Sunz highlights the heightened requirements to perfect a security interest in collateral that qualifies as a “commercial tort claim.”

In Sunz Ins. Co. v. Internal Revenue Service (In re Payroll Management, Inc.), 125 F.4th 1035 (11th Cir. 2025), the United States Court of Appeals for the Eleventh Circuit held that a debtor’s claim for economic damages qualified as a “commercial tort claim” under Article 9 of the Uniform Commercial Code at the time the IRS’s tax lien attached to the claim and was perfected. As a result, the IRS’s lien had priority over a competing lienholder’s claim. 

Background

Payroll Management Inc., a staffing company, suffered economic damages as a result of the 2010 Deepwater Horizon oil spill off the Gulf Coast. Payroll was part of a certified class of economic-loss plaintiffs in the resulting litigation who agreed to settle their claims with British Petroleum Inc. However, Payroll’s claim was subject to a long and intense review process and would only become payable once Payroll provided BP an individual release.

In October 2015, Payroll entered into a security agreement with Sunz Insurance Company, whereby Payroll provided Sunz a security interest in various categories of Payroll’s business assets, including “existing contracts … and proceeds [thereof].” Sunz filed a financing statement with the relevant state office to perfect its security interest. In March 2017, the IRS filed a $23 million federal tax lien notice against Payroll with the Florida Secretary of State.

In March 2018, Payroll filed for Chapter 11. Five months later, Payroll agreed to settle the BP claim for $1.07 million, obtained bankruptcy court approval for the settlement, and signed a release in favor of BP. Sunz filed an adversary proceeding against the IRS and other creditors, seeking a determination that it had a first priority lien on the settlement sum. The IRS, however, contended that its tax lien had first priority.

Ultimately, the bankruptcy court ruled that the IRS’s lien had priority. The U.S. District Court for the Middle District of Florida affirmed.

The Eleventh Circuit’s Ruling

The Eleventh Circuit underpinned its decision on these three undisputed points:

1. Payroll’s BP claim qualified as a commercial tort claim under controlling Florida law because Payroll, a business, was suing BP in tort for “purely economic damages”;
2. Sunz’s security agreement did not cover commercial tort claims because it did not list such claims as collateral, “much less specifically describe them” as required under the governing Florida statute; and
3. The IRS’s May 2017 tax lien, governed by federal law, attached to all of Payroll’s property, including commercial tort claims, and was perfected at that time.

Consequently, the central issue on appeal was whether the BP settlement claim was a commercial tort claim in March 2017 when the IRS filed its tax lien. The court determined that the answer was yes, explaining that under Florida law, a commercial tort claim does not convert into a contract claim (which would be covered by Sunz’s 2015 security agreement) until the claim has been “(1) ‘settled’ and (2) ‘reduced to a contractual obligation to pay.’” Here, Payroll’s BP claim did not become a contractual obligation to pay until the claims review process had concluded and Payroll had provided BP a signed release—which did not happen until after Payroll’s March 2018 bankruptcy filing. Therefore, the IRS’s 2017 tax lien attached to the BP claim first and had priority. The Eleventh Circuit affirmed the District Court.

Conclusion

Sunz highlights the heightened requirements to perfect a security interest in collateral that qualifies as a “commercial tort claim.” Failure to adequately describe such collateral can result in the loss of valuable security. Here, a later-filed federal tax lien took priority over the secured creditor, a result that could have been avoided with better loan documentation.

For More Information

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