Supreme Court Denies Priority Status for Unpaid Workers' Compensation Premiums

In a recent decision, the U.S. Supreme Court clarified an issue important to workers' compensation insurers and held that pre-petition unpaid workers' compensation premiums are not entitled to priority status under the Bankruptcy Code. Howard Delivery Service, Inc., et. al. v. Zurich American Insurance Co., 126 S. Ct. 2105 (2006). This decision forecloses any disagreement among the Circuit Courts that unpaid workers' compensation premiums are entitled to priority status in a bankruptcy proceeding. In light of Howard, such claims are now considered merely general unsecured claims. Had the Supreme Court afforded priority status to such claims, they would have been paid prior to the claims of general unsecured creditors. Generally, priority expense claims receive a significant, if not 100% distribution, as opposed to general unsecured claims, which, in many circumstances, receive only pennies on the dollar. In a decision delivered by Justice Ruth Bader Ginsberg, joined by five other justices (Chief Justice John Roberts, Jr. and Justices John Paul Stevens, Antonin Scalia, Clarence Thomas, and Stephen Breyer), the Supreme Court's ruling not only brings consistency to this issue, but also provides opportunities for workers' compensation insurers to avoid forfeiture of payment of their premiums by financially troubled insureds.

In Howard, Zurich issued various workers' compensation policies to Howard Delivery Services, Inc., a freight trucking business. In 2002, Howard filed for Chapter 11 bankruptcy protection, while still owing Zurich approximately $400,000 in unpaid workers' compensation premiums. Zurich sought priority status for its claim, asserting that the unpaid premiums qualified as 'contributions to an employee benefit plan,' which would be entitled to priority status under '507(a)(5) of the Bankruptcy Code. The Bankruptcy Code provides a schedule of how claims will be paid in a bankruptcy proceeding. Generally, with certain exceptions, holders of secured claims will be paid first and in full to the extent of the value of their underlying collateral. A claim may be secured by either real or personal property, or both. Following secured claims, a debtor's estate will pay administrative claims. Administrative claims are claims incurred by a debtor subsequent to the filing of the petition in which the debtor received some benefit from the post-petition rendering of either goods or services. Usually, administrative claims are paid in full as well.

The majority of claims in a typical bankruptcy case are classified as general unsecured claims. Such claims are not secured by any form of collateral, and typically only a percentage of their full value will be paid. Congress, in enacting the Bankruptcy Code, recognized that certain types of unsecured claims should be paid in full prior to other types of claims. Thus, the Bankruptcy Code establishes a list of so-called 'priority claims,' which are paid in full or nearly in full and ahead of other general unsecured claims. Examples of priority claims include claims for unpaid wages and salaries, contributions to an employee benefit plan, and claims for taxes. For certain types of priority claims, the Bankruptcy Code establishes a monetary limit with any remaining portion of the claim above the limit being treated as a general unsecured claim. For example, ”507(a)(4) and (a)(5) address wage and fringe benefit claims against a debtor employer. Section 507(a)(4) provides that individuals or corporations will be granted priority status for wage-related claims that are earned within 180 days of the filing of the bankruptcy or the cessation of the debtor's business, whichever occurs earlier, up to a maximum amount of $10,000. Section 507(a)(5) complements '507(a)(4) by elevating to priority status claims for contributions to an 'employee benefit plan' arising from services rendered within the 180-day period up to the $10,000 maximum amount noted above, less any amounts provided for under '507(a)(4).

In the bankruptcy proceeding, Zurich sought priority status for the unpaid premiums owing to it, asserting that these past due premiums qualified as contributions to an employee benefit plan and thus were entitled to priority under '507(a)(5) of the Bankruptcy Code. The Bankruptcy Court, however, denied Zurich's request for a priority claim, finding that the premiums were not bargained-for benefits furnished in lieu of increased wages and thus did not fall within '507(a)(5). The District Court affirmed the decision of the Bankruptcy Court while the Court of Appeals for the Fourth Circuit reversed in a 2-to-1 per curiam opinion. Although the Fourth Circuit agreed on the outcome, the majority disagreed as to the rationale. One judge found that '507(a)(5) unambiguously provided priority status to unpaid workers' compensation premium. Another judge, concurring in the judgment, found that the term 'employee benefit plan' contained in the statute was ambiguous and, instead, turned to its legislative history to conclude that Congress likely intended that past-due workers' compensation premiums should be granted priority status. In his dissent, Judge Paul V. Neimeyer relied on what he deemed to be the plain meaning of the statute, but read it to mean that past-due workers' compensation premiums should not be granted priority status.

