Court of Appeals of Illinois, First District, Second Division
from the Circuit Court of Cook County No. 14 CH 4394
Honorable Mary L. Mikva, Judge Presiding.
JUSTICE PIERCE delivered the judgment of the court, with
opinion. Presiding Justice Hyman and Justice Neville
concurred in the judgment and opinion.
1 B&R Insurance Partners, LLC (B&R), entered into
client agreements with Southern Illinois Workers Inc. and
Speed SEJA School District 802 whereby B&R would obtain
workers' compensation insurance on their behalf. LM
Insurance Corporation issued a policy that named B&R as
the insured and extended coverage through policy endorsements
to those employees of B&R's that had been leased to
B&R's clients. LM subsequently cancelled the policy
and retroactively removed B&R's clients from the
policy's endorsements after B&R informed LM that none
of its clients' employees were on B&R's payroll.
Meanwhile, the individual defendants, all of whom were
employees of B&R's clients, filed workers'
compensation claims with the Workers' Compensation
Commission alleging injuries suffered during the scope of
their employment. B&R tendered the claims to LM, since
the alleged injuries occurred during a time when the policy
was still in effect. LM then filed this declaratory judgment
action. The amended complaint sought a declaration that LM
had no duty to defend or indemnify against the individual
defendants' claims. The trial court denied LM's
motion for summary judgment and granted summary judgment in
favor of the defendants. LM timely appeals. For the following
reasons, we affirm in part, reverse in part, and remand for
3 B&R Insurance Partners, LLC, is licensed by the State
of Illinois to operate as an employee leasing company.
B&R entered into separate, identical client agreements
with Southern Illinois Workers, Inc. (SIW) and Speed SEJA
School District 802 (the School District),  which provided
that B&R was a "co-employer" with SIW and the
School District, respectively, and that B&R would
"become the administrative employer and assume certain
employer responsibilities, " while SIW and the School
District (referred to in the contracts as
"Co-Employers") "shall be the operational
employer[s] with responsibility for directing the day to day
operations of Co-Employer including work assignments."
The agreements stated that "Co-Employer acknowledges
that [B&R] employs the employees covered by agreement,
with respect to workers compensation risk management and
coverage only." B&R was responsible for obtaining
workers' compensation insurance coverage for all verified
employees, managing any claims, and for certain risk
management responsibilities. All other employer
responsibilities remained with SIW and the School District,
including hiring, safety training, provision of safety
equipment, and all payroll functions.
4 On or about October 3, 2013, pursuant to the client
agreements, B&R applied for workers' compensation
insurance coverage through the Illinois Workers'
Compensation Insurance Plan (the Plan), which is administered
by the National Council on Compensation Insurance (the NCCI).
The Plan provides a method for employers to obtain
workers' compensation insurance coverage through the
residual market when they cannot obtain it on their own. The
NCCI binds coverage and then assigns the risk to a servicing
carrier. LM Insurance Corporation (LM) is a servicing carrier
for the Plan. In its application, B&R represented that it
was a professional employer organization (PEO) that had
coemployment relationships with SIW and the School District,
among others. The NCCI bound coverage and assigned the risk
to LM, and LM issued a policy effective October 3, 2013,
through October 3, 2014 (the policy). The policy lists
B&R as the insured. Based on the representation that
B&R was a PEO, several employee leasing endorsements
(policy endorsements) were issued showing B&R's
clients. The School District was listed in these policy
endorsements, but for some unknown reason, SIW was omitted.
5 Each policy endorsement provides: "This endorsement
applies only with respect to leased workers provided by you
to the lessee (client) shown below under an employee leasing
arrangement. This endorsement does not provide coverage for
workers that you lease to other clients or for your employees
that you do not lease to any client." The endorsement
then defines certain words and phrases. "Employee
leasing arrangement" is defined as "a contractual
arrangement, including long-term temporary arrangements
whereby a lessor obligates itself to perform specified
employer responsibilities as to leased employees including
the securing of workers' compensation insurance."
"Long-term temporary arrangement" is defined as
"an arrangement where 1 company leases all or a majority
of workers from another for a period in excess of 6 months or
consecutive periods equal to or greater than 1 year."
