The court granted a secured creditor’s request for turnover of $40,000 in insurance proceeds for a stolen tractor owned by the debtor. The debtor had been ordered to deliver the tractor and other machinery and equipment to the secured creditor prior to the time it was stolen, but failed to do so. Members of the debtor paid for the insurance policy and listed themselves as named insureds. The secured creditor was not named a loss payee. The insurance check was made out to the debtor, members of the debtor, and the secured creditor.

The court determined the members did not have an insurable interest in the tractor under Nebraska law. “Using this tractor and paying the insurance premiums on it does not create or establish a legally enforceable interest in it.” The members also argued that the insurance proceeds were not property of the bankruptcy estate because the insurance policy was obtained long after the plan was confirmed. The court was not persuaded by this argument, stating that the right to the proceeds is determined by who was named as an insured under the policy and who held an insurable interest, and in this case the answer to both questions was the debtor.

While the secured creditor had a lien on the tractor, it was not named as a loss payee on the insurance policy, so it had no direct right to the proceeds. Instead, its rights were dependent on and subordinate to the debtor’s interest in the proceeds. Under the confirmed plan, the secured creditor was entitled to proceeds from the sale or liquidation of the debtor’s assets, but insurance proceeds were not addressed. The court ruled that the equities of the case favored the secured creditor: “In the confirmed plan, the parties contemplated sale or liquidation of assets including the MX 285 tractor. Although the confirmed plan did not specifically require Debtor to turnover insurance proceeds, the Court finds that Debtor’s repeated refusal to comply with the terms of the plan and Court orders to turn over the MX 285 tractor and other machinery and equipment warrants an equitable remedy in favor of Rabo.”