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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 92-4645

IN THE MATTER OF: LEWIS ANSON DAVID EDGEWORTH, M.D.,
Debtor,
DONNA ELAINE HOUSTON, ET AL.,
Appellants,
v.
LEWIS ANSON DAVID EDGEWORTH, M.D.,
Appellee.

Appeal from the United States District Court
for the Eastern District of Texas

May 27, 1993
May 27, 1993
Before JOHNSON, GARWOOD, and JONES, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Christine Genson, the appellant's mother, died on June 7,
1989, while under the care of appellee Dr. Lewis Edgeworth. A
month later, Edgeworth filed for protection under chapter 7 of the
Bankruptcy Code. Appellants did not participate in the bankruptcy
case1 but, after Edgeworth received a discharge, they sought and
obtained bankruptcy court approval to file a medical malpractice
1
There is some dispute about whether the appellants were
properly listed on the schedule of creditors. Houston filed no
proof of claim in the bankruptcy proceeding.

claim in state court.2 Shortly afterward, Edgeworth persuaded the
bankruptcy court to reverse itself -- to enforce his discharge by
enjoining the lawsuit pursuant to 11 U.S.C. § 524(a). The district
court affirmed. The question before us is whether the appellants
may pursue their lawsuit against Dr. Edgeworth in order to collect
any judgment solely from the proceeds of his malpractice liability
policy. We hold that they may do so, because 11 U.S.C. § 524(e)
excludes the liability insurance carrier from the protection of
bankruptcy discharge, and the proceeds of the policy were not
property of Edgeworth's estate.
STANDARD OF REVIEW
As this case turns on the construction of sections 524
and 541 of the Bankruptcy Code, it presents questions of law that
are reviewed de novo.3
DISCUSSION
A.
A Discharge Under § 524 Does Not Preclude a Suit to
Recover from an Insurer
The bankruptcy court and district court enjoined
appellants from proceeding with their state court lawsuit against
Dr. Edgeworth because they apparently believed that the malpractice
2
In April 1991, Houston filed a motion to lift the stay
pursuant to 11 U.S.C. § 362. Edgeworth did not respond, and the
bankruptcy court granted the motion on May 22, 1991.
Technically, this motion was improper because the discharge had
extinguished the stay and replaced it with a permanent injunction
under section 524(a).
3
In re Besing, 981 F.2d 1488, 1491 (5th Cir. 1993); In
re Bradley, 960 F.2d 502, 507 (5th Cir. 1992), cert. denied, ____
U.S. ____, ____ S. Ct. ____, 61 U.S.L.W. 3403 (Mar. 8, 1993); In
re Fussell, 928 F.2d 712, 715 (5th Cir. 1991), cert. denied, ____
U.S. ____, 112 S. Ct. 1203, 117 L.Ed.2d 443 (1992).
2

claim was discharged under section 727 and 524. In general,
section 524 protects a debtor from any subsequent action by a
creditor whose claim has been discharged in a bankruptcy case. To
ensure that a discharge will be completely effective, it operates
as an injunction against enforcement of a judgment or the
commencement or continuation of an action in other courts to
collect or recover a debt as a personal liability of the debtor.
3 Collier on Bankruptcy ¶ 524.01, at 524-4 (15th ed.). A discharge
in bankruptcy does not extinguish the debt itself, but merely
releases the debtor from personal liability for the debt. Section
524(e) specifies that the debt still exists and can be collected
from any other entity that might be liable.4
In the liability insurance context, of course, a tort
plaintiff must first establish the liability of the debtor before
the insurer becomes contractually obligated to make any payment.5
The question, then, is whether section 524(a) acts to bar such
liability-fixing suits even if a plaintiff has agreed to foreswear
4
See Underhill v. Royal, 769 F.2d 1426, 1431-32 (9th
Cir. 1985) (stating that the bankruptcy court has no power to
discharge the liabilities of a nondebtor); Union Carbide Corp. v.
Newboles, 686 F.2d 593, 595 (7th Cir. 1982) (reaching the same
result under section 16 of the Bankruptcy Act); see also, 3
Collier on Bankruptcy ¶ 524.01[3], at 524- 16 to -17. But see In
re A.H. Robbins Co., 880 F.2d 694, 700-02 (4th Cir.) (rejecting a
literal application of section 524(e) and upholding the
bankruptcy court's injunction preventing tort claimants from
seeking recovery from nondebtor entities that had participated in
an aggregated settlement), cert. denied, 493 U.S. 959, 110 S. Ct.
376, 107 L.Ed.2d 362 (1989).
5
Texas, the state in which this case arose, does not
allow direct actions against the insurer.
3

