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BANKRUPTCY



BANKRUPTCY
Howard Delivery Service, Inc. et al. v. Zurich American Insurance Co.
Docket No. 05-128
Reversed: The Fourth Circuit

Argued: March 21, 2006
Decided: June 15, 2006
For Case Analysis: See ABA Preview 314

Is an unsecured claim for unpaid premiums owing for a debtor's statutory workers' compensation liability insurance policy entitled to priority under § 507(a)(4) of the Bankruptcy Code as a "contribution to an employee benefit plan arising from services rendered"?

No. Insurance carriers' claims for unpaid workers' compensation premiums owed by an employer fall outside the priority allowed by § 507(a)(5).

From the opinion by Justice Ginsburg (joined by Chief Justice Roberts and Justices Stevens, Scalia, Thomas, and Breyer):

This case turns … on the essential character of workers' compensation regimes. Unlike pension provisions or group life, health, and disability insurance plans-negotiated or granted as pay supplements or substitutes-workers' compensation prescriptions have a dominant employer-oriented thrust: They modify, or substitute for, the common-law tort liability to which employers were exposed for work-related accidents. … Workers' compensation regimes thus provide something for employees-they assure limited fixed payments for on-the-job injuries-and something for employers-they remove the risk of large judgments and heavy costs generated by tort litigation. … [W]e 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." … [W]orkers' 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.

Dissenting: Justice Kennedy (joined by Justices Souter and Alito)

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