In re Montaldo Corp., Bankruptcy No. 95-10416C-11G.

• Citation: 207 BR 112
• Decision Date: 03 January 1997
• Docket Number: Bankruptcy No. 95-10416C-11G.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re The MONTALDO CORPORATION, d/b/a Montaldo's, Debtor.

207 B.R. 112 (1997)

In re The MONTALDO CORPORATION, d/b/a Montaldo's, Debtor.

Bankruptcy No. 95-10416C-11G.

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

January 3, 1997.

Margaret R. Costley, Greensboro, NC, for Debtor.

Kenyann G. Brown, Raleigh, NC, for Aetna.

MEMORANDUM OPINION

WILLIAM L. STOCKS, Chief Judge.

This case came before the court on October 22, 1996, for hearing upon the Debtor's objection to claim no. 312 of Aetna Life Insurance Company ("Aetna") in the amount of $86,022.73. Margaret R. Costley appeared on behalf of the Debtor and Kenyann G. Brown appeared on behalf of Aetna. The Debtor's objection raises the issue of whether Aetna's claim for unpaid insurance premiums is entitled to priority under § 507(a)(4) of the Bankruptcy Code.

FACTS

The following facts are not in dispute. Prior to January 1, 1995, Aetna had in force group health and life insurance coverages for employees of the Debtor under policies which the Debtor had procured from Aetna. Effective January 1, 1995, the Debtor terminated the Aetna policies and initiated a self-funded health insurance plan for its employees. At the time that the Aetna policies were terminated by the Debtor, the monthly premiums for November and December of 1994 were unpaid. These premiums remained unpaid when this case was filed on February 21, 1995. Aetna's claim includes $65,149.27 for these unpaid premiums for November and December of 1994. The Aetna claim also includes the sum of $20,873.46, representing monthly payments of $6,957.82 for the months of December of 1994 and January and February of 1995 which came due under a "bankruptcy payback agreement" which Debtor entered into as a part of Debtor's first Chapter 11 case. These payments are for insurance coverage provided by Aetna for periods more than 180 days before this case was filed. These amounts account for the total Aetna claim in the amount of $86,022.73.

ANALYSIS

Section 507(a)(4) grants priority to allowed unsecured claims for contributions to an employee benefit plan arising from services rendered within 180 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first.¹ The 180 day requirement of § 507(a)(4) eliminates $20,873.46 of the Aetna claim from priority since it is undisputed that this portion of the claim is related to insurance coverage provided more than 180 days before this case was filed. This leaves $65,149.27 of premiums related to coverage which was provided within 180 days, which Aetna claims is entitled to priority under § 507(a)(4).

The cases have split on the issue of whether premiums owed by the debtor/employer to an insurer providing insurance coverage on employees of the debtor/employer constitute "contributions to an employee benefit plan within the meaning of § 507(a)(4)." The cases concluding that such premiums do have priority under § 507(a)(4) include Employers Insurance of Wausau v. Plaid Pantries, Inc., 10 F.3d 605 (9th Cir.1993); In re Saco Local Development Corp., 711 F.2d 441 (1st Cir. 1983); In re Allegheny International, Inc., 138 B.R. 171 (Bankr.W.D.Pa.1992); and In re Lummus Industries, Inc., 193 B.R. 615 (Bankr.M.D.Ga.1996). Cases reaching a contrary result and holding that insurance premiums do not fall within § 507(a)(4) include In re HLM Corp., 62 F.3d 224 (8th Cir.1995), and In re AER-Aerotron, Inc., 182 B.R. 725 (Bankr.E.D.N.C.1995).

The starting point in determining whether the premiums owed to Aetna are entitled to priority in this case is the language of § 507(a)(4) itself, which should be interpreted according to its plain meaning. In re HLM Corp., 183 B.R. 852, 854 (D.Minn. 1994), aff'd, 62 F.3d 224 (8th Cir.1995). However, in interpreting and applying § 507(a)(4), this court must be cognizant of the rule of construction which is applicable in interpreting and applying a statutory provision providing for priority treatment. There is a presumption "favoring an equal distribution of a bankrupt debtor's limited resources...." In re HLM Corp., 183 B.R. 852, 854 (D.Minn.1994), aff'd, 62 F.3d 224 (8th Cir.1995). Consequently, the canon of construction to be followed in construing a statutory priority is that a priority should be narrowly construed. See In re Suburban Motor Freight, Inc., 36 F.3d 484, 487 (6th Cir.1994) ("priority claims must be carefully limited since every such claim reduces the fund available to general creditors"); Trustees of Amalgamated Ins. Fund v. McFarlin's, Inc., 789 F.2d 98, 100 (2nd Cir.1986); In re Unimet Corp., 100 B.R. 881, 883 (Bankr.N.D.Ohio 1988) ("priority statutes are to be given strict construction"); In re Columbia Packing Co., 47 B.R. 126, 130 (Bankr. D.Mass.1985) ("priorities derogate from the basic purpose of a maximum pro rata distribution to unsecured creditors ... accordingly, priorities should be construed strictly"). This is the rule to be followed in the Fourth Circuit. Ford Motor Credit Co. v. Dobbins, 35 F.3d 860, 865 (4th Cir.1994) ("The presumption in bankruptcy cases is that the debtor's limited resources will be equally divided among the creditors. Thus, statutory priorities must be narrowly construed.").

