In re Payne
| Decision Date | 23 February 1983 |
| Docket Number | Bankruptcy No. 81-40899,82-0534.,82-10168 and 82-10485,Adv. No. 82-0210 |
| Citation | 27 BR 809 |
| Parties | In re Mark Emmett PAYNE d/b/a Mark's Skelly Service, Winifred Arlene Payne, Debtors. In re Burrell Raymond BROWN a/k/a Burrel R. Brown d/b/a Better Roofing and Siding Co., Debtor. Fletcher BELL, in his capacity as Commissioner of Insurance of the State of Kansas and Administrator of the Kansas Workmen's Compensation Fund, Plaintiff, v. Burrel R. BROWN d/b/a Better Roofing and Siding Co., Defendant. Fred D. (IO) Watts Opal Wadine Watts a/k/a Shorty Watts, Debtors. Fletcher BELL, in his capacity as Commissioner of Insurance of the State of Kansas and Administrator of the Kansas Workmen's Compensation Fund, Plaintiff, v. Fred D. (IO) WATTS Opal Wadine Watts a/k/a Shorty Watts, Defendants. |
| Court | U.S. Bankruptcy Court — District of Kansas |
F. Stannard Lentz of Hamill, Lentz, Neill & Dwyer, Mission, Kan., for Ins. Com'r.
Eric K. Johnson of Schroeder, Heeney, Groff & Hiebert, P.A., Topeka, Kan., for the Paynes.
Lloyd C. Swartz, Topeka, Kan., trustee.
Steven J. Rupp of Curfman, Harris, Stallings, Grace & Snow, Wichita, Kan., for Burrel Brown.
Christopher J. Redmond of Redmond, Redmond, O'Brien & Nazar, Wichita, Kan., trustee.
Leonard F. Watkins, Jr., Wichita, Kan., for Fred and Opal Watts.
Mark A. Dickerson, Wichita, Kan., trustee.
In these three cases, consolidated for decision because of common issues of law pursuant to F.R.Civ.P. 42(a) and Bankr.Rl. 742, the Court must determine whether obligations and contingent obligations owed to the Kansas Insurance Commissioner are priority taxes in bankruptcy. The Paynes have filed a chapter 13 proceeding. Burrel Brown has filed a chapter 7 petition in bankruptcy. The Watts have also filed a chapter 7 petition.
The issues presented for determination are:
Is an insolvent employer's obligation to the Kansas Insurance Commission arising under the Kansas Worker's Compensation Act and K.S.A. § 44-532a an excise tax within the meaning of 11 U.S.C. § 507(a)(6)(E). If so, is it excepted from discharge in chapter 7 under § 523(a)(1) or required to be fully paid in a chapter 13 proceeding under § 1322(a)(2).
The parties have submitted the issues on briefs and the Court is now prepared to rule.
James L. Hickey was injured while in the employment of the debtor Mark Emmett Payne, d/b/a Mark's Skelly Service. The injury was within the scope of the Kansas Worker's Compensation Act. Payne failed to make the payments required of him as an employer under the Worker's Compensation scheme. Payne was financially unable to pay compensation to Hickey and the Kansas Worker's Compensation Fund determined Hickey was entitled to $24,797.90, pursuant to K.S.A. § 44-532a. Final payment from the Fund to Hickey was made in June, 1981.
The debtors apparently filed suit in state court against their Worker's Compensation insurance carrier alleging failure to notify them of the cancellation of their Worker's Compensation insurance policy. The Kansas Commissioner of Insurance was joined in the action. Judgment in that case, however, has not been rendered.
The debtors filed their chapter 13 plan, listed the claim of the insurance commissioner as unliquidated, contingent and unsecured, and proposed that it be paid 0%.
The plaintiff, Kansas Commissioner of Insurance, filed an action against the debtor in state court prior to the commencement of this bankruptcy proceeding. In that suit, the insurance commissioner alleged:
Defendant Brown, in his chapter 7 bankruptcy petition, listed the claim of the insurance commissioner as a "potential claim," and he seeks to discharge the obligation in this bankruptcy proceeding.
The insurance commissioner filed a complaint to determine the dischargeability of Brown's obligation. He has asked the Court to enter an order ruling that the claim created by K.S.A. § 44-532a is excepted from discharge.
The debtor filed a motion for declaratory judgment and a motion to dismiss the plaintiff's action.
Jimmy R. Chancey suffered an injury on or about May 15, 1981, while in the employ of the defendant, Fred Watts d/b/a Farm Center Maize Mills, Inc. Mr. Chancey subsequently instituted proceedings against the defendant before the Division of Workers' Compensation for the State of Kansas. Plaintiff received a Notice to Implead the Kansas Workers Compensation Fund (hereinafter referred to as the Fund) in that proceeding. A copy of the Notice is attached hereto as Exhibit A. One of the alleged grounds for impleading the Fund was the insolvency of the defendant employer. Pursuant to K.S.A. § 44-556(a), Bryce B. Moore, the Workers' Compensation Director, made the Fund a party to the proceeding (See attached Exhibit B). The action before the Division of Workers' Compensation is presently pending.
April 9, 1982 the debtors filed their bankruptcy petition, listing the plaintiff as a creditor. The plaintiff filed a proof of claim July 19, 1982, for an estimated amount of $100,000.00, the Fund's maximum liability in the Workers' Compensation proceeding. Subsequently, plaintiff instituted this action, seeking a non-dischargeability determination with respect to any amount it may be liable for in the Workers' Compensation action, due to the insolvency of the defendant, Fred Watts.
The liability of Mr. Watts is being contested and has not been established to date.
At a hearing held at the Court's request, William Sneed, chief attorney for the Kansas Insurance Department, and the attorney in charge of the Worker's Compensation Fund, gave the following testimony:
There are no rules or regulations for administering the Kansas Worker's Compensation Fund. The commission has never levied on the exempt property of an insolvent employer against whom judgment was taken. When judgments are taken, or when it comes to the attention of the insurance commissioner that employers are not complying with the provision of the Worker's Compensation Act, the commission does not file tax liens against the employer's property.
K.S.A. § 44-532a(b) as amended in Ch. 213 § 2 1982 Kan.Sess.Laws 967.
The insolvent employer portion of the Fund receives its revenues from two sources. First, the Fund receives the bulk of its money from assessments made against all insurance carriers and qualified self insurers, designed to cover all claims against the Fund arising because an employer was not insured, and was not a qualified self-insured employer. Ch. 213, § 6 1982 Kan.Sess.Laws 972, K.S.A. § 44-566a(b) (1981). Second, the Fund receives money from judgments collected against uninsured, insolvent employers under K.S.A. § 44-532a(b). Very little money, however, is actually recovered. Employers contribute to the Fund indirectly by carrying the required insurance, and paying premiums to the insurance company. The right to recover from an insured is not characterized as a tax, but rather as a cause of action. By having a workers' compensation...
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