Fun with bankruptcy cases

Unsecured claim for insurance premium is priority

Howard v. Zurich American Insurance Co. __ F.3d __ (4th Cir. 2006) Insurer's claim for unpaid premium is entitled to priority under § 507(a)(4) and therefore reverses the decision of the district court and remands the case for such further proceedings as may be appropriate. The issue in this case is whether an insurance company providing worker's compensation to a debtor who has filed bankruptcy is entitled to priority for any unpaid premiums. Howard Delivery Service, Inc. (Howard) owns a freight carrier business, with its principal place of business in West Virginia. West Virginia worker's compensation statutes required Howard either subscribe to the State's Workers' compensation fund or opt out and become a self-insurer. Howard entered into a workers' compensation agreement with Zurich American Insurance Co. (Zurich), promising to reimburse all losses under workers' compensation polices up to $250,000. Howard filed for Chapter 11 bankruptcy. Zurich filed proofs of claim for insurance premiums in an unliquidated amount. Howard asked the bankruptcy court to estimate the unliquidated claims. Zurich amended its claims to $410,215.00, changing its claim for priority treatment to contributions to an employee benefit plan under Sec. 507(a)(4) of the Bankruptcy Code. Howard filed a written objection, claiming Zurich had no priority because unpaid insurance premiums were not contributions to an employee benefit plan. The Bankruptcy Court found that Zurich was not entitled to priority. The United States District Court for the Northern District of West Virginia (District Court) affirmed. The United States Court of Appeals for the Fourth Circuit reversed, finding the plain language of the statute stated unpaid premiums constituted contributions to an employee benefits plan. A concurrence agreed with the majority's ruling but relied upon a provision in the Employee Retirement Income Security Act of 1974 (ERISA). On appeal to the United States Supreme Court Howard will argue premiums are not contributions to an employee benefit plan as defined by Sec. 507(a)(4) and should not receive priority. Additionally Howard argues that it also not appropriate to look to ERISA to define the term employee benefit plan because ERISA's definitions were specifically designed for ERISA, not the Bankruptcy Code.

===================================== Tax return filed after SFR and assessment constitutes a "return" for discharge purposes

Gary Wayne Colsen v. USA __ F.3d __ (8th Cir. 2006)

In the context of bankruptcy proceedings, the honesty and genuineness of a filer's attempt to satisfy tax laws when filing IRS tax returns should be determined from the face of the form itself, not from the filer's delinquency or the reasons for it. The United States asserts that a 1040 form filed after the IRS has gone to the trouble and expense of preparing substitute returns and assessing the relevant tax liability serves no purpose under the tax laws and thus cannot have been an "honest and genuine endeavor" to satisfy the tax laws as Beard requires. The government's essential position is that because Mr. Colsen's 1040 forms were filed after the IRS's assessment, they do not evince an honest, genuine attempt to satisfy the law and thus he has not satisfied the requirement that returns be filed in order for tax liabilities to be dischargeable. But we have no evidence to suggest that the forms appeared obviously inaccurate or fabricated; indeed, Mr. Colsen's 1040 forms contained data that allowed the IRS to calculate his tax obligation more accurately: The information contained in the forms was honest and genuine enough to result in thousands of dollars of abatements of tax and interest.