"This decision means that an employer trying to reorganize its business will no longer be required to pay its workers' compensation premiums," he said. "This result will jeopardize continued coverage, because an insurer now has no legal authority to compel payment of premiums and doubtful incentive to continue coverage."

He added that "the distinctions that the majority makes between certain kinds of employee benefit plans and workers' compensation are really distinctions without a difference."

Zurich American said in a statement after the decision was announced that while the carrier is "disappointed" the court did not agree with its position, "the court's decision nonetheless provides needed certainty and nationwide uniformity about this question."

Larry Katz, a partner with the Venable law firm in the Washington, D.C. area, who wrote the brief on behalf of the unsecured creditors of the bankruptcy estate, said the decision has significant impact. "It affects millions and perhaps billions of dollars of claims in bankruptcy," he noted.

"A loss would mean that other priority creditors granted priority in bankruptcy by Congress because they were 'wage substitutes,' such as health insurance and pension plans, would get less money," according to Mr. Katz.

It is also significant because it ends a major split among the various appeals court jurisdictions over the proper interpretation of "wage substitute."

In this case, the 4th Circuit U.S. Court of Appeals joined the 9th Circuit U.S. Court of Appeals in holding that claims for unpaid workers' comp premiums have the same priority as claims for unpaid employee fringe benefits.

Conversely, the 6th, 8th and 10th circuits have held that claims for unpaid workers' comp premiums do not fall within the statutory language of the Bankruptcy Code giving priority, among unsecured creditors' claims, for unpaid "wages, salaries or commissions," and for unpaid contributions to "an employee benefit plan."

On July 15, 2003, the U.S. Bankruptcy Court in Wheeling, W.Va., denied the Zurich claim priority status, ruling that the unpaid premiums are not bargained-for, wage-substitute-type benefits. Five months later, on appeal to the district court, Zurich's claim was similarly denied.

However, a divided panel of the 4th Circuit reversed the decision, and the creditors decided to take the case to the Supreme Court because of its potential value, Mr. Katz said.

Howard Delivery Service is an over-the-road freight carrier based in West Virginia. On Jan. 22, 2002, it cancelled its workers' comp policy with Zurich American.

Eight days after canceling the Zurich policy, Howard filed for bankruptcy, seeking the protection of the court as it reorganized its business operations.

In May 2002, Zurich filed a creditor's claim seeking priority status from the bankruptcy court for its claim for the unpaid premiums owed on the policy. Upon the policy's cancellation, Howard owed Zurich $415,000 in unpaid premiums.

In its ruling, the Supreme Court majority accepted the Venable firm's argument that there was a "fundamental difference" between workers' comp and other wage substitutes. One of the factors cited by the court in differentiating between the two, Mr. Katz said, is that both the employer and the employee benefit from workers' comp.

"And you can argue that the employer benefits more because providing workers' comp shields the employer from having the employee sue in case of an injury in the workplace," he said.