recovery from the debtor personally and only to look to the policy
proceeds.
Most courts have held that the scope of a section 524(a)
injunction does not affect the liability of liability insurers and
does not prevent establishing their liability by proceeding against
a discharged debtor.6 This interpretation is grounded in both
textual and equitable foundations. Section 524(a)(2) enjoins only
suits "to collect, recover or offset" a debt as the "personal
liability of the debtor", a phrase that has been interpreted to
exclude merely nominal liability. In re Fernstrom Storage and Van
Co., supra note 6.
The foundation of this reading of § 524(a)(2) is that it
makes no sense to allow an insurer to escape coverage for injuries
caused by its insured merely because the insured receives a
bankruptcy discharge. "The 'fresh-start' policy is not intended to
provide a method by which an insurer can escape its obligations
based simply on the financial misfortunes of the insured." Jet
6
See, e.g., First Fidelity Bank v. McAteer, ____ F.2d
____, 1993 WL 23782 (3d Cir. Feb. 3, 1993); Green v. Welsh, 956
F.2d 30, 35 (2d Cir. 1992); In re Fernstrom Storage & Van Co.,
938 F.2d 731, 733-34 (7th Cir. 1991); In re Jet Florida Systems,
Inc., 883 F.2d 970, 976 (11th Cir. 1989) (per curiam) (adopting
the district court opinion); In re Beeney, 142 B.R. 360, 362
(Bankr. 9th Cir. 1992); In re Greenway, 126 B.R. 253, 255 (Bankr.
E.D. Tex. 1991); In re Peterson, 118 B.R. 801, 804 (Bankr. D.N.M.
1990); In re Traylor, 94 B.R. 292, 293 (Bankr. E.D.N.Y. 1989); In
re Lembke, 93 B.R. 701, 702-03 (Bankr. D. N.D. 1988); In re
White, 73 B.R. 983 (Bankr. D.D.C. 1987); In re Mann, 58 B.R. 953,
956 (Bankr. W.D. Va. 1986). But see In re White Motor Credit,
761 F.2d 270 (6th Cir. 1985) (barring continuation of personal
injury claims that would have been paid by the debtor's
insurers). The holding of White Motor Credit was explicitly
rejected by the courts in Green and Jet Florida.
4

Florida, 883 F.2d at 975; see Green, 956 F.2d at 33. "Such a
result would be fundamentally wrong." Lembke, 93 B.R. at 703.7
Finally, allowing commencement or continuation of such
actions does not inequitably burden the debtor. Burden there is,
in the sense that attending depositions and trial may take up
Edgeworth's time. But this is not a burden alleviated by § 524
when the purpose of the suit is to establish Edgeworth's nominal
liability in order to collect from his insurance policy.8
Edgeworth has not asserted that he will be required to pay the
costs of his defense against appellants' suit or that the insurance
company denied coverage or is defending under a reservation of
rights. Such threats to Edgeworth's pocketbook might require a
different result under § 524.9 Thus, as long as the costs of
defense are borne by the insurer and there is no execution on
7
See Green, 956 F.2d at 35; Jet Florida, 883 F.2d at
976; Mann, 58 B.R. at 958; Rowe v. Ford Motor Co., 34 B.R. 680
(N.D. Ala. 1983); Elliott, 25 B.R. at 310; McGraw, 18 B.R. at
143.
8
Edgeworth argues that such transactions actually harm
debtors, causing their post-bankruptcy insurance premiums to be
higher. This is not true. Edgeworth confounds cause and
correlation. Higher insurance premiums result not from a
plaintiff's recovery from the insurance company, but from the
debtor's actions that make the debtor a greater risk to insurer.
While insurance companies often use policy claims as a surrogate
measure of risk, allowance of the claim does not cause the higher
premiums.
9
But see In re Walker, 927 F.2d 1138, 1144 (10th Cir.
1991) (allowing a post-discharge suit to continue even though the
debtor would incur legal expenses).
5

