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Scott v. Industrial Commission

October 22, 1998

EMMA SCOTT, APPELLEE, V. THE INDUSTRIAL COMMISSION ET AL. (TRAVELERS INSURANCE COMPANY,APPELLANT).


The opinion of the court was delivered by: Justice Miller

Agenda 18-March 1998.

Hughie Scott, Jr. (decedent), was employed as a laborer by Illinois Wrecking Company. Illinois Wrecking subcontracted to perform demolition work for Capitol Construction Group, a division of Capitol Construction Companies, Inc. (general contractor). On March 19, 1986, the building in which decedent was working collapsed. Decedent suffered severe injuries and on May 6, 1986, died as a result of those injuries.

Prior to decedent's death, Emma Scott, as wife and next friend of decedent, filed a claim under the Workers' Compensation Act (Act) (Ill. Rev. Stat. 1985, ch. 48, par. 138.1 et seq.) for medical expenses and temporary total disability benefits against Illinois Wrecking (No. 86-WC-17126). Following decedent's death, Emma Scott, as decedent's widow, filed additional claims for burial expenses and surviving spouse benefits against Illinois Wrecking (No. 86-WC-21114), Capitol Construction (No. 86-WC-21115), and Travelers Insurance Company (workers' compensation insurer for Illinois Wrecking) (No. 86-WC-39385). In addition, Dartha Osley (decedent's sister), as administrator of decedent's estate, filed claims on behalf of the estate for workers' compensation benefits against Illinois Wrecking (No. 86-WC-39382), Capitol Construction (No. 86- WC-39383), and Travelers (No. 86-WC-39384). The arbitrator consolidated the claims filed by Emma Scott and Dartha Osley.

The arbitrator dismissed Osley as a party because no award to an estate is permissible where the surviving spouse has filed a claim. The arbitrator also dismissed Travelers as a party, finding that the workers' compensation insurance policy between Travelers and Illinois Wrecking had been canceled prior to decedent's accident.

The arbitrator then found Illinois Wrecking (the employer) liable for medical expenses, temporary total disability benefits, burial expenses, and surviving spouse benefits. See Ill. Rev. Stat. 1985, ch. 48, pars. 138.7(a), (f), 138.8(a), (b). The arbitrator also found Illinois Wrecking liable for statutory penalties and attorney fees because, the arbitrator believed, Illinois Wrecking had unreasonably failed to pay any of the expenses or benefits. See Ill. Rev. Stat. 1985, ch. 48, pars. 138.16, 138.16a, 138.19(k), (l).

Further, because Illinois Wrecking was found by the arbitrator to have been uninsured at the time of decedent's accident, the arbitrator found that Capitol Construction (the general contractor) was also liable for the expenses and benefits assessed against Illinois Wrecking. See Ill. Rev. Stat. 1985, ch. 48, par. 138.1(a)(3) (providing for the liability of a general contractor where the subcontractor is without workers' compensation insurance). The arbitrator found that Capitol Construction was additionally liable for the statutory penalties and attorney fees assessed against Illinois Wrecking.

Emma Scott (Scott) and Capitol Construction filed petitions for review with the Industrial Commission (Commission). Illinois Wrecking had declared bankruptcy and was not represented before the Commission. Scott and Capitol Construction argued that the workers' compensation insurance policy between Travelers and Illinois Wrecking was in effect at the time of decedent's accident. Further, Scott argued that statutory penalties and attorney fees should be assessed against Travelers for Travelers' failure to pay expenses and benefits under the Act. Travelers, however, argued that the arbitrator correctly found that the insurance policy was canceled and properly dismissed Travelers at the Conclusion of the arbitration proceedings.

The Commission issued two decisions; each made reference to the other. One decision addressed issues arising prior to decedent's death (No. 92-IIC-0728), the other addressed issues arising after decedent's death (No. 92-IIC-0727). The Commission affirmed the arbitrator's dismissal of the administrator of decedent's estate (Osley) as a party. The Commission found that the policy between Travelers and Illinois Wrecking was in effect at the time of decedent's accident. The Commission found that even had the policy been canceled, Travelers waived any purported cancellation by issuing a new premium notice to Illinois Wrecking for the next installment period. Thus, the Commission found Travelers a proper party to the proceedings and jointly liable with Illinois Wrecking for Scott's award of expenses and benefits under section 4(g) of the Act. See Ill. Rev. Stat. 1985, ch. 48, par. 138.4(g) (where an employer does not pay compensation, the employer's insurer may be made a party to the proceedings and an award may be entered jointly against the employer and the insurer). The Commission found that no expenses or benefits had yet been paid on account of decedent's accident or death.

