Fox Rothschild LLP Partners Marshall Kent and Sanders Carter obtained summary judgment for The Guardian Life Insurance Company of America in an adversary proceeding filed by the Chapter 7 Trustee in the United States Bankruptcy Court for the Middle District of Georgia.

The decision—closely monitored by Guardian and its outside bankruptcy counsel—allows Guardian to keep a reimbursement payment made by a disability policy insured in Chapter 7 bankruptcy, and may be cited as precedent in future cases involving preferential transfers.

In this case, a debtor in a Chapter 7 bankruptcy proceeding was insured under an employer’s group disability policy administered by Guardian that was provided as part of an ERISA plan. The debtor received payments under the policy, which requires beneficiaries to reimburse Guardian in an amount equivalent to any federal Social Security Disability Insurance (SSDI) payments they receive. The debtor received SSDI benefits, and reimbursed Guardian for the overpayment.

The Chapter 7 Trustee sued to “avoid” or recover the payment as a preferential transfer under bankruptcy law. Kent and Carter responded on Guardian’s behalf, filing for summary judgment based on the usual course of business defense. The court agreed, granting the motion for summary judgment, and allowing Guardian to keep the reimbursement payment. Additional arguments made by Guardian, but not ruled on by the court, were based on the doctrine of recoupment, equitable lien rights, and constructive trust.

The court’s decision is reported at 2019 WL 913354 (M.D. Ga. Bankr. Feb. 20, 2019).