Heyl, Royster, Voelker & Allen
24th Annual Claims Handling Seminars
Winning Strategies for Difficult Times
Casualty & Property
Thursday, May 21, 2009
Bloomington, Illinois
www.heylroyster.com
© 2009 Heyl, Royster, Voelker & Allen
Peoria
Suite 600
Chase Building
124 S.W. Adams Street
Peoria, IL 61602
Telephone: 309.676.0400
Fax: 309.676.3374
Springfield
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Telephone: 217.522.8822
Fax: 217.523.3902
Urbana
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Telephone: 217.344.0060
Fax: 217.344.9295
Rockford
2nd Floor
120 West State St.
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Rockford, IL 61105
Telephone: 815.963.4454
Fax: 815.963.0399
Edwardsville
Mark Twain Plaza III, Suite 100
105 West Vandalia Street
PO Box 467
Edwardsville, IL 62025
Telephone: 618.656.4646
Fax: 618.656.7940
May 21, 2009
IN RE: 24th Annual Claims Handling Seminars
Dear Seminar Attendee:
On behalf of the firm, I want to welcome you to our 24th Annual Claims Handling
Seminars.
Our attorneys have endeavored to prepare materials and presentations which will
benefit you in your daily work, whether you are a claims professional, risk manager,
corporate counsel or employer.
Please be sure to fill out the database update and evaluation form which is with your
materials. Your feedback regarding this seminar and your suggestions for future topics
are very important to us. We also ask that you be sure to provide your e-mail address
since we are now distributing publications such as our Quarterly Review of Recent
Decisions and Below the Red Line, our workers’ compensation newsletter, via e-mail.
In order to receive Continuing Education verification, be sure to sign the attendance
sheet at the registration table both before the session begins and immediately
following the conclusion of our sessions this afternoon. Attendance verification
certificates will be e-mailed only to those who sign the attendance sheet.
Once again, we appreciate your taking the time to join us today, and thank you for your
confidence in selecting us as your attorneys.
HEYL, ROYSTER, VOELKER & ALLEN
By:
Robert V. Dewey, Jr.
Managing Partner
309-676-0400, ext 294
[email protected]
Casualty & Property Agenda
Winning Strategies for Difficult Times
Thursday, May 21, 2009
1:00 - 4:30 p.m.
Bloomington, Illinois
1:00 p.m.
Welcome and Introductions
– Bob Dewey, Peoria
1:05 p.m.
Property Insurance Update
– Steve Heine, Peoria
1:20 p.m.
Limitation Issues in Settlement Negotiations:
How to Avoid Waiver of the Statute of Limitations
– Matt Booker, Springfield
What You Need to Know:
1:30 p.m.
… About Illinois Liens and the Common Fund Doctrine
– Mark Hansen, Peoria
1:40 p.m.
… About Medicare Liens, Conditional Payments, and Set-Aside Trusts
– Brad Peterson, Urbana
1:50 p.m. … About Arbitration
– Scott Salemi, Rockford
2:00 p.m.
… About E-Discovery
– Christine Heinsz, Edwardsville
2:15 p.m.
Insurance Coverage Update
– Gary Nelson, Peoria
2:30 p.m.
Break
2:50 p.m.
What’s on the Horizon? Cases Pending in the Illinois Supreme Court
– Karen Kendall, Peoria
3:00 p.m.
Advantage Plaintiffs: Allocation of Fault in Multi-Party Litigation
– Matt Hefflefinger, Peoria
3:20 p.m.
What Can the Plaintiff Recover? Damages Update
– Ed Wagner, Urbana
3:35 p.m.
Uninsured and Underinsured Motorist Update
– Doug Heise, Edwardsville
3:50 p.m.
Mediation Tactics and Procedures: A Mediator’s View
– Rex Linder, Peoria
4:00 p.m.
Looming Legislation: Developments in the Illinois General Assembly
– Chuck Timmerwilke, Rockford
4:10 p.m.
Tort Law Update
– Dan Simmons, Springfield
4:30 p.m.
Cocktails & Hors d’oeuvres
Casualty and Property
Contact Attorneys
Heyl, Royster, Voelker & Allen
Rockford
Chicago
Peoria
Robert V. Dewey, Jr.
[email protected]
(309) 676-0400
ILLINOIS
Springfield
Fredrick P. Velde
[email protected]
(217) 522-8822
Peoria
Urbana
Urbana
Edward M. Wagner
[email protected]
(217) 344-0060
Springfield
St. Louis
Edwardsville
Rockford
Douglas J. Pomatto
[email protected]
(815) 963-4454
Edwardsville
Robert H. Shultz, Jr.
[email protected]
(618) 656-4646
www.heylroyster.com
CASUALTY & PROPERTY
WINNING STRATEGIES FOR DIFFICULT TIMES
Welcome and Introductions .................................................................................................................................. A-1
Property Insurance Update .....................................................................................................................................B-1
Limitation Issues in Settlement Negotiations:
How to Avoid Waiver of the Statute of Limitations ...................................................................................... C-1
What You Need to Know:
… About Illinois Liens and the Common Fund Doctrine.......................................................................... D-1
… About Medicare Liens, Conditional Payments, and Set-Aside Trusts ............................................. E-1
… About Arbitration ................................................................................................................................................ F-1
… About E-Discovery ............................................................................................................................................. G-1
Insurance Coverage Update ................................................................................................................................... H-1
What’s on the Horizon? Cases Pending in the Illinois Supreme Court .................................................... I-1
Advantage Plaintiffs: Allocation of Fault in Multi-Party Litigation ............................................................J-1
What Can the Plaintiff Recover? Damages Update ........................................................................................K-1
Uninsured and Underinsured Motorist Update ............................................................................................... L-1
Mediation Tactics and Procedures: A Mediator’s View............................................................................... M-1
Looming Legislation: Developments in the Illinois General Assembly .................................................. N-1
Tort Law Update ......................................................................................................................................................... O-1
The cases and materials presented here are in summary and outline form. To be certain of their applicability and use
for specific claims, we recommend the entire opinions and statutes be read and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
WELCOME AND INTRODUCTIONS Presented and Prepared by:
Robert V. Dewey, Jr.
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
A-1
Robert V. Dewey, Jr.
- Managing Partner
•
Bob is the Managing Partner of the firm and has
served in that position since 1998. He has practiced
in the Peoria office since 1972. His practice is focused
on the defense of civil litigation, including healthcare
malpractice, products liability, construction accidents
and major exposure cases for self-insureds and
insurance carriers.
•
An experienced and accomplished trial lawyer, Bob
has taken over 50 jury trials to verdict. Many of those
have been disputes involving complex legal and
factual issues involving significant exposure for the
firm's clients. He was elected to membership in the
Society of Trial Lawyers (Illinois) in 1980, and as a
Fellow of the American College of Trial Lawyers in
1990.
Selected as a Leading Lawyer in Illinois. Only
five percent of lawyers in the state are named
as Leading Lawyers.
Named to the Illinois Super Lawyers list (20052009). The Super Lawyers selection process is
based on peer recognition and professional
achievement. Only five percent of the lawyers
in each state earn this designation.
Professional Associations
•
American College of Trial Lawyers (Fellow;
Member of Downstate Illinois Committee)
•
Federation of Defense and Corporate Counsel
(President 2002-2003; Chair, Medical
Malpractice Committee 1990-1992; Appleman
Award Winner 1992; Chair, Defense of Nursing
Homes Litigation Task Force 2000-2002)
Defense Research Institute (Board of Directors
•
2001-2004; Exceptional Performance Citation
1988)
•
Lawyers for Civil Justice (Board of Directors
2002-2004)
•
Illinois Association of Defense Trial Counsel
(President 1987-1988; Trial Academy Faculty
Member multiple times)
•
Peoria County Bar Association (President
1997-1998; Chair of Courts and Procedures
Committee, Civil Division, multiple years;
Chair, Committee to Revise Local Rules 19821984)
•
Society of Trial Lawyers (Illinois)
•
National Association of Railroad Trial Counsel
•
American Bar Association
•
Illinois State Bar Association (Chair, Insurance
Law Section 1985-1986)
•
Illinois Institute of Continuing Legal Education
(Chair 1998-1999)
•
Abraham Lincoln American Inn of Court
(Emeritus)
He also has significant experience in alternative
dispute resolution. Bob has been involved in many
six-and seven-figure settlements of high-exposure
disputes, utilizing various types of settlement tools,
including court-assisted pre-trial settlement
conferences, mediation, arbitration and structured
settlements.
Bob served as the President of the Federation of
Defense and Corporate Counsel (FDCC) in 20022003. He is also a Past President of the Illinois state
defense organization (the Illinois Association of
Defense Trial Counsel) and a Past President of the
Peoria County Bar Association.
Prior to joining Heyl Royster, Bob worked first as a
Special Assistant Attorney General for the State of
Minnesota for two years as counsel to the
Department of Highways, and then spent a year as
trial counsel for the Housing and Redevelopment
Authority of the City of St. Paul. During that threeyear period, he tried nine or ten condemnation cases
to jury verdict.
