SKOKIE CASTINGS, INC., as Successor to Wells Manufacturing Company, Appellee,
ILLINOIS INSURANCE GUARANTY FUND, Appellant.
The Insurance Guaranty Fund’s statutory obligation to pay claims against insolvent member insurers which are liquidated is properly construed to extend to workers’ compensation claims over $300, 000, whether the insurer is excess or primary and whether or not payments are made directly to the employee.
Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Michael B. Hyman, Judge, presiding.
Steven T. Whitmer, Hugh S. Balsam and Christopher D. Seps, of Locke Lord Bissell & Liddell, of Chicago, for appellant.
Jack M. Shanahan and Lauren Zimmer, of Inman & Fitzgibbons, Ltd., of Chicago, for appellee.
Justices Freeman, Garman, Burke, and Theis concurred in the judgment and opinion.
¶ 1 When an insurance company authorized to transact business in Illinois becomes insolvent and is unable to pay claims under policies it has issued to its insureds, the Illinois Insurance Guaranty Fund will step in to pay those claims after an order has been entered liquidating the company. See 215 ILCS 5/532 et seq. (West 2010). The Fund's obligation to pay covered claims is subject to certain qualifications and limitations, including a cap on the amount it will pay on any particular claim. That cap is inapplicable, however, to "any workers compensation claims." 215 ILCS 5/537.2 (West 2010).
¶ 2 There is no dispute that claims under policies purchased by employers to provide primary coverage for awards granted to their injured employees under the Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2010)) fall within the "workers compensation claim" exemption from the statutory cap. The question presented by this declaratory judgment action is whether claims under policies providing excess coverage for workers' compensation awards are exempt as well.
¶ 3 On cross-motions for summary judgment filed by an employer whose workers' compensation carrier had been liquidated and the Illinois Insurance Guaranty Fund (the Fund), the circuit court of Cook County answered this question in the affirmative and concluded, inter alia, that claims under the excess coverage policies purchased by the employer in this case were not subject to the statutory cap, that the Fund had improperly terminated payments for the injured employee's workers' compensation award after the cap was reached, and that the Fund was obligated to reimburse the employer for all workers' compensation payments it had made to its injured employee following liquidation of the employer's workers' compensation carrier. The appellate court unanimously affirmed. 2012 IL App (1st) 111533. We granted the Fund's petition for leave to appeal. Ill. S.Ct. R. 315 (eff. July 1, 2013). For the reasons that follow, we now affirm the judgment of the appellate court.
¶ 4 BACKGROUND
¶ 5 The pertinent facts are undisputed. Wells Manufacturing Company was a Skokie, Illinois, business which manufactured alloy and gray alloy castings and ductile iron. In the course of its business, Wells elected to bring itself within the coverage of the Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2010)). By making that election, Wells did not relieve itself of any liability for the injuries sustained by its employees. It merely immunized itself from being sued in tort by its employees for recovery of damages for accidental injuries they sustained arising from and in the course of their employment. 820 ILCS 305/2, 5 (West 2010). Once the election occurred, Wells' employees were limited to their remedies under the Workers' Compensation Act. 820 ILCS 305/5(a), 11 (West 2010).
¶ 6 Employers such as Wells which elect to avail themselves of the provisions of the Workers' Compensation Act must make provision for securing payment of the compensation provided for by the statute. They may do so by purchasing insurance providing full coverage (820 ILCS 305/4(a)(3) (West 2010)), but that is not their only option. They may also elect to demonstrate to the Illinois Workers' Compensation Commission that they possess the financial resources to self-insure (820 ILCS 305/4(a)(1) (West 2010)); they may furnish "security, indemnity or a bond" guaranteeing payment (820 ILCS 305/4(a)(2) (West 2010)); or they make some other arrangement satisfactory to the Commission (820 ILCS 305/4(a)(4) (West 2010)). In addition, the law affords them the flexibility to use any of these latter three options (self-insuring; furnishing security, etc.; or "other") to secure payment of part of their obligation and then to purchase an excess coverage policy for the remainder. 820 ILCS 305/4(a)(2), (3) (West 2010). In this case, that is the option Wells elected to take, self-insuring in part and purchasing workers' compensation excess coverage from Home Insurance Company for the remainder.
