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Hastings Mutual Insurance Company v. Ultimate Backyard

February 9, 2012


Appeal from the Circuit Court of Cook County. No. 09 CH 07232 The Honorable Richard J. Billik, Jr., Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Lavin

No. 1-10-1751, 1-10-3001 (cons.)

PRESIDING JUSTICE LAVIN delivered the judgment of the court, with opinion. Justices Fitzgerald Smith and Pucinski concurred in the judgment and opinion.


¶ 1 This appeal stems from the denial of a motion to stay proceedings and the granting of motions to dismiss. Hastings Mutual Insurance Company (Hastings Mutual) filed a complaint for declaratory judgment seeking an order that it was not responsible for an underlying workers' compensation claim between Javier Vasquez (Vasquez) and his employer, The Ultimate Backyard, LLC (Ultimate Backyard). The case ultimately turns on the issue of whether a notice of cancellation that was sent from Hastings Mutual to the National Council on Compensation Insurance conformed with the statutory requirements. Hastings Mutual appeals the denial of its motion to stay as well as the order granting appellees Vasquez's and Ultimate Backyard's motions to dismiss. We reverse and remand with directions for the lower court to stay the underlying workers' compensation claim until a decision is made by the court regarding the issue of insurance coverage.


¶ 3 Appellee Vasquez sustained a knee injury during the course of his employment with Ultimate Backyard. Soon after the incident, Vasquez filed a claim with the Illinois Workers' Compensation Commission (referred to hereinafter as "IWCC" or "Commission") naming Ultimate Backyard and Hastings Mutual, as insurer of Ultimate Backyard, as respondents. Ultimate Backyard tendered its defense and indemnity to Hastings Mutual based on an insurance policy which was effective from April 18, 2007, to April 18, 2008. Under a reservation of rights, Hastings Mutual began providing temporary total disability (TDD) and medical benefits to Vasquez. Five months later, Hastings Mutual informed Ultimate Backyard that it was withdrawing its tentative acceptance and would deny coverage of the Vasquez claim. Hastings Mutual sought a declaratory judgment that it had no duty to defend or indemnify and also filed a motion to stay the underlying proceedings before the IWCC. Appellees Vasquez and Ultimate Backyard each filed a motion to dismiss Hastings Mutual's complaint along with a response to the motion to stay.

¶ 4 Hastings Mutual's complaint asserted that it did not owe coverage to Ultimate Backyard, because the workers' compensation insurance policy had been cancelled and any duty to indemnify or defend was vitiated. Hastings Mutual argues that it complied with section 4(b) of the Workers' Compensation Act (820 ILCS 305/4(b) (West 2010)), the statute which controls the cancellation of workers' compensation policies, when it sent a notice of cancellation January 14, 2008, to Ultimate Backyard and the National Council on Compensation Insurance (NCCI). The notice informed the parties that the workers' compensation insurance policy would be cancelled effective 12:01 a.m. on April 18, 2008. Hastings Mutual maintains that the sole question before the court involves the statutory interpretation of whether it complied with section 4(b) of the Workers' Compensation Act when it sent the notice of cancellation to the NCCI. The NCCI is an organization which the IWCC contracted with to delegate some of its duties, including receiving and maintaining certificates of insurance and notices of termination of insurance coverage under section 4 of the Workers' Compensation Act. Hastings Mutual and the NCCI entered into an affiliation agreement in which the NCCI agreed to services that included transmitting Hastings Mutual insurance policy information to the IWCC.

¶ 5 The next month, Vasquez and the Attorney General's office, on behalf of the Injured Workers' Benefit Fund, proceeded with the workers' compensation claim by initiating a hearing before an IWCC arbitrator. Hastings Mutual claims that despite the fact that it never received proper notice or service and that neither it nor Ultimate Backyard participated in the arbitration, the arbitrator still ruled against Hastings Mutual on the issue of insurance coverage.

