Edward E. Gillen Co. v. The Insurance Co. of the State of Pennsylvania

Dist. Ct. did not err in awarding bond company $800,000 of $1.2 million in excess insurance proceeds under circumstances where: (1) debtor was subject to $1.8 million judgment based on its failure to perform on subcontract; (2) debtor’s primary insurance company paid prevailing party $1 million policy limits on said judgment; and (3) bond company, which had posted supersedeas bond on debtor’s unsuccessful appeal of said judgment, paid prevailing party remaining $800,000 on said judgment. While Bank, which held security interest in almost all of debtor’s assets, asserted that it was entitled to all of $1.2 million in excess insurance proceeds, Dist. Ct. could properly award $800,000 of said proceeds to bond company since: (1) bond company’s payment on debtor’s judgment meant that it was subrogated to rights held by prevailing party in subcontract lawsuit; and (2) prevailing party in subcontract lawsuit could have collected $800,000 from excess insurer without impairing Bank’s security interest. Moreover, under Wisc. law, victim of insured’s wrongdoing can collect directly from insurer, even where insured is insolvent.