Court Admissions
•
State Courts of Illinois and Minnesota
•
United States District Court, Central District of
Illinois
•
United States Court of Appeals, Seventh
Circuit
Bob has been designated as one of the "Leading
Lawyers" in Illinois as a result of a survey of Illinois
attorneys conducted by the Chicago Daily Law
Bulletin, has been designated an Illinois "Super
Lawyer" by Chicago magazine, and is AV-rated by
Martindale-Hubbell.
Education
•
Juris Doctor, University of Wisconsin Law
School, 1969
•
Bachelor of Arts-Political Science, Brown
University, 1966
Professional Recognition
•
Martindale-Hubbell AV Rated
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Learn more about our speakers at www.heylroyster.com
PROPERTY INSURANCE UPDATE Presented and Prepared by:
Stephen J. Heine
[email protected]
Peoria, Illinois • 309.676.0400
Prepared with the Assistance of:
Adam J. Lagocki
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
B-1
PROPERTY INSURANCE UPDATE
I.
IMPACT OF PRIOR BANKRUPTCY ON FIRST
PARTY PROPERTY CLAIMS ........................................................................................................................B-3
A.
B.
C.
D.
E.
II.
LIMITATIONS AND EXCLUSIONS ........................................................................................................ B-11
A.
B.
C.
D.
III.
Material Misrepresentation .......................................................................................................B-3
Insurable Interest...........................................................................................................................B-4
Standing ...........................................................................................................................................B-5
Judicial Estoppel ............................................................................................................................B-6
Conclusion .................................................................................................................................... B-11
Mold ................................................................................................................................................ B-11
Vacancy .......................................................................................................................................... B-12
Intentional Acts ........................................................................................................................... B-13
Dishonest or Criminal Acts ..................................................................................................... B-13
CONDITIONS AND DEFINITIONS ........................................................................................................ B-14
A.
B.
C.
D.
Duties .............................................................................................................................................. B-14
Insured ........................................................................................................................................... B-14
Insured Premises ........................................................................................................................ B-15
Replacement Cost ...................................................................................................................... B-16
B-2
PROPERTY INSURANCE UPDATE
I.
IMPACT OF PRIOR BANKRUPTCY ON FIRST PARTY PROPERTY CLAIMS
With increasing regularity, we are encountering first party property claims with facts similar to
these:
A fire occurs at an insured premises on September 1, 2008. The insured submits a claim for
$200,000 on the dwelling and $100,000 on personal property. As part of the investigation, the
insurer learned that the insured had filed for bankruptcy on March 1, 2008 and that a discharge
was granted on June 1, 2008. When filing for bankruptcy, the insured claimed the dwelling had a
value of $200,000 and that his interest in household goods, furnishings, clothing, jewelry and
other similar items totaled $4,000. He also claimed as exempt the same $4,000 worth of personal
property. In his Examination Under Oath, the insured admits that he did not purchase $96,000
worth of personal property between filing for bankruptcy on March 1, 2008, and the fire on
September 1, 2008. The insured does not have an explanation for the difference other than that
he filled out the bankruptcy petition as instructed by his attorney.
The question then becomes: What impact does the prior bankruptcy have on how the insurer
should adjust the claim? Should the claim be paid or denied? If the claim should be paid, to
whom should the payment be made? Here are some potential defenses to consider in the
process of evaluating these issues.
A.
Material Misrepresentation
An argument could be made that the insured has made material misrepresentations sufficient to
deny his entire claim. Essentially, the basis for denial on these grounds assumes that the
bankruptcy petition was accurate and that the insured, based upon his own testimony and
financial status, as a practical matter could not have purchased $96,000 worth of personal
property between filing the bankruptcy petition and the fire.
While that thought process is accurate, it does not take into consideration that the insured’s
bankruptcy attorney will attribute the difference to the fact that the bankruptcy petition
provides only a liquidation or garage sale value, not the value to be used in determining a loss
under an insurance policy. Further, if the matter were to proceed to trial after a denial, it is likely
that a jury would recognize the fact that an average person may not understand how to
accurately determine value under the policy. Depending upon how the insured comes across, a
jury may be sympathetic to the insured’s position because the jury members themselves may
not understand how to calculate value under the policy accurately, and they may imagine
themselves in the insured’s position.
Therefore, denial of the insured’s claim on the basis of material misrepresentation may not be
the best approach when faced with this factual scenario.
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B.
Insurable Interest
In Payne v. Wood, 775 F.2d 202 (7th Cir. 1985), the debtors filed bankruptcy in 1981, and four
months later, their house and personal property were damaged by fire. In the bankruptcy
petition, the debtors listed personal property with a value of $1,205, but after the fire, the
insurance company determined the personal property was worth $17,389.47. The insurance
company paid the claim, but the debtors and the trustee disputed who was entitled to the
proceeds. The court explained that under the Bankruptcy Act, all property of the debtor
becomes part of the bankruptcy estate available to satisfy the creditors’ claims. 11 U.S.C. §
541(a). A debtor can then remove some property of the bankruptcy estate by claiming
exemptions. Anything that is properly exempted from the estate passes through bankruptcy,
and the remainder goes to the creditors. The debtor must file a list of property the debtor claims
as exempt, and unless an interested party objects, the property claimed as exempt on such list is
exempt. However, if the debtor does not claim an exemption with respect to particular property,
that property is included in the bankruptcy estate. The court then stated that it does not matter
whether the property changes form once it enters the bankruptcy estate. Therefore, in Payne the
fire turned physical assets of the estate into insurance proceeds, the bankruptcy trustee was
entitled to the proceeds for any property not exempted, and the Paynes were entitled to the
proceeds for the property that was exempted. Payne, 775 F.2d at 204.
The court’s decision in Payne may have been better explained by the court in In re Simpson, 238
B.R. 776 (S.D. Ill. 1999), when the court stated:
The Payne court observed that upon filing for bankruptcy, all the debtors’
property became property of the bankruptcy estate. The debtors then removed
certain property from the estate by claiming it as exempt. The court ruled that
once the debtors’ exemption had been made, effecting a ‘partition’ between the
debtors and the estate, it did not matter whether the property changed form; the
estate was entitled to insurance proceeds on property that was not exempted,
and the debtors were entitled to insurance proceeds on property that was
exempted.
Simpson, 238 B.R. at 780.
Similar to Payne, in our scenario all personal property assets not listed as exempt in the
bankruptcy petition remain the property of the bankruptcy estate. The insured did list $4,000 in
household goods and other such items as exempt in his bankruptcy petition. Because he listed
$4,000 in exempt personal property in his petition, that amount reverts from the bankruptcy
estate back to the insured’s possession and control. Therefore, the insurer should pay the claim
for the $4,000 in property that reverts back to the insured, but the insurer could deny the claim
to the extent it is in excess of $4,000 because any personal property in excess of $4,000 was
property of the bankruptcy estate. In other words, the insured does not have an insurable
interest in that property.
B-4
If the insurer decides to proceed in this manner, it should notify the bankruptcy trustee of its
intent to pay the insured’s claim in the amount of $4,000. Under the reasoning of Payne, the
insured would be entitled to receive the $4,000 because it would be proceeds for property in
which he claimed an exemption in his bankruptcy filing. However, there are cases where the
Bankruptcy Court has held that the debtor is not entitled to insurance proceeds paid for losses
of exempt property. Basically, those courts hold that the insurance proceeds are assets of the
bankruptcy estate separate from the exempt assets. See In re Fox, 80 B.R. 753 (W.D. Penn. 1987).
Therefore, the insurer should notify the trustee of its intent to pay $4,000 on the insurance claim,
and if the trustee disagrees, the trustee can petition the court for an order requiring that the
$4,000 be paid to the estate.
Additionally, as discussed above, even though the insured is not entitled to proceeds under the
policy in excess of $4,000, the insurance claim is the property of his bankruptcy estate, and thus
the bankruptcy estate is entitled to all proceeds for damage to the insured’s personal property
in excess of $4,000. Therefore, even though the insurer may deny the insured’s claim to the
extent that it exceeds $4,000, the bankruptcy estate is entitled to the proceeds for damage to
the insured’s personal property that exceeds $4,000.
While there is an Illinois case contrary to this position, holding that a bankruptcy debtor does
have an insurable interest in property that was not disclosed on its bankruptcy schedules, it is a
very old decision from 1943, and it has not been cited by any other Illinois court. See Passen v.
U.S. Casualty Co., 319 Ill. App. 59, 48 N.E.2d 545 (1st Dist. 1943).
C.
Standing
If the insured were to file suit against the insurer for denial of the claim for lack of insurable
interest, the insurer may be able to assert that the insured does not have standing to maintain a
lawsuit to recover damages to personal property he owned, but failed to include in his petition
when he filed for bankruptcy. Instead, that property became part of the bankruptcy estate upon
filing, and only the trustee of the bankruptcy estate would potentially have standing to bring a
lawsuit to recover for damage to property that is part of the bankruptcy estate.
