Supreme Court Denies Priority Status for Unpaid Workers' Compensation Premiums

In a recent decision, the U.S. Supreme Court clarified an issue important to workers' compensation insurers and held that pre-petition unpaid workers' compensation premiums are not entitled to priority status under the Bankruptcy Code. <i>Howard Delivery Service, Inc., et. al. v. Zurich American Insurance Co.</i>, 126 S. Ct. 2105 (2006). This decision forecloses any disagreement among the Circuit Courts that unpaid workers' compensation premiums are entitled to priority status in a bankruptcy proceeding. In light of <i>Howard</i>, such claims are now considered merely general unsecured claims. Had the Supreme Court afforded priority status to such claims, they would have been paid prior to the claims of general unsecured creditors. Generally, priority expense claims receive a significant, if not 100% distribution, as opposed to general unsecured claims, which, in many circumstances, receive only pennies on the dollar. In a decision delivered by Justice Ruth Bader Ginsberg, joined by five other justices (Chief Justice John Roberts, Jr. and Justices John Paul Stevens, Antonin Scalia, Clarence Thomas, and Stephen Breyer), the Supreme Court's ruling not only brings consistency to this issue, but also provides opportunities for workers' compensation insurers to avoid forfeiture of payment of their premiums by financially troubled insureds.

39 minute read August 31, 2006 at 11:30 AM

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Daniel S. Bleck and Scott H. Moskol