judgment against the debtor personally, section 524(a) will not bar
a suit against the discharged debtor as the nominal defendant.10
Edgeworth makes much of the fact that the appellants
never filed a claim in the bankruptcy proceeding, and it is true
that their failure to do so waived their ability to recover from
Edgeworth personally. But, at least in a case like this where no
question has been raised about the sufficiency of the liability
insurance coverage, a plaintiff's failure to file in the bankruptcy
proceeding should not impair the right to file suit against another
party who may be liable on the debt. See Green, 956 F.2d at 35;
Jet Florida, 883 F.2d at 974-75, and cases cited therein; In re
White, 73 B.R. at 984; Mann, 58 B.R. at 958.
B.
The Insurance Proceeds Were Not Property of the
Estate
As part of his argument that Houston's claim is barred,
Edgeworth also asserts that the insurance proceeds sought by
Houston were part of the bankruptcy estate and may not now be
recovered. Edgeworth does not argue that these "insurance
proceeds" literally came into the estate and were distributed as
part of his Chapter 7 liquidation. In fact, Edgeworth never
explicitly tendered the insurance policy or any insurance proceeds
10
Even if the insurance company denies coverage, the
debtor will not be impermissibly burdened. If the insurance
company is unwilling to defend its insured, the debtor may simply
default, knowing that the judgment will be unenforceable except
against the insurance company. See Jet Florida, 883 F.2d at 976.
The judgment creditor may then litigate with the insurance
company.
6

into the bankruptcy estate.11 Instead, Edgeworth argues that the
insurance proceeds were part of the estate as a matter of law and
that his discharge acted to bar forever any prepetition claims
against the insurance policy.
"Property of the estate," defined in 11 U.S.C. § 541(a),
includes all legal or equitable interests of the debtor in property
as of the commencement of the case. This definition is intended to
be broadly construed,12 and courts are generally in agreement that
an insurance policy will be considered property of the estate.13
Insurance policies are property of the estate because, regardless
of who the insured is, the debtor retains certain contract rights
under the policy itself.14 Any rights the debtor has against the
insurer, whether contractual or otherwise, become property of the
estate.15
11
In his schedule of personal property, Edgeworth
specifically denied any interest in any insurance policies.
12
United States v. Whiting Pools, Inc., 462 U.S. 198,
205, 103 S. Ct. 2309, 2314, 76 L.Ed.2d 515 (1983).
13
See First Fidelity Bank v. McAteer, ___ F.2d ___, 1993
W.L. 23782 (3d Cir. Feb. 3, 1993); McArthur Co. v. Johns-Manville
Corp., 837 F.2d 89 (2d Cir.), cert. denied, 488 U.S. 868, 109 S.
Ct. 176, 102 L.Ed.2d 145 (1988); In re Louisiana World
Exposition, Inc., 832 F.2d 1391, 1399 (5th Cir. 1987); Tringali
v. Hathaway Machine Co., 796 F.2d 553 (1st Cir. 1986); A.H.
Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1985), cert.
denied, 479 U.S. 876, 107 S. Ct. 251, 93 L.Ed.2d 177 (1986); In
re Davis, 730 F.2d 176 (5th Cir. 1984); Wedgeworth v. Fibreboard
Corp., 706 F.2d 541 (5th Cir. 1983).
14
See, e.g., McAteer, ____ F.2d at ____; In re Titan
Energy, Inc., 837 F.2d 325 (8th Cir. 1988); In re Mego Int'l,
Inc., 28 B.R. 324 (Bankr. S.D.N.Y. 1983).
15
See Palmer v. Travelers Ins. Co., 319 F.2d 296 (5th
Cir. 1963) (claim against the insurer for failure to settle was
7