In Dailey v. Smith, 292 Ill. App. 3d 22, 684 N.E.2d 991, 225 Ill. Dec. 1000 (1st Dist. 1997), Dailey
brought a lawsuit against defendants in 1988 claiming that the defendants owed him profits
under an oral partnership agreement that he alleged was entered into in 1982. However, Dailey
had filed for bankruptcy in September 1986. In his bankruptcy petition he did not list the
potential lawsuit against the defendants, and he denied having any interest in any partnership at
the time he filed the petition. Potential lawsuits were required to be disclosed in the petition. In
June 1988, the Bankruptcy Court entered a “Finding of No Assets,” and the bankruptcy trustee
was dismissed. But, in May 1988, Dailey filed the lawsuit against the defendants seeking to
recover profits of the alleged partnership. In regard to Dailey’s standing, the court found that
Dailey lacked standing to bring the claim because “[o]nce a debtor files for bankruptcy, any
unliquidated lawsuits become part of the bankruptcy estate, and, even if such claims are
B-5
scheduled, a debtor is divested of standing to pursue them upon filing his petition.” Dailey, 292
Ill. App. 3d at 25. Even if a partnership existed, Dailey’s right to share in any profits was personal
property which became property of the bankruptcy estate. Since the property did not belong to
Dailey he had no standing to bring the claim. Dailey, 292 Ill. App. 3d at 27.
Under the Dailey rationale, the insurer can assert that the insured does not have standing to
bring a lawsuit to recover insurance proceeds for personal property damaged in the fire in
excess of that amount claimed as exempt because the property belonged to the bankruptcy
estate. Immediately upon filing his petition for bankruptcy, his personal property became part of
the bankruptcy estate and only that property claimed as exempt reverted back to the insured.
All claims regarding property not listed as exempt belong to the estate.
D.
Judicial Estoppel
In addition to asserting that the insured does not have standing to bring the lawsuit, the insurer
may also be able to assert that the insured is judicially estopped from claiming damages to
personal property in the amount of $100,000 in any claim against the insurer, because when he
filed a bankruptcy petition six months earlier, he claimed he had only $4,000 in personal
property.
In Battle v. Liberty Mut. Fire Ins. Co., 276 Ga. App. 434, 623 S.E.2d 541 (Ga. Ct. App. 2005), a
plaintiff’s house was damaged by fire in 2002, and subsequently he filed a claim with his insurer.
The insurer filed a motion for summary judgment, arguing the plaintiff was judicially estopped
from recovering from the insurer for damages to the house because he failed to list the house
as an asset in his successful 1995 Chapter 7 bankruptcy petition. The Court stated that judicial
estoppel is designed to protect the integrity of the courts by preventing a party from asserting a
position in a judicial proceeding that is inconsistent with a position the party has successfully
asserted in the past. Relying on Georgia law, the Court stated that application of judicial
estoppel requires three factors be satisfied: (1) the party’s later position must be clearly
inconsistent with his earlier one; (2) the party must have persuaded a court to accept his earlier
inconsistent position; and (3) the party must derive an unfair advantage or impose an unfair
detriment on his opponent if not estopped. The Court held that “when a debtor fails to list a
property in a bankruptcy proceeding that results in no money being paid to his unsecured
creditors, he cannot subsequently obtain reimbursement of a damage claim for that same
property.” Battle, 276 Ga. App. at 436.
In Popadyn v. Clark Construction and Property Maintenance Services, Inc., 49 A.D.3d 1335, 854
N.Y.S.2d 626 (N.Y.A.D., 4th Dept., 2008), a husband and wife brought an action seeking damages
they allegedly incurred when an agent of a mortgage company participated in evicting the
husband and wife from their home by moving some of their property to a storage facility, and in
the process damaged their property. The Appellate Court found that:
[T]he record establishes that [the husband’s] bankruptcy filing set forth that his
personal property assets were in the amount of only $1,220. The doctrine of
B-6
judicial estoppel provides that where a party assumes a position in a legal
proceeding and succeeds in maintaining that position, that party may not
subsequently assume a contrary position because [his] interests have changed
. . . . In a bankruptcy context, judicial estoppel prevents a party from prosecuting
claims not disclosed in a bankruptcy proceeding that resulted in the party’s
discharge.
Popadyn, 49 A.D.3d at 1336.
In Dailey, discussed above, the court stated that the trial court was equally justified in finding
plaintiff was judicially estopped from bringing the claim against defendants. In Illinois, courts
generally require five elements be satisfied in order to apply judicial estoppel (the elements are
very similar to those required by Georgia law and elaborated in Battle). Those elements are:
“(1) the two positions must be taken by the same party; (2) the positions must be taken in
judicial proceedings; (3) the positions must be given under oath; (4) the party must have
successfully maintained the first position and thereby received some benefit; and (5) the two
positions must be totally inconsistent.” Dailey, 292 Ill. App. 3d at 27-28.
In finding the plaintiff was judicially estopped from bringing a lawsuit against the defendants,
the Court stated:
Plaintiff’s position in the present case – that he entered an oral “partnership” with
defendants and is now entitled to his share of profits – is diametrically opposed
to the position he maintained in the course of the bankruptcy proceedings.
***
Plaintiff obviously benefitted from his failure to disclose his claims against
defendants, inasmuch as he was able to avoid his creditors by doing so.
***
Thus, plaintiff took totally inconsistent positions in separate judicial proceedings,
under oath, to his benefit, and the trial court correctly concluded judicial estoppel
was applicable.
Dailey, 292 Ill. App. 3d at 28.
Our scenario would meet all the elements for a court to apply judicial estoppel. First, the insured
filed the bankruptcy petition and would be the one filing the lawsuit. Second, the insured’s
earlier position was taken before the Bankruptcy Court and the current position would be taken
before the state court when the insured files suit. Third, both the bankruptcy petition and sworn
proof of loss were given under oath. Fourth, the insured successfully maintained his position in
the bankruptcy proceeding, and as a benefit, the Bankruptcy Court granted a discharge allowing
B-7
him to avoid forfeiture of more assets to creditors. And fifth, the insured’s position in bankruptcy
is completely inconsistent with his position in the lawsuit.
Some cases, especially Georgia cases like Battle, hold that a plaintiff may avoid application of
judicial estoppel if the plaintiff amends his bankruptcy petition to declare the omitted claim or
cause of action. However, this position has been rejected by the Central District of Illinois. See
Bland v. Rahar, No. 06-3072, 2008 WL 109388 (C.D. Ill. Jan. 9, 2008); Smith v. American General
Life Ins., 544 F. Supp. 2d 732 (C.D. Ill. 2008). Following the majority of the Circuits, these two
cases hold that judicial estoppel “bars previously undisclosed claims (whether amended
scheduling occurred or not) unless the prior omission was ‘inadvertent or mistaken.’
Inadvertence or mistake exists where (1) the plaintiff lacked knowledge of the undisclosed claim
or (2) had no motive to conceal the claim.” Smith, 544 F. Supp. 2d at 735. In this scenario, the
insured clearly had motive to conceal the assets in the bankruptcy petition because he would
get to keep more of his assets.
Under this analysis, the insured would be judicially estopped from claiming anything more than
the $4,000 of property he included in his bankruptcy petition because any other amount would
be inconsistent with that filing. But, due to the fact that the insured listed his home at the same
value in both his bankruptcy petition and his insurance claim, the insured would not be judicially
estopped from making a claim against the insurer for the damage to the dwelling.
While judicial estoppel can be asserted to prevent the lawsuit by the insured, a court may not
apply judicial estoppel in light of the fact that the bankruptcy estate is entitled to insurance
proceeds exceeding $4,000.
In Biesek v. Soo Line Railway Co., 440 F.3d 410 (7th Cir. 2006), a railroad employee who had a
claim under the Federal Employers Liability Act (“FELA”) against his employer railroad company
filed a bankruptcy petition in September 2002 and three months later received a discharge from
liability on his remaining debts. In his schedule of assets for the bankruptcy, he did not list any
potential litigation as he was required to do, stating he had “none” instead. This was inaccurate,
since his FELA claim was an asset. In fact, he had an offer to settle his FELA claim even before he
filed the bankruptcy petition. He then filed his FELA action after he was discharged in
bankruptcy. Based upon the doctrine of judicial estoppel the trial court granted summary
judgment to the railroad. In doing so, the trial court held that, because the plaintiff claimed in
the bankruptcy petition that he had no unliquidated claims, he could not then make the claim
against the railroad and benefit by having defrauded his creditors in the bankruptcy.
The Seventh Circuit recognized that there was a lot of authority supporting the trial court’s
decision to apply judicial estoppel. However, the Seventh Circuit refused to follow this authority.
Instead, the court stated:
Biesek’s nondisclosure in bankruptcy harmed his creditors by hiding assets from
them. Using this same nondisclosure to wipe out his FELA claim would complete
the job by denying creditors even the right to seek some share of the recovery.
B-8
***
Creditors gypped by Biesek’s maneuver are hurt a second time by the district
judge’s decision. Judicial estoppel is an equitable doctrine, and using it to land
another blow on the victims of bankruptcy fraud is not an equitable application.
Instead of vaporizing assets that could be used for the creditors’ benefit, district
judges should discourage bankruptcy fraud by revoking the debtors’ discharges
and referring them to the United States Attorney for potential criminal
prosecution.
