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Illinois Insurance Guaranty Fund v. Priority Transportation, Inc.

Court of Appeals of Illinois, First District, Fourth Division

October 24, 2019

PRIORITY TRANSPORTATION, INC., f/k/a Transit Group, Inc.; TRANSIT GROUP TRANSPORTATION, LLC, a/k/a 1999 TGT Merger Sub, Inc.; TIM WITTE; and ACE INSURANCE COMPANY, Defendants, Priority Transportation, Inc., f/k/a Transit Group, Inc.; Transit Group Transportation, LLC, a/k/a 1999 TGT Merger Sub, Inc.; and Ace Insurance Company, Defendants-Appellants.

          Appeal from the Circuit Court of Cook County No. 09 CH 16558 Honorable David B. Atkins, Judge presiding.

          John P. Bergin and Peter J. Lorenz, of Lorenz & Bergin, P.C., of Chicago, for appellants.

          J. Murray Pinkston III, of Stone & Johnson, Chtrd., of Chicago, for appellee.

          JUSTICE BURKE delivered the judgment of the court, with opinion. Presiding Justice Gordon and Justice McBride concurred in the judgment and opinion.



         ¶ 1 Tim Witte was employed as a truck driver by Fox Midwest Transport, Inc. (Fox Midwest), which from March 1, 1999, until March 1, 2000, had a workers' compensation policy issued by Fremont Casualty Insurance Company (Fremont). On December 31, 1999, Fox Midwest merged into 1999 TGT Merger Sub, Inc., a subsidiary of Transit Group, Inc., a trucking business, that itself had a workers' compensation policy issued by Ace Insurance Company (Ace), effective from January 1, 2000, until January 1, 2001. On January 17, 2000, Witte sustained injuries on the job and later filed a workers' compensation claim. Fremont began paying him benefits until July 2, 2003, when it was involuntarily liquidated by the State of Illinois. Thereafter, the Illinois Insurance Guaranty Fund (Fund) became the provider of benefits to Witte and has provided him benefits ever since.

         ¶ 2 Several years later, the Fund sued Priority Transportation, Inc. (formerly known as Transit Group, Inc.) and Transit Group Transportation, LLC (also known as 1999 TGT Merger Sub, Inc.) (collectively, the Transit Group entities), along with Witte and Ace. The Fund alleged that, because of the merger, the Transit Group entities were Witte's employer and that they had a workers' compensation policy covering their employers through Ace. As such, the Fund contended there was other workers' compensation insurance coverage available to Witte and sought declarations that the Transit Group entities and Ace should be responsible for the benefits paid and payable to Witte as a result of his workplace accident. The Transit Group entities and Ace filed a joint motion to dismiss, arguing that the circuit court lacked subject-matter jurisdiction to entertain the Fund's claims. Thereafter, the Fund, the Transit Group entities, and Ace filed cross-motions for summary judgment. Following a hearing on all of the motions, the circuit court denied the motion to dismiss, finding it had subject matter jurisdiction to entertain the Fund's claims. And the circuit court granted the Fund's motion for summary judgment and denied the motions for summary judgment of the Transit Group entities and Ace, finding that, because of the merger, Witte was covered under the workers' compensation insurance policy of the Transit Group entities at the time of his injury.

         ¶ 3 The Transit Group entities and Ace appealed, contending that the circuit court erred in denying their joint motion to dismiss and their motions for summary judgment and erred in granting the Fund's motion for summary judgment. For the reasons that follow, we affirm all of the circuit court's judgments.

         ¶ 4 I. BACKGROUND

         ¶ 5 A. The Illinois Insurance Guaranty Fund

         ¶ 6 Before delving into the history of this case, we briefly provide a background about workers' compensation benefits and the Fund. The principal purpose of the Workers' Compensation Act (Act) (820 ILCS 305/1 et seq. (West 2000)) is to provide financial protection for workers injured during the course and scope of their employment. Cassens Transport Co. v. Illinois Industrial Comm'n, 218 Ill.2d 519, 524 (2006). Pursuant to the goal of protecting workers financially, the Act was written to provide prompt and fair recovery without proof of fault for workers who are accidentally injured in the workplace (Fregeau v. Gillespie, 96 Ill.2d 479, 486 (1983)), but also to protect employers from the prospects of civil litigation by its employees (see Mitsuuchi v. City of Chicago, 125 Ill.2d 489, 494 (1988)). This goal, however, can be frustrated when the workers' compensation insurer becomes insolvent, cannot provide benefits to an injured worker, and has placed no adequate bond with the Illinois Industrial Commission.

