                                 RECOMMENDED FOR FULL-TEXT PUBLICATION
                                      Pursuant to Sixth Circuit Rule 206
                                              File Name: 06a0397p.06

                        UNITED STATES COURT OF APPEALS
                                         FOR THE SIXTH CIRCUIT
                                           _________________


                                                        X
                                            Debtors. -
 In re: ERNEST R. BERGMAN; SHIRLEY E. BERGMAN,

 __________________________________________ -
                                                         -
                                                         -
                                                            No. 05-4312

                                                         ,
 BRUCE COMLY FRENCH, Trustee for the Debtor               >
 Estate of Ernest Bergman and Shirley E. Bergman,        -
                                                         -
                                 Plaintiff-Appellant, -
                                                         -
                                                         -
                                                         -
            v.
                                                         -
 STEVE FREY; ANTHEM BLUE CROSS AND BLUE                  -
                                                         -
                              Defendants-Appellees. -
 SHIELD; GERMAN MUTUAL INSURANCE COMPANY,

                                                         -
                                                        N
                         Appeal from the United States District Court
                              for the Northern District of Ohio.
                                 Nos. 05-07311; 05-07310—
                             James G. Carr, Chief District Judge.
                                       Submitted: September 12, 2006
                                   Decided and Filed: October 27, 2006
        Before: MERRITT and MOORE, Circuit Judges; COLLIER, Chief District Judge.*
                                              _________________
                                                    COUNSEL
ON BRIEF: Bruce Comly French, Lima, Ohio, Ryan Q. Ashworth, Ada, Ohio, for Appellant.
Louis F. Solimine, THOMPSON HINE, Cincinnati, Ohio, Curtis L. Tuggle, THOMSON HINE,
Cleveland, Ohio, for Appellees.




         *
           The Honorable Curtis Lynn Collier, Chief United States District Judge for the Eastern District of Tennessee,
sitting by designation.


                                                          1
No. 05-4312           In re Bergman, et al.                                                      Page 2


                                         _________________
                                             OPINION
                                         _________________
        MERRITT, Circuit Judge. On March 23, 2003, prior to filing bankruptcy, Ernest and Shirley
Bergman were involved in an automobile accident. The Bergmans’ medical insurer, Anthem Blue
Cross and Blue Shield provided coverage for approximately $3,000 in medical expenses incurred
by the couple arising from the accident. After the Bergmans filed a Chapter 7 bankruptcy petition,
the trustee initiated a personal injury lawsuit on behalf of the debtor estate against Steve Frey, the
other party to the automobile accident, seeking in excess of $100,000 in damages. The issue in the
present action is whether Anthem, via a subrogation clause in the Bergmans’ insurance policy,
acquired a pre-petition interest in the first $3,000 the Bergmans may obtain from Frey. The District
Court held that it did. The Trustee argues that Anthem did not acquire a pre-petition interest and
that the insurer should properly be classified as a general unsecured creditor. For the reasons
explained below, the decision of the District Court is affirmed.
        The Bergmans’ insurance policy includes a subrogation clause, which provides:
                We [Anthem] have the right to recover payments we make on your
                behalf from any party responsible for compensating you for your
                injuries. The following apply: We have first priority for the full
                amount of benefits we have paid from any recovery regardless of
                whether you are fully compensated, and regardless of whether the
                payments you receive make you whole for your losses and injuries.
        After the bankruptcy commenced, the Trustee filed a personal injury suit on behalf of the
debtor estate against Frey, seeking more than $100,000 in damages. The Trustee also initiated an
adversary complaint against Anthem, asking the bankruptcy court to declare the Bergmans’ insurer
a general unsecured creditor. The Bankruptcy Court consolidated both actions into a single
proceeding and the District Court withdrew the case from the Bankruptcy when Frey demanded a
jury trial. In the District Court, the Trustee moved for a judgment on the pleadings and Anthem
cross-moved for summary judgment. The District Court granted Anthem’s motion, holding that
under Ohio law the insurer had a pre-petition property interest in any recovery that the Bergmans
may receive arising out their accident with Frey.
        We review the District Court’s grant of summary judgment de novo. The issue presented
is whether an insurer’s contractual subrogation rights create a property right in the insurer, so that
this contractual right is not properly included in the bankruptcy estate. The Bankruptcy Code
defines the property of a debtor’s estate as “all legal or equitable interests of the debtor in property
at the outset of the case.” 11 U.S.C. § 541(a)(1). Unless a federal interest is at issue, property rights
are defined by state law. Butner v. United States, 440 U.S. 48, 55 (1979). Here, the court must look
to state law to determine whether, at the outset of the Bergmans’ bankruptcy case, the debtors
possessed a legal or equitable interest in any potential recovery from Steve Frey.
       The Ohio Supreme Court confronted this issue outside of the bankruptcy context in a dispute
between a medical insurer and its insured in Blue Cross and Blue Shield v. Hrenko, 647 N.E.2d 1358
(1995). In Hrenko, the insurer paid for medical expenses incurred by its insured as a result of an
automobile accident. The other party to the accident was not insured, so Hrenko pursued a claim
under the uninsured motorist provision in his automotive insurance policy. The medical insurance
company sued, arguing that the policy’s subrogation clause entitled it to reimbursement for the
No. 05-4312               In re Bergman, et al.                                                                Page 3