Supreme Court Decision

The Supreme Court granted certiorari to resolve a split among the Circuit Courts. In determining that Zurich's claims were not entitled to priority status, the Supreme Court focused its analysis on whether an unpaid workers' compensation premium is equivalent to a contribution to an 'employee benefit plan.' The majority decision found that workers' compensation plans are considerably different from other types of employee benefit plans and thus denied Zurich's request.

The Supreme Court initially noted that Congress had not defined the term 'employee benefit plan.' Accordingly, the Court reviewed the 'essential character' of workers' compensation regimes and compared these plans to other employee benefit plans. In denying priority status to workers' compensation insurers, the Supreme Court differentiated workers' compensation plans from other employee benefit plans on a number of grounds.

First, as opposed to other types of benefits that run solely to the employee's benefit ' such as pension plans and group health, life, and disability insurance ' workers' compensation programs run to the benefit of both the employee and employer. In exchange for the no-fault fixed payment workers' compensation administrative system, the employer is relieved of all liability and uncertainty that would result from an employee's prosecution of a claim against it in the tort system. Although the Court recognized that workers' compensation programs provide some benefit to employees (ie, such plans assure payments for injuries incurred on the job), the Court believed that the overriding benefit inures to the employer. The Court concluded that '[i]n exchange for no-fault liability, employers gain immunity from tort actions that might yield damages many times higher than awards payable under workers' compensation schedules. Although the question is close, we conclude that premiums paid for workers' compensation insurance are more appropriately bracketed with premiums paid for other liability insurance, eg, motor vehicle, fire, or theft insurance, than with contributions made to secure employee retirement, health, and disability benefits.'

Second, the Court distinguished workers' compensation benefits from other 'employee benefits plans' because so-called fringe benefits are either voluntary or bargained-for while workers' compensation benefits are not. State laws, with limited exceptions, require employers to participate in workers' compensation arrangements. The Court was very careful in stating that this was simply a factor in its analysis by noting that a workers' compensation carrier's claim for unpaid premiums would not gain priority status in those states where workers' compensation coverage is not mandatory. The Court hedged this factor by stating that '[w]e simply count it a factor relevant to our assessment that States overwhelmingly prescribe and regulate insurance coverage for on-the-job accidents, while commonly leaving pension, health and life insurance plans to private ordering.'

Finally, the Supreme Court looked to the overriding policy of the Bankruptcy Code, which requires equal distributions among creditors. Expanding the definition of 'employee benefit plans' to provide a preferred status to workers' compensation insurers would, the Court believed, effectively erode the priority amount available to employees in connection with other unpaid wages and employee benefits, an outcome the Court rejected. As noted above, there is a cap of $10,000 for wage-related priority claims; thus an expansion of the definition of 'employee benefit plan' would decrease the amounts available for other types of 'employee benefit' claims.

The Court was also unwilling to look to other statutes, namely the Employee Retirement Income Security Act of 1974 ('ERISA'), to assist in the interpretation of what was meant by the phrase 'employee benefit plan.' While Zurich argued that ERISA expressly included workers' compensation plans in the definition of an 'employee benefit plan,' the Court declined to rely upon ERISA for guidance, concluding that ERISA was not enacted with bankruptcy goals in mind. The Court in rejecting the ERISA argument appeared to take a strict construction approach: 'We follow the lead of an earlier decision, United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213, 219 (1996), in noting that '[h]ere and there in the Bankruptcy Code Congress has included specific directions that establish the significance for bankruptcy law of a term used elsewhere in the federal statutes.' Id. at 219-220. No such directions are contained in Section 507(a)(5), and we have no warrant to write them into the text.' Curiously, if the majority followed the strict construction approach throughout its entire opinion, it may have reached the exact same conclusion of the dissenting justices.

Dissent

A strong dissent was written by Justice Anthony Kennedy, in which Justices David Souter and Samuel Alito joined. Each of these justices believed that the Court was required to apply a strict interpretation of the Bankruptcy Code (as the majority had done in addressing the ERISA argument). In the dissenting opinion, the justices noted that, because workers' compensation plans benefit both employees, as well as employers, this should end the inquiry. As the dissent highlights, there is no requirement in the Bankruptcy Code that, to qualify as an employee benefit plan, a court needs to weigh who benefits more from such a benefit, the employer or the employee.