Decisions that have relied on judicial estoppel assume that the tort claim belongs
to the debtor. Only then is one person on both sides of the same issue. Yet why
would Biesek own this chose in action? Pre-bankruptcy claims are part of the
debtors’ estates; this FELA claim therefore belongs to the Trustee, for the benefit
of Biesek’s creditors.
Biesek, 440 F.3d at 413.
The Seventh Circuit revisited a similar issue in Cannon-Stokes v. Potter, 453 F.3d 446 (7th Cir.
2006). In Cannon-Stokes, a letter carrier brought a claim against the Postal Service for failing to
accommodate her mental aversion to making residential deliveries and retaliating against her
because she asserted her statutory rights. However, at the same time Cannon-Stokes was
pursuing her claim against the Postal Service for $300,000, she filed a Chapter 7 bankruptcy
petition in which she asserted that she had no valuable legal claims. Relying on the petition, the
Bankruptcy Court discharged all of her unsecured debts. After the bankruptcy was complete,
Cannon-Stokes filed suit against the Postal Service. The Postal Service asserted that CannonStokes action was barred by judicial estoppel.
The court explained that its holding in Biesek recognized a proviso to judicial estoppel:
“bankruptcy fraud designed to hide an asset from creditors does not prevent the creditors
themselves from realizing on the claim after discovery.” The court went further in explaining:
Judicial Estoppel is an equitable doctrine, and it is not equitable to employ it to
injure creditors who are themselves victims of the debtor’s deceit. Moreover, as a
technical matter the estate in bankruptcy, not the debtor, owns all prebankruptcy claims, and unless the estate itself engages in contradictory litigation
tactics the elements of judicial estoppel are not satisfied. But if the estate
(through the trustee) abandons the claim, then the creditors no longer have an
interest, and with the claim in the debtor’s hands the possibility of judicial
estoppel comes to the fore. That is what has happened here: the trustee
abandoned any interest in this litigation, so the creditors are out of the picture
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and we must decide whether Cannon-Stokes may pursue the claim for her
personal benefit.
Cannon-Stokes, 453 F.3d at 448.
The court held that Cannon-Stokes could not pursue the claim for her personal benefit. The
court explained that judicial estoppel is designed to prevent perversion of the judicial process,
and stated that the judicial process would be perverted if the court allowed Cannon-Stokes to
conceal an asset from bankruptcy that was three times larger than the debts discharged. The
court also rejected Cannon-Stokes argument that good-faith reliance on legal advice should
excuse her false statement on bankruptcy schedules.
In Bland v. Rahar, No. 06-3072, 2008 WL 109388 (C.D. Ill. Jan. 9, 2008), Bland was injured in an
altercation with police officers Rahar and Ladage in April 2004, when he was arrested by the
officers in the course of a robbery investigation. Based upon this incident, Bland brought a claim
against the officers for violation of his civil rights in April 2006. However, Bland filed a petition
for Chapter 7 Bankruptcy after the arrest occurred but before a complaint was filed against the
officers. In his bankruptcy petition, Bland asserted that he had no potential lawsuits, and in
October 2005 the Bankruptcy Court issued an order of discharge.
The police officers filed a motion for summary judgment in which they asserted Bland’s claim
was precluded under judicial estoppel. The district court reserved judgment on the judicial
estoppel issue pending Bland’s amendment of his bankruptcy disclosures to add the claim
against the officers and the trustee’s decision of whether to intervene in the action on behalf of
Bland’s creditors. The bankruptcy trustee abandoned Bland’s claims.
In light of the bankruptcy trustee’s decision to abandon the claim, the court found the case to
be similar to Cannon-Stokes. However, in Bland the court recognized that Bland quickly
amended his bankruptcy petition to reflect his claim against the officers after the officers
pointed out Bland’s previous failure to do so, whereas in Cannon-Stokes, the circuit court
pointed out that the plaintiff never attempted to amend her bankruptcy petition to benefit her
creditors. Therefore, the issue was whether Bland’s amendment to the bankruptcy petition to
add the claim against the officer’s precluded judicial estoppel being applied. The court held that
Bland’s amendment was irrelevant, and that he was judicially estopped from asserting his claim
against the officers. The court stated that it is inappropriate to apply judicial estoppel in some
cases where a plaintiff has inadvertently failed to disclose a claim on a previous bankruptcy
petition. However, the court held that failure to disclose a cause of action in Bankruptcy Court
should only be deemed inadvertent when either (1) the debtor lacked knowledge of the factual
basis of the undisclosed claim, or (2) had no motive to conceal. See also Smith v. American
General Life Ins. Co., 544 F. Supp. 2d 732 (C.D. Ill. 2008).
The foregoing cases provide further support for the need to keep the bankruptcy trustee
advised of the insurer’s position regarding payment of the insured’s claim. The insured’s
bankruptcy estate owns all of his pre-bankruptcy assets, and the estate may opt to pursue the
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insurance claim for the damaged personal property on behalf of the insured’s creditors.
Regardless, it seems that the safest position for the insurer to take is to require a court order
prior to making any payment to the bankruptcy estate.
In the event that the bankruptcy trustee files a claim with the insurer or files suit in court to
recover against the insurer, the bankruptcy estate will be entitled to the insurance proceeds in
excess of the $4,000 that the insured claimed as exempt personal property in his bankruptcy
petition. In the event the trustee of the bankruptcy estate abandons the insurance claim for the
damaged personal property, the claim would be in the insured’s hands. At that point, the insurer
could assert the insured was judicially estopped from asserting a drastically inconsistent claim
regarding the amount of personal property he had compared to what he claimed in his
bankruptcy petition.
E.
Conclusion
In the factual scenario presented, there is sufficient evidence to support a denial of the insured’s
claim for personal property to the extent that it exceeds $4,000 on the grounds of lack of an
insurable interest because the insured is not entitled to the insurance proceeds in excess of
$4,000. Instead, any claim for insurance proceeds in excess of $4,000 is owned by the insured’s
bankruptcy estate.
If the insured elected to file a lawsuit against the insurer to recover the insurance proceeds, the
insurer could defend the suit on several grounds. First, the insurer could assert the insured
lacked an insurable interest in the personal property. Second, the insurer could assert the
insured does not have standing to bring a claim against the insurer for damage to the personal
property because the trustee owns any claim regarding assets of the bankruptcy estate. Third,
the insured should not be allowed to profit from his inconsistent position asserted in the
bankruptcy petition. He should be judicially estopped from asserting in his bankruptcy petition
that he had personal property with a current value of $4,000, while asserting for purposes of an
insurance claim that he had personal property assets in the amount of $100,000.
II.
LIMITATIONS AND EXCLUSIONS
A.
Mold
DeVore v. American Family Mut. Ins. Co., 383 Ill. App. 3d 266, 891 N.E.2d 505, 322 Ill. Dec. 490 (2d
Dist. 2008) – The DeVores had a home insured with American Family. When the DeVores were
on vacation, a valve servicing the washing machine ruptured causing water damage in multiple
rooms. American Family paid for the replacement of the flooring, cabinets and sections of
drywall, but did not pay for services related to the removal or containment of mold. The policy
included the following provision:
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We do not cover loss to the property . . . resulting directly or indirectly from or
caused by one or more of the following. Such loss is excluded regardless of any
other cause or event contributing concurrently or in any sequence to the loss.
6.
Other Causes of Loss
(c)
smog, rust, frost, condensation, mold, wet or dry rot.
The trial court entered judgment in favor of American Family finding that damage caused by the
mold was excluded from coverage by the provision quoted above. On appeal, the DeVores,
relying upon an Arizona case, argued that the mold damage was caused by a covered cause of
loss and that the exclusion only applied to losses caused by mold. The Appellate Court held that
the policy language “clearly and unambiguously excludes coverage for losses that resulted from
mold caused by the water event at the DeVores’ home.” Whether or not the mold is caused by a
covered event is irrelevant, damage resulting from mold is excluded from coverage.
B.
Vacancy
The Farbman Group v. Travelers Ins. Cos., No. 03-74975, 2006 WL 2805646 (E.D. Mich. Sept. 28,
2006) – The Farbman Group had a commercial property insurance policy with Travelers. The
policy did not cover water damage “[i]f the building or leased premises where loss or damage
has occurred has been ‘vacant’ for more than 60 consecutive days before that loss or damage
occurs.” Buildings under construction or renovation were not considered “vacant” under the
policy. In this instance, the building had not had a tenant for more than a year when the water
damage occurred, but within a month prior to the loss work was being done to remove a
walkway between the covered building and another building. Removal of the walkway
necessitated cosmetic patching of the covered building’s exterior. The court found that the
walkway removal project qualified as renovation under the policy and, therefore, the water
damage was not subject to the vacancy exclusion.
