The Facts: Chapter 11 Debtor failed to segregate its employee’s wages and apply a portion toward a group health insurance premium. When those funds were seized later by a creditor, the employees left with a 5th priority wage claim and a lapsed insurance policy.
The Issue: Employee alleged that the funds taken should be classified as a contribution to an employee benefit plan arising from services rendered within 180 days before the filing date of the case.
The Upshot: The Court agreed that the funds had been earned with the 180 days before the case was filed, and also ruled that employees also had an administrative expense claim for wages that were withheld but not applied during the post-petition. Finally, the Court ruled that employees had a claim for un-reimbursed medical expenses that would have been covered under the policy, had it not expired.