Employee Benefits in an Insolvency

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In a judgment rendered in December 2012, the British Columbia Court of Appeal (“BC CA”) further clarified an insurer's priority for payment of unpaid health plan contributions. In Re: Ted Leroy Trucking Ltd. the bankrupt had provided health insurance (and disability insurance) to its employees as part of its wage package (the “Health Benefits”). While the Health Benefits were provided by the insurers, in the months leading up to the bankruptcy the insurers had not received payment on account of their premiums. The insurers argued that the failure to remit payment of the premiums constituted an employee claim that enjoys super priority status (i.e. paid out ahead of many other types of claims) in a bankruptcy pursuant to section 81.3 of the Bankruptcy and Insolvency Act (“BIA”).

In overturning the lower court’s decision, the BC CA drew a distinction between employees not receiving their health benefits from an insurance provider (which would enjoy super-priority status pursuant to section 81.3 of the BIA) and an insurance provider who provided the health benefits but did not receive payment for premiums owing under the insurance policy (which the BC CA held was simply an unsecured claim against the bankrupt’s estate). It appears that the BC CA distinction is grounded in what party actually receives the benefit of payment. In the first example, the employees would receive the funds (as opposed to the insurance provider) as they were never reimbursed for their health expenses whereas in the second instance the insurance provider would simply be reimbursed for unpaid premiums thus providing no benefit to the employees.

 

Topics:  Employee Benefits, Health Insurance, Insolvency, Unpaid Premiums

Published In: Bankruptcy Updates, General Business Updates, Insurance Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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