Keefe, Campbell & Associates, LLC

Editor’s comment: A few weeks ago, a client asked us to review some Illinois lump sum settlement contract language he was not familiar with. The claimant’s attorney in a workers compensation claim was reserving all Section 16 rights under the Act. When asked, the attorney explained that if for some reason, the insurer settled the matter and then waited six months or a year before payment, that without reserving their Section 16 rights, they would be unable to file for penalties and fees on late payment. With due respect to this attorney, and we believe they are technically correct, the Act offers another vehicle for achieving the same result that does not require the reserving of rights. We also wonder how many “rights” one can reserve in a settlement that still closes the case.

The final paragraph of Section 16 states as follows:

Whenever the Commission shall find that the employer, his or her agent, service company or insurance carrier has been guilty of delay or unfairness towards an employee in the adjustment, settlement or payment of benefits due such employee within the purview of the provisions of paragraph (c) of Section 4 of this Act; or has been guilty of unreasonable or vexatious delay, intentional under‑payment of compensation benefits, or has engaged in frivolous defenses which do not present a real controversy, within the purview of the provisions of paragraph (k) of Section 19 of this Act, the Commission may assess all or any part of the attorney’s fees and costs against such employer and his or her insurance carrier. (emphasis added)

The PA in our scenario above indicated that without reserving the Section 16 rights, they would have no way of obtaining, or even a valid way of filing for, such penalties. While we agree that Section 16 allows for such, it is not the only way to achieve this goal, and also not the most effective way. That vehicle is Section 19(g), which states in relevant part:

Except in the case of a claim against the State of Illinois, either party may present a certified copy of the award of the Arbitrator, or a certified copy of the decision of the Commission when the same has become final, when no proceedings for review are pending, providing for the payment of compensation according to this Act, to the Circuit Court of the county in which such accident occurred or either of the parties are residents, whereupon the court shall enter a judgment in accordance therewith. In a case where the employer refuses to pay compensation according to such final award or such final decision upon which such judgment is entered the court shall in entering judgment thereon, tax as costs against him the reasonable costs and attorney fees in the arbitration proceedings and in the court entering the judgment for the person in whose favor the judgment is entered, which judgment and costs taxed as therein provided shall, until and unless set aside, have the same effect as though duly entered in an action duly tried and determined by the court, and shall with like effect, be entered and docketed. (emphasis added)

Essentially Section 19(g) allows a duly entered and approved settlement contract, which has the same legal status as an Arbitrator’s award, to be enforced by the Circuit Court. In cases of late payment, the Circuit Court shall assess fees and costs; it does not say they may assess, it says they shall (read: must) assess fees and costs. Essentially this is a vehicle that allows for fees and costs without having to litigate the issue of whether to assess them at multiple levels and over a longer timeframe.

If one had to proceed through Section 16, it would have to first be filed with the Commission, then could have the potential of either a denial of fees and costs, or possible appeal of such an order to the Circuit Courts. Section 19(g) is a direct action in the Circuit Court with a much shorter timeframe for judgment, and an easier potential for fees and costs to be assessed.

This article was written by Arik D. Hetue, J. D. who can be reached at ahetue@keefe-law.com. If you have any questions or comments, please post them in response to this article on our blog. www.keefe-law.com/blog

In a second inquiry, we also asked about the repeated question we receive about whether claimant attorneys in Illinois or any state can take an attorney fee on an MSA value.

Editor’s comment: We don’t like to name names in the Update but if you ever have a wildly complex question, she is the best of the best of the best on this topic. She gave us permission to print the following thoughts for your consideration. If you want her name and contact information, send us your contact information and we will forward it along.

Her thinking on these two topics is:

A. If you want a reversionary clause, you’ll need to hire a custodian because the $$ goes directly to the claimant in self-administered MSA’s. Have fun getting it back from the estate.

Custodial fees are $500 to $2000 a year, so a custodial account (trust) is usually reserved for large (+$150,000) MSA’s. The next problem is a large MSA is usually funded with an annuity. The most cost effective annuities pay for life only. That means that if the claimant dies, the annuity stops paying into the trust and all that’s left is usually about 1-2 years worth of funds.

