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03/31/95 BRIAN DUGGAN v. BUILDERS ASSOCIATES

March 31, 1995

BRIAN DUGGAN, PLAINTIFF/APPELLEE,
v.
BUILDERS ASSOCIATES, INC., ET AL., DEFENDANTS. BUILDERS ASSOCIATES, INC., DEFENDANT/APPELLEE, CIGNA INSURANCE COMPANY OF ILLINOIS, INTERVENING PETITIONER/APPELLANT.



Appeal from the Circuit Court of Cook County. The Honorable Walter J. Kowalski and Patrick E. McGann, Judges Presiding.

The Honorable Justice Rakowski delivered the opinion of the court: McNAMARA, P.j., and Zwick, J., concur.*

The opinion of the court was delivered by: Rakowski

JUSTICE RAKOWSKI delivered the opinion of the court:

After Brian Duggan (Duggan) was injured while working for a subcontractor (Leveltech) on a project where Builders Associates, Inc. (Builders) was the general contractor, he filed an application for adjustment of claim pursuant to the Workers' Compensation Act (Act) (820 ILCS 305/1 et seq. (West 1992)). Because Duggan's employer did not have workers' compensation insurance, Builder's workers' compensation carrier, Cigna Insurance Company of Illinois (Cigna) paid Duggan $76,057.38 in workers' compensation benefits. Duggan subsequently filed a Structural Work Act/negligence action against Builders. Cigna sought to intervene in the action, requesting reimbursement from any verdict or settlement in Duggan's favor. The circuit court found that Cigna was not entitled to reimbursement from Builders and dismissed the action pursuant to a settlement between all of the parties except Cigna. Cigna appeals, claiming that the circuit court erred in ruling that Cigna was not entitled to reimbursement from the proceeds of the settlement, and in dismissing the suit without requiring that the lien of Cigna be indemnified or protected by court order. We agree, and for the following reasons, we reverse and remand.

Duggan's Structural Work Act/negligence action was filed against Builders, Leveltech, Level Construction, Inc. (Level), and James Duggan. Builders filed a third party contribution action against Leveltech, Level, James Duggan and the Vitkauskas defendants (Jim Vitkauskas and Jim Vitkauskas Insurance Agency, Leveltech's insurance agent). After Cigna filed its petition to intervene seeking reimbursement for the compensation paid to Duggan, attorneys for Pekin Insurance Company (Pekin), Builder's general liability carrier, moved to strike the petition *fn1 on the grounds that Cigna could not recover compensation benefits from its own insured. The trial court denied Pekin's motion but also found that Cigna had no right of reimbursement from the funds of the settlement or verdict against Builders.

On January 7, 1994, Pekin filed a motion to dismiss Duggan's suit based on a settlement reached with all of the parties except Cigna. As part of the settlement, Builders agreed to pay Duggan $130,000, and James Duggan, Leveltech, and Level agreed to pay Duggan $10,000. The Vitkauskas parties agreed to pay $4000. The $14,000 paid by Leveltech, Level, Duggan, and the Vitkauskas parties was to be paid directly to Cigna upon obtaining releases from Cigna. Because Cigna was not offered the full amount it paid to Duggan in compensation benefits, it refused to accept the settlement amount. The trial court dismissed the case without requiring that the lien of Cigna be indemnified or protected by court order.

Opinion

Because Duggan's employer did not have workers' compensation insurance, Builders as the "statutory employer" was required to provide insurance pursuant to Section 305/1(a)3 of the Act which provides in relevant part:

"Any one engaging in any business or enterprise * * * is liable to pay compensation to his own immediate employees in accordance with the provisions of this Act, and in addition thereto if he directly or indirectly engages any contractor whether principal or subcontractor to do any such work, he is liable to pay compensation to the employees of any such contractor or subcontractor unless such contractor or subcontractor has insured in any company or association authorized under the laws of this State to insure the liability to pay compensation under this Act, or guaranteed his liability to pay such compensation."

However, Cigna contends that it is entitled to reimbursement from the proceeds of any award or settlement arising from the Structural Work Act/negligence action under Section 305/5(b) of the Act which provides in relevant part:

"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 pursuant to Paragraph (a) of Section 8 of this Act.

If the injured employee or his personal representative agree to receive compensation from the employer or accept from the employer any payment on account of such compensation, or to institute proceedings to recover the same, the employer may have or claim a lien upon any award, judgment or fund out of which such employee might be compensated from such third party." See also Page v. Hibbard (1987), 119 Ill. 2d 41, 518 N.E.2d 69, 115 Ill. Dec. 544.

Pekin acknowledges that the purpose of Section 5(b) is to protect the employer and provide reimbursement if the employee recovers from a third party but argues that Cigna refused to accept the reimbursement of $14,000 offered to it by the parties other than its own insured when the settlement was negotiated. However, as Cigna indicates, the tender of $14,000 does not fully indemnify Cigna for the amount of benefits paid and does not satisfy the reimbursement requirements of Section 5(b).

Pekin also argues that Cigna is trying to enforce Builders rights against Builders which is contrary to the language and purpose of Section 5(b) of the Act. Pekin claims that to allow Cigna reimbursement would deny Builders the benefits of the policy it purchased. Because Builders paid Cigna a premium for workers' compensation insurance, allowing Cigna to obtain reimbursement from settlement funds paid on behalf of Builders would negate the coverage Builders purchased from Cigna. Cigna responds that it is attempting to enforce its reimbursement rights against Duggan rather than Builders. Cigna also states that its receipt of reimbursement would not negate the workers' compensation coverage that Builders ...


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