April 01, 2011

Subrogation Lien Not Limited to Sums Paid by Guaranty Fund

April 01, 2011

Raul Sanchez v. Rental Service Corporation No. 1-08-3304, 1-09-0165, 1-09-0188 (Cons.)

Raul Sanchez was injured while working for Paul’s Welding Service, Inc. (PWS).  In addition to collecting benefits under the Workers’ Compensation Act, he also filed a civil action against Rental Service Corporation (RSC), who he claimed was responsible for his injuries.  The carrier for PWS, Legion Insurance Company (Legion), went into liquidation after which the Illinois Insurance Guaranty Fund (the Fund) assumed responsibility for Legion’s claims.

Sanchez eventually settled the civil action against RSC for $300,000.00 and PWS moved to recover $262,205.00 it had paid Sanchez in workers’ compensation benefits.  Of that amount, only $145,019.00 was paid by Legion before it went into liquidation.

Sanchez argued that neither the fund nor PWS could recover the amount paid by Legion and the Circuit Court agreed, holding that PWS could recover only the amount paid by the Fund ($120,186.00), and barred recovery of the sum paid by Legion.

On appeal, PWS contended that Section 5(b) of the Act provided for recovery of the total amount of compensation paid regardless of the identity of the actual party making the payment.  The court agreed, stating that the Act provided that:

An employee who has received workers’ compensation benefits must reimburse his employer up to the amount of those benefits received from a third‑party legally responsible for the employee’s injuries.  

The Act further provides that if an employee agrees to a workers’ compensation settlement, the employer may claim a lien upon any award or judgment that the employee ultimately receives from a third party.  Our Supreme Court has recognized that the workers’ compensation lien . . . prevents the employee from obtaining a double recovery and is crucial to the Act’s overall scheme.

The Court rejected the claim that the Fund could recover only the amount it paid and not payments made by Legion.  The Court considered this argument a narrow interpretation of the statute establishing the Fund.  Whether the employee is paid benefits by the Fund or an insurance carrier, the employer retains the statutory right to reimbursement under Section 5(b) of the Act, which, in this case, includes the sums paid by Legion and the Guaranty Fund.

Comment:  Plaintiff attorneys do not want to repay liens in cases where a third party is responsible for their clients’ injuries, Sanchez being the most recent attempt to thwart the statutory scheme.  These attempts should fail in light of the ruling of the Illinois Supreme Court in Gallagher vs. Lenart, 226 Ill.2d 208, (2007), in which the Illinois Supreme Court held that a workers’ compensation lien cannot be waived unless expressly provided in a settlement agreement.  The holding in this case reinforces the strong public policy enunciated in Gallagher: in order to effectuate the statutory scheme, the employer must be protected and the employee precluded from obtaining a double recovery.