TRB Investments, Inc. v. Fireman’s Fund Ins. Co., 40 Cal. 4th 19, 145 P.3d 472, 50 Cal. Rptr. 3d 597
(2006) − The policy at issue excluded coverage for water damage if the insured premises was
vacant, but buildings “under construction” were not considered vacant. The trial court and court
of appeals found for Fireman’s Fund, determining that the word “construction” envisioned the
building of a new structure. The Supreme Court of California reversed and found that the term
could not be limited to only the erection of a new structure. The Supreme Court found that the
term “construction” contemplated all building endeavors which require “the substantial and
continuing presence of workers at the premises.” The Court found this standard to be
appropriate because the continuous and substantial presence of workers eliminates the
increased risk of damage to unoccupied properties which is the justification for the vacancy
exclusion.
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C.
Intentional Acts
Ash v. Grange Mut. Cas. Co., Nos. 2005 CA0014 and 2005 CA0015, 2006 WL 2829868 (Ohio App.
5th Dist. Sept. 28, 2006) – The Ashes had a farmowners policy with Grange. Gregory Ash, a
named insured, doused a couch with lighter fluid and set the couch on fire in a failed attempt to
commit suicide. The policy excluded loss or damage arising out of any act committed by or at
the direction of any insured and with the intent to cause a loss. The trial court found that Grange
failed to demonstrate that Ash acted intentionally with the purpose to create a loss. The
Appellate Court disagreed and found that Ash’s subjective intent is only relevant “where the
intentional act at issue is not substantially certain to result in injury.” However, when an insured
attempts to commit suicide by setting a fire in his home, it is substantially certain that the home
will be damaged or destroyed. In that instance, “the insured’s intent may be inferred for
purposes of an intentional act exclusion analysis.” Thus, the intentional act exclusion applied.
Aurelius v. State Farm Fire and Cas. Co., 384 Ill. App. 3d 969, 894 N.E.2d 765, 323 Ill. Dec. 739 (2d
Dist. 2008) − Karen Aurelius made a claim under a homeowners policy issued to her and her
husband. State Farm denied the claim on the basis that Aurelius’ husband intentionally caused
the loss and intentionally concealed or misrepresented material facts. The policy stated that “[i]f
you or any person insured under this policy causes or procures a loss to property covered under
this policy for the purpose of obtaining insurance benefits, then this policy is void and we will
not pay you or any other insured for this loss.” The policy further stated that it was void “as to
you or any other insured, if you or any other insured . . . has intentionally concealed or
misrepresented any material facts or circumstances.”
On appeal, Aurelius argued that the policy was sufficiently ambiguous such that the “innocent
insured” rule should have been invoked to provide her coverage. The court held that the plain
language of the policy stated that coverage will be excluded to all insureds in the event of some
improper behavior by any insured. The intentional act exclusion excluded coverage to all
insureds if any one of the insureds intentionally caused the loss and the policy excluded
coverage for all insureds if any one of the insureds intentionally concealed or misrepresented a
material fact. Therefore, State Farm’s denial of coverage was appropriate.
D.
Dishonest or Criminal Acts
Tualatin Valley Housing Partners v. Truck Ins. Exchange, 208 Or. App. 155, 144 P.3d 991 (Or. Ct.
App. 2006) – Tualatin owned an apartment building and had an apartment owners property
insurance policy issued by Truck. The policy contained an exclusion for “[d]ishonest or criminal
acts by you, anyone else with an interest in the property, or their partners, employees, directors,
trustees, authorized representatives or anyone to whom you entrust the property for any
purpose.” Damage was caused to one of the units as a result of methamphetamine being
manufactured in the unit. Tualatin argued that a tenant was not a person with an interest in the
property and that the exclusion only applied to those with an ownership interest and their
agents. The Appellate Court held that the exclusion did apply to tenants and not just to those
with an ownership interest. Therefore, Truck’s coverage denial was appropriate.
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III.
CONDITIONS AND DEFINITIONS
A.
Duties
Knowledge A-Z, Inc. v. Sentry Ins., 857 N.E.2d 411 (Ind. Ct. App. 2006) – Sentry denied
Knowledge’s claim because Knowledge failed to produce its owner for an Examination Under
Oath, despite multiple notices. Knowledge filed suit for breach of contract and the trial court
granted Sentry’s Motion for Summary Judgment. Knowledge attempted to characterize the
provision regarding Examination Under Oath as a cooperation clause rather than a clause
requiring the insured to perform specific duties. Disputes regarding alleged breaches under a
cooperation clause may necessitate consideration of prejudice to the insurer. The Appellate
Court found that the clause requiring the insured to submit to an Examination Under Oath was
not a cooperation clause and “compliance with Sentry’s requests under this provision was not
optional or subject to a trial court determination of reasonableness.” Therefore, summary
judgment in favor of Sentry was appropriate.
B.
Insured
Mitsock v. Erie Ins. Exchange, 909 A.2d 828 (Pa. Super. Ct. 2006) – Erie issued a homeowners
policy to Gloria Mitsock. Mitsock’s daughter, April, and April’s fiancé, Donald Bergen, were living
with Gloria following their college graduation. Bergen rented a storage unit where personal
property of Gloria, April and Bergen was stored. A fire at the storage unit resulted in the loss of
all property stored there. Erie paid the claim for Gloria and April’s property, but denied the claim
for Bergen’s on the ground that he was not an insured under the policy. The policy indicated
that Erie would pay for loss to “[p]ersonal property owned or used by anyone we protect
anywhere in the world.” Anyone we protect was defined as “you and the following residents of
your household: (1) relatives and wards; (2) other persons in the care of anyone we protect.”
Plaintiffs argued Bergen was in the care of Gloria because he lived in her household, or, in the
alternative, that in the care of was an ambiguous term that should be construed against Erie. The
trial court agreed that the term was ambiguous and Erie appealed.
The Appellate Court found that the phrase “in the care of” was unambiguous and connotes “a
level of support, guidance and responsibility that is most often present in situations where an
insured cares for a minor child, an elderly person or an incapacitated individual.” The court then
listed the factors a court should consider when evaluating whether an individual is in the care of
an insured:
1) is there a legal responsibility to care for the person;
2) is there some form of dependency [food, clothing, shelter, transportation];
3) is there a supervisory or disciplinary responsibility;
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4) is the person providing the care providing the substantial essential financial
support;
5) is the living arrangement temporary or permanent, including how long it has
been in existence and is expected to continue;
6) what is the age of the person alleged to be ‘in the care of’ another (generally,
the younger a person the more likely they are to be ‘in the care’ of another);
7) what is the physical or mental health status of the person alleged to be ‘in the
care of’ another (a person with health problems is more likely to be ‘in the
care’ of another); and
8) is the person allegedly ‘in the care of’ another gainfully employed (a person
so employed is less likely to be truly dependent on another)?
Mitsock, 909 A.2d at 833.
The Appellate Court remanded the case back to the trial court for evaluation of Bergen’s status
in light of these factors.
C.
Insured Premises
Varsalona v. Auto-Owners Ins. Co., 281 Ga. App. 644, 637 S.E.2d 64 (Ga. Ct. App. 2006) – The
Varsalonas purchased a property in October 2002 and in February 2003 a portion of the slab
under the residence collapsed and the Varsalonas submitted a claim. Auto-Owners denied the
claim on the basis that the residence was not covered by the policy. The policy defined insured
premises as “the residence premises . . . any structures or grounds you use in connection with
your residence premises . . . [and] any other premises you acquire during the policy term and
which you intend to use as a residence premises.” Residence premises were defined as “the one
or two family dwelling where you reside, including the building, the grounds and other
structures on the grounds . . . [or] that part of any other building where you reside.” The policy
further stated that it covered “your dwelling located at the residence premises including
structures attached to that dwelling. This dwelling must be used principally as your private
residence.” Varsalona, 281 Ga. App. at 644.
It was undisputed that the Varsalonas never lived at the premises or used it as their residence.
They planned to use the premises as a temporary residence while building another, but they did
not do so when the residence in which they were living did not sell quickly. Eventually, their
daughter and grandchild moved into the premises. The Varsalonas argued that the policy
provided coverage because they intended to use the property as their residence when they
purchased it. The Appellate Court found that the policy “unambiguously required as a condition
of coverage that the insureds use the residence premises principally as their private residence.”
B-15
Because the insureds never used the property as a residence, the trial court properly concluded
that the policy provided no coverage.
D.
Replacement Cost
Saathoff v. Country Mut. Ins. Co., 379 Ill. App. 3d 398, 886 N.E.2d 370, 319 Ill. Dec. 607 (4th Dist.
2008) – Insurance policy stated that the insurer would pay no more than the lesser of: (1) full
cost of replacement, (2) cost of repairing the insured property within a reasonable time, (3)
amount of insurance for such property stated in the declarations, and (4) the amount actually
and necessarily spent to repair or replace the damaged property. If the insured elected not to
repair or replace the property, the settlement would be made on an actual cash value basis. If
the insured elected to repair or replace the property, the insured needed to notify Country
Mutual of such election in writing within 180 days after the loss. Because Saathoff did not repair
or replace the property and did not notify Country Mutual of his intent to replace the loss within
180 days of the loss, Saathoff was only entitled to actual cash value.
