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The Bankruptcy Hotline
Workers' Comp Premiums
The U.S. Supreme Court has ruled that the unpaid workers' compensation insurance premiums that a bankrupt employer owes to its carrier do not qualify for administrative priority status under ' 507(a)(5) of the Bankruptcy Code. Howard Delivery Service Inc. v. Zurich American Insurance Co., No. 05-128 (June 15).
In a 6-3 opinion, the Court reversed the Fourth Circuit and resolved a circuit split on the issue. The Court concluded that it was '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.” The court reasoned that '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.' Therefore, '[u]nless 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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