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July 20, 1994


Appeal from the Circuit Court of Lake County. No. 91-L-962. Honorable William D. Block, Judge, Presiding.

Bowman, Doyle, Quetsch

The opinion of the court was delivered by: Bowman

JUSTICE BOWMAN delivered the opinion of the court:

Petitioner, Insurance Company of North America, appeals from an order of the circuit court of Lake County which found that the allocation of settlement proceeds in equal amounts between plaintiffs, William Blagg (Bill) and Marilyn Blagg, was made in good faith. Petitioner asserts the trial court applied an incorrect standard and abused its discretion in reaching its Conclusion.

This is the second time the parties have appeared before us regarding this matter. The underlying facts here are the same as those fully set forth in the prior case before this court, Blagg v. Illinois F.W.D. Truck & Equipment Co. (1989), 186 Ill. App. 3d 955, 134 Ill. Dec. 787, 542 N.E.2d 1294 (Blagg I). Therefore, we will repeat the facts only to the extent necessary to resolve the issue raised in this appeal.

Bill Blagg was injured on October 2, 1982, when he fell from a fire truck while en route to a fire as a fire fighter for the Village of Winthrop Harbor. In Blagg I, the Blaggs sued the manufacturers and the distributor of the fire truck; the manufacturers sued the Village for contribution; and the Village brought a fourth-party action for contribution against Bill. Bill was awarded permanent worker's compensation, and the Village asserted a worker's compensation lien against any award or settlement Bill might receive as a result of his lawsuit against the manufacturers and distributor, pursuant to section 5(b) of the Workers' Compensation Act. See Ill. Rev. Stat. 1987, ch. 48, par. 138.5(b) (now 820 ILCS 305/5(b) (West 1992)).

Under the settlement ultimately reached between the Blaggs and the defendants in Bill's suit, Bill was to receive $100,000 for his injuries and Marilyn was to receive $375,000 for loss of consortium. Following a hearing, the trial court found that the settlement was entered in good faith and approved it, in accordance with the Contribution Act requirement that a settlement by a joint tort-feasor be in good faith (see Ill. Rev. Stat. 1987, ch. 70, par. 302(c)) (now 740 ILCS 100/2(c) (West 1992))). The Village appealed, contending that the settlement allowed the parties to circumvent its lien against Bill's award by apportioning the bulk of the recovery to the loss of consortium claim. We found it inconceivable that Marilyn's loss could be three times as great as that of Bill. There was no basis in the record to support the allocation, and we agreed with the Village that the settlement constituted an attempt to evade the Village's lien. We reversed and remanded the matter for a new hearing. Blagg I, 186 Ill. App. 3d at 968.

The Blaggs successfully petitioned our supreme court for leave to appeal. In Blagg v. Illinois F.W.D. Truck & Equipment Co. (1991), 143 Ill. 2d 188, 157 Ill. Dec. 456, 572 N.E.2d 920, the court first concluded that the allocation of the settlement might have been reached so as to avoid the Village's lien. The court then held, as a matter of first impression, that recovery for loss of consortium is limited by the comparative negligence of the physically injured spouse. In accord with its Conclusions and pronouncement of a new legal principle, the Blagg court remanded the cause to the trial court for reexamination, this time with the Village's worker's compensation lien in mind and with consideration being given to Bill Blagg's comparative negligence.

Upon remand, petitioner filed a petition to intervene as subrogee of the Village, and the plaintiffs' motion to strike and dismiss the petition was denied. A new settlement allocation, which divided the settlement proceeds of $475,000 equally between Marilyn and Bill, was proposed to the trial court. Following a hearing, the court again found that the allocation was in good faith and dismissed the cause with prejudice. Petitioner appeals from the trial court's good-faith determination, and plaintiffs cross-appeal from the order denying their motion to strike the petition to intervene.

Focusing on Blagg I, petitioner claims the trial court used the wrong standard in evaluating the allocation of the settlement proceeds. In Blagg I the trial court had also approved the settlement based on a finding that it was entered in good faith. We held, however, that regardless of whether the court might find it to be in good faith, the trial court must closely scrutinize the settlement to determine whether the allocation is fair and reasonable, keeping in mind that the employer's lien must be protected, as required by section 5(b) of the Workers' Compensation Act (Ill. Rev. Stat. 1987, ch. 48, par. 138.5(b) (now 820 ILCS 305/5(b) (West 1992))). Closescrutiny by the trial court would assure that the employer was not deliberately and unfairly denied its statutory right to recover due to an allocation inconsistent with the employee's injuries. We relied heavily on Page v. Hibbard (1987), 119 Ill. 2d 41, 115 Ill. Dec. 544, 518 N.E.2d 69, where the court had remanded the case for a determination of whether the recovery for loss of consortium, which equaled the amount awarded to the spouse for his injuries, was "'fair and reasonable in light of the total settlement'" ( Blagg I, 186 Ill. App. 3d at 960, quoting Page, 119 Ill. 2d at 50). We urged that the trial court should consider whether the parties would have allocated the settlement the same way had there not been a worker's compensation lien.

In the appeal of Blagg I the supreme court noted that the trial court had focused almost exclusively on the good-faith requirement and virtually ignored the statutory obligation to protect the employer's lien. Stating that such protection is of "utmost importance," the supreme court repeated that the lower court must closely scrutinize the agreement so that an employer's rights are not abused. In sum, then, the issues now before us are whether, in light of the importance of protecting the employer's lien, the trial court adequately examined the settlement involved here and whether the court properly approved the settlement.

It is true, as petitioner points out, that the trial court used "good faith" language in rendering its judgment. However, our examination of the record, including the court's remarks in their entirety, reveals that the lower court understood and followed the standard imposed by Blagg I. At the start of proceedings upon remand, both counsel indicated that, if the court did not find their newly proposed allocation of settlement proceeds acceptable, they would be receptive to any allocation the court would find satisfactory. The trial Judge responded to the parties' suggestion by saying he did not think the legislature or the reviewing courts had ever contemplated such a role for the trial court, but that all the lower court could do was find a good-faith settlement or not. The Judge then added:

"And frankly, I don't think Blagg changes that, [Blagg] just called it to the attention of the court that in making a determination about a good faith settlement, that there is a particular responsibility to protect the workmen's comp lein [sic ] rights. And in order to do that, one must very closely scrutinize what is presented to the court in making a determination of what a good faith settlement is. So, I'm not sure that that portion of [Blagg] really substantially changes the law, except to the extent that the tradition, the strength of the traditional presumptions may [be] put [to] a stronger test * * * or [there may be] less of a strength in the presumptions of good faith, simply by entering into an agreement."

Again, at the time of closing argument, the trial court engaged in a dialog with both counsel regarding the nature of the determination he was about to make. Although the Judge stated that the issue was whether the allocation figures presented good-faith figures, the directives of Blagg I were ...

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