Debt for Helicopter Medical Transport was Dischargeable Even Though Debtor Spent Insurance Benefits on Himself

Debt for Helicopter Medical Transport was Dischargeable Even Though Debtor Spent Insurance Benefits on Himself

Plaintiff filed adversary proceeding against Debtor  seeking a ruling holding the Debtor’s obligation to it in the amount of $10,383.86 is nondischargeable under 11 U.S.C. § 523(a)(4) and (a)(6).

Prior to the Debtor’s bankruptcy, the Debtor was in need of emergency helicopter transport to a medical facility which required the preflight execution of an “assignment of insurance benefits.” Air transport was provided by Plaintiff, which billed $27,376. This was the amount submitted tthe Debtor’s health insurance carrier by Plaintiff. The carrier approved payment of $10,383.86 and, rather than honoring the assignment, sent a check to the Debtor. The Debtor deposited the check in his own account, never paid Plaintiff, and used the fund for other purposes besides paying Plaintiff. Thereafter, the Debtor filed Chapter 13 bankruptcy.

Plaintiff  argues the fact the Debtor executed an assignment of insurance benefits prior to the medical flight. Plaintiff claims the executed assignment prevented the Debtor from using the proceeds for any purpose other than paying Plaintiff.  The Plaintiff’s primary position is the Debtor, by treating the insurance check as his own property, ran afoul of § 523(a)(4) which renders nondischargeable debts “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” 11 U.S.C.A. § 523.

The Plaintiff places a great deal of reliance on the existence of a binding assignment which would effectively remove Debtor’s claim against his carrier from property of the estate. The assignment would mean the Debtor in this case would have no right to demand the insurance carrier pay him the $10,383.86 reimbursement check. Notwithstanding the legal assignment, however, the insurance carrier did, in fact, pay the Debtor this check which then obligated the Debtor to pay those proceeds over to the Plaintiff under a separate provision of the “Assignment of Benefits.” It also changes the character of this analysis. Since the legal assignment was not honored by the insurance carrier (assuming it knew about it), the legal assignment became ineffective, and the Plaintiff must now rely on a provision in the Assignment of Benefits requiring the Debtor to turn over the fund.

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