Additionally the dissent countered that even if the definition of an 'employee benefit plan' is ambiguous, ERISA provides 'considerable support' to Zurich's arguments. The dissent noted that the term 'employee benefit plan' 'is not a general phrase but something closer to a term of art, with a meaning that seems unlikely to change based on statutory context.'

The dissent also countered the majority's view that priorities should be construed narrowly to limit their availability by commenting that '[t]he bankruptcy priorities ' should not be read simply to give priorities to as few creditors as possible. They should be interpreted in accord with the principle of equal treatment of like claims. In any event, the priority provisions should not be read so narrowly as to conflict with their plain meaning.'

Conclusion

This decision once again highlights the struggles courts face in dealing with insurance issues in a bankruptcy proceeding. Here, in a decision which the Court itself characterized as a 'close call,' as in other bankruptcy cases involving insurers, the majority opinion tipped the balance in favor of the debtor insured, notwithstanding that, as the dissenting opinion demonstrated, there is no requirement under the Bankruptcy Code to balance the benefits between the employers and employees. Going forward, workers' compensation insurers may want to consider taking the following steps. First, a workers' compensation insurer should closely monitor the financial viability of its insureds. No longer can the insurer rely on the prospect of receiving a priority claim in a bankruptcy proceeding to obtain payment of its unpaid pre-petition workers' compensation premiums. Based on the Howard decision, unpaid workers' compensation premiums will only be treated as general unsecured claims in an insured's bankruptcy, and thus the insurer bears the risk of receiving pennies on the dollar for its claim. An insurer needs to be aware of its accounts and to be flexible in considering options for an insured with a large arrearage of unpaid premiums.

Second, regardless of the financial viability of its insureds, the insurer should consider requiring the insured to provide collateral to support its obligations under any workers' compensation policy, including posting a bond or a letter of credit at the time of the initial writing of the policy. Oftentimes, upon the inception of a workers' compensation policy, the insurer may request that unpaid amounts ' whether they are regular premiums, retrospective premiums, deductibles, or any other unpaid amount owing to the insurer under the terms of the policy ' be secured. Thus, if the insured is unable to make the required payments under the policies, the insurer can look to the security for payment, whether it is a letter of credit, a bond, or other form of security. To the extent the insurer finds an insured with past due arrearages, it may consider asking for collateral from its insured to secure any and all amounts due and owing to it (although there may be some risk that this security will be avoided in a subsequent bankruptcy filing). If an insured were to file for bankruptcy, letters of credit generally are seen as being a 'better' form of security. Since most courts hold that letters of credit are not part of the debtor's bankruptcy estate, the insurer is not required to obtain court relief to draw down on the letter of credit; all the insurer needs to do is follow the requirements contained in the letter of credit. As opposed to a letter of credit, various courts have held that a debtor does possess an interest in a bond securing unpaid obligations, and thus it is prudent to obtain bankruptcy court authorization prior to enforcing the insurer's rights against a bond to pay the outstanding amounts owed under a policy. Regardless of the form of security, however, the insurer will be in a better position vis-'-vis other unsecured creditors if it can look to any form of security for payment of unpaid premiums.

Finally, at the time of the renewal of any workers' compensation plans, an insurer should insist that any unpaid premiums be paid currently (to the extent no bankruptcy proceeding is pending and, for retrospectively rated programs, the loss data is available) before the insurer agrees to the renewal of any such policies. If a bankruptcy is pending at the time of such renewal, the insurer should be careful that it does not condition renewal on payment of any pre-petition amounts outstanding, as a court might find such a demand to be a violation of the automatic stay. Although the Howard decision has changed the landscape of insurers' options in a bankruptcy, by taking various steps prior to the bankruptcy filing the insurer can avoid having its unpaid claim being treated as a mere general unsecured claim. As all situations in this area are factually unique, however, consultation with a bankruptcy professional is recommended when deciding upon which course of action to take.

Daniel S. Bleck practices in the commercial law section in the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and is a member of the firm's insurance/bankruptcy group. Scott H. Moskol also practices in the commercial law section in Mintz Levin's Boston office and is a member of the firm's insurance/bankruptcy group. The authors acknowledge the help and assistance of Kim Marrkand, the chair of the firm's insurance/reinsurance group and a member of the firm's insurance/bankruptcy group, in the preparation of this article. The views expressed in the article are those of the authors and not necessarily those of Mintz Levin or its clients.