In addition, the Commission found that the conduct of Illinois Wrecking and Capitol Construction did not justify the arbitrator's imposition of statutory penalties and attorney fees. Instead, the Commission found that only Travelers had acted unreasonably and vexatiously in refusing to pay compensation. The Commission also found that only Travelers had filed numerous frivolous motions that did not present real controversies. Thus, in each of its decisions, the Commission assessed statutory penalties and attorney fees only against Travelers. While Scott's case was before the arbitrator, and later the Commission, a third-party wrongful death action filed by the administrator of decedent's estate was proceeding in the circuit court of Cook County. Travelers filed a petition to intervene in the third-party action in order to protect its rights under section 5(b) of the Act (Ill. Rev. Stat. 1985, ch. 48, par. 138.5(b)).

Approximately one month after having been granted leave to intervene, however, Travelers filed a motion to withdraw as an intervenor. According to Travelers, it did not want to concede insurance coverage for Illinois Wrecking by asserting a lien in the circuit court while Travelers was contesting that coverage before the arbitrator. The trial Judge allowed Travelers to withdraw. The third-party action settled approximately six months after the Commission issued its decisions and while those decisions were pending on review in the circuit court. In settlement of the third-party action, the third-party tortfeasors paid a total of $438,557.05 to decedent's estate. Of that amount, $139,797.50 was subject to liens held by health care providers.

On review of the workers' compensation case, the circuit court of Kane County confirmed the Commission's decisions. Both Travelers and Scott appealed to the appellate court, Industrial Commission division. Travelers argued that the Commission erred in finding the insurance policy in effect at the time of decedent's accident. In addition, Travelers argued that the Commission's decision to impose statutory penalties and attorney fees was against the manifest weight of the evidence. Finally, Travelers requested that the appellate court address the effects of the third-party settlement payment on the respective rights of the parties.

Scott, however, argued that the Commission erred by failing to impose multiple statutory penalties against Travelers for Travelers' multiple violations of the Act. Scott also argued that the Commission erred by excluding medical and burial expenses in the amounts on which penalties and attorney fees were calculated.

The appellate court, Industrial Commission division, affirmed. Scott v. Industrial Comm'n, Nos. 2-93-1110WC, 2-93-1171WC, 2-93-1172WC cons. (August 9, 1994) (unpublished order under Supreme Court Rule 23) (Scott I). The court found no error in the Commission's determination that: (1) the insurance policy was in effect at the time of decedent's accident; (2) Travelers was a party to the proceedings and liable for Scott's award of expenses and benefits; and (3) Travelers was liable for statutory penalties and attorney fees in the amounts determined by the Commission. The appellate court declined to consider the effects of the third-party settlement payment. The court found that the issue was "wholly collateral to the proceedings before the Commission and outside the record before us."

The appellate court rejected Scott's argument that the Commission should have imposed multiple statutory penalties on Travelers. The court also found that the Commission correctly excluded medical and burial expenses in calculating statutory penalties and attorney fees. The court noted that medical and burial expenses are not lost-wage compensation subject to penalties under the Act.

There was no appeal from the appellate court's decision in Scott I, and the mandate issued on November 18, 1994.

THE PRESENT CASE

Approximately one month after the appellate court's mandate issued in Scott I, Travelers sent three checks to Scott totaling $281,259.34. The checks were accompanied by a letter and calculation statement which explained how Travelers arrived at its figures. Instead of paying Scott the entire amount due under the final award affirmed by the appellate court in Scott I, Travelers unilaterally withheld an amount equal to the medical expenses ($139,797.50) already paid through the third-party settlement to lien-holding health care providers. In its letter to Scott, Travelers claimed that it was entitled to a credit for this amount.

In addition, Travelers unilaterally withheld portions of the statutory penalties, statutory interest, and attorney fees awarded to Scott in Scott I. Travelers argued that while it was before the arbitrator, the arbitrator had determined that Travelers was not a party when these particular amounts were awarded. We note that Travelers' argument claiming that it was not a party was previously rejected by both the Commission and the appellate court in Scott I. Finally, Travelers claimed the right to a credit for any third-party settlement amounts that represented surviving spouse benefits. Travelers, however, made no withholding on this basis.

At the same time, Travelers filed with the Industrial Commission a petition for leave to file a special and limited appearance for the purpose of presenting two motions. In the motions, Travelers sought: (1) a determination of credits for amounts received by Scott in the third- party settlement; and (2) a determination that Travelers was not liable for the amounts it withheld from Scott's award of statutory penalties, statutory interest, and attorney fees previously affirmed in Scott I. Scott responded by filing a motion to strike Travelers' petition for leave to file a special and limited appearance. Scott argued that Travelers' motions raised issues already decided by the Commission and affirmed by the appellate court in Scott I. Although the credit issue was not previously decided by the Commission, Scott claimed that Travelers could have raised the issue before the Commission in the proceedings that culminated in Scott I, but failed to do so. Scott contended that Travelers' petition and motions were frivolous and that Travelers intentionally underpaid her award. Scott requested a second set of statutory penalties and attorney fees in addition to those assessed against Travelers in Scott I.

The Commission denied Travelers' petition for leave to file a special and limited appearance. In Scott I, Travelers was adjudicated a party under section 4(g) of the Act. The Commission found that Travelers remained a party in this subsequent ...


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