Acknowledging that the debtor owns the policy, however,
does not end the inquiry. "The question is not who owns the
policies, but who owns the liability proceeds."16 In In re
Louisiana World Exposition, Inc., for example, even though the
policy was property of the estate, the proceeds of the liability
policy were payable to the directors and officers of the
corporation and were not part of the debtor's estate.17 Likening
the circumstances before it to cases in which a purchaser of an
insurance policy assigned its proceeds to other entities,18 the
court noted that ownership of a policy "does not inexorably lead to
ownership of the proceeds."19
The overriding question when determining whether
insurance proceeds are property of the estate is whether the debtor
would have a right to receive and keep those proceeds when the
insurer paid on a claim. When a payment by the insurer cannot
inure to the debtor's pecuniary benefit, then that payment should
part of the estate); In re Soliz, 77 B.R. 93 (Bankr. N.D. Tex.
1987) (claims against the insurer for bad faith and failure to
defend were part of the estate).
16
Louisiana World Exposition, 832 F.2d at 1399.
17
Id. at 1400.
18
In re Ivory, 32 B.R. 788, 793-94 (Bankr. D. Or. 1983);
In re Family & Industrial Medical Facilities, Inc., 25 B.R. 443,
450-51 (Bankr. E.D. Pa. 1983); In re Dias, 24 B.R. 542, 545
(Bankr. D. Id. 1982); In re Moskowitz, 14 B.R. 677, 680-81
(Bankr. S.D.N.Y. 1981).
19
Louisiana World Exposition, 832 F.2d at 1401; see
McAteer, ____ F.2d at ____.
8

neither enhance nor decrease the bankruptcy estate.20 In other
words, when the debtor has no legally cognizable claim to the
insurance proceeds, those proceeds are not property of the estate.21
Examples of insurance policies whose proceeds are
property of the estate include casualty, collision, life, and fire
insurance22 policies in which the debtor is a beneficiary. Proceeds
of such insurance policies, if made payable to the debtor rather
than a third party such as a creditor, are property of the estate
and may inure to all bankruptcy creditors. But under the typical
liability policy, the debtor will not have a cognizable interest in
the proceeds of the policy. Those proceeds will normally be
20
See McAteer, ____ F.2d at ____ (stating that "if the
owner of a life insurance policy did not have an interest in its
proceeds, the filing of the petition in bankruptcy cannot create
one"); In re Gagnon, 26 B.R. 926, 928 (Bankr. N.D. Pa. 1983)
(stating that "the estate's legal and equitable interests in
property rise no higher than those of the debtor").
21
Once a court has determined that an insurance policy is
property of the estate, 11 U.S.C. § 362 should stay any injured
party from suing or recovering from the debtor's insurer. The
stay will adequately protect both the bankruptcy estate and the
claimants' interests in the proceeds of the policy. In the mass
tort context, the decisions by several courts to include the
proceeds as property of the estate appear to be motivated by a
concern that the court would not otherwise be able to prevent a
free-for-all against the insurer outside the bankruptcy
proceeding. See cases cited supra note 14. There was also a
threat that unless the policy proceeds, were marshalled in the
bankruptcy proceeding, they would not cover plaintiffs' claims
and would expose the debtor's estate. These concerns are
answered once the court finds that the policy itself is property
of the estate, the section 362 stay should adequately protect the
interests of all parties involved.
22
See, e.g., McAteer, ___ F.2d at ___ (life insurance);
Holland America Ins. Co. v. Succession of Roy, 777 F.2d 992, 996
(5th Cir. 1985) (fire insurance); Bradt v. Woodlawn Auto Workers,
757 F.2d 512, 515 (2d Cir. 1985) (insurance payment for auto
repairs).
9

payable only for the benefit of those harmed by the debtor under
the terms of the insurance contract.
Although Dr. Edgeworth's liability policy was part of the
Chapter 7 estate, the proceeds of that policy were not. Dr.
Edgeworth has asserted no claim at all to the proceeds of his
medical malpractice liability policy, and they could not be made
available for distribution to the creditors other than victims of
medical malpractice and their relatives. Moreover, no secondary
impact has been alleged upon Edgeworth's estate, which might have
occurred if, for instance, the policy limit was insufficient to
cover appellants' claims or competing claims to proceeds.
Consequently, in this case the insurance proceeds were not part of
the estate as a matter of law, and section 524 does not bar
appellants from pursuing their state court suit against Dr.
Edgeworth so they can recover against policy proceeds.
CONCLUSION
For the foregoing reasons, the decisions of the
bankruptcy and district courts are REVERSED.
10