B-16
Stephen J. Heine
- Partner
Professional Recognition
• Martindale-Hubbell AV Rated
• DRI State Leadership Award, 2007
• Illinois Association of Defense Trial Counsel
Distinguished Service Award, 1995
• DRI Exceptional Performance Citation, 2005
• Named to the Illinois Super Lawyers list (20072009). The Super Lawyers selection process is
based on peer recognition and professional
achievement. Only five percent of the lawyers
in each state earn this designation.
• Selected as a Leading Lawyer in Illinois. Only
five percent of lawyers in the state are named
as Leading Lawyers.
Steve has tried cases throughout the State of Illinois in
the areas of trucking, railroad, automobile,
professional liability, products liability, construction
and first-party property insurance claims. He is the
Chair of the Property Insurance Practice Group. He
began his career with Heyl Royster in 1983 in the
Peoria office, having practiced elsewhere beginning in
1981.
Steve served as the President of the Illinois
Association of Defense Trial Counsel (2004-2005). He
currently is on the Executive Council of the
Association of Defense Trial Attorneys. He served at
the DRI State Representative for Illinois for several
years.
Professional Associations
• Illinois Association of Defense Trial Counsel
(Past President)
• Association of Defense Trial Attorneys
(Member of Executive Council)
• The National Association of Railroad Trial
Counsel
• Illinois Appellate Lawyers Association
• Defense Research Institute
• American Bar Association, Tort and Insurance
Practice Section
• Illinois State Bar Association
• Peoria County Bar Association
• Abraham Lincoln American Inn of Court
• Society of Trial Lawyers
Steve has published many articles on various trial
practice and evidence issues. He served as the Editorin-Chief of the Illinois Defense Counsel Quarterly, the
official journal of the Illinois Association of Defense
Trial Counsel. He has spoken on a wide variety of
subjects for local, state and national bar associations
including the Illinois Association of Defense Trial
Counsel, Illinois State Bar Association, American Bar
Association and the Property Loss and Liability
Insurance Research Bureaus.
He has been named an Illinois "Super Lawyer," and
designated one of the "Leading Lawyers" in Illinois as
a result of a survey of Illinois attorneys conducted by
the Chicago Daily Law Bulletin.
Court Admissions
• State Courts of Illinois
• United States District Court, Central and
Northern Districts of Illinois
• United States Court of Appeals, Seventh Circuit
• United States Supreme Court
Significant Cases
• Thurman v. Hamm’s Holiday Harbor, 2005
Peoria County, wrongful death trial.
• Moore v. Diamond-Star Motors, 1993 McLean
County, multi-party trial.
• Miller et al. v. Koch, 1993 Madison County, four
week trial of multi-party death and serious
injury claim.
• Fearnow and Colvin v. Steidinger, 1997
Livingston County, multi-party death trial.
• Waterman v. Swisher, 2002 Warren County, trial
concerning loss of an eye.
• Bishop v. B, 1989 LaSalle County, four week trial
of medical malpractice claim involving loss of
limbs.
• Gregory v. Country Mutual Insurance Company,
2007 Knox County, arson/first-party property
trial.
Education
• Juris Doctor (Cum Laude), Southern Illinois
University School of Law, 1981
• Bachelor of Science-Corrections, Illinois State
University, 1978
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Learn more about our speakers at www.heylroyster.com
LIMITATION ISSUES IN SETTLEMENT NEGOTIATIONS: HOW TO AVOID WAIVER OF THE STATUTE OF LIMITATIONS Presented and Prepared by:
Matthew R. Booker
[email protected]
Springfield, Illinois • 217.522.8822
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
C-1
LIMITATION ISSUES IN SETTLEMENT NEGOTIATIONS:
HOW TO AVOID WAIVER OF THE STATUTE OF LIMITATIONS
I.
INTRODUCTION........................................................................................................................................... C-3
II.
STATUTES OF LIMITATIONS .................................................................................................................... C-3
III.
ESTOPPEL V. WAIVER................................................................................................................................. C-4
IV.
EXAMPLES ...................................................................................................................................................... C-5
V.
SUMMARY ................................................................................................................................................... C-10
C-2
LIMITATION ISSUES IN SETTLEMENT NEGOTIATIONS:
HOW TO AVOID WAIVER OF THE STATUTE OF LIMITATIONS
I.
INTRODUCTION
A frequent issue for those handling claims is the existence of a statute of limitations and the
tolling of that limitation. Specifically, there are many instances in the lives of claims handlers
where activity on the claim proceeds and, suddenly, the statute of limitations is approached or
has passed. There are several issues that a claims handler needs to be familiar with when
handling these types of limitations issues in settlement negotiations. The following material
should help a claims handler navigate this potential mine field and intends to offer suggestions
on how to avoid waiving any potential statute of limitations.
II.
STATUTES OF LIMITATIONS
Illinois provides for a two-year statute of limitations for personal injury cases. 735 ILCS 5/13-202.
This is the statute of limitation that attorneys and claims handlers are most familiar with. It
should be noted, however, that there are a variety of statutes of limitations in Illinois. For
example, causes of actions against state or governmental entities may have a one-year statute
of limitations. Various construction statutes of limitations are four years. Property damage claims
are five years. In addition to statutes of limitations, there are also statutes of repose which serve
as an absolute cut-off date for claims. Therefore, it should never be assumed what the statute of
limitations is at first glance. This is especially true in any case involving a minor because minors
typically have two years after they reach the age of majority to file their claims. Therefore, every
effort should be made to determine exactly what statute of limitation is involved for the type of
claim that is being handled.
Statutes of limitations exist to promote certainty and finality in the administration of affairs.
Hupp v. Gray, 73 Ill. 2d 78, 381 N.E.2d 1211, 22 Ill. Dec. 513 (1978). Another stated reason for
limitations provisions is to require the prosecution of a right of action within a reasonable time
to prevent the loss or impairment of available evidence and to discourage delay in the bringing
of claims. Tom Olesker’s Exciting World of Fashion, Inc. v. Dun & Bradstreet, Inc., 61 Ill. 2d 129,
334 N.E.2d 160 (1975). The stated purposes of statutes of limitations, however, are not to shield
a wrongdoer from liability. Courts in Illinois have generally considered statutes of limitations to
be “clear” and are by definition not arbitrary. That is to say, there are very few defenses that one
can use when a statute of limitations has expired if there have not been steps taken to preserve
that cause of action. The strictness by which these rules are enforced serves to promote the
stated goals of the statute of limitations as mentioned above.
It should also be pointed out that statutes of limitations and statutes of repose are different. A
statute of repose is intended to terminate the possibility of liability after a period of time.
Therefore, if a statute of repose is involved, the issue is whether there is any possibility of the
C-3
claim being filed. Statute of limitations is also designed to accelerate settlement of controversies
and is therefore favored by courts. Nogle v. Nogle, 53 Ill. App. 2d 457, 202 N.E.2d 683 (4th Dist.
1964). For reasons more fully stated below, however, statutes of limitations do have exceptions
and there are circumstances in which even though a statute of limitation has expired, the court
may find reasons for tolling that statute and allow the cause of action to proceed. The following
material should assist claims handlers to successfully navigate the quandaries presented by
these difficult limitation issues.
III.
ESTOPPEL V. WAIVER
In order to understand these issues, one must be familiar with the terms of estoppel and waiver.
These are important terms to know when considering the issue of the possible tolling of statute
of limitations.
In the event that a statute of limitations has expired, a litigant may still attempt to bring a cause
of action. Frequently, the claim of “estoppel” is made by a claimant when a statute of limitations
has expired. There are a host of Illinois cases on this issue. They have set out several elements
that must be met in order for a successful claim of estoppel. A party claiming estoppel must
demonstrate the following:
•
The other person misrepresented or concealed material facts;
•
The other person knew at the time he or she made the representations that they were
untrue;
•
The party claiming estoppel did not know that the representations were untrue when they
were made and when that party decided to act, or not act, upon the representations;
•
The other person intended or reasonably expected that the party claiming estoppel would
determine whether to act, or not, based upon the representation;
•
The party claiming estoppel reasonably relied upon the representations in good faith to his
or her detriment; and
•
The party claiming estoppel would be prejudiced by his or her reliance on the
representations.
DeLuna v. Burciaga, 223 Ill. 2d 49, 857 N.E.2d 229, 306 Ill. Dec. 136 (2006). Each of the above
cited factors must be found by the trier of fact on behalf of the party claiming estoppel.
Therefore, when considering the issue of estoppel, the focus is on the conduct of the insured in
response to representations made by an insurer. Twin City Fire Ins. Co. v. Old World Forum
Trading Co., 266 Ill. App. 1, 12, 639 N.E.2d 584, 203 Ill. Dec. 264 (1st Dist. 1993). Therefore under
this theory, a court will look to the conduct of the insured, and the insured’s “reasonable” beliefs
C-4
and expectations, in considering whether to allow the doctrine of estoppel to “supercede” a
statute of limitations which may have expired.