In a recent decision, the U.S. Supreme Court clarified an issue important to workers' compensation insurers and held that pre-petition unpaid workers' compensation premiums are not entitled to priority status under the Bankruptcy Code. Howard Delivery Service, Inc., et. al. v. Zurich American Insurance Co., 126 S. Ct. 2105 (2006). This decision forecloses any disagreement among the Circuit Courts that unpaid workers' compensation premiums are entitled to priority status in a bankruptcy proceeding. In light of Howard, such claims are now considered merely general unsecured claims. Had the Supreme Court afforded priority status to such claims, they would have been paid prior to the claims of general unsecured creditors. Generally, priority expense claims receive a significant, if not 100% distribution, as opposed to general unsecured claims, which, in many circumstances, receive only pennies on the dollar. In a decision delivered by Justice Ruth Bader Ginsberg, joined by five other justices (Chief Justice John Roberts, Jr. and Justices John Paul Stevens, Antonin Scalia, Clarence Thomas, and Stephen Breyer), the Supreme Court's ruling not only brings consistency to this issue, but also provides opportunities for workers' compensation insurers to avoid forfeiture of payment of their premiums by financially troubled insureds.

In Howard, Zurich issued various workers' compensation policies to Howard Delivery Services, Inc., a freight trucking business. In 2002, Howard filed for Chapter 11 bankruptcy protection, while still owing Zurich approximately $400,000 in unpaid workers' compensation premiums. Zurich sought priority status for its claim, asserting that the unpaid premiums qualified as 'contributions to an employee benefit plan,' which would be entitled to priority status under '507(a)(5) of the Bankruptcy Code. The Bankruptcy Code provides a schedule of how claims will be paid in a bankruptcy proceeding. Generally, with certain exceptions, holders of secured claims will be paid first and in full to the extent of the value of their underlying collateral. A claim may be secured by either real or personal property, or both. Following secured claims, a debtor's estate will pay administrative claims. Administrative claims are claims incurred by a debtor subsequent to the filing of the petition in which the debtor received some benefit from the post-petition rendering of either goods or services. Usually, administrative claims are paid in full as well.

The majority of claims in a typical bankruptcy case are classified as general unsecured claims. Such claims are not secured by any form of collateral, and typically only a percentage of their full value will be paid. Congress, in enacting the Bankruptcy Code, recognized that certain types of unsecured claims should be paid in full prior to other types of claims. Thus, the Bankruptcy Code establishes a list of so-called 'priority claims,' which are paid in full or nearly in full and ahead of other general unsecured claims. Examples of priority claims include claims for unpaid wages and salaries, contributions to an employee benefit plan, and claims for taxes. For certain types of priority claims, the Bankruptcy Code establishes a monetary limit with any remaining portion of the claim above the limit being treated as a general unsecured claim. For example, ”507(a)(4) and (a)(5) address wage and fringe benefit claims against a debtor employer. Section 507(a)(4) provides that individuals or corporations will be granted priority status for wage-related claims that are earned within 180 days of the filing of the bankruptcy or the cessation of the debtor's business, whichever occurs earlier, up to a maximum amount of $10,000. Section 507(a)(5) complements '507(a)(4) by elevating to priority status claims for contributions to an 'employee benefit plan' arising from services rendered within the 180-day period up to the $10,000 maximum amount noted above, less any amounts provided for under '507(a)(4).

In the bankruptcy proceeding, Zurich sought priority status for the unpaid premiums owing to it, asserting that these past due premiums qualified as contributions to an employee benefit plan and thus were entitled to priority under '507(a)(5) of the Bankruptcy Code. The Bankruptcy Court, however, denied Zurich's request for a priority claim, finding that the premiums were not bargained-for benefits furnished in lieu of increased wages and thus did not fall within '507(a)(5). The District Court affirmed the decision of the Bankruptcy Court while the Court of Appeals for the Fourth Circuit reversed in a 2-to-1 per curiam opinion. Although the Fourth Circuit agreed on the outcome, the majority disagreed as to the rationale. One judge found that '507(a)(5) unambiguously provided priority status to unpaid workers' compensation premium. Another judge, concurring in the judgment, found that the term 'employee benefit plan' contained in the statute was ambiguous and, instead, turned to its legislative history to conclude that Congress likely intended that past-due workers' compensation premiums should be granted priority status. In his dissent, Judge Paul V. Neimeyer relied on what he deemed to be the plain meaning of the statute, but read it to mean that past-due workers' compensation premiums should not be granted priority status.

