The Federal Seventh Circuit rules if an Illinois employer pays workers’ compensation benefits in a claim where a third party contributed to the injury, the employer may avoid contribution by waiving the lien for amounts paid even if waiver is not sought until after judgment is awarded.
Editor’s comment: In a strikingly similar claim several years ago, the author of this case summary recovered a substantial lien amount as part of a settlement of a third party claim by arguing the lien could be waived post judgment even while the esteemed Circuit Court Judge disagreed. In many third party claims, the employer is pressured to waive their lien to allow additional recovery to a claimant or limit the liability of the third party in contribution. This case is an example of why an employer should hold firm in negotiations for at least partial lien recovery when a third party contributes since the only jeopardy in allowing trial to proceed should be potential loss of the lien amount.
In Baltzell v. R & R Trucking Co. — F.3d —-, 2009 WL 249981 C.A.7 (Ill.) 2009 (February 4, 2009), Millard “Skeeter” Baltzell was critically injured when he was crushed by a tractor-trailer while working for The Ensign-Bickford Company. Skeeter sought and received workers’ compensation from Ensign-Bickford, and along with his wife Ruth Ann, brought strict liability claims against three companies-R & R Trucking Company, the owner of the tractor-trailer; Freightliner Corporation, the tractor manufacturer; and Lufkin Industries, Inc., the trailer manufacturer. These Defendants then sought contribution by filing third party claims against Ensign-Bickford.
The Baltzells prevailed before a jury, which found the other Defendants and Ensign-Bickford collectively liable for $13,980,120.00. Ensign-Bickford then moved to dismiss the contribution claims against it in exchange for waiving the statutory lien it had on the Baltzells’ recovery. The District Court denied Ensign-Bickford’s motion and entered judgment against the other Defendants and Ensign-Bickford. The Seventh Circuit Court of Appeals concluded the Illinois Workers’ Compensation Act and the Illinois Supreme Court’s decision in LaFever v. Kemlite Co. required the court’s judgment to be vacated and remanded for further proceedings consistent with their opinion.
The Federal Appellate Court noted Illinois has a workers’ compensation system in which employers compensate their employees for job-related injuries or illnesses, regardless of fault. In return for not having to prove fault, employees receive only workers’ compensation benefits from their employers and cannot sue their employers to receive more damages. Sometimes parties other than an employer might cause an employee to be injured at work. An employee in this situation can sue these third parties for damages and these third parties can in turn seek contribution from the employer or an employer may choose to exercise its right to intervene in the suit before satisfaction of judgment to recover their lien for amounts paid. If an employee ends up recovering money from a third party for a work-related injury, it is implicit the employer was not solely responsible for the accident. Illinois law gives the employer a lien on any recovery an employee obtains from a third party for a work-related injury. An employer who exercises this lien gets first crack at any recovery the employee gets from the third party. To calculate the amount of the employer’s lien, one begins with the recovery the employee receives from the lawsuit and then reduces this value by an amount equal to the amount found by the trier of fact to be the employer’s pro rata share of the common liability in the action. The amount of the employer’s lien cannot exceed its total workers’ compensation obligation.
Illinois law caps an employer’s contribution liability at “an amount not greater than the [employer's] workers’ compensation liability.” Kotecki v. Cyclops Welding Corp. This value, which is generally referred to as the “Kotecki cap,” represents the maximum amount an employer has to pay in contribution. Illinois law provides employers with a second option–an employer can escape contribution liability altogether by waiving its lien on an employee’s recovery from third parties. See LaFever. An employer who takes this option can no longer share in damages the employee recovers from a third party. However, the employer can then be certain its only payment obligation will arise under workers’ compensation.
In this case, Illinois law limited Ensign-Bickford’s contribution liability to the present cash value of its total workers’ compensation obligation (i.e., its Kotecki cap). But the IWCC hadn’t yet finally determined what Ensign-Bickford’s total workers’ compensation liability would be, so the District Court required Ensign-Bickford to submit an estimate of this amount. Ensign-Bickford submitted documentation its Kotecki cap was $4,085,571.21, and it had already paid $873,953.31 in workers’ compensation to the Baltzells. Neither the Defendants nor the Baltzells disputed these values, which the District Court proceeded to adopt. Ensign-Bickford then moved to waive its lien on the Baltzells’ recovery and sought to dismiss the defendants’ third-party contribution claims. On October 4, 2005, the District Court denied this motion, reasoning to waive its lien now would more than partially frustrate the purpose of the Contribution Act, and it would do nothing to promote the purposes of the workers’ compensation statute. The Court then reduced the total judgment of $13,980,120 by the amount Ensign-Bickford would pay and determined cumulative liability for the three defendants, thereby making R & R liable for $5,654,027, Freightliner liable for $2,827,013, and Lufkin liable for $1,413,506. The court entered judgment in favor of the Baltzells in these amounts.
Ensign-Bickford then filed various post-judgment motions, including another motion to waive its workers’ compensation lien and dismiss the third-party contribution claims against it. Meanwhile, the Baltzells and the Defendants entered a settlement agreement in which Defendants agreed to pay their respective pro rata shares of the judgment but reserved their right to litigate contribution and setoff issues. On February 13, 2006, the District Court denied Ensign-Bickford’s post-judgment motions, setting the stage for the current appeal. Defendants also filed related cross/contingent appeals regarding setoff and contribution issues in the event the judgment entered against Ensign-Bickford was vacated.
The Seventh Circuit noted LaFever still held even though the employee in LaFever already paid out the workers’ compensation benefits it owed the employee and was not required to make any future payments while Ensign-Bickford estimated it still owed about $3 million in future workers’ compensation payments. The Seventh Circuit concluded the District Court should have allowed Ensign-Bickford to waive its lien on the Baltzells’ recovery in their lawsuit against Defendants and dismissed the contribution claims against Ensign-Bickford. Since Ensign-Bickfor was not liable for contribution (but still owed workers’ compensation benefits), they next determined an employee should not get a double recovery from a third party for the same injury, so Defendants here were entitled to a setoff for any workers’ compensation benefits the Baltzells have already received from Ensign-Bickford. They further noted the need for setoff of future benefits as they were paid absent an agreement between all parties to resolve the issue. The court noted the most efficient solution might be for all the parties to agree any future workers’ compensation payments be held in trust and distributed to Defendants according to their pro rata liability, but the Seventh Circuit did not actually take this step and order it done.
This case is an example of the bargaining power an employer should have when, after doing the right thing and paying workers’ compensation benefits, they are pressured to waive recovery to allow a potential responsible third party to only pay a part of what they may ultimately be responsible. At KC&A we always recommend our clients seek the most beneficial resolution. This may take many forms—from waiving a lien with $1 contracts to forcing a third party case to trial to recover the lien. This case confirms the strategy is sound as the only thing to lose is the amount you are liable (and may have already paid) for the workers’ compensation claim since you can waive your lien at anytime prior to a decision becoming final. This article was researched and written by Shawn R. Biery, J.D. If you have thoughts and comments or need the case citation, please send a reply to sbiery@keefe-law.com.
