Opinion
No. 79-642.
January 2, 1981.
Former Bankruptcy Act — Debts Having Priority — Administration Costs — Insurance
An employee of the debtor whose application for group insurance coverage was accepted by the company but not processed was entitled to have her claim allowed as a cost of administration priority under Section 64(a)(1) of the Bankruptcy Act. The debtor, and later the debtor-in-possession, caused damages by continually failing to pay the insurance premium on the creditor's behalf. See Sec. 64(a)(1) at ¶ 2625 and Sec. 507(a)(1) at ¶ 9027.
[Digest of Opinion]
The creditor was, at the time pertinent to this transaction, and still is, employed by the debtor. Although she initially did not elect to participate in the group insurance program provided by the debtor for the employees, on March 27, 1979, she applied for membership in the program, filled out all necessary papers and beginning that day, the debtor deducted $6.65 from each paycheck as her contribution to the insurance premium. Subsequently, the creditor became ill and incurred hospital bills in the amount of $2,221.50. She submitted a claim for payment of these expenses under the insurance coverage because she assumed that she was insured, but she was informed by the insurance company that her application was never processed and that she was not covered by the insurance policy covering the other employees of the debtor.
The creditor contended that the debtor breached the contract when it failed to process her application and since this remained a continuing breach during the pendency of the Chapter 11, she was entitled to have her claim allowed as a cost of administration priority claim. In opposing the claim, it is the debtor's position that the breach was committed by the debtor prior to the initiation of the arrangement proceeding. Therefore, all she had was a general unsecured claim with the exception of the monies withheld from her paychecks during the Chapter 11.
The Bankruptcy Act, unlike the Bankruptcy Code, has no provision for the allowance as a priority claim based on contributions to employee benefit plans. However, although she completed all the necessary forms and she had been accepted later on by the insurance company, due to the continuing failure of the debtor and then the debtor in possession to pay the insurance premium on her behalf, she suffered damages and, therefore, was entitled to have her claim allowed as a cost of administration priority under Section 64(a)(1) of the Bankruptcy Act.