         ¶ 7 Due to the possibility of the insolvency of a workers' compensation insurer, in addition to various other types of insurance providers, the Illinois Insurance Code created the Fund (215 ILCS 5/532 to 553 (West 2000)), a nonprofit entity that protects holders of policies issued by insurers that become insolvent "and third-party claimants under those policies, when expected coverage ceases to exist." Rogers v. Imeri, 2013 IL 115860, ¶ 14. The Fund is not intended to be an independent or collateral source of insurance benefits, but rather is" 'a source of last resort,' whose role as a substitute insurer is subject to certain statutory limitations." Id. (quoting Illinois Insurance Guaranty Fund v. Farmland Mutual Insurance Co., 274 Ill.App.3d 671, 673 (1995)). In other words, when a claimant is receiving insurance benefits and his insurer becomes insolvent, the Fund steps into the shoes of the insurer to maintain the position of the claimant. Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund, 2013 IL 113873. ¶ 29. But because the Fund is a source of last resort, a claimant must exhaust all rights he has under any other insurance policy applicable to his claim or loss. 215 ILCS 5/546(a) (West 2000); Hasemann v. White, 177 Ill.2d 414, 418 (1997).

         ¶ 8 B. The History of the Case

         ¶ 9 The following is a history of the parties involved, taken from the documents relied upon by both parties in their cross-motions for summary judgment.

         ¶ 10 During the late 1990s, Transit Group, Inc., was in the process of acquiring trucking companies across the United States in order to create a nationwide transportation network. According to the deposition of Paul Kostelac, the former vice president of risk management of Transit Group, Inc., to facilitate certain acquisitions, particularly for tax reasons, Transit Group, Inc., would use subsidiary entities to perform the acquisitions. Kostelac asserted that the subsidiaries were merely "legal vessel[s]" to effectuate the acquisitions and that the acquisitions would "roll" into Transit Group, Inc., "very rapidly," as "[g]enerally it just [took] time to get the lawyers together to get the paper completed and get it signed."

         ¶ 11 In May 1999, Tim Witte, a truck driver, began working for Fox Midwest and continued working for them into December 1999 when Transit Group, Inc., was in the process of acquiring Fox Midwest through a statutory merger. At this time, Fox Midwest had a workers' compensation policy through Fremont, which was in effect from March 1, 1999, to March 1, 2000. To facilitate the acquisition of Fox Midwest, Transit Group, Inc., created a subsidiary, 1999 TGT Merger Sub, Inc. (TGT Merger).

         ¶ 12 According to a "Certificate of Merger of Fox Midwest Transport, Inc. into 1999 TGT Merger Sub, Inc," dated December 23, 1999, Fox Midwest was a Wisconsin corporation, and TGT Merger was a Delaware corporation. The certificate stated that an "Agreement and Plan of Merger" had been approved and the "surviving corporation of the merger" would be TGT Merger.

         ¶ 13 In the "Agreement and Plan of Merger," there was a section titled "Effect of Merger," that stated:

"At the conclusion of the Merger, (a) the separate existence of Fox [Midwest] will cease and Fox [Midwest] will be merged with and into [TGT Merger] and [TGT Merger] will be the surviving corporation pursuant to the terms of the Certificate of Merger."

         Another section of the agreement was titled "Rights and Liabilities of Fox [Midwest]," which stated:

"At and after the Merger, without further act or deed, all of the rights, privileges and powers, and all of the property, real, personal and mixed of, and all debts due to Fox [Midwest], as well as all of the things and causes of action belonging to Fox [Midwest] shall be the property of [TGT Merger] as they were the property of Fox ***; all rights of creditors and all liens upon any property of any of the parties hereto shall be preserved, unimpaired, and all debts, liabilities, and duties of the respective parties hereto shall thenceforth attach to [TGT Merger] and may be enforced against it to the same extent as if such debts, liabilities, and duties had been incurred or contracted by it."

         The agreement declared that the merger would become effective just before midnight on December 31, 1999.

         ¶ 14 Meanwhile, Transit Group, Inc., had its own workers' compensation policy through Pacific Employers Insurance Company, a company that Ace had acquired. The policy of Transit Group, Inc., commenced on January 1, 2000, and was in effect until January 1, 2001. The policy named "Transit Group, Inc." as the insured but also included multiple "Other Insureds Extension" pages, listing several other entities, including "Transit Group Transportation, LLC" and other entities that Transit Group, Inc., had acquired during the late 1990s. Fox Midwest's name was not included as another insured. And the policy covered "TRUCKING IL" as a workplace. According to the policy, the premiums required by Ace were only an estimate and the final premium would "be determined after" the policy period ended "by using the actual, not the estimated, premium basis and the proper classifications and rates that lawfully apply to the business and work covered by this policy."

         ¶ 15 On January 17, 2000, Witte was on the job in Illinois, near or in Itasca, when he stepped out of his truck, slipped, and fell on ice, which resulted in injuries to his head, knee, and shoulder. Following the accident, he filed a workers' compensation claim with the Illinois Industrial Commission, whose name later was changed to the Illinois Workers' Compensation Commission (Commission), and began receiving compensation from Fremont based on Fox Midwest's policy.[1] Fremont continued to pay Witte workers' compensation benefits until July 2, 2003, when the company was involuntarily liquidated by the State of Illinois. At this time, the Fund took over as Witte's benefit provider.

         ¶ 16 Meanwhile, documentary evidence and deposition testimony demonstrate that Fox Midwest was expressly added to the workers' compensation ...

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