¶ 7 The terms of the coverage which Wells purchased from Home Insurance were set forth in two related policies which took effect on August 1, 1984, an "Aggregate Excess Workers' Compensation and Employers' Liability Policy" and a "Specific Excess Workers' Compensation and Employers' Liability Policy." The "Aggregate Excess" policy specified generally that it would indemnify Wells for the sums Wells actually paid for either "compensation and other benefits required of [it] by the workers' compensation law" or "by reason of *** Employers' Liability, which shall mean the liability imposed upon [Wells] by law for damages because of bodily injury by accident or disease, [etc.]." Correspondingly, it also afforded coverage for, among other things, "[l]egal expenses in connection with hearings before the State Industrial Commission" or "reasonable legal and other expenses in defense of any claim or suit against [Wells]" alleging employer liability, as the case might be.
¶ 8 The second policy, titled "Specific Excess Workers' Compensation and Employers' Liability Policy, " specified that Home Insurance agreed to indemnify Wells "against excess loss, subject to the limitations, conditions and other terms of this policy, which [Wells] may sustain on account of *** compensation and other benefits required of [Wells] by the Workers Compensation Law." Under the policy, Wells' retained limit of liability, that is, the amount Wells had to pay out itself before Home Insurance's obligations under the policy would be triggered, was $200, 000. The upper limit of Home Insurance's obligation to indemnify Wells was listed as "Statutory Workers' Compensation—Unlimited Employers' Liability."
¶ 9 In February of 1985, while the foregoing policies were in effect, a Wells employee named Mona Soloky was seriously injured in the course and scope of her employment. Soloky filed a claim for benefits with the Illinois Industrial Commission (now the Illinois Workers' Compensation Commission (see Pub. Act 93-721, eff. Jan. 1, 2005)) pursuant to the Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2010)). The Commission determined that Soloky was totally and permanently disabled and awarded her all her reasonable and necessary medical costs plus weekly benefit payments of $394.25 for life.
¶ 10 Wells paid the amounts awarded to Soloky by the Commission until the $200, 000 retained limit of liability set forth in its excess coverage policies with Home Insurance was reached. Thereafter, it looked to Home Insurance to bear the cost of Soloky's workers' compensation award. Home Insurance employed a third-party administrator named the Martin Boyer Company to handle the payments it owed under the excess coverage policies it had issued to Wells. Through the Martin Boyer Company, Home Insurance paid benefits to Soloky pursuant to the Commission's award. It did so until it became insolvent, went into receivership and was liquidated.
¶ 11 As noted at the outset of this opinion, Illinois has established the Insurance Guaranty Fund to help protect insureds such as Wells where, as here, their insurance carriers become insolvent and cannot meet their policy obligations. 215 ILCS 5/532 (West 2010). All insurance companies authorized to transact business in Illinois are members of the Fund (215 ILCS 5/534.5 (West 2010)) and must remain so as a condition of their doing business here (215 ILCS 5/535 (West 2010)). Home Insurance Company was such a member.
¶ 12 The Fund itself is divided into separate accounts, one for automobile insurance and the other for all other insurance to which provisions of the Insurance Guaranty Fund statutes apply, including insurance covering workers' compensation. 215 ILCS 5/535 (West 2010). Members of the Fund, i.e., all insurance companies authorized to conduct business here, are charged an annual fee to cover the Fund's contingent expenses. 215 ILCS 5/537.1 (West 2010). In addition, the Fund assesses every member of the Fund for a share of the total amount the Fund must pay out to cover claims when a member becomes insolvent. For purposes of calculating the assessments, which are made annually, the two Fund accounts, auto and other, are treated separately, but within each account no distinction is drawn between primary and excess policies. 215 ILCS 5/537.6 (West 2010).
¶ 13 When an order of liquidation is entered against an insolvent Fund member, the Fund has a statutory obligation to pay "covered claims" which existed prior to entry of the liquidation order or arising within 30 days after the entry of such order, or within other specified time frames, and subject to various conditions and limitations. 215 ILCS 5/537.2 (West 2010). For purposes of the statute, a "covered claim" is defined to include any "unpaid claim for a loss arising out of and within the coverage of an insurance policy to which [the law governing the Fund applies] and which is in force at the time of the occurrence giving rise to the unpaid claim." 215 ILCS 5/534.3(a) (West 2010).