money it had expended on behalf of its insured.1 The Supreme Court agreed, rejecting Hrenko’s
arguments that his medical insurer’s subrogation rights existed exclusively against the tortfeasor or
tortfeasor’s insurer and that the insurer’s subrogation rights were contrary to public policy. Id. at
1360. The Court held that the plain meaning of the contract language allowed the insurer to recover
directly from compensation the insured received from any third party. Id. at 1359.
        The subrogation rights conferred by contract are not affected by the Bankruptcy Code or the
bankruptcy proceedings of the insured. In Perlman v. Reliance Insurance Co., 371 U.S. 132 (1962),
an insurance company provided surety bonds for a construction company that undertook a
government project. Id. at 133. The bonds were to be used to compensate laborers and material
suppliers at the project’s conclusion if the company failed to meet its obligations. Id. As the project
progressed, the government also retained a portion of the payments due to the construction company
under the contract. Id at 134. Before the project was completed, the construction company
terminated the contract and filed bankruptcy, leaving a second company to finish the work. Id. At
the project’s conclusion, the insurance company fulfilled its obligations by paying the full value of
the surety bonds to creditors of the first construction company. Id. At this point the government
turned over the money it had withheld under the contract to the Trustee for the bankrupt construction
firm. Id.
         The insurance company intervened in the bankruptcy claiming that the money belonged to
it and not the bankruptcy estate under the subrogation clause in the surety bonds. Id. at 136. The
Supreme Court enforced the subrogation clause, holding that “Property interests in a fund not owned
by a bankrupt at the time of adjudication, whether complete or partial, legal or equitable, mortgages,
liens, or simple priority of rights, are of course not part of the bankrupt’s property and do not vest
in the trustee.” Id. at 135-36. Since the insurance company had a contractual right to subrogation
before its insured filed bankruptcy, the Trustee could not properly acquire it for the benefit of the
general creditors.
         A more recent case, adjudicated under the Bankruptcy Code and Ohio law, reached the same
result. In re DuBose, 174 B.R. 260 (Bankr. N.D. Ohio 1994). In Dubose, the husband debtor was
involved in an automobile accident prior to the couple’s bankruptcy filing. Like Anthem in the
present case, Mr. Dubose’s medical insurer covered medical expenses he incurred as a result of the
accident. While their bankruptcy was pending, the debtors received a personal injury settlement
from the other party to the accident and reimbursed their medical insurer pursuant to the subrogation
clause in their policy. When the Trustee learned of the payment to the medical insurer, he moved
to set aside the post-petition transfer for the benefit of the couple’s unsecured creditors.
       The Bankruptcy Court denied the Trustee’s motion, finding that the monies owed to the
insurance company under a subrogation clause were never part of the bankruptcy estate. The court
reasoned that the subrogation clause rendered the payment to the medical insurer compensation for
a “separate and independent cause of action between [the debtors’ insurer] and the tortfeasor.” Id.
at 262. The court bluntly observed that “the Debtors did not have an interest in the transaction”
between the tortfeasor and their insurer. Id.
       Under Ohio law, Anthem acquired a pre-petition property right in any future recovery by the
Bergmans arising from the March 2003 accident as soon as it expended money for their medical
care. Hrenko makes clear that the property rights of an insurer are governed by the policy language.
The subrogation clause in the Bergman’s policy stated, “We [Anthem] have the right to recover

         1
           The subrogation clause in Hrenko’s policy stated, “To the extent we provide or pay for Covered Services, we
assume your legal rights to any recovery of expenses incurred. To the extent we provide or pay benefits for Covered
Services, you must repay us amounts recovered by suit, settlement or otherwise from any third party or his insurer.” 647
N.E.2d at 1359.
No. 05-4312          In re Bergman, et al.                                                   Page 4


payments we make on your behalf from any party responsible for compensating you for your
injuries.” This language is the functional equivalent of the clause the Ohio Supreme Court found
to create an enforceable property right in the Hrenko’s medical insurer. Since the property right
immediately vested in Anthem, it was not included in the Bergmans’ bankruptcy estate under § 541
of the Bankruptcy Code.
       This result comports with the Supreme Court’s reasoning and result in Perlman where the
language of the surety bond vested a property right in the bond’s issuer outside of bankruptcy that
put the money facially owed to the debtor beyond the reach of the Trustee. DuBose likewise
supports the finding that the insurer owns an interest in the money recovered by the insured up to
the amount of the insurer’s expenses. Since this interest accrues to the insurer alone, it can never
become part of the bankruptcy estate.
        The Trustee argues that the policy language gives Anthem a right of reimbursement but not
subrogation. This interpretation is not compatible with the plain meaning of the clause. The
statement that Anthem “may recover payments,” clearly indicates that it has the contractual right
to seek payments directly. There is nothing in the clause that suggests that Anthem must wait until
the Bergmans are compensated in order to enforce its rights under the policy. The Trustee is correct
that the presence of a reimbursement clause, instead of the subrogation language, may alter this
analysis. Such a reading of this clause, however, is not plausible.
       For the foregoing reasons, we affirm the judgment of the district court.