Based on the language of the statute, the court concludes that the premiums owed to Aetna in this case are not entitled to priority under § 507(a)(4). Section 507(a)(4) grants priority to "contributions" to an employee benefit plan. Aetna's claim is for premiums arising from the issuance of a policy of insurance. "Premiums" are not "contributions," nor is a policy of insurance issued by an insurer an "employee benefit plan." Certainly, in ordinary usage, the words "premium" and "contribution" are not synonymous, nor are premiums generally referred to as "contributions." Furthermore, premiums owed to a commercial insurer do not arise from "services rendered" as required under § 507(a)(4). The rendering of services by employees results in obligations to the employees and not to an insurer.

Because the terms used in § 507(a)(4) are not defined in the Bankruptcy Code, some of the cases granting priority status to insurance premiums have done so by adopting broad definitions from other statutes. The court declines to take this approach in the present case. Such an approach is contrary to the rule that priorities should be given a narrow, strict interpretation. Secondly, although the Bankruptcy Code does not define "contributions" or "employee benefit plan", it does not follow that definitions for these terms should be incorporated from other federal legislation such as the Employee Retirement Income Security Act of 1974 (ERISA), even though these terms may be defined in such legislation. As pointed out in In re HLM Corp., 183 B.R. 852, 855 (D.Minn.1994), aff'd, 62 F.3d 224 (8th Cir.1995), definitions contained in ERISA were designed to effectuate the purposes of ERISA, not the Bankruptcy Code, and there is nothing in the legislative history indicating that Congress intended for the ERISA definition of "employee benefit plan" to be incorporated into the Bankruptcy Code. "It is not the Court's role to read the ERISA definition into § 507(a)(4) of the Bankruptcy Code. That is a task for Congress." Id. at 855. Accord In re Jet Florida Systems, Inc., 80 B.R. 544, 547 (Bankr.S.D.Fla.1987).

The legislative history regarding the adoption of § 507(a)(4) supports the conclusion that the premiums owed to Aetna are not entitled to priority under § 507(a)(4). The legislative history regarding the adoption of § 507(a)(4) confirms that the sole intent and purpose of § 507(a)(4) was to benefit the employees of a bankrupt employer/debtor. It does not reveal any Congressional intent to grant a priority to insurance companies or the insurance industry. See H.R.Rep. No. 595, 95th Cong., 2d Sess. 357 (1977) reprinted in 1978 U.S.C.C.A.N. 5963, 6313; S.Rep. No. 989, 95th Cong.2d Sess. 69 (1978) reprinted in 1978 U.S.C.C.A.N. 5787, 5855. Congress sought to benefit employees of a bankrupt employer by elevating to priority status promised employee "fringe benefits" which had not been received by employees prior to the filing of a bankruptcy case. In doing so, Congress expressly overruled two Supreme Court cases, United States v. Embassy Restaurant, 359 U.S. 29, 79 S.Ct. 554, 3 L.Ed.2d 601 (1958), and Joint Industry Board v. United States, 391 U.S. 224, 88 S.Ct. 1491, 20 L.Ed.2d 546 (1968). Neither of these cases involved a claim by an insurance company for premiums owed by an employer. United States v. Embassy Restaurant, supra, involved contributions owed by an employer to a welfare fund which was organized to provide benefits for the employees. These benefits included current as well as prospective benefits to be provided to the employees in the future. The "contributions" in question were due under collective bargaining agreements which had been obtained by the labor union who represented the employees. The statutory priority in effect at that time was one for "wages ... due to workmen." The Supreme Court ruled that the contributions in question were not "wages" and were not "due to workmen" since they were payable to the trustees of the welfare fund. Similarly, Joint Industry Board v. United States, supra, involved contributions owed by the debtor/employer to an employees' annuity plan established by a collective bargaining contract. Benefits were payable from the annuity plan to employees upon their death, retirement or ceasing to be a participant under the plan. The contributions from employers, of course, funded these benefits which likewise were ongoing and prospective in the sense of being paid to employees in the future upon their death or retirement. The Supreme Court again denied priority status to the contributions under the statutory priority in effect at the time.

Both of these cases involved "plans" which had been created for the sole purpose of providing continuing payments or benefits to...