September 02, 2007

Employee’s Release of Injury Claim Against His Employer’s Underinsured Motorist Insurance Policy Did Not Release His Workers’ Compensation Claim

September 02, 2007

Maxit, Inc. v. John Van Cleve, et al No. 2-06-1025

On December 21, 2006, John Van Cleve sustained injuries while driving a truck being operated in the course of his employment with Maxit. Van Cleve filed a claim under Maxit’s underinsured motorist insurance policy. He also filed a workers’ compensation claim for which Maxit had no insurance coverage.

Van Cleve and his wife settled the underinsured motorist claim and signed a document entitled “Release of All Claims.” The agreement provided, in part, as follows:

FOR AND IN CONSIDERATION of the payment to us at this time of the sum of $800,000, Eight Hundred Thousand Dollars, the receipt of which is hereby acknowledged, we being of lawful age, do hereby release, acquit and forever discharge Maxit, Inc., Transportation Insurance Co. and their agents, … from any and all actions, causes of action, claims, demands, damages, costs, loss of services, expenses and compensation, on account of, or in any way growing out of, any and all known and unknown personal injuries and property damage resulting or to result from an accident that occurred on or about 12/26/2001, and covered by Underinsured Motorist policy provisions in Policy No. 1035982371.

The document further provides that it releases all causes of action of any kind and nature … that have been or may hereafter at any time be made or brought against the said Releasees for the purpose of enforcing a further claim for damage on account of the alleged damages or injury sustained in consequence of the aforesaid accident. Van Cleve, however, continued to pursue his workers’ compensation claim and subsequently settled the workers’ compensation claim for $200,000, which agreement was approved by the Industrial Commission.

Thereafter, Maxit filed a claim against the Van Cleves contending that they had breached the release by continuing to pursue John Van Cleve’s workers’ compensation claim after signing the release. The trial court agreed with Maxit noting that the Van Cleves did pursue further payments under the workers’ compensation action and now refused to indemnify Maxit as provided for in the release. Unfortunately for Maxit, the appellate court reversed and remanded the case on the basis that the provision of the release purporting to include the workers’ compensation claim was invalid, and therefore, unenforceable. The court relied on Section 23 of the Act, which states:

No employee, personal representative, or beneficiary shall have power to waive any of the provisions of this Act in regard to the amount of compensation which may be payable to such employee, personal representative or beneficiary hereunder except after approval by the Commission and any employer, individually or by his agent, service company or insurance carrier who shall enter into any payment purporting to compromise or settle the compensation rights of an employee, personal representative or beneficiary without first obtaining the approval of the Illinois Workers’ Compensation Commission as aforesaid shall be barred from raising the defense of limitation in any proceedings subsequently brought by such employee, personal representative or beneficiary.

It has been long settled that an employer may not ignore this provision of the Act and enter into a settlement with its employee without the approval of the Illinois Workers’ Compensation Commission. The release (and settlement with defendants) of John’s workers’ compensation claim, therefore, is not effective in the absence of the approval of the Commission.

The legal bar to settlement and release of the workers’ compensation claim has ramifications in the interpretation of the release. Illinois law is clear: a contractual provision that violates public policy as expressed in statutory law is unenforceable and void. Because of this, we cannot say that the parties intended that the release include the workers’ compensation claim, as that intention would be unlawful, unenforceable, and void. Instead, we must construe a contractual provision, if possible, in such a way that it does not violate public policy and renders the contract enforceable, rather than unenforceable.

Editor’s Note: As we all know, it has been the policy of some employers to enter into a direct settlement with the employee without submitting the matter to the Industrial Commission for approval. Without that approval, the employee retains the right to file with the Industrial Commission within the limitations period. Should the case thereafter come to the Commission, the award frequently amounted to an increase of the direct settlement but the Commission would then credit the employer for the amount paid in the direct settlement. In effect the Commission does not regard the direct settlement as “invalid” but rather “inadequate” as to amount.

In this Maxit case, the appellate court has apparently construed the underinsured motorist settlement as a “direct settlement without approval of the Commission” and therefore, as being invalid and void. Yet, a review of Section 23 suggests that the legislature merely prevented the employer from using limitations as a defense if the claim were filed with the Industrial Commission after the three-year period.

It would be the opinion of your Editor that if this underinsured motorist provision qualifies as a direct settlement then the employer could claim credit for the amount of the prior payment but that the settlement itself would have been valid.

Maxit, Inc. v. John Van Cleve, et al No. 2-06-1025, decided August 22, 2007

Frank J. Wiedner, Editor Wiedner & McAuliffe, Ltd One North Franklin, #1900 Chicago, IL 60606 (312) 855-1105