Illinois Appellate Court Finds Workers’ Compensation Lien Waiver was Wrongly Applied

Reflection Window Co. filed in an attempt to limit its contribution liability to Power Construction Co. for an incident that injured Timothy Cooley who was an employee of Reflection Window. The incident occurred at a construction site where Power Construction was a general contractor.

Reflection Window had insisted that the judge was wrong in also ruling that it waived its lien under Section 5(b) of the Illinois Workers’ Compensation Act. Reflection Window had conceded that the Cook County judge was correct in striking the affirmative defense it filed under Kotecki v. Cyclops Welding Corp., 146 Ill.2d 155 (1991).

Power Construction sued Reflection Window for contribution after Cooley sued the general contractor for negligence.

An indemnification provision in the contract between Elston Window (Power’s subcontractor) and Reflection Window (Elston’s subcontractor) waived the so-called 3by saying Reflection Window “expressly and specifically agrees that its obligations to indemnify, defend and save harmless shall not in any way be diminished by any statutory or constitutional immunity it enjoys from suits by its own employees or from limitations of liability or recovery under workers’ compensation laws.”

In reviewing the important distinctions between the Kotecki cap, a limitation on liability, and the statutory right to reimbursement of workers’ compensation payments, the Illinois Appellate Court reversed the Cook County trial court’s order.

“The Kotecki waiver by Reflection Window only means that it cannot limit its liability should it be found to be liable itself.”  Justice John C. Griffin also stated, “It does not follow that there must have been a waiver of the workers’ compensation lien.” Also, the indemnification provision lacked the “explicitness required to waive a Section 5(b) lien.”

Generally, the concept of contribution contemplates that each party whose fault contributed to an injury should pay its pro rata share of the common liability. The Illinois Supreme Court has held, however, that an employer’s contribution liability for its employees’ injury is capped at an amount not greater than the employer’s workers’ compensation liability to its employee. Kotecki, 146 Ill.2d at 166. In other words, if a subcontractor’s employee sues a general contractor for his injuries, the “Kotecki cap” can be used as an affirmative defense to the general contractor’s contribution claim against a subcontractor.

The Kotecki cap can be waived by the employer. A subcontractor’s agreement to indemnify the general contractor and hold it harmless for claims resulting from the performance of the subcontractor’s work waives the affirmative defense that the subcontractor might have otherwise had for limited liability under the Illinois Workers’ Compensation Act. Thus, such an agreement makes the subcontractor liable for unlimited contribution, undiminished by the Kotecki cap.

An employer is entitled to a workers’ compensation lien on any recovery that its injured employee might get from a third party who caused or contributed to the injury. A workers’ compensation lien is statutorily imposed by Section 5(b) of the Workers’ Compensation Act. A workers’ compensation lien serves the important purpose of allowing both the employer and the injured employee an opportunity to reach the true offender while preventing the employee from obtaining a double recovery.

It was unclear that the trial court in this case simply considered the waiver of the Kotecki limitation on liability to also constitute a waiver of the workers’ compensation lien or whether the court found some other basis for holding that the lien is waived. Accordingly, the appeals panel analyzed both potential bases for the ruling.

The lien and the limited liability under Kotecki are separate concepts. “An employer’s negligence has nothing to do with its statutory right to recover workers’ compensation payment under Section 5(b).” Silva v. Electrical Systems, 183 Ill.2d 356 (1998).

There is a distinction between a cap on liability and the right to recompense granted to employers in the Illinois Workers’ Compensation Act. Reflection Window can have both agreed to be subject to potential unlimited liability while at the same time not giving up its right to collect monies it paid for workers’ compensation for Power Construction causing it injury to its employee.

In this instance, the case was in the pleading stage and thus it was too early to discover the identity of the “true offender.” Power Construction could be found to be wholly responsible for plaintiff’s injury while Reflection Window could be found to be without fault. If that were the case, there would be no basis for preventing Reflection Window from recovering its workers’ compensation payments as the act intended.  In fact, such an outcome would be antagonistic to the act’s lien provision in that it would require Reflection Window to pay compensation when it was blameless and at the same time it would give plaintiff the windfall of both a judgment against Power Construction and the workers’ compensation payments made by Reflection Window.

The Kotecki waiver by Reflection Window means only that it cannot limit its liability should it found to be liable itself. But just because there is a waiver of the Kotecki cap defense, it does not follow that there must have been a waiver of the workers’ compensation lien.

Although not addressed anywhere else in the nine-page order, the trial court did state that “The agreement at issue in this case between a subcontractor and a subcontractor-employer explicitly waived the latter’s workers’ compensation lien.” The appeals panel found that there is nothing in the agreement between Reflection Window and its subcontractor to demonstrate that Reflection Window waived its lien. Therefore, should plaintiff recover from Power Construction, Reflection Window is entitled to enforce its lien rights for an amount up to what it has already paid the plaintiff in workers’ compensation benefits.

Cooley v. Power Construction Co., 2018 IL App (1st) 171292.

Kreisman Law Offices has been handling construction site injury lawsuits, work injury cases, motorcycle accidents, truck accident cases and catastrophic injury lawsuits for individuals, families and loved ones who have been injured, harmed or killed by the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Highland Park, Hinsdale, Lockport, Morton Grove, Northfield, Cicero, Joliet, Waukegan, Aurora, Elgin, Mt. Prospect, Palatine, South Holland, South Barrington, Rolling Meadows, Rosemont, Chicago (Near North Side, Printer’s Row, Princeton Park, Pulaski Park, Ravenswood Manor, Roscoe Village, Humboldt Park, Garfield Park, Wildwood, West Loop, Koreatown, Diversey Harbor, East Garfield Park, Belmont Cragin, Belmont Gardens, Archer Heights, Lincoln Square, Lithuanian Plaza), Des Plaines, Evergreen Park, Lincolnshire and Lisle, Ill.

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