In re AOV Industries, Inc.
| Decision Date | 19 April 1988 |
| Docket Number | Adv. No. 84-0076.,Bankruptcy No. 81-00617 |
| Citation | 85 BR 183 |
| Parties | In re AOV INDUSTRIES, INC., Alla-Ohio Valley Coals, Inc., Morehead City Coal Terminals, Inc., Camden Coal Terminal, Inc., A & T Associates, Inc., Fairmont Energy, Inc., Noralla Corporation, Birnen Coal Co., Inc., Diggem Coal Co., Inc., Debtors. William J. PERLSTEIN, as Disbursing Agent for the AOV Industries Fund, Plaintiff, v. ROCKWOOD INSURANCE COMPANY, Defendant. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
Max O. Truitt, Jr., Alan S. Tenenbaum, Wilmer, Cutler & Pickering, Washington, D.C., for plaintiff/Disbursing Agent.
Richard J. Stahl, Stahl & Buck, P.C., Annandale, Va., for Rockwood Ins. Co.
MARTIN V.B. BOSTETTER, Jr., Chief Judge, Sitting by Designation.
This matter comes before the Court on cross motions for summary judgment filed by the plaintiff Disbursing Agent for the AOV Industries Fund and the defendant Rockwood Insurance Company ("Rockwood"). The Disbursing Agent was appointed pursuant to the debtors' Amended Plan of Reorganization.
For several years before A & T Associates, Inc. ("A & T"), a debtor in this consolidated case, filed its petition for relief, defendant Rockwood was its insurance carrier for its workers' compensation coverage. Under the annually-issued policy (calendar year to calendar year), the stated annual premium was only an estimate. The policy did set a fixed premium rate, but the actual premium to be paid was based on the man-hours actually covered. Under the terms of the workers' compensation policy, A & T would submit a payroll report to Rockwood within fifteen days of the end of the month along with the premium due, which was based upon the man-hours A & T paid that month. By calculating the monthly premium retrospectively, A & T paid only for coverage actually provided and Rockwood earned premiums only for risk actually assumed. Because payment for the earned monthly premium was remitted only after the coverage was provided, Rockwood assumed the risk of non-payment. Rockwood shifted this risk, however, by requiring A & T to make a premium deposit equal to 25% of the estimated annual premium as security for the payment of earned premiums. If the payroll report and remittance were not provided within fifteen days, Rockwood had the option to cancel the policy. Rockwood did, in fact, cancel the policy on several occasions when the premium was late, but on these occasions the policy was reinstated because the premium though paid late was received before the effective date of the cancellation.
Thus, if A & T failed to make a monthly premium payment after coverage had been provided, Rockwood could always recoup the unpaid premium from the premium deposit, in that the premium deposit was well in excess of the average monthly coverage provided. Alternatively, if A & T cancelled the policy, the premium security deposit would be returned (after any adjustments for unpaid earned premiums). At the end of each calendar year, Rockwood audited the policy, crediting A & T for any premium overpayments (or paying over the excess if the policy was not renewed) and charging the deposit for any underpayments. After A & T filed its petition, on November 6, 1981, the policy was cancelled effective November 30, 1981. In February, the policy was audited for the eleven months of coverage. The audit determined that A & T had paid $1,896.76 in unearned premiums. This amount, along with the premium security deposit ($20,294.00), was returned to the debtor in March 1982.
In his complaint, the Disbursing Agent alleges that A & T made three separate transfers to Rockwood, each of which is preferential and may be avoided. Conversely, Rockwood denies the payments were preferential. Moreover, should this Court find any payment preferential, Rockwood claims the benefit of two exceptions to avoidance, the § 547(c)(2) "ordinary course of business" exception and the § 547(c)(4) "new value" exception.
The three payments at issue are for coverage Rockwood provided to A & T for the months of July, August and September 1981. Payment for July coverage was due on August 15. A & T instructed its parent corporation, AOV Industries, Inc. ("AOV"), to issue a check for $10,468.67 for the July coverage on or about August 17. Rockwood received the payment and credited it to A & T's account on September 2. The check was honored on either September 2nd or 3rd. Payment for August coverage was due on September 15. A & T instructed AOV to issue a check for $13,373.85 for August coverage on or about September 15, which Rockwood received and credited to A & T's account on September 18. The check subsequently was honored on September 21. Finally, payment for the September coverage was due on October 15. On or about October 19, A & T instructed AOV to issue a check for $9,890.74 for the coverage, which Rockwood received and credited to A & T's account on October 23. On October 26, this check was honored. This payment history may be summarized as follows:
month payment payment payment payment payment
covered due instructed credited honored amount
------------------------------------------------------------
July Aug 15 Aug 17 Sept 2 Sept 2/3 $10,468.47
Aug Sept 15 Sept 15 Sept 18 Sept 21 $13,373.85
Sept Oct 15 Oct 19 Oct 23 Oct 26 $ 9,890.74
At the outset, this Court must determine whether any of the payments Rockwood received are preferential transfers under the criteria set out at 11 U.S.C. § 547(b) of the Bankruptcy Code, which provides:
Rockwood concedes each payment was to its benefit and made while the debtor was insolvent within ninety days before the petition was filed. Thus, the requirements of subsections (b)(1), (3) and (4) are met. Rockwood denies, however, that the transfers fall within the limits of subsections (b)(2) and (b)(5).
Despite Rockwood's assertion that each payment was current consideration, not the antecedent debt required by section 547(b)(2), each transfer was clearly for antecedent debt. "Essentially a debt is `antecedent' if it is incurred before the transfer." Collier on Bankruptcy, 15th ed. (1987), ¶ 547.05. Even assuming that Rockwood correctly asserts that the debt was incurred on the last day of each month (see discussion infra), each debt was still incurred prior to the subsequent payment by two to four weeks. Thus each transfer meets the "antecedent debt" criterion of section 547(b)(2).
Under the standard of section 547(b)(5), the Disbursing Agent claims that Rockwood would have received nothing in a hypothetical liquidation and, therefore, each payment from A & T preferred Rockwood over A & T's other creditors. To the contrary, Rockwood contends it would have received full payment in a hypothetical liquidation because its claim would be entitled to priority as a contribution to an employee benefit plan under 11 U.S.C. § 507(a)(4)1, so the payments from A & T are not preferential.
The Disbursing Agent submits that Congress intended only "employee benefit plans" subject to compliance with the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (ERISA) to fall within the priority status granted by section 507(a)(4) of the Bankruptcy Code. Because section 1003(b)(3) of ERISA excludes from the statute's coverage any employee benefit plan "maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws", the Disbursing Agent argues that Rockwood's claim would fall outside of section 507(a)(4) in a hypothetical liquidation. This argument must fail. We consider the term "employee benefit plan" in 11 U.S.C. § 507(a)(4) to be consistent with the same term as defined, not as covered, by ERISA. See In re Saco Local Development Corp., 23 B.R. 644 (Bankr.D. Me.1982), aff'd 711 F.2d 441 (1st Cir.1983). That ERISA excludes from its coverage certain employee benefit plans should not disqualify such plans from priority treatment under 11 U.S.C. § 507(a)(4). This Court finds neither reason nor authority for concluding otherwise. Thus, the relevant inquiry is not whether the insurance coverage at issue is subject to ERISA, but whether it falls within that statute's definition of "employee benefit plan."
Section 1002(3) of ERISA states that an "employee benefit plan" means an "employee welfare benefit plan . . .", which term is defined in 29 U.S.C. § 1002(1) as follows:
(1) The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or...
To continue reading
Request your trial