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Workers compensation is not an employee benefit plan
June 15, 2006 by Ross Runkel at LawMemo
When Howard Delivery Service went bankrupt, it owed Zurich American Insurance $400,000 on account of unpaid workers compensation insurance premiums.
Zurich filed a creditor's claim, asserting that the premiums were entitled to priority on the ground that they were unpaid "contributions to an employee benefit plan" under 11 USC Section 507(a)(4).
The US Supreme Court held (6-3) that workers compensation premiums fall outside the priority allowed by Section 507(a)(4). Howard Delivery Service v. Zurich American Ins (US Supreme Court 06/15/2006)
| Employment Law Memo notified its readers about this case on 06/15/2006, shortly after it was decided. |
The Supreme Court said such premiums are more appropriately bracketed with liability insurance premiums (e.g., motor vehicle, fire and theft) than with contributions made for fringe benefits that complete a pay package (e.g., pension plans, group health, life, disability).
Interesting logic: The primary reason is that workers compensation regimes provide something for employees (payments for injuries) and also something for employers (avoiding tort litigation and large judgments).
The dissent's logic: workers compensation insurance qualifies as an "employee benefit plan" because it clearly provides benefits to employees.
Interesting combination of Justices:
Majority: Ginsburg, Roberts, Stevens, Scalia, Thomas, Breyer.
Dissent: Kennedy, Souter, Alito.
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