The case of Tegeler v. Industrial Comm’n, 173 Ill. 2d 498, 672 N.E.2d 1126, 220 Ill. Dec. 114
(1996), provides a good example of “estoppel” in this context. In the Tegeler case, a claimant
filed an application and was granted an adjustment of claim pursuant to the Workers’
Compensation Act. The employer later appealed. The Industrial Commission reversed, finding
that the claim was barred by the statute of limitations. The Supreme Court held that the
employer had no duty to advise a claimant when the applicable limitations period would expire,
but the employer was estopped from asserting the statute of limitations as a defense due to the
conduct and statements of the claims adjuster during the course of settlement negotiations.
Claimant Brian Tegeler was injured in a motor vehicle accident during the course of his
employment. As a result of his injuries, he was sent to several different physicians. Eventually, his
employer offered to settle the workers’ compensation claim for $7,346.00. The Appellate Court
found that the claimant had been injured on July 29, 1987. A formal workers’ compensation
claim was not filed, however, until January 4, 1991, several months after the expiration of the
three-year limitations period. One of the issues presented on appeal was whether the employer
should be estopped from asserting the statute of limitations defense because of its conduct and
statements by the claims adjuster during the course of settlement negotiations. The Court
agreed. The Court considered the expectations and judgments of the petitioner, in light of the
conduct of the employer, in determining whether or not estoppel would preclude the employer
from asserting its statute of limitations defense.
Conversely, “waiver” focuses exclusively on the conduct of the insurer. Under a waiver argument,
the conduct of the insured and his or her beliefs or expectations are irrelevant; the only inquiry
is that of the statements and actions of the insurer. Both of these concepts are frequently used
in interpreting limitations issues as they apply to settlement negotiations. Examples of these two
issues and their impact follow below.
IV.
EXAMPLES
It should be noted that there is no one magic rule or procedure to follow to avoid waiving the
statute of limitations during settlement negotiations. The guidance and suggestions which
follow come from reviewing and understanding the case law. Thus, it is only through reported
cases that we can glean any rules or suggestions on how to avoid waiving a statute of
limitations defense. The case of Griffin v. Willoughby, 369 Ill. App. 3d 405, 867 N.E.2d 1007, 311
Ill. Dec. 21 (4th Dist. 2006), is illustrative of this point. In this case, the plaintiff filed a complaint
on April 25, 2005 against the defendant, a school bus driver. The complaint stemmed from
allegations of negligence in a collision that occurred on February 18, 2004. The trial court
dismissed the suit with prejudice. On appeal, the plaintiff argued the one-year statute of
limitations period found in the Local Governmental and Governmental Employees Tort Immunity
Act did not apply to this action. Plaintiff also argued that the defendant should be “equitably
estopped” from asserting the limitations period. One of the issues on appeal was the plaintiff’s
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argument that he delayed filing suit because he relied on statements made by the school
district’s insurance carrier.
The plaintiff claimed that his attorney communicated with the insurance company at various
times between March 15, 2004 and April of 2005. Plaintiff asserted the insurance company led
him to believe it intended to settle the claim for a reasonable amount, but needed more
information for its file. Plaintiff further alleged that on April 20, 2005, the adjuster announced
her company was denying plaintiff’s claim because plaintiff did not file suit within one year of
the collision.
On appeal, the Court addressed the equitable estoppel issue. The Court determined that
equitable estoppel precludes a limitations defense “where [an insurer’s] actions during
negotiations are such as to lull the [plaintiff] into a false sense of security, thereby causing him
to delay the assertion of his rights.” The Court noted that conduct by a defendant’s insurance
company can, in some instances, give rise to an “apparent intent to pay a claim” which would
estop a defendant from raising the statute of limitations as a defense. The Court also listed
conduct which has been found to amount to estoppel. Included were concessions of liability by
an insurer, advanced payments by the insurer to the plaintiff in contemplation of eventual
settlement, and statements by the insurer which encouraged the plaintiff to delay filing his
action. As is the general rule in Illinois, the Court also reiterated the point that “the mere
pendency of negotiations conducted in good faith is insufficient to give rise to estoppel.”
In the Griffin case, correspondence and communication took place between plaintiff’s attorney
and the insurance company on several occasions. At no time, however, did the insurance
company take a position on the presumed liability in the case. Most of the correspondence and
communication was from the plaintiff’s counsel indicating that the plaintiff was continuing to
treat and was continuing to incur medical bills. Apparently, plaintiff’s counsel was unaware that
there was a one-year statute of limitations because the defendant involved was a governmental
entity, versus the normal two-year personal injury statute. Most importantly, the Court
determined that there was nothing that indicated the insurance company knew of the plaintiff’s
attorney’s mistake concerning the applicable limitations period and it had no duty to inform the
plaintiff’s attorney of the applicability. Based on those facts, the Court determined there was no
equitable estoppel and the statute of limitations defense was proper.
Another case considering the potential waiver of the statute of limitations is Mitchell v. State
Farm Fire & Cas. Co., 343 Ill. App. 3d 281, 796 N.E.2d 617, 277 Ill. Dec. 531 (4th Dist. 2003). In
Mitchell, the plaintiffs filed suit against the defendant insurance company to compel the
defendant to provide coverage pursuant to an insurance policy. State Farm moved to dismiss on
the basis that the plaintiffs’ suit was barred by a one-year limitations period found in the
insurance policy. The trial court granted defendant’s motion to dismiss, from which the plaintiffs
appealed. The Appellate Court reversed and remanded the case for further proceedings.
The record revealed that plaintiffs’ house burned down on November 11, 1999. At the time,
plaintiffs had an insurance policy through State Farm that would have covered the loss. On
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November 23, 1999, State Farm sent a letter to plaintiffs which detailed the various requirements
in the insurance policy requiring the plaintiffs to provide documentation within 60 days after the
loss. On May 8, 2000, defendant notified the plaintiffs of the decision to deny the claim. The
denial was based upon plaintiffs’ failure to provide documentation and to submit to an
examination under oath as required by the policy. This letter further informed the plaintiffs that
if they intended to proceed with litigation, strict compliance with the policy provisions would be
required. Specifically, the policy required suit to be commenced within one year after the loss.
This period of limitation was tolled from the date on which the proof of loss was filed until the
date the claim was denied in whole or in part. Because defendant had never received a proof of
loss, the letter explained, the defendant did not believe there was any tolling of the period of
limitations. Defendant then suggested that plaintiffs had to file suit on or before November 11,
2000, if they were so inclined. The letter ended by recommending the plaintiffs consult an
attorney. After receiving this letter, plaintiffs hand-delivered various documents to one of the
defendant’s claim offices. Defendant then responded with a letter dated May 16, 2000 informing
the plaintiffs that some of the documentation satisfied their prior request and that some of it
did not. The letter finished by stating:
This claim remains in a state of denial as indicated in our letter of May, 8, 2000.
When and if you comply with the requests noted herein, we will consider whether
such delayed compliance is adequate for reconsideration of our position on your
claim.
Mitchell, 343 Ill. App. 3d at 283.
On November 3, 2000 plaintiffs delivered more documentation to the defendant. On November
11, 2000, plaintiffs filed a sworn proof of loss with their insurance agent. According to the
plaintiffs, their agent told them that the investigator gave the agent a list of things plaintiffs still
had to do. Plaintiffs then asked their agent if they needed to have an attorney since the
defendant was requesting that more information be submitted. Plaintiffs’ agent responded that
he did not think defendant would be asking for more information if the defendant were not
willing to settle the claim. On November 16, 2000, the defendant sent a letter to plaintiffs which
informed them that their claim had been denied on May 8, 2000, that the claim was still denied,
and plaintiffs had failed to file suit within the one year limitations period. The last piece of
evidence was a letter furnished to the plaintiffs by State Farm stating:
To summarize, if the documents you submitted shortly before the period of
limitations expired had been submitted in a timely fashion, they would have
constituted the first step towards compliance with the policy conditions but they
would not have been adequate to fully comply with the policy conditions. Your
untimely and incomplete attempts to reverse our stated denial of the claim are
ineffective and the claim remains denied.
Id. at 284.
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Plaintiffs subsequently filed a complaint at law against State Farm in 2001. The defendant moved
to dismiss on the basis that the suit was barred because of the one-year limitations period in the
policy. The trial court granted the motion to dismiss from which the plaintiffs appealed.
On appeal, the plaintiffs argued that the statute of limitations had been tolled. Specifically,
plaintiffs argued that the one-year period had been extended by the number of days between
the date that the proof of loss was filed and the date the claim was denied in whole or in part. In
support of this argument, plaintiffs argued that the May 8, 2000 letter denying plaintiffs claim
was not actually a denial of their claim. Plaintiffs argued that they did not file the claim until
November 11, 2000 when they filed their proof of loss. Therefore, according to the plaintiffs, the
May 8 letter could not be a denial of their claim because there was no claim to deny. Plaintiffs
further argued that the November 16, 2000 letter which defendant sent to plaintiffs
acknowledging receipt of the proof of loss on November 11, 2000, but still denying the claim,
was not a denial of the proof of loss. Thus, plaintiffs argued the one-year limitations period was
still tolled because defendant had never “denied” plaintiffs’ claim. The court found that
defendant expressed that it was amenable to reconsidering its decision if the plaintiffs provided
the requested documentation. Further, according to plaintiffs, on November 11, 2000, the last
day the plaintiffs had to file suit, plaintiffs’ insurance agent requested more documentation from
plaintiffs and indicated a willingness on defendant’s part to settle the claim. The court found
that such actions (if proved true) could have “lulled plaintiffs into believing that the defendant
was still interested in negotiating a settlement beyond the one year limitations period.” The case
was then remanded back to the trial court. Therefore, this case stands for the proposition that a
Court may look to any set of facts which could arguably be construed to suggest that the
plaintiffs were “lulled into a sense of security” by any act of the defendant insurer. In this case,
the carrier’s explanations to the plaintiffs as well as the request for additional documentation,
were construed to have lulled the plaintiffs into a sense of security that settlement negotiations
would continue.
