## Facts

- Howard Delivery Service, Inc., a multistate freight carrier, was required by state law to carry workers’ compensation insurance for employees.
- Howard purchased workers’ compensation coverage from Zurich American Insurance Co. for operations in multiple states.
- Howard filed for Chapter 11 bankruptcy protection.
- Zurich filed an unsecured claim for roughly $400,000 in unpaid workers’ compensation premiums and sought priority under 11 U.S.C. § 507(a)(5) as “contributions to an employee benefit plan” arising from services rendered.
- The bankruptcy court denied priority; the district court affirmed.
- A divided Fourth Circuit reversed and granted priority.
- The Supreme Court granted certiorari.

## Issues

1. Whether an insurer’s claim for unpaid premiums on legally required workers’ compensation coverage qualifies for priority as “contributions to an employee benefit plan” under 11 U.S.C. § 507(a)(5).

## Decision

- The Supreme Court reversed the Fourth Circuit and held Zurich’s claim was not entitled to § 507(a)(5) priority.
- The Court treated unpaid workers’ compensation premiums as akin to ordinary liability insurance costs rather than wage-related fringe-benefit contributions.
- Zurich’s claim remained a general unsecured, nonpriority claim in the Chapter 11 case.

## Legal Principles

- Statutory priorities in bankruptcy are exceptions to equal (ratable) distribution among unsecured creditors and therefore are construed narrowly.
- Section 507(a)(5) targets unpaid, wage-linked fringe-benefit contributions (e.g., pension and group health-related plans) that function as a substitute for, or complement to, wages.
- Mandatory workers’ compensation insurance primarily operates as a statutory risk-allocation system that also protects the employer (including by limiting tort exposure), making it materially different from bargained-for compensation-package benefits.
- Reading § 507(a)(5) to include workers’ compensation premiums would risk expanding priority to other employer insurance obligations not clearly intended to receive preference.

## Conclusion

The Court held that unpaid premiums for legally required workers’ compensation insurance are not “contributions to an employee benefit plan” within 11 U.S.C. § 507(a)(5), so the insurer’s claim does not receive priority and is paid as a general unsecured claim.


Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651 (2006)