Matter of US Truck Co., Inc.
| Decision Date | 07 September 1984 |
| Docket Number | Bankruptcy No. 82-03561-BE. |
| Citation | 42 BR 790 |
| Parties | In the Matter of U.S. TRUCK COMPANY, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Joseph Radom, Southfield, Mich., for debtor.
Ronald L. Rose, and Judy A. O'Neill, Detroit, Mich., for Mich. Self-Insurers' Ass'n.
Eileen D. Zielesch, Asst. Atty. Gen., Lansing, Mich., for Mich. Self-Insurers' Sec. Fund.
ISSUE: May the Debtor include as members of a single class of unsecured creditors under its plan of reorganization persons entitled to workers' compensation benefits?
The Debtor, U.S. Truck Company, Inc., filed an amended plan of reorganization with the Court on September 7, 1983. The plan provides for a payment of 55% of the allowed unsecured claims—5% upon confirmation and the balance in ten semi-annual installments of 5%. All of the unsecured creditors with claims above $200 are included in a single class under the Debtor's plan.
The Michigan Self-Insurers' Association (MSIA) filed its written objections to confirmation of the Debtor's plan. The basic objections of MSIA are that (1) the plan has improperly classified all claims for workers' compensation benefits as prepetition claims; (2) the plan has radically underestimated the amount of workers' compensation claims and is, therefore, not feasible. The Attorney General of Michigan has joined in MSIA's objections on behalf of Michigan Self-Insurers' Security Fund.
After an extended hearing on the arguments of counsel, the objections to the plan relating to the workers' compensation benefits were adjourned so that the parties could develop the relevant data on the number of U.S. Truck employees who are entitled to receive benefits, and the magnitude of the claims to such benefits. After the Attorney General and the Debtor submitted initial summaries of the data on benefits, an evidentiary hearing was held to explain to the Court how the administrative system of workers' compensation benefits operates in Michigan for self-insured employers like the Debtor and how benefits are determined and allocated to accounting periods as a matter of Michigan state law and administrative practice.
Testimony was given by John P. Miron, the Chief Deputy Director of the Michigan Workers' Compensation Bureau and a former president of the International Association of Industrial Accident Bureaus and Commissions. Mr. Miron testified as a qualified expert on the fundamental concepts of workers' compensation law and administration in Michigan and more particularly on the self-insurance sub-system. Testimony was also given by Gary Caulkins, an employee of the Michigan Workers' Compensation Bureau, who is responsible for the administration of the self-insurance program and, in particular, understands the Debtor's history of performance as summarized in detailed exhibits admitted into evidence.
At bottom, the dispute between the Debtor and the objecting parties is based upon radically different conceptions of how workers' compensation benefits may be treated as claims under the Bankruptcy Code and under a plan of reorganization. The Debtor treats all claims for benefits as arising from the date of a work-related injury, and if the injury occurred on a date prior to the petition, as a pre-petition unsecured claim. As such, the Debtor proposed to treat those claims like all other pre-petition claims and pay them at the rate of 55% of the claim dollar.
Consistent with that view, the Debtor stopped paying all disability benefits after it filed its petition. Under state law, benefits are payable weekly to disabled employees. The practical consequence of this decision was to deprive disabled employees of all benefits—a business decision so fundamentally lacking in human decency as to be morally reprehensible. In the history of Chapter 11 cases filed in this district, no Debtor ever provided for impairment of workers' compensation disability claims in any proposed plan or reorganization. From either indifference or, less likely, embarrassment, the disclosure statement accompanying the plan is completely silent on the issues of the treatment of compensation benefits. Fortunately, for the affected employees, the Administrator of the Michigan Self-Insurers' Trust Fund advanced disability payments on the magnitude of $500,000.00 directly to these employees. The Fund will be submitting a request for payment of administrative expenses to recover these advances.
