In re McK, Ltd., Bankruptcy No. 81 B 00427 Mc.

• Decision Date: 09 October 1981
• Docket Number: Bankruptcy No. 81 B 00427 Mc.
• Citation: 14 BR 518
• Parties: In re McK, LTD., a Colorado limited partnership, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

14 B.R. 518 (1981)

In re McK, LTD., a Colorado limited partnership, Debtor.

Bankruptcy No. 81 B 00427 Mc.

United States Bankruptcy Court, D. Colorado.

October 9, 1981.

Maria J. Flora, Denver, Colo., for creditor.

Andrew C. Snyder, Denver, Colo., for debtor.

ORDER DENYING REQUEST FOR ADMINISTRATIVE EXPENSES

JOHN F. McGRATH, Bankruptcy Judge.

The Creditor, Metro National Bank (Metro), sought leave of the Court to obtain hazard insurance on the real property, improvements, office contents, and equipment which are assets of the above-captioned Chapter 11 estate. The payment for which the Creditor sought leave amounted to a total of $5,066.00: $2,138.00 for past due premiums and $2,928.00 for coverage from August 25, 1981, to August 25, 1982.

The attorney for Metro argued that if a casualty loss to the estate should occur, not only Metro, but all creditors of the estate would be injured because there would be no assets from which to satisfy any of the claims. The said attorney also argued that the payment of the past due premiums is an actual and necessary cost of preserving the estate under 11 U.S.C. § 503(b)(1)(A) because the present insurer has refused to write another policy unless the arrearage on the present policy is cleared.

The attorney for the Debtor, on the other hand, argued that insurance was not a cost of preservation of the estate and therefore should not be granted as a cost of administration. He also argued that Metro was acting in its own interests, rather than in the interests of the estate, by seeking to preserve 100% payment for itself when no other creditor could be given this same guarantee.

The question presented for the resolution of the Court is whether or not the cost of insuring the major asset of the Debtor's estate is a cost of administration or merely a part of the creditor's secured claim. This question is further broken down into the following sub-issues: (1) Is the pre-petition cost of insurance a cost of administration? (2) Is the post-petition cost of insurance a cost of administration?

The statutes to be construed are 11 U.S.C. § 503(b)(1)(A) and § 64(a)(1) of the Bankruptcy Act. Section 503, in general, deals with the allowance of administrative expenses and section 503(b)(1)(A), in particular, allows expenses including the ". . . actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case. . . ." Section 64(a) of the Act is the section from which 503(b)(1)(A) was mainly derived.

As regards the pre-petition insurance, the statutory language is clear. Section 503(b)(1)(A) allows costs and expenses for preserving the estate "rendered after the commencement of the case." (Emphasis added.) Thus, the Code has explicitly dealt with the question of expenses and costs which arise prior to the filing of the petition and has forbidden these costs. 3A Collier on Bankruptcy (14th Ed.) 1558, ¶ 62.24, in interpreting section 64(a)(1) states that "(c)osts and expenses of preservation to be accorded priority must accrue subsequent to the filing of the petition. . . ."

As regards post-petition insurance, although insurance costs are not explicitly mentioned in section 503(b)(1)(A), what constitutes costs of administration is largely discretionary with the Court, in light of the attendant facts in each case. Lerner Stores Corporation v. Electric Maid Bake Shops, 24 F.2d 780 (5th Cir. 1928). Insurance costs have specifically been allowed as administrative costs. See In the Matter of Pioneer Sample Book Co., Inc., 374 F.2d 953, 961 (3rd Cir. 1967). Further, section 503(b)(1)(A) uses the word "including" and 11 U.S.C. § 102(3) provides that the word "including" is not a limiting word. 3 Collier on Bankruptcy (15th Ed.) 503-16 ¶ 503.04 states:

The hiring by the trustee of custodians or watchmen, insuring the

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