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Jones v. Melroe Div.





APPEAL from the Circuit Court of Lake County; the Hon. JOHN L. HUGHES, Judge, presiding.


Plaintiff, administrator of the estate of Milton Jones, appeals from a judgment of the Circuit Court of Lake County distributing the settlement of wrongful death litigation between her and American States Insurance Company (American States), the worker's compensation carrier of decedent's employer and denying her damages for her counterclaim of improper claims practices. American States cross-appeals.

Milton Jones, the decedent, was killed in an accident arising out of his employment by Walter Malinowski, d/b/a W.M. Construction Company. Plaintiff, Mary Lou Jones, wife of the decedent, applied for worker's compensation benefits. Pursuant to an order of the Illinois Industrial Commission, American States was required to pay to Mrs. Jones the sum of $184.27 weekly for life.

Plaintiff brought a wrongful-death action against Melroe Division, Clark Equipment Company (Melroe), seeking damages under a product liability theory. Melroe manufactured the front end loader involved in the accident which killed decedent. On April 24, 1980, the day after trial commenced, the parties settled the action for the sum of $225,000 and the trial court dismissed the suit. But plaintiff moved the court, on May 13, 1980, to retain jurisdiction of the matter because a controversy had arisen between her and American States, the subrogee of the employer, relating to the execution of releases by American States which would allow plaintiff to collect the settlement from Melroe. American States then filed a petition to intervene under section 5(b) of the Worker's Compensation Act (Ill. Rev. Stat. 1979, ch. 48, par. 138.5(b)) (the Act) and to impress a lien upon the settlement fund.

Section 5(b) provides, inter alia, that an employer liable to pay compensation under the Act may claim a lien upon any award from a third party. The statute states:

"(b) Where the injury or death for which compensation is payable under this Act was caused under circumstances creating a legal liability for damages on the part of some person other than his employer to pay damages, then legal proceedings may be taken against such other person to recover damages notwithstanding such employer's payment of or liability to pay compensation under this Act. In such case, however, if the action against such other person is brought by the injured employee or his personal representative and judgment is obtained and paid, or settlement is made with such other person, either with or without suit, then from the amount received by such employee or personal representative there shall be paid to the employer the amount of compensation paid or to be paid by him to such employee or personal representative including amounts paid or to be paid pursuant to paragraph (a) of Section 8 of this Act.

Out of any reimbursement received by the employer pursuant to this Section, the employer shall pay his pro rata share of all costs and reasonably necessary expenses in connection with such third-party claim, action or suit and where the services of an attorney at law of the employee or dependents have resulted in or substantially contributed to the procurement by suit, settlement or otherwise of the proceeds out of which the employer is reimbursed, then, in the absence of other agreement, the employer shall pay such attorney 25% of the gross amount of such reimbursement." (Emphasis added.) Ill. Rev. Stat. 1979, ch. 48, par. 138.5(b).

The petition of American States prayed that the entire settlement fund be impressed with a lien and placed in an interest bearing account; and that it be reimbursed for the $37,720.55 paid by it under the order of the Illinois Industrial Commission at the date of the settlement, less attorney fees and expenses, and that the balance remaining be awarded to it to cover future payment of worker's compensation benefits. In the alternative, American States asked that the trial court enter an order finding that the proceeds remaining from the settlement fund, after reimbursement of the $37,720.55 paid to plaintiff and deduction of expenses and attorney fees, constituted prepayment of a lump sum to plaintiff under section 9 of the Act (Ill. Rev. Stat. 1979, ch. 48, par. 138.9). That section provides that, upon petition to the Commission, compensation may be commuted to a lump sum equal to the present value of the probable future payments.

Plaintiff filed, on May 19, 1980, a petition to settle the cause of action nunc pro tunc to May 13, 1980. The petition was granted, but the trial court ordered that the disbursement of the $225,000 be subject to the order of the court following hearings to adjudicate the lien interest of American States. On May 20, 1980, plaintiff filed a response to American States' petition to intervene and a counterclaim. The response asked that American States be allowed to intervene and to collect such reimbursement funds which it is entitled to collect, less fees and prorated expenses, but that American States' other prayers for relief be denied, i.e., that the fund be placed in an escrow account and either that the entire amount be awarded to American States or that the proceeds be found to constitute payment of a lump sum to plaintiff.

Plaintiff's counterclaim alleged that American States had refused to execute a release of its lien on the settlement. She contended that the following computation, based upon a formula utilized in Vandygriff v. Commonwealth Edison Co. (1979), 68 Ill. App.3d 396, 386 N.E.2d 318, set forth the proper distribution of the fund:

"Estate of Milton Jones Proposed agreement re: distribution (based on estimated figures[*])

Total settlement of $225,000.00

W/C already paid ($37,000-25%) = [*]27,750.00 [25% deduction represents attorney's fees]

Costs (16.4% of $7,000) [*] 1,148.00

Attorney's fees (25% of $225,000) 56,250.00 85,148.00 ___________ [Credit to American States for compensation benefits to be paid in future] $139,852.00

139,852.00 [credit] 184.27 [widow's benefit] = 759 weeks 759 weeks = 14.6 years or 14 years and 31 weeks

payments resume December 8, 1994 at $184.27 per week per [Industrial Commission] 77 WC 28767 order and subject to Sec. 7(a) of the Worker's Comp. Act." (Bracketed material supplied.)

The plaintiff further alleged that no just reason existed to delay settlement, inasmuch as the only controversy between the parties related to American States' proposed obligation to resume payments to her 14 years hence. Plaintiff demanded damages for the loss of interest on the $225,000 settlement due to American States' refusal to release its lien. By its answer to the counterclaim, American States denied, inter alia, that plaintiff's proposed formula was correct "as such computations show upon their face a partial duplication in the distribution of attorney's fees * * *."

At a hearing on June 3, 1980, the plaintiff proposed a second distributive formula, the "Franges" formula, to the trial court. That method of distribution was based upon the decision of the Supreme Court of Michigan in Franges v. ...

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