Article

To assure performance of its obligations under a self-insurance plan, Prime Tanning Co., Inc. (Self-Insured/Applicant) obtained from Wells Fargo a standby LC in favor of the Maine Superintendant of Insurance for its workman's compensation insurance (covering injuries to workers in connection with job related injuries) and another in favor of Acstar, a company that issued a surety bond to the government of Missouri.

When Self-Insured/Applicant failed to meet its self-insurance obligations, both beneficiaries drew on their respective standby LCs and applied some of the proceeds to the payment of insurance laws. Pursuant to the law of Maine, the excess proceeds were held by the State Treasurer.

When Self-Insured/Applicant filed for protection under the US Bankruptcy Code, it issued a plan for its reorganization which included provisions regarding the proceeds held by or on behalf of the beneficiaries and not the Self-Insured/Applicant. Accordingly, an objection to the reorganization plan was made challenging its feasibility since the plan would be short of cash without the excess proceeds. The US Bankruptcy Court for the District of Maine, Kornreich, J., sustained the objection.

Noting that Self-Insured/Applicant holds "nothing more than a chose in action to recover excess funds under state law" and that "each jurisdiction has a procedure for the recovery of excess funds after all workers' claims have been satisfied under state law", the Judge recognized that the funds were in fact alienated from the estate of Self-Insured/Applicant.

[JEB]

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