6.20.2006

SCOTUS Resolves Split Re Priority Status of Premiums Owed by a Bankrupt Employer to a Workers' Compensation Carrier

Last week in Howard Delivery Service, Inc. v. Zurich American Ins. Co., --- S.Ct. ----, 2006 WL 1639224 (June 15, 2006) the Supreme Court resolved a circuit split concerning the priority status of premiums owed by a bankrupt employer to a workers' compensation carrier. Here's an excerpt:

In sum, we find it far from clear that an employer's liability to provide workers' compensation coverage fits the § 507(a)(5) category “contributions to an employee benefit plan ··· arising from services rendered.” Weighing against such categorization, workers' compensation does not compensate employees for work performed, but instead, for on-the-job injuries incurred; workers' compensation regimes substitute not for wage payments, but for tort liability. Any doubt concerning the appropriate characterization, we conclude, is best resolved in accord with the Bankruptcy Code's equal distribution aim. We therefore reject the expanded interpretation Zurich invites. Unless and until Congress otherwise directs, we hold that carriers' claims for unpaid workers' compensation premiums remain outside the priority allowed by § 507(a)(5).

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