Supreme Court Decision

The Supreme Court granted certiorari to resolve a split among the Circuit Courts. In determining that Zurich's claims were not entitled to priority status, the Supreme Court focused its analysis on whether an unpaid workers' compensation premium is equivalent to a contribution to an 'employee benefit plan.' The majority decision found that workers' compensation plans are considerably different from other types of employee benefit plans and thus denied Zurich's request.

The Supreme Court initially noted that Congress had not defined the term 'employee benefit plan.' Accordingly, the Court reviewed the 'essential character' of workers' compensation regimes and compared these plans to other employee benefit plans. In denying priority status to workers' compensation insurers, the Supreme Court differentiated workers' compensation plans from other employee benefit plans on a number of grounds.

First, as opposed to other types of benefits that run solely to the employee's benefit ' such as pension plans and group health, life, and disability insurance ' workers' compensation programs run to the benefit of both the employee and employer. In exchange for the no-fault fixed payment workers' compensation administrative system, the employer is relieved of all liability and uncertainty that would result from an employee's prosecution of a claim against it in the tort system. Although the Court recognized that workers' compensation programs provide some benefit to employees (ie, such plans assure payments for injuries incurred on the job), the Court believed that the overriding benefit inures to the employer. The Court concluded that '[i]n exchange for no-fault liability, employers gain immunity from tort actions that might yield damages many times higher than awards payable under workers' compensation schedules. Although the question is close, we conclude that premiums paid for workers' compensation insurance are more appropriately bracketed with premiums paid for other liability insurance, eg, motor vehicle, fire, or theft insurance, than with contributions made to secure employee retirement, health, and disability benefits.'

Second, the Court distinguished workers' compensation benefits from other 'employee benefits plans' because so-called fringe benefits are either voluntary or bargained-for while workers' compensation benefits are not. State laws, with limited exceptions, require employers to participate in workers' compensation arrangements. The Court was very careful in stating that this was simply a factor in its analysis by noting that a workers' compensation carrier's claim for unpaid premiums would not gain priority status in those states where workers' compensation coverage is not mandatory. The Court hedged this factor by stating that '[w]e simply count it a factor relevant to our assessment that States overwhelmingly prescribe and regulate insurance coverage for on-the-job accidents, while commonly leaving pension, health and life insurance plans to private ordering.'

Finally, the Supreme Court looked to the overriding policy of the Bankruptcy Code, which requires equal distributions among creditors. Expanding the definition of 'employee benefit plans' to provide a preferred status to workers' compensation insurers would, the Court believed, effectively erode the priority amount available to employees in connection with other unpaid wages and employee benefits, an outcome the Court rejected. As noted above, there is a cap of $10,000 for wage-related priority claims; thus an expansion of the definition of 'employee benefit plan' would decrease the amounts available for other types of 'employee benefit' claims.

The Court was also unwilling to look to other statutes, namely the Employee Retirement Income Security Act of 1974 ('ERISA'), to assist in the interpretation of what was meant by the phrase 'employee benefit plan.' While Zurich argued that ERISA expressly included workers' compensation plans in the definition of an 'employee benefit plan,' the Court declined to rely upon ERISA for guidance, concluding that ERISA was not enacted with bankruptcy goals in mind. The Court in rejecting the ERISA argument appeared to take a strict construction approach: 'We follow the lead of an earlier decision, United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213, 219 (1996), in noting that '[h]ere and there in the Bankruptcy Code Congress has included specific directions that establish the significance for bankruptcy law of a term used elsewhere in the federal statutes.' Id. at 219-220. No such directions are contained in Section 507(a)(5), and we have no warrant to write them into the text.' Curiously, if the majority followed the strict construction approach throughout its entire opinion, it may have reached the exact same conclusion of the dissenting justices.

Dissent

A strong dissent was written by Justice Anthony Kennedy, in which Justices David Souter and Samuel Alito joined. Each of these justices believed that the Court was required to apply a strict interpretation of the Bankruptcy Code (as the majority had done in addressing the ERISA argument). In the dissenting opinion, the justices noted that, because workers' compensation plans benefit both employees, as well as employers, this should end the inquiry. As the dissent highlights, there is no requirement in the Bankruptcy Code that, to qualify as an employee benefit plan, a court needs to weigh who benefits more from such a benefit, the employer or the employee.

