Mid-Island Hospital v. Empire Blue Cross & Blue Shield

Mid-Island Hospital v. Empire Blue Cross & Blue Shield,
No. 00-5076 (2d Cir. Jan. 15, 2002)

A hospital was in default of its obligation to pay into the New York state
excess liability insurance pool. The law creating the pool required insurers
to withhold 10% of the money owed to the defaulting hospital in order to cover
the payments owed to the state. The hospital subsequently filed for Chapter
11 bankruptcy, and money which had been withheld by Blue Cross was subsequently
paid back to an escrow fund. The bankruptcy estate then filed an adversary proceeding
against Blue Cross to recover interest earned on the withheld money. The United
States Court of Appeals for the Second Circuit held that the withheld interest
funds were not part of the hospital’s bankruptcy estate and that the hospital
had no right to interest payments under state law.