The U.S. District Court for the Western District of Pennsylvania has ruled that the named insured was entitled to all of the proceeds from an insurance policy payable after the destruction of the structure it was operating and that the owner of the property — a company in bankruptcy — and the local taxing authorities were not entitled to any of the funds.

The case

The Trustees of Conneaut Lake Park Inc. (debtor) owned 55.33 acres of land in Crawford County, Pa., containing a number of amusement attractions and buildings. Under a written management agreement between the debtor and Park Restoration LLC, Park Restoration operated an attraction located on the debtor's land commonly referred to as the “Beach Club.” The Beach Club was a historical 77-year old structure located on less than one acre of the debtor's 55.33-acre property. Although the debtor's full parcel of land had an assessed tax value of $152,195, the Beach Club itself had an assessed value of only $13,992 (9% of the assessed value for the entire property). Park Restoration did not have access to the remaining approximately 54.33 acres of the debtor's land.

The management agreement gave Park Restoration the right to operate the Beach Club for a period of 20 years beginning on Nov. 24, 2008, in return for a portion of the profits generated by the Beach Club. In addition to managing the Beach Club, Park Restoration was required to repair, improve and secure the building at its own expense. The management agreement did not give Park Restoration any type of ownership in the Beach Club; to the contrary, the debtor remained the sole owner of the Beach Club and the land on which it was located.

Destroyed by fire

In connection with its operation of the Beach Club, Park Restoration purchased, and paid insurance premiums for, a casualty insurance policy on the Beach Club structure from Erie Insurance Exchange. The policy insured the structure for $611,000.

On Aug. 1, 2013, the Beach Club was destroyed by fire, rendering it unusable for its intended purpose, and Park Restoration submitted a claim for the insurance proceeds to Erie. Erie did not dispute the insurance claim; however, it informed Park Restoration that pursuant to Pennsylvania law (40 Pa. Cons. Stat. § 638), before Erie could pay on the claim, Park Restoration first had to obtain a certificate from the treasurer for the municipality where the Beach Club was located that indicated whether there were any delinquent taxes assessed against the Beach Club. Erie said that it had to deduct the amount of any delinquent taxes from the insurance proceeds and transfer the funds to Summit Township, Crawford County, the Tax Claim Bureau of Crawford County, and Conneaut School District (the taxing authorities) to be credited against the delinquent taxes.