Additionally the dissent countered that even if the definition of an 'employee benefit plan' is ambiguous, ERISA provides 'considerable support' to Zurich's arguments. The dissent noted that the term 'employee benefit plan' 'is not a general phrase but something closer to a term of art, with a meaning that seems unlikely to change based on statutory context.'

The dissent also countered the majority's view that priorities should be construed narrowly to limit their availability by commenting that '[t]he bankruptcy priorities ' should not be read simply to give priorities to as few creditors as possible. They should be interpreted in accord with the principle of equal treatment of like claims. In any event, the priority provisions should not be read so narrowly as to conflict with their plain meaning.'

Conclusion

This decision once again highlights the struggles courts face in dealing with insurance issues in a bankruptcy proceeding. Here, in a decision which the Court itself characterized as a 'close call,' as in other bankruptcy cases involving insurers, the majority opinion tipped the balance in favor of the debtor insured, notwithstanding that, as the dissenting opinion demonstrated, there is no requirement under the Bankruptcy Code to balance the benefits between the employers and employees. Going forward, workers' compensation insurers may want to consider taking the following steps. First, a workers' compensation insurer should closely monitor the financial viability of its insureds. No longer can the insurer rely on the prospect of receiving a priority claim in a bankruptcy proceeding to obtain payment of its unpaid pre-petition workers' compensation premiums. Based on the Howard decision, unpaid workers' compensation premiums will only be treated as general unsecured claims in an insured's bankruptcy, and thus the insurer bears the risk of receiving pennies on the dollar for its claim. An insurer needs to be aware of its accounts and to be flexible in considering options for an insured with a large arrearage of unpaid premiums.

Second, regardless of the financial viability of its insureds, the insurer should consider requiring the insured to provide collateral to support its obligations under any workers' compensation policy, including posting a bond or a letter of credit at the time of the initial writing of the policy. Oftentimes, upon the inception of a workers' compensation policy, the insurer may request that unpaid amounts ' whether they are regular premiums, retrospective premiums, deductibles, or any other unpaid amount owing to the insurer under the terms of the policy ' be secured. Thus, if the insured is unable to make the required payments under the policies, the insurer can look to the security for payment, whether it is a letter of credit, a bond, or other form of security. To the extent the insurer finds an insured with past due arrearages, it may consider asking for collateral from its insured to secure any and all amounts due and owing to it (although there may be some risk that this security will be avoided in a subsequent bankruptcy filing). If an insured were to file for bankruptcy, letters of credit generally are seen as being a 'better' form of security. Since most courts hold that letters of credit are not part of the debtor's bankruptcy estate, the insurer is not required to obtain court relief to draw down on the letter of credit; all the insurer needs to do is follow the requirements contained in the letter of credit. As opposed to a letter of credit, various courts have held that a debtor does possess an interest in a bond securing unpaid obligations, and thus it is prudent to obtain bankruptcy court authorization prior to enforcing the insurer's rights against a bond to pay the outstanding amounts owed under a policy. Regardless of the form of security, however, the insurer will be in a better position vis-'-vis other unsecured creditors if it can look to any form of security for payment of unpaid premiums.

Finally, at the time of the renewal of any workers' compensation plans, an insurer should insist that any unpaid premiums be paid currently (to the extent no bankruptcy proceeding is pending and, for retrospectively rated programs, the loss data is available) before the insurer agrees to the renewal of any such policies. If a bankruptcy is pending at the time of such renewal, the insurer should be careful that it does not condition renewal on payment of any pre-petition amounts outstanding, as a court might find such a demand to be a violation of the automatic stay. Although the Howard decision has changed the landscape of insurers' options in a bankruptcy, by taking various steps prior to the bankruptcy filing the insurer can avoid having its unpaid claim being treated as a mere general unsecured claim. As all situations in this area are factually unique, however, consultation with a bankruptcy professional is recommended when deciding upon which course of action to take.

Daniel S. Bleck practices in the commercial law section in the Boston office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and is a member of the firm's insurance/bankruptcy group. Scott H. Moskol also practices in the commercial law section in Mintz Levin's Boston office and is a member of the firm's insurance/bankruptcy group. The authors acknowledge the help and assistance of Kim Marrkand, the chair of the firm's insurance/reinsurance group and a member of the firm's insurance/bankruptcy group, in the preparation of this article. The views expressed in the article are those of the authors and not necessarily those of Mintz Levin or its clients.