filed a Response to Plaintiff's Motion to Alter or Amend on January 27, 1995. Both of the plaintiff's Motions were heard on February 16, 1995. On March 3, 1995, the Court entered an Order for Leave to File Third Amended Complaint, and an Order overruling the Motion to Alter or Amend. The plaintiff had tendered, though not yet filed, his Third Amended Complaint, and American Alliance filed an Answer to it on March 17, 1995. Nothing further transpired until American Alliance filed its Motion for Summary Judgment.

The plaintiff filed his Response to Defendant's Motion for Summary Judgment on September 22, 1995. A hearing was conducted on the Motion and Response on September 26, 1995, and a briefing schedule was set out. The plaintiff filed his memorandum in support of his position on October 31, 1995, and American Alliance filed its Reply on November 13, 1995. On December 14, 1995, American Alliance filed a Motion to Supplement Record. An Order of Submission was entered on December 21, 1995. American Alliance's Motion to Supplement the Record with attached brief was sustained by Order entered on January 19, 1996, and American Alliance's Supplemental Memorandum Brief of Law was filed on that same date. The plaintiff filed his Third Amended Complaint on January 26, 1996.

After the trial of this matter in May 1994, the Court found that American Alliance had proven arson as a defense to liability on its insurance contract with the debtor, and that the plaintiff could therefore not recover insurance proceeds on behalf of the bankruptcy estate. The plaintiff, however, entered into an assignment with defendant Bill Abrams, the co-insured on the subject insurance policy. The plaintiff maintained that there was no evidence offered to implicate Bill Abrams in the arson, and that as an innocent insured he should be able to collect the proceeds. As set out above, the plaintiff had not amended his Complaint to assert his interest in place of Bill Abrams as against American Alliance, nor had he sought approval of the compromise of an asset of the estate, and the Court reserved on this issue.

American Alliance's Supplemental Memorandum Brief of Law has attached to it a copy of an Order of the Laurel Circuit Court in Civil Action No. 93-CI-309, "Bill Abrams and Sandy Abrams v. American Alliance Insurance Company and R.P. Wessel Company," in which Bill Abrams alleged that he was entitled to insurance proceeds as an innocent co-insured. The court sustained American Alliance's Motion for Summary Judgment against the plaintiffs therein and against James R. Westenhoefer, Trustee, who had been allowed to intervene as a third-party plaintiff on the basis of Bill Abrams' assignment to him of his interest in the subject insurance policy. The court found as a matter of law that whether or not Bill Abrams was innocent of wrongdoing was irrelevant "because the policy did not provide coverage for losses that resulted from any insured's intentional acts," and the contract specifically precluded his cause of action.

American Alliance argues that the Laurel Circuit Court decision constitutes a judicial ruling that the plaintiff herein, as the assignee of Bill Abrams, is not entitled to collect insurance proceeds from it. It argues that the identical cause of action that was argued before the Laurel Circuit Court is now before this Court, and that the plaintiff's action is barred by res judicata. It cites in support of its position George v. United Kentucky Bank, Inc., 753 F.2d 50 (6th Cir. 1985), in which the court held that

a Federal Court must give to a State Court judgment the same preclusivre effect as would be given that judgment under the law of the State in which judgment was rendered. 28 U.S.C. '1738. Migra v. Warren City School District Board of Education, ___U.S.___, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984); Kremer v. Chemical Construction Corp. 456 U.S. 461, 466 n. 6, 102 S.Ct. 1883, 1889 no. 6, 72 L.Ed.2d 262 (1982); Allen v. McCurry, 449 U.S. 90, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980).

In Kentucky the doctrine of res judicata is applicable when there is identity of parties, identity of causes of action and the first action is decided on its merits. Newman v. Newman, 451 S.W.2d 417, 419 (Ky. 1970); see also Stephens v. Goodenough, 560 S.W.2d 556, 558 (Ky. 1977); Hays v. Sturgill, 302 Ky. 31, 193 S.W.2d 648, 650 (1946).

At pp. 52-53. Bankruptcy courts apply the doctrine of res judicata unless dischargeability is at issue. Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979).

The record shows that the requisite elements for the application of the doctrine of res judicata are present here. There is identity of parties, identity of causes of action, and a decision on the merits in the Laurel Circuit Court. It is therefore the opinion of this Court that the plaintiff is barred by res judicata from relitigating a cause of action against American Alliance based on the assignment from Bill Abrams of his interest in the subject insurance policy. An order in conformity with this opinion will be entered separately.


By the Court -








Copies to:


Robert L. Brown III, Esq.

Robert J. Brown, Esq.

Richard W. Edwards, Esq.

James R. Westenhoefer, Esq., Trustee