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Arkwright Mutual Insurance Co. v. Bargain City

decided: January 31, 1967.

ARKWRIGHT MUTUAL INSURANCE COMPANY, APPELLANT,
v.
BARGAIN CITY, U.S.A., INC.



Forman, Freedman and Seitz, Circuit Judges.

Author: Forman

Opinion OF THE COURT

FORMAN, Circuit Judge.

This is an appeal from an order of the United States District Court for the Eastern District of Pennsylvania denying the motion of the appellant, Arkwright Mutual Insurance Company, a Massachusetts corporation, for summary judgment and granting summary judgment in favor of the appellee, Bargain City, U.S.A., Inc., a Pennsylvania corporation. The appellant will hereinafter be called Arkwright, and the appellee, Bargain City. Jurisdiction is by reason of diversity of citizenship.

The following material facts are undisputed except where otherwise indicated. On October 4, 1960, Arkwright issued a policy of insurance securing inter alia Bargain City against loss of rental income from certain buildings and structures located in Horsham Township, Montgomery County, Pennsylvania, including that caused by physical damage due to the impact of aircraft. Less than a year later, on August 27, 1961, a United States Navy jet aircraft crashed into the Bargain City premises at Horsham causing a loss of actual rental income in excess of $100,000.

Bargain City made claim against Arkwright under the policy but the claim was held in abeyance while Bargain City sought recovery from the United States. This course was pursued by filing a claim with the Department of the Navy*fn1 rather than by instituting suit under the Federal Tort Claims Act.*fn2 An agreement was reached whereby Bargain City would accept $156,000 in settlement of its claim for rental damages and the Navy would recommend payment of this amount to the Bureau of the Budget.

In March 1962, about seven months after the crash, Bargain City requested and received an "advance" from Arkwright in the amount of $100,000, made in accordance with an agreement and loan receipt described in detail in the opinion of the District Court.*fn3 Essentially they provided that the fund appropriated by the United States for the settlement of Bargain City's claim would be the source of the repayment of the loan; that Bargain City would deliver instruments to enable Arkwright to obtain the fund from the disbursing authorities of the United States; that any amount in excess of the $100,000 would be returned to Bargain City; and that if the appropriation were less than $100,000, Bargain City would make up the difference. If the recovery amounted to less than $156,000, Bargain City reserved the right to claim up to that amount under the policy. Arkwright claims that it thereby acquired an equitable lien on the fund.

Following a meeting of the representatives of Bargain City and officials of the Navy Department, the Under Secretary of the Navy wrote to the Director of the Bureau of the Budget "reporting" a claim of $228,404.34, including $156,000 due to "loss of profits," i.e. loss of rental income.

On October 19, 1962, Bargain City filed a petition in the United States District Court for the Eastern District of Pennsylvania, proposing an arrangement under Chapter XI of the Bankruptcy Act,*fn4 whereupon two receivers were appointed.*fn5 Attached to the petition were sworn schedules of Bargain City's debts, creditors, and assets. On standard form Schedule A-3, entitled "Creditors Whose Claims Are Unsecured," appears the typewritten statement:

"All creditors' claims are on open account unless otherwise indicated."

Among those so scheduled is the following listing:

"* Arkwright Mutual Insurance Co., Boston, Mass.

100,000.00

* Advance re: Horsham airplane crash claim ...


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