The Debtor's initial position was that the indebtedness to these disabled employees stopped accruing on the date of the petition so that the allowable claims were limited to accrued benefits to that date. That would have led to the denial of any liability to pay as an administrative expense the advances made by the Fund for benefits payable after the date of the petition. Presumably, the Debtor would have characterized the Fund as a volunteer for $500,000.00.
As discussed below, the Debtor changed its initial position during the continued hearings on the scope and treatment of claims for unpaid disability benefits. The Debtor, however, continues to assert that all payments due to holders of these claims are to holders of unsecured, pre-petition claims.
The objecting parties took a much more sophisticated, perhaps too sophisticated, view of worker's compensation benefits. They argued that under the Workers' Disability Compensation Act of 1969 in Michigan, M.C.L.A. §§ 418.101, et. seq., (Compensation Act), an employee who suffers a wage loss attributable to a disability arising from a work-related injury is entitled to be paid weekly benefits, and that the right to payment of those weekly benefits accrues each week. In a word, there is no single pre-petition claim, but instead a series of discrete claims, arising each week, so long as the disability continues. The objecting parties stressed that the weekly amount of benefits may be increased, decreased, terminated, or reinstituted depending on the changing character of the disability as it directly affects the worker's ability to perform his or her original job.
Applying the Bankruptcy Code to workers' compensation benefits, the MSIA argued that a disabled worker could, in one formulation, have a successive series of different types of unpaid claims over time: a pre-petition general unsecured claim, a priority unsecured claim, and an administrative claim.
The MSIA further argued that the weekly benefits which are payable after confirmation of the debtor's plan are not discharged because they are not claims as defined under the Bankruptcy Code. That argument is based on a technical construction of a claim as a "right to payment" under 11 U.S.C. § 101(4)(A). The right to payment refers to liabilities that arise prior to the petition and during administration of the case. If the right to payment of weekly benefits arises after confirmation, then MSIA's position has validity. MSIA's position is internally consistent, for the overriding concept is that under state law each week of disability gives rise to a discrete right to a weekly payment.
The Debtor's plan apparently recognized only the accrued unpaid disability benefits as of the date of its petition. All obligations after that date cease.
In reply, MSIA argued that if all benefits are terminated by the filing of the petition, and recovery from the Debtor as employer is lost, then disabled employees have no remedy whatsoever because workers' compensation benefits are an exclusive remedy for work-related injuries and resulting disabilities. That would be a horrendous result.
Under the Compensation Act, the administrative law judge enters an "open award" awarding payment to the disabled employee in a fixed weekly amount, if the judge is satisfied that the disability is continuing. The amount of the award is based upon the weekly wage of the employee as of the date of injury, the number of dependents, and the amount of the wage loss attributable to the disability. The amount of the weekly benefit cannot exceed two-thirds of the wage loss—the difference between what was earned and what the disabled employee can now earn. The award is said to be "open" until further order of the Bureau. The award of weekly benefits can be terminated upon the employer's "petition to stop" if the wage loss can be eliminated due to the workers' recovery, or can be increased upon the employee's "petition to reopen" if the wage loss is increased because the disability has become more severe. Although these adjustments may be made to an "open award," the MSIA has strained the logic of an award to characterize the benefits as accruing anew each week because the amount of the award can be modified.
In support of the idea that the date of injury is critical to the administration of the workers' compensation system, the Chief Deputy Director testified that for a self-insured employer all payments of benefits under an open award are allocated to the period of insurance coverage which includes the date of injury. Thus, if a $150,000.00 award is paid to a disabled employee over the course of his open award, and the injury occurred in May of 1978, the entire $150,000 is allocated to the policies in effect that month. To avoid confusion, one should note that a self-insured employer still has to obtain private insurance for a substantial portion of its exposure to workers' compensation claims. The employee may "self-insure" only for the first dollars of liability; after that ceiling is reached, private insurance from a carrier has to be made available.
After considering the expert testimony of the Chief Deputy Director of the Workers' Compensation Bureau, the Court is satisfied that the Debtor is correct in emphasizing as the controlling event the pre-petition date of injury for purposes of both state and federal-bankruptcy...
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