The policy endorsements define "lessor (employee leasing
company)" as "an entity that leases any of its
workers to a lessee through an employment leasing
arrangement. A lessor may also be referred to as a labor
contractor." Finally, "lessee (client
company)" is defined as "an entity that obtains any
of its workforce from another entity through an employee
leasing arrangement." The policy endorsement's
definitions recite verbatim the definitions of those same
terms set forth in section 15 of the Employee Leasing Company
Act (215 ILCS 113/15 (West 2012)).
6 Between October 10 and October 31, 2013, defendants Billy
Sudduth and Christopher Conover both suffered injuries during
the scope of their employment with SIW, and defendants John
Lewis, Donyetta Jones, and Calvin Works each suffered
injuries during the scope of their employment with the School
District. All five individuals submitted applications for
adjustment of claims with the Illinois Workers'
Compensation Commission. B&R tendered each of the claims
7 On November 4, 2013, the NCCI informed LM that B&R was
no longer eligible for coverage because of noncompliance with
a prior carrier,  and LM cancelled the policy effective
December 13, 2013. LM conducted an audit to determine
B&R's final premium. The final premium is determined
based on the actual payroll of the insured's employees
and any uninsured subcontractors during the policy period.
B&R did not file a payroll for any of its clients because
the clients paid the payroll under their own federal Employer
Identification Numbers. LM calculated B&R's payroll
exposure as zero, since LM determined that B&R had no
leased employees. LM then refunded B&R's deposit
premium. Because LM determined that B&R had no lessor
relationship with its clients' employees, the policy
endorsements were retroactively amended to remove
B&R's clients, including SIW, the School District,
and the claimants, from coverage under the policy.
8 On March 3, 2014, LM filed this declaratory judgment action
in the circuit court, seeking a declaration that it had no
duty to defend or indemnify any of the individual claims
against SIW or the School District because the individual
claimants were not employees of B&R (counts I and II). LM
also sought rescission of the policy based on B&R's
misrepresentations that it was an employer that leased
workers to SIW and the School District (count III).
9 LM moved for summary judgment on counts I and II, arguing
that there was no coverage under the policy for the
individual claims because B&R was not an employee leasing
company that employed the claimants. LM therefore argued that
it properly revised the policy endorsements to remove
coverage for SIW and the School District's employees. LM
argued that there should be no coverage where the policy
endorsements were amended after LM's audit revealed that
B&R had no payroll for the employees of SIW or the School
District and that B&R had no employer-employee
relationship with those employees. LM also argued that, in
order to meet the terms of the policy endorsement, employees
of SIW and the School District must actually be B&R's
employees and B&R must have acted as a lessor by leasing
its own employees to SIW and the School District. LM argued
that the agreements between B&R and SIW or the School
District did not describe their relationship as an
"employee leasing agreement" and in fact did not
even contain the word "lease." Because B&R only
agreed to provide workers' compensation insurance and
risk management guidance and undertook no other employer
function, LM argued that B&R was not an employer of any
of SIW or the School District's employees, including the
claimants, and thus could not lease those employees to
10 B&R filed a cross-motion for summary judgment, which
the School District joined, requesting that the trial court
find coverage for all the individual claims. Defendants
argued that the policy endorsements attached to the policy
were forms prepared by the NCCI, which were modeled on the
language of the Employee Leasing Company Act. Defendants
argued that the client agreements between B&R and SIW and
the School District were employee leasing arrangements as
defined under section 15 of the Employee Leasing Company Act
(215 ILCS 113/15 (West 2012)), which in turn would satisfy
the policy endorsements and provide coverage.
11 The trial court requested additional briefing regarding
the Employee Leasing Company Act's "requirement that
the lessee 'obtain' workers from the lessor."
LM's supplemental brief argued that the ordinary meaning
of "obtain" is "to bring into one's
possession; to procure, esp. through effort." Defendants
argued that the term "lessee, " as used in the
Employee Leasing Company Act, provides "context to
understand an 'employee leasing arrangement.' "
Defendants argued that because B&R was licensed under the
Employee Leasing Company Act, it was a "lessor"
and, as a co-employer, B&R was obligated to perform
certain responsibilities in ...