## Facts

- Anthony Courson, who had an ownership interest in Randall’s Auto Sales, Inc. (Randall’s), bought a boat and trailer from Randall’s and financed the purchase through First Security Bank (First Security).
- The loan documents required Courson to insure the boat and trailer for First Security’s benefit.
- First Security later sold Courson’s loan to Wells Fargo Bank, N.A. (Wells Fargo), which claimed to have succeeded to First Security’s rights in the transaction.
- Randall’s later sold the same boat and trailer to Jeff Buxton but did not transfer title to him.
- Buxton financed his purchase through Gesa Credit Union (Gesa) and granted Gesa a security interest in the boat and trailer.
- As required by Buxton’s loan, Buxton obtained an insurance policy from Safeco Insurance Company (Safeco) covering the boat and trailer and naming Gesa as the loss payee.
- At the time of Buxton’s purchase and insurance placement, neither Buxton nor Gesa knew the boat and trailer remained collateral for Courson’s earlier loan and that Courson had not paid that loan off.
- About a year later, the boat and trailer were destroyed in an accident.
- Safeco paid the insurance proceeds to Gesa under the policy’s loss-payee terms; Safeco learned of Wells Fargo’s asserted interest only after making payment.
- Courson later filed bankruptcy. Wells Fargo obtained a judgment against Courson for the balance of the original obligation, and that judgment was determined to be nondischargeable.
- Wells Fargo then pursued Gesa and Safeco in the bankruptcy court, seeking to recover the insurance proceeds (including by asserting a security interest in the proceeds and requesting an equitable lien), and also advancing theories such as conversion, replevin, and execution; Gesa moved to dismiss.

## Issues

1. Whether Wells Fargo had an enforceable security interest in the insurance proceeds Safeco paid to Gesa, including whether those proceeds qualified as “proceeds” of Wells Fargo’s collateral under the applicable UCC rules governing insurance payments.
2. Whether the court should impose an equitable lien in favor of Wells Fargo on the insurance proceeds already paid to Gesa under Buxton’s Safeco policy.
3. Whether Wells Fargo could state claims such as conversion, replevin, or execution against Gesa and Safeco based on the payment of insurance proceeds to Gesa.

## Decision

- The court rejected Wells Fargo’s attempt to claim the insurance proceeds paid by Safeco to Gesa.
- The court held Wells Fargo did not establish a security interest in the insurance proceeds under the UCC framework applied in the case, including because the Safeco payment was made under a separate insurance contract that named Gesa as loss payee rather than Wells Fargo or Courson.
- The court denied Wells Fargo’s request for an equitable lien on the insurance proceeds paid to Gesa.
- The court dismissed Wells Fargo’s related claims against Gesa and Safeco (including conversion, replevin, and execution) because Wells Fargo lacked a legally cognizable property interest in the paid proceeds.

## Legal Principles

- A secured creditor’s interest in collateral does not automatically extend to insurance money paid under an insurance contract purchased by another party when the secured creditor is not a named insured or loss payee and the payment is not made to the creditor or its debtor under the governing UCC definition of “proceeds.”
- Insurance payments are treated as “proceeds” of collateral only in the circumstances defined by the applicable UCC provisions; a payout directed to a third party under that third party’s policy can fall outside a prior creditor’s proceeds claim.
- An equitable lien is an exceptional remedy; courts generally decline to impose it where the disputed fund was paid under a valid contract to a party the contract designates, and where the claimant can pursue a legal remedy against the party who caused the loss (here, the debtor).
- Claims such as conversion and replevin require a right to possess or control the specific property at issue; without a recognized interest in the insurance proceeds, those claims fail against the recipient and the insurer that paid according to the policy terms.

## Conclusion

In *In re Courson*, the bankruptcy court refused to reroute insurance proceeds that Safeco had already paid to Gesa under Buxton’s policy naming Gesa as loss payee, concluding that Wells Fargo did not prove a security-interest basis under the UCC to treat that payout as its proceeds and that equity would not impose a lien on funds paid pursuant to a separate contract, leaving Wells Fargo to pursue its nondischargeable judgment against Courson.


In re Courson, 409 B.R. 516 (2009)