¶ 14 According to the record before us, an insured whose carrier has been liquidated invokes the Fund's protection by submitting a "proof of claim" form to it to document the unpaid claim for which it is seeking benefits from the Fund. There is no question that Wells complied with the requisite procedures, nor is there any dispute that the amounts owed by Home Insurance under the workers' compensation excess coverage policies purchased by Wells to help satisfy its obligations under the Workers' Compensation Act and which were left unpaid when Home Insurance became insolvent and was liquidated met the requirements of a "covered claim" under section 534.3(a) of the Insurance Code (215 ILCS 5/534.3(a) (West 2010)), triggering the Fund's obligations under section 537.2 (215 ILCS 5/537.2 (West 2010)). The Fund therefore honored that claim and assumed, from Home Insurance, responsibility for payment of the sums still due Soloky under the Commission's award.
¶ 15 After paying approximately $250, 000 to Soloky, the Fund notified Wells of its belief that Wells' claim against the Fund was subject to a $300, 000 cap, which the Fund anticipated would soon be reached. The Fund indicated that once the $300, 000 maximum was exhausted, it would cease making payments toward the Soloky award and that arrangements needed to be made to transfer responsibility for the matter to some other person or entity. Several months later, the Fund did as it advised Wells it planned to do and stopped the payments to Soloky. Since that time, Wells has undertaken direct financial responsibility for payment of Soloky's workers' compensation award. Wells estimates that by 2010, when this litigation commenced, this additional sum exceeded half a million dollars.
¶ 16 Section 537.2 of the Illinois Insurance Code (215 ILCS 5/537.2 (West 2010)) imposes certain qualifications and limitations on the Fund's obligations, even where, as here, a claim is covered. Among those is that where an order of liquidation was entered on or after January 1, 1988, and before January 1, 2011, the Fund's obligation shall not exceed $300, 000. 215 ILCS 5/537.2 (West 2010). It is this provision which is the basis for the Fund's refusal to continue payments related to Soloky's workers' compensation award.
¶ 17 Although Wells is once again paying the Soloky award directly, as it did before the retention limit was reached, it has continued to dispute the Fund's assertion that the Fund's financial obligations with respect to the claims related to Soloky which were left unpaid after Home Insurance was liquidated are subject to the foregoing statutory $300, 000 cap. Wells argues that the law contains an express exception to the cap for "any workers compensation claims" (215 ILCS 5/537.2 (West 2010)) and asserts that the claims left unpaid under its excess coverage workers' compensation policies when Home Insurance dissolved constitute such "workers compensation claims." In Wells' view, the exception to the statutory cap is therefore applicable.
¶ 18 The Fund rejected Wells' interpretation of the law and refused to make further payments. Wells therefore commenced this action for declaratory judgment against the Fund in the circuit court of Cook County pursuant to section 2-701 of the Code of Civil Procedure (735 ILCS 5/2-701 (West 2010)). Wells' complaint requested a determination that the $300, 000 cap set forth in section 537.2 of the Insurance Code did not and does not apply under the circumstance of this case, that the Fund improperly terminated payments for Soloky's workers' compensation award once the statutory cap was reached, that the Fund is and remains liable for any claims left unpaid when Home Insurance was liquidated, and that the Fund should reimburse Wells for the sums it was required to pay toward Soloky's workers' compensation award after the Fund ceased payment.
¶ 19 The Fund moved to dismiss pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). It did not dispute Wells' version of the facts, nor did it challenge the legal sufficiency of Wells' complaint for declaratory relief. Rather, it argued that Wells' construction of the Insurance Code was erroneous, that the $300, 000 cap does apply here, and that Wells' cause of action should therefore fail on the merits.
¶ 20 Wells responded that the Fund's motion was procedurally improper. The Fund, in turn, argued that a motion to dismiss under section 2-615 is an appropriate mechanism for disposing of an action for declaratory relief on the merits. The circuit court subsequently decided that the Fund's motion would be treated as a motion for summary judgment. Wells replied to it as such and filed its own cross-motion for summary judgment.
