February 08, 2006

The U.S. Supreme Court will determine whether priority should be given to claims for unpaid workers’ compensation payments in a closely-watched bankruptcy case to be argued by Jenner & Block Partner Donald B. Verrilli, Jr. on March 21.  Howard Delivery Service, Inc. v. Zurich American Insurance Co., No. 05-128.

The Court will review whether those unpaid premiums fall within bankruptcy rules that allow creditors to recover claims on a priority basis “for contributions to an employee benefit plan arising from services rendered” during the 180 days before bankruptcy.    

Mr. Verrilli will be arguing on behalf of Zurich American Insurance Co., which had provided West Virginia-based Howard Delivery Service with workers’ compensation insurance coverage for five years until the service cancelled its policy in 2002 and filed for bankruptcy, leaving thousands of dollars in premiums still outstanding. 

A bankruptcy court in 2003 denied Zurich’s claim that it should be entitled to priority status, and the district court upheld that decision.  But the U.S. Court of Appeals for the Fourth Circuit in 2005 reversed and issued a fractured opinion, raising issues about what constitutes an “employee benefit plan” and whether the “contribution” must be voluntarily made as a substitute for wages, among other things. 

Other appellate courts have considered the issue presented in the case, but no consensus has emerged among the various rulings.  In 1993, the Ninth Circuit issued an opinion similar to that of the Fourth Circuit, but the Sixth, Eighth and Tenth Circuits have held that claims for unpaid premiums are not included under the priority statute.

In addition to Mr. Verrilli, the Jenner & Block legal team on this matter includes Partners William M. Hohengarten, Elaine J. Goldenberg and Daniel R. Murray, and Associates Caroline Lewis Wolverton and Elizabeth G. Porter.