## Facts

- Wheeling & Lake Erie Railway Company extended Montreal, Maine & Atlantic Railway, Ltd. (MMA) a $6 million line of credit secured by a security agreement covering “accounts,” “payment intangibles,” “rights to payment,” and related “proceeds,” including “insurance proceeds.”
- The agreement selected Maine law, subject to any UCC rule requiring application of the law of the debtor’s location.
- Wheeling filed a UCC-1 financing statement in Delaware describing collateral as “all accounts and other rights to payment (including payment intangibles) … and all proceeds thereof.”
- In July 2013, an MMA train derailed in Lac-Mégantic, Québec, causing substantial losses and liabilities.
- MMA made a claim under its commercial property insurance policy; the insurer disputed coverage.
- MMA filed for Chapter 11, and a trustee was appointed.
- The trustee negotiated a settlement under which the insurer paid $3.8 million in satisfaction of all claims under the policy.
- Wheeling asserted a perfected, first-priority security interest in the settlement payment as either (a) MMA’s “right to payment” under the policy or (b) “insurance proceeds.”
- The bankruptcy court held Article 9 did not apply to a security interest in an insured’s right to payment under its own policy and that Wheeling had not perfected under Maine common law; Wheeling appealed.

## Issues

1. Whether Maine’s UCC Article 9 governs the creation and perfection of a security interest in a debtor-insured’s right to payment arising under its own insurance policy.
2. If Article 9 does not apply, whether the lender perfected its claimed interest under Maine common law.
3. Whether the agreement’s collateral language (“accounts,” “payment intangibles,” “rights to payment,” and “insurance proceeds”) and the UCC-1 filing were sufficient to reach the insurance settlement payment.
4. Whether choice-of-law provisions (contractual or Article 9 conflict rules) changed the governing law or the perfection analysis.

## Decision

- The Bankruptcy Appellate Panel affirmed the bankruptcy court.
- The panel held that Article 9’s insurance exclusion removed a debtor-insured’s right to payment under its own insurance policy from Article 9’s scope.
- Because Article 9 did not apply, Wheeling’s UCC-1 filing could not perfect an interest in the insurance payment right.
- Under Maine common law, Wheeling failed to perfect an enforceable interest in MMA’s insurance policy rights or the settlement proceeds.
- The $3.8 million settlement payment was property of the estate free and clear of Wheeling’s asserted lien.

## Legal Principles

- UCC Article 9, as enacted in Maine, generally excludes from its scope security interests in an insured’s claim or right to payment arising directly under the insured’s own insurance policy.
- A creditor cannot perfect a security interest in excluded insurance payment rights through Article 9 methods (including a UCC-1 filing) when Article 9 does not apply.
- When Article 9 is inapplicable, perfection and priority for insurance-related payment rights are governed by applicable non-UCC law (here, Maine common law), which may require steps such as an effective assignment or comparable insurer-recognized arrangement.
- Broad collateral descriptions referencing “accounts,” “payment intangibles,” “rights to payment,” or “insurance proceeds” do not override the insurance exclusion to bring a debtor’s direct insurance payment rights within Article 9.
- Article 9 choice-of-law provisions do not control collateral categories that fall outside Article 9’s scope.

## Conclusion

The panel held that a lender’s Article 9 security interest and UCC filing did not perfect an interest in a debtor’s right to payment under its own commercial property insurance policy; because the lender did not perfect under Maine common law, the bankruptcy estate received the insurance settlement proceeds free and clear of the claimed lien.


Wheeling & Lake Erie Ry. Co. v. Keach (In re Montreal, Me. & Atl. Ry., Ltd.), 521 B.R. 703 (B.A.P. 1st Cir. 2014)