9.25.2013

Prime Tanning Bankruptcy: A Recent Threat to State Self-Insurance Law


Ohio and many other states require self-insuring employers to contribute to a guaranty fund regarding workers’ compensation. This fund guarantees that claim liabilities are satisfied if the self-insured employer is unable to pay them. This safeguard is not only in place for the protection of injured workers but for the integrity of a state’s workers’ compensation system.  However, with the bankruptcy filing of Prime Tanning Company in 2010, the preservation of this “safety net” was under attack.

As way of background, Prime Tanning was headquartered in Maine and operated its leather tanning business in Maine and Missouri. In 2010, the company declared bankruptcy under Chapter 11 of the Bankruptcy Code, and in 2011, a plan of reorganization was submitted that had sought to use the company’s self-insurance guaranty fund for use in the reorganization.  The bankruptcy court denied confirmation of the proposed plan, and the company appealed to the United States Bankruptcy Appellate Panel (“BAP”). In a decision dated August 15, 2013, the BAP held that the company’s workers’ compensation self-insurance guaranty funds were not part of the company’s estate. It ruled that the company’s bankruptcy plan should not be confirmed, as it would violate state self-insurance and property laws. On September 17, 2013, the BAP mandated its decision of August 15, 2013.

From a workers’ compensation perspective, Prime Tanning’s proposed bankruptcy plan had strong implications and posed a significant threat to self-insurance. Theoretically, if the plan was approved and the guaranty funds were utilized in the company’s ongoing operation (even those funds in excess of current workers’ compensation liabilities), it might have potentially caused a shortfall regarding Prime Tanning’s undetermined, future workers’ compensation claim liabilities in Maine and Missouri. On a national level, a dangerous precedent would have been set by putting all self-insurance guaranty funds at risk. Thankfully, reasonable minds prevailed.
 


Contact: Chris Debski
330.849.6717
cdebski@ralaw.com

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