If you want the reversionary clause, you would want to spend the extra money and purchase an annuity with a minimum guarantee period. There are tax implications for the funder (the insurer or self-insured employer) if annual annuity payments revert to them.

Most carriers only allow reversionary clauses when you pay in a lump sum or use a “life only” annuity.

B. As to attorney’s fees on MSA values, none of the states she does business in allow the attorneys to take a fee on the MSA (we are unaware of any state that does). Medicare demands all money go to the claimant’s future medical bills. They don’t care about the role of the attorney in reaching the settlement.

Medicare won’t even allow you to include the custodial fees in the calculation of the “total settlement”. They are expense dollars, not medical payments. That’s a technical issue that only matters to the payer and Medicare. The “total settlement” value determines whether the case meets the CMS review threshold.

Please send us your thoughts and comments on these topics in managing and creating MSA trusts.

Editor’s comment: We like the outcome and feel it presents something of a primer on this issue. In Taylor v. Pekin Insurance, (2008 WL 4943700, issued November 20, 2008), the Illinois Supreme Court was faced with a claimant who was struck by an uninsured motorist. The injured worker received $162,588.33 in workers’ compensation benefits. He went to arbitration on the UIM claim and got $250,000. The same insurer handled both WC and UIM coverage. Upon learning of the UIM decision, the carrier delivered a check to plaintiff for $87,411.67-the difference between the $250,000 arbitration award and the $162,588.33 workers’ compensation award. His total recovery was the higher of the two amounts–$250,000. Claimant, who is not a lawyer, then asked for attorney’s fees for himself!

To do so, Plaintiff filed a complaint in the circuit court of Madison County seeking a declaration that he was entitled to $40,467 from the carrier for attorney’s fees which he claimed pursuant to section 5(b) of the Act. The insurance carrier filed a motion to dismiss, arguing Plaintiff was not entitled to the $40,467 because neither the auto policy nor any statute authorizes Plaintiff to collect attorney fees. The trial court granted the motion and dismissed Plaintiff’s complaint. The appellate court reversed, finding Plaintiff was entitled to the $40,467 which would have brought his total recovery to $290,467.00.

The Supreme Court opinion noted the employee obtained recovery for his injuries through his employer’s uninsured-motorist coverage. No legal proceedings were undertaken against a third party responsible for the injuries. There was no “third-party claim, action or suit” under the express language of section 5(b). The insurance carrier’s setoff was pursuant to the contract between the parties, not pursuant to section 5(b). The Supreme Court opinion noted the dissent by Appellate Court Justice Donovan who stated: “No monies were paid back to the workers’ compensation carrier or employer. There simply was no recovery or reimbursement triggering the reduction for 25% attorney fees under section 5(b) of the Act.”

The opinion goes on to note the Appellate Court majority misconstrued the way the section 5(b) attorney fee operates. Under the court’s holding, the plaintiff would receive “the additional sum of $40,467, reflecting the 25% paid to plaintiff’s attorney in the workers’ compensation case.” We agree strongly with our highest court such result distorts the statute, for two reasons. First, plaintiff is not entitled to reimbursement for any attorney fees he may have incurred in his workers’ compensation case. The 25% fee in section 5(b) is payable to plaintiff’s attorney based on the attorney’s services in obtaining a recovery against a third-party tortfeasor in his tort claim. The fee has nothing to do with the fees owed to Petitioner’s attorney in the workers’ compensation case.

Second, under the plain language of the statute, the 25% fee is payable to an attorney, not to the plaintiff. The Court ruled “The second paragraph of section 5(b) contemplates a single recovery against a third party with the employee’s share of the attorney’s fee to be based on the part he recovers and the employer’s share of the fee to be based on the part he recovers. While the employee’s counsel is entitled to a part of his fee from the employee and a part from the employer, the total fee is in essence a single fee based on the single recovery from the third party.”

If you have thoughts or comments, please send a reply.