¶ 21 A hearing on the parties' cross-motions was conducted by the circuit court. Supplemental briefing followed, after which the court entered a detailed and well-reasoned written order. After setting forth the facts and examining the applicable law, the court concluded that Wells' claim under its workers' compensation excess coverage policy fell within the plain meaning of "any workers compensation claims" under section 537.2 of the Insurance Code and was therefore exempt from the $300, 000 cap limiting the Fund's obligations under other types of policies. Accordingly, it denied the Fund's motion for summary judgment, granted summary judgment in favor of Wells and concluded that the Fund had improperly terminated its payment of benefits owed to Soloky pursuant to the award granted by the Workers' Compensation Commission; that the Fund is liable for all sums Wells paid to Soloky or on her behalf pursuant to her workers' compensation award following Home Insurance's liquidation and must reimburse Wells for those amounts; and that the Fund "continues to owe benefits to Soloky pursuant to the Worker's Compensation Commission's Award subject to the Guaranty Fund Act."
¶ 22 The Fund appealed. As in the trial court, the Fund took no issue with the facts as asserted by Wells. Its argument was simply that the circuit court erred in concluding that Wells' claim for coverage under its excess workers' compensation policies with Home Insurance with respect to Soloky's workers' compensation award qualified as "any workers' compensation claim" within the meaning of section 537.2 of the Insurance Code. In the Fund's view, that term is applicable only to claims for workers' compensation benefits filed by an injured employee. Because Wells' claim here did not meet that definition, the Fund argued that section 537.2's exemption is inapplicable, that its obligation to make payments following Home Insurance's liquidation has now been fully exhausted, and that summary judgment should therefore have been entered in its favor and against Wells.
¶ 23 The appellate court rejected the Fund's interpretation of the law and affirmed. 2012 IL App (1st) 111533. This appeal to our court followed. Ill. S.Ct. R. 315 (eff. July 1, 2013).
¶ 24 ANALYSIS
¶ 25 In undertaking our review, we begin by noting that while the dispute before us was triggered by the work-related injury of an employee who worked for an employer which had elected to bring itself within the coverage of the Workers' Compensation Act (820 ILCS 305/1 et seq. (West 2010)), this is not a workers' compensation case. There is no disagreement as to the meaning of the Workers' Compensation Act or its applicability to Soloky, the employee who was injured. Soloky's entitlement to benefits was decided when she filed her claim under the Act with the Workers' Compensation Commission and the Commission entered an award in her favor.
¶ 26 The matter before us here involves the separate and distinct question of how the financial burden of paying Soloky's award will be distributed. Because Soloky's employer elected to purchase insurance to help meet its obligations under the Workers' Compensation Act, as the Act permitted, and that coverage was in effect when Soloky was injured, resolution of this question turns on issues of insurance law. Because the company providing coverage to Soloky's employer for her workers' compensation award was a member of the Fund and was liquidated before meeting its obligations under the policies it had issued, the dispositive issue of insurance law in this case is the scope of the Fund's obligations under the Insurance Code.
¶ 27 The case was decided by the circuit court on cross-motions for summary judgment. Summary judgment is proper when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2010). We review the circuit court's grant of summary judgment de novo. De novo review is also appropriate because the case turns on the construction of provisions of the Insurance Code, and statutory construction presents a question of law. See Pielet v. Pielet, 2012IL 112064, ¶ 30.
¶ 28 When construing a statute, our primary objective is to give effect to the legislature's intent. The best indication of legislative intent is the statutory language. Wilkins v. Williams, 2013IL 114310, ¶ 14. Legislative intent may also be ascertained by considering the reason and necessity for the law, the evils to be remedied, and the objects and purposes to be obtained. Carter v. SSC Odin Operating Co., 2012 IL 113204, ¶ 37.
¶ 29 Every state has established an insurance guaranty fund to protect policyholders in the event that an insurance company becomes insolvent. Hasemann v. White, 177 Ill.2d 414, 417 (1997). Ours is the Illinois Insurance Guaranty Fund (the Fund). This court has described the Fund as "a nonprofit entity created to protect policyholders of insolvent insurers and third parties making ...