August 01, 2007

Employee’s Release of Negligent Driver Did Not Prevent Employer’s Workers’ Compensation Carrier from Making Subrogation Recovery

August 01, 2007

Chubb Group Insurance Cos. v. Carrizalez No. 1-06-1746

On December 5, 2003, Eric Matthews, employed by Caliber Auto Transport, was operating the company van in the course of his employment when the van was struck by Jose Carrizalez.  Matthews recovered workers’ compensation benefits from Caliber’s carrier, Chubb Group.  Chubb paid Matthews compensation benefits of $3,072.94.  Without filing suit, Matthews entered into a settlement agreement and executed a general release of liability of his claim against Carrizalez and his insurer, State Farm.  Under the terms of this agreement, which was entered into on February 23, 2004, Matthews was paid $3,600 in exchange for releasing the defendant of further liability.

On July 29, 2005, less than 24 months from the accident date, Chubb sued Carrizalez to recover money that State Farm paid to Matthews.  The defendant argued that the release was binding because State Farm had no knowledge of any lien or claim by Chubb at the time the settlement was made.

The appellate court reversed the trial court pointing out that Section 5(b) of the Workers’ Compensation Act is intended to provide protection to employers that are compelled to pay compensation to employees injured by third party tortfeasors.

The court acknowledged that the plaintiff’s lien never came into effect because Matthews had never actually filed a suit on which a claim for lien could be made.  The appellate court noted that as permitted by Section 5, Chubb had the right to file its suit because the release was invalid.

The defendant’s argument as to when the lien came into effect misses the point.  The plaintiff here does not seek to enforce a “lien,” but relies instead on its statutory right to hold the release between the employee, Matthews, and the defendant tortfeasor, invalid as against the plaintiff because the employer did not give its written consent and was not fully indemnified or fully protected by court order.

Section 5 specifically authorizes the employer provided if the employee has not already filed an action, to institute a suit no earlier than 21 months and no later than 24 months after the accident.  In this case, the employer met this burden.  The release signed by Matthews would not bar the action brought by Chubb as the employer’s subrogee’s action.  With reference to the defendant’s claim that it had no knowledge of the existence of Matthews workers’ compensation recovery, the court stated:

Even if a defense of lack of notice were available to the defendant, we would reject its application here.

Constructive notice need not be founded exclusively on notice, constructive or actual, arising from the circumstances that created a legal liability for damages on the part of the tortfeasor.  Constructive notice of an employer’s interest may also arise “from a presumption of awareness of the statute’s protective provisions.”

In summary, the court provided the following conclusion:

As provided by section 5(b), without the employer’s consent or without an order of court protecting the employer, the release signed by Matthews is not valid against the employer.  If the employer was required to provide notice of its interest to the tortfeasor, at a minimum, the defendant had such constructive notice prior to the execution of the release.

Editor’s Note:

As noted by attorney Tim McMahon of our office: this is an important case as we sometimes come across the plaintiff who settled his case and releases the tortfeasor without notifying the comp carrier … so long as the statute is not gone on the underlying cause of action, the employer/comp carrier may sue the defendant irrespective of the defendant’s knowledge, actual or constructive, of the workers’ compensation lien.  Absent an order of court protecting the lien or the employer/carrier’s approval of the settlement, the subrogation claim survives.

Chubb Group Insurance Cos. v. Carrizalez No. 1-06-1746, decided July 30, 2007

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