¶ 6 Shortly thereafter, the trial court ruled that Hastings Mutual's motion lacked convincing authority to enjoin the proceedings and that the motion to stay was moot in light of the decision already handed down by the IWCC arbitrator. In granting appellees' motions to dismiss without prejudice, the court held that the IWCC had valid authority to decide the coverage issue. Hastings Mutual then filed its second amended complaint that named the NCCI as a defendant for the first time. All three appellees, Vasquez, Ultimate Backyard and the NCCI, filed motions to dismiss. Appellees' motions to dismiss argued that the issue before the court involved factual determinations and that the IWCC had both the authority and expertise to best handle such determinations. Furthermore, the appellees maintained that the arbitrator's decision already adjudicated the issue of insurance coverage. Soon thereafter, Hastings Mutual filed a third amended complaint in order to add facts specific to its claims against the NCCI; this complaint was again followed by the NCCI filing a motion to dismiss.

¶ 7 Before a ruling was made on Hastings Mutual's complaint and appellees' motions to dismiss, the IWCC entered a decision vacating Vasquez's previous ex parte workers' compensation arbitration award. Following this dismissal, Vasquez again filed a claim with the IWCC, asking an arbitrator to adjudicate his workers' compensation claim as well as the coverage issue between Hastings Mutual and Ultimate Backyard. Hastings Mutual once more filed a motion in the circuit court to stay or sever the IWCC proceedings as they related to the insurance coverage issue. On June 30, 2010, the lower court denied Hastings Mutual's motion to stay. Hastings Mutual filed a timely interlocutory appeal on this issue.

¶ 8 Undeterred and with the reversal of the initial IWCC arbitrator's decision in hand, Hastings Mutual filed a motion in the circuit court to strike appellees' motions to dismiss, arguing that their motions were supported by the IWCC arbitrator's decision. On August 18, 2008, the circuit court conducted a hearing on appellees' three motions to dismiss, Hastings Mutual's complaint for declaratory action and all of the replies. The court granted the motions of appellees Vasquez and Ultimate Backyard based on the doctrine of primary jurisdiction, holding that there are several factual questions that needed to be determined and that the matter was already being properly resolved in another forum, the IWCC. Ultimately, the court held that the issue as to whether Hastings Mutual properly cancelled the workers' compensation liability policy, which could have an impact on Vasquez's ability to recover if he prevails on his workers' compensation claim, is a matter that is uniquely suited to the specialized and/or technical expertise of the IWCC. Last, the court dismissed Hastings Mutual's claims against the NCCI, finding the claims to be premature. The court held that Hastings Mutual may attempt to replead a legally sufficient claim that is ripe for adjudication against the NCCI within 30 days of an award by the arbitrator in the underlying workers' compensation action or the decision of the Commission, if an appeal is taken by any party. Hastings Mutual filed a timely appeal of the order granting Ultimate Backyard's and Vasquez's motions to dismiss.

¶ 9 Finally, we note that appellee Ultimate Backyard did not file an appearance or a brief on any of the issues before this court.


ΒΆ 11 This is a consolidated appeal which consists of: (1) an appeal of the June 23, 2010, denial of Hastings Mutual's motion to stay IWCC proceedings. (All three appellees, Ultimate Backyard, the NCCI and Vasquez, are a party to this motion); and ( 2) Hastings Mutual's appeal of the August 18, 2010, order granting Ultimate Backyard's and Vasquez's motions to dismiss with prejudice. There was no final dismissal order entered on August 18, 2010, with regard to the NCCI's motion to dismiss. It is worth noting that the arguments and issues raised throughout Hastings Mutual's complaint for declaratory judgment and its subsequent motions to stay as well as appellees' motions to dismiss are essentially the same: is the question being asked in the lower court one of fact or law? It is undisputed that the circuit court and the IWCC have concurrent jurisdiction over workers' compensation matters. Hastings Mutual argues that there are only two ways in which the IWCC can have primary jurisdiction over this matter. Either the legislature must have divested the circuit court of its jurisdiction or the IWCC must be able to provide a specialized or technical expertise that would help resolve the controversy. Hastings Mutual cites case law which states that the legislature did not divest the court of jurisdiction over the interpretation of an insurance contract nor does such an interpretation require the expertise of an administrative agency. ...

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