Workers Compensation as Preferences Under BAPCPA

June 16, 2006

Recent Supreme Court majority in the case of Howard Delivery Serv., Inc. v. Zurich American Ins. Co. is strange at best with Justices Scalia and Thomas joining among others, Justice Ginsburng, who had this to say in the 6-3 decision regarding preference payments

In holding that claims for workers' compensation insurance premiums do not qualify for § 507(a)(5) priority, we are mindful that the Bankruptcy Code aims, in the main, to secure equal distribution among creditors. We take into account, as well, the complementary principle that preferential treatment of a class of creditors is in order only when clearly authorized by Congress….[W]e are guided in reaching our decision by the equal distribution objective underlying the Bankruptcy Code, and the corollary principle that provisions allowing preferences must be tightly construed…. Any doubt concerning the appropriate characterization [of a bankruptcy statutory provision] is best resolved in accord with the Bankruptcy Code's equal distribution aim. We therefore reject the expanded [i.e., "plain meaning"] interpretation Zurich invites. (Citations omitted.


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