News

May 01, 2007

In our July, 2003 Newsletter and supplemental September, 2003 Alert, we reported to you on the case of General Casualty Company v. Carroll Tiling Service where the Illinois Second District Appellate Court awarded compensation benefits to a corporate officer who had signed a Benefits Rejection Form prepared by General Casualty Company.  The Rejection Form by which the corporate officer excluded himself from coverage was based on Section 3(17) of the Act, which provides in part as follows:

The corporate officers of any domestic or foreign corporation employed by the corporation may elect to withdraw themselves as individuals from the operation of this Act.  Upon an election by the corporate officers to withdraw, written notice shall be provided to the insurance carrier of such election to withdraw, which election shall be effective upon receipt by the insurance carrier of such written notice.

After reviewing the Benefits Rejection Form, the court noted that the form’s signerappears to withdraw only from insurance coverage and that this withdrawal would be a violation of the Act. The court stated:

The Act provides that “[e]very policy of an insurance carrier, insuring the payment of compensation under this Act shall cover all the employees and the entire compensation liability of the insured.”  This provision, when read with the requirement that insurance obtained for an employer’s workers’ compensation benefits liability must cover the entirety of its liability, leads to the conclusion that the Act prohibits the withdrawal of an individual employee from insurance coverage as well as prohibits an employer and its insurer from selectively omitting an employee from the coverage of a policy an insurer has issued to an employer.  This conclusion is borne out by the Act’s command, [a]ny provision in any policy, or in any endorsement attached thereto, attempting to limit or modify in any way, the liability of the insurance carriers issuing the same except as otherwise provided herein shall be wholly void.”

In other words, the court stated that the Act contained two conflicting paragraphs and that it would regard any attempt at withdrawal under the Benefits Rejection Form as invalid.

In the Editor’s Note following the General Casualty Company’s opinion, your Editor pointed out that the case had been decided by the Second District Appellate Court and would be binding only on that Second District.  In a recent case involving Virginia Surety Company v. Bill’s Builder, Inc. a corporation, and William R. Geigner, the Third District Appellate Court indicated some disagreement with the conclusions reached in the General Casualty Company case.  In the Virginia Surety Company case, a corporate officer also was alleged to have signed a Benefits Rejection Form.  William Geigner, the injured claimant, and his wife, Kristina, were both listed as corporate officers and the business was described in the application as a one-man carpenter contractor business with no employees.  While there is some confusion as to the terms utilized, the language appears to request that both Geigner and Kristina be excluded and the bottom of the page for the alleged signature of Geigner.  Also attached to the policy was an endorsement prepared by Virginia Surety described as “Partners, Officers and Others Exclusion Endorsement.”

Geigner suffered a spinal cord injury when he fell from a scaffold while working for the corporation.  When a claim was made against the workers’ compensation insurance, coverage was denied.

The insurance agent testified that he had provided different types of insurance to Geigner and Kristina but had dealt exclusively with Kristina.  Kristina was familiar with the effective exclusion because of a similar decision on prior coverage.  Geigner acknowledged that Kristina had conversations with the insurance agent regarding workers’ compensation coverage for the corporation but asserted, however, that he (Geigner), did not sign the application for insurance and that he did not know who did.

The Third District Appellate Court noted that the General Casualty Company case held that the form applied only to insurance coverage, did not mention withdrawal from the operation of the Act or rejection of benefits under the Act and was directed to a sole proprietor or business partner (the individual defendant was neither).  However, the court in Virginia Surety made it quite clear that it did not agree with the analysis inGeneral Casualty.  The court stated:

In the case before us, Geigner allegedly indicated on an application for insurance that he wanted to be excluded from coverage of the insurance policy.  If we assume for the purpose of this particular analysis that Geigner’s signature is valid or authorized, and considering the election in the context of which it was made (an application for workers’ compensation insurance), the application would be sufficient under the statute to exclude Geigner from coverage and to provide Virginia Surety with written notice of that election.  No additional language is necessary.  Nor is Virginia Surety required to take affirmative action to confirm that Geigner understood the consequences of his election.  Considered in context, the application is sufficient to indicate an objective affirmative action to effectively withdraw Geigner from operation of the Act.  If the alleged signature is not valid or not authorized, then there is no evidence of a valid objective affirmative election to withdraw from the operation of the Act.

However, the case was remanded back to the trial court to determine whether Geigner, or someone authorized to act on his behalf, actually made the election.  Geigner testified that he did not sign the application and that he does not know who did and that even Virginia Surety’s underwriter acknowledged that Geigner’s signature on the application for insurance may not have been genuine.

Editor’s Note:

Whereas the General Casualty case held that despite the attempted withdrawal from the operation of the Act, the claimant continued to have coverage under the General Casualty Workers’ Compensation Insurance policy.  In other words, the attempted withdrawal was completely ineffective.  However, the Virginia Surety case held that the claimant could be excluded from coverage of the insurance policy if the signature requirements were required.  In some cases, insurance underwriters have not been sufficiently careful in making certain that the rejection of the Act is properly executed.  In this case, the insurance agent testified that Kristina was familiar with the consequences of opting out of coverage because she and the claimant had opted out of coverage in a previous workers’ compensation insurance policy.  Nevertheless, the application was mailed to Kristina and, upon its return, the agent was not certain as to whether Geigner had actually signed the application.

These issues frequently arise when the claimant sustains severe injury and is suddenly aware that he has no benefits available to him.  Because of a possible exposure to such a claim, it would be my suggestion that more importance be given to the signing.  The ideal situation would require that corporate officers’ signatures on the rejection be witnessed and notarized.  In this case, Virginia Surety’s underwriter learned after the policy had been issued that Geigner’s signature on the application was not genuine.  The court’s opinion does not indicate whether this knowledge was acquired prior or subsequent to the accident.

Virginia Surety Company v. Bill’s Builders, et al No. 3-06-0606, decided April 10, 2007

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