Hartford Underwriters Insurance v. Union Planters Bank, N. A.
The Court ruled that only a bankruptcy trustee, not an individual administrative creditor, can invoke the bankruptcy code's provision letting certain preservation costs be charged against a secured lender's collateral.
An insurance company that provided workers' compensation coverage to a bankrupt company was left unable to recover unpaid premiums directly from the secured lender's collateral, because the statute names only the trustee as the party who may seek that recovery.
“The trustee may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim.”
The statutory text at the center of the dispute, naming only the trustee as the party who may recover such costs.
How it got here: A bankruptcy court and district court sided with the insurer; an Eighth Circuit panel affirmed, but the full Eighth Circuit reversed en banc, and the Supreme Court took the case.
The Case in Depth
What happened
An insurance company provided workers' compensation coverage to a restaurant and gas-station company after it filed for Chapter 11 bankruptcy. The company repeatedly failed to pay its premiums, and after the case converted to a Chapter 7 liquidation, more than $50,000 remained unpaid. Because a bank held a security interest covering nearly all of the company's assets, there were no unencumbered funds available to pay the insurer.
The question before the Court
When a bankrupt company can't pay a supplier because a bank's lien covers all its assets, can that supplier itself force payment out of the bank's collateral?
Why it matters
Businesses that supply goods or services to companies in bankruptcy cannot count on directly tapping a secured lender's collateral to get paid if the trustee declines to pursue that route. They must instead protect themselves upfront — by requiring cash payment, contracting directly with the secured lender, or securing their own priority or lien — rather than relying on this statute as a backstop.
What changes now
This is a final merits decision resolving the legal question of who may invoke this specific bankruptcy recovery provision. The judgment of the Eighth Circuit, which had ruled against the insurance company, is affirmed. The insurer is left without an independent right to seek payment from the secured lender's collateral, though the Court left open related questions, such as whether a bankruptcy court could ever let a creditor act in the trustee's place.
What this does not decide
The Court did not decide whether the workers' compensation insurance actually benefited the secured lender's collateral, whether a bankruptcy court could ever allow another interested party to pursue recovery in the trustee's stead, or how a trustee's own recovery under this provision should be distributed among creditors.
How the Court got there
The legal reasoning, step by step
- The Court started from the ordinary-meaning presumption that Congress says what it means in a statute, and looked at the text of the provision at issue, which allows costs of preserving collateral to be recovered 'the trustee may recover.'
- Because the statute names a specific party (the trustee) empowered to invoke the provision, the Court treated that as a strong signal that no other party was meant to be included, relying on the general interpretive principle that when a law names the parties who may invoke it, only those parties may act.
- The Court contrasted this provision with other Bankruptcy Code sections that use broader language like 'a party in interest' or 'an entity,' reasoning that Congress's narrower choice of words here — naming only the trustee — was deliberate rather than accidental.
- The Court considered whether historical practice before the modern bankruptcy code existed, established a broader rule allowing creditors to seek such recovery directly, but found the pre-Code cases too scattered and inconsistent to override the statute's plain text.
- The Court weighed policy arguments about creditors being left unpaid, but concluded that any such policy concerns did not justify departing from the natural reading of the text, and noted that suppliers have other ways to protect themselves, such as requiring cash payment upfront.