Another case which found that there was no waiver of the statute of limitations is Thede v.
Kapsas, 386 Ill. App. 3d 396, 897 N.E.2d 345, 325 Ill. Dec. 97 (3d Dist. 2008). In this case, a patient
who chose to have a mole removed while seated, subsequently fainted and fell off the
examination table breaking her front teeth and injuring her jaw and nose. She filed a medical
malpractice action against the hospital and doctor. Summary judgment was granted by the trial
court on the affirmative defense that the suit was untimely. An appeal followed. Again, the issue
involved the applicable statute of limitations. Specifically, the applicability of the one-year
statute of limitations period for governmental entities and municipal corporations. Again, the
plaintiff was unaware of the one-year versus two-year statute of limitations in this instance. The
plaintiff argued, however, that under “equitable” considerations, an extension of limitations was
warranted. The Court reiterated that a case may be equitably tolled if a defendant has actively
misled the plaintiff or if the plaintiff has been prevented from asserting his or her rights some
extraordinary way or if the plaintiff has mistakenly asserted his or her rights in the wrong forum.
The Court went on to explain that the limitations period can be tolled against the defendant
who did not mislead a plaintiff if the plaintiff faced an extraordinary barrier to asserting her
rights in a timely fashion. Such extraordinary barriers may include a legal disability, an
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irredeemable lack of information or situations where the plaintiff could not learn the identity of
proper defendants through the exercise of due diligence. In the Thede case, the Court simply
found that it was clear the plaintiff was unaware of the one year statute of limitations. There was
nothing in the conduct of the defendant which sought to undermine the plaintiff’s ability to
learn of this information. Even thought the result was harsh, the Court stated, it was proper.
Another case in which the statute of limitations was not waived was found in the case of Phelan
v. Keiser, 312 Ill. App. 3d 573, 727 N.E.2d 390, 245 Ill. Dec. 137 (5th Dist. 2000). In Phelan, a
husband and wife brought suit to recover for injuries sustained in an automobile accident.
Defendant moved for involuntary dismissal based on the statute of limitations. The trial court
found that the defendant was not equitably estopped by actions of its insurer which had made a
partial offer of settlement. On appeal, the Court determined that suit was filed 11 days after the
statute of limitations ran. Plaintiffs argued the statute of limitations had been tolled because of
the conduct of the defendants liability insurer. Plaintiffs claim that the insurance carrier’s
conduct tolled the statute of limitations based on the doctrine of equitable estoppel. The Court
disagreed. The Court then looked at the evidence in the case. The evidence revealed that the
plaintiff had sought and received medical treatment one year past the date of the initial injury.
He testified that the carrier had subsequently asked him to sign a medical release. He signed the
release, returned it to the carrier, but heard nothing back from the carrier. The plaintiff testified
that in April and May of 1998, he repeatedly contacted the insurance company and was told that
someone would contact him, but no one did until a claims adjuster met with him in July of 1998.
The plaintiff testified that it was not until he contacted a lawyer after November 22, 1998, that
he was made aware of any time limit in presenting a claim. The plaintiff testified that until then,
he thought that once he had contacted the insurance company and was in negotiations with the
company, the time limit was tolled. The conduct of the claims adjuster was also analyzed. The
casualty claims adjuster testified that she had been assigned to the claim on December 3, 1996.
At that time, she had settlement authority of up to $25,000.00. She also testified that “early on”
she had determined that the carrier was contractually obligated to pay the claim. The claims
adjuster then contacted the plaintiffs to determine the extent of their injuries. She reviewed their
medical records and met with them at their home on July 13, 1998. On that date, the claims
adjuster offered to settle the claim for $7,500.00. The plaintiffs refused the offer. The adjuster
testified that at no time did she advise the plaintiffs that the carrier was not going to pay their
claim. The adjuster testified that she did not make any suggestions to them that they should hire
counsel. The adjuster also testified that she did not believe it was necessary to inform the
plaintiffs of the statute of limitations because in July of 1998 the plaintiff told the adjuster “we
need to get this moving on because of the two-year statute approaching.” She testified that she
never told them that it was not necessary to file a lawsuit. In looking at these facts, the Court
determined that the carrier did not advance payments for lost wages or medical expenses and
did not encourage the plaintiffs to delay in filing suit or to hire an attorney. The Court then went
on to state:
Although the plaintiffs believed that the statute of limitations was tolled as long
as negotiations continued that assumption was made by them, separate and
apart from any statements made to either plaintiff by [the insurance carrier]. The
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[plaintiffs] concede that their last contact with [carrier] was in September of 1998.
They had until November 22, 1998, to file suit. Based on these facts, the trial court
ruled, ‘Merely settling part of plaintiffs’ claim and negotiating the balance without
some act or statement, intended or otherwise, that led the plaintiffs to miss the
limitation deadline is insufficient to invoke equitable estoppel.’
Phelan, 312 Ill. App. 3d at 576.
Thus, the Appellate Court found that the trial court’s decision was not erroneous in that there
was not equitable estoppel in this case.
V.
SUMMARY
A.
General Rule
1.
B.
A plaintiff who delays filing a claim in the expectation of reaching a
settlement, without obtaining an agreement to toll the running of the
statute of limitations, delays at his own peril.
Exceptions to General Rule
1.
The courts have carved out only very limited exceptions to the general
rule. In Illinois, if the plaintiff can show that he allowed the statute of
limitations to expire because the defendant intentionally lulled him into a
false sense of security, then the defendant may be precluded from
asserting any statute of limitations defense.
2.
The intent behind this exception is to prevent a defendant from
misleading a plaintiff in bad faith with repeated promises to settle, and
then turning around and asserting that the statute of limitations has
lapsed after the plaintiff delayed filing an action.
3.
Even under this exception, plaintiff’s reliance on the defendant’s behavior
must have been reasonable under the circumstances.
4.
Reliance has been deemed reasonable when an insurance adjuster
represents that no harm would come to plaintiff if she delayed in bringing
suit.
5.
If the circumstance giving rise to the tolling of the statute of limitations
no longer exists before the limitations period expires, plaintiff is required
to bring suit within the limitations period.
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C.
D.
Suggestions
1.
If negotiating with unrepresented party, inform them of the statute of
limitations. No need to specify the date of the statute of limitation. Only
the existence of a statute of limitations.
2.
If dealing with an attorney, there is no need to inform of statute of
limitations.
3.
Tolling Agreements. If it is clear that settlement is imminent and the
limitations period is closing in, parties may agree to toll the statute of
limitations for a period sufficient to enable the parties to conclude
negotiations.
Once Suit is Filed
1.
2.
After suit is filed, while negotiations occur, do not ignore obligations.
a)
Ongoing settlement discussions are not good cause for failing to
answer a complaint.
b)
Likewise, settlement negotiations are not good cause for failing to
comply with scheduling orders, discovery, etc.
If settlement appears imminent, parties may ask the court or by express
agreement amongst themselves to stay the proceedings.
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Matthew R. Booker
- Partner
Matt has spent his entire legal career with Heyl
Royster, beginning in 2000 in the Springfield office.
His practice focuses on healthcare law, representing
physicians, hospitals, long-term care facilities, and
other similar healthcare organizations. His defense of
these entities involves a range of issues including
licensure, discipline, fraud and abuse, risk
management, staff concerns, and defense of
malpractice and other civil litigation.
Professional Associations
• American Bar Association
• Illinois State Bar Association
• Sangamon County Bar Associates
• Adjuster's Association of Central Illinois
(Secretary)
• Defense Research Institute
• Illinois Association of Defense Trial Counsel
Court Admissions
• State Courts of Illinois
• United States District Court, Central and
Southern Districts of Illinois
With his extensive litigation experience, Matt has
personally defended a variety of civil cases, taking
over 25 to verdict. In recent years, he has developed a
special focus on long term care and nursing home
litigation. Many of his cases are against top Chicago
and national counsel with settlement demands often
in the millions of dollars.
Education
• Juris Doctor (Magna Cum Laude), Southern
Illinois University School of Law, 1999
• Bachelor of Science-Nursing, Illinois Wesleyan
University, 1995
Matt's experience in the healthcare arena is vast. He
began working in a hospital at the age of 15. After
graduating from college, he began work as a
registered nurse in a Central Illinois emergency room.
While there, his responsibilities included charge nurse
positions as well as house supervisor. Working as a
nurse, he obtained trauma nurse specialist
certification, was an advanced cardiac life support
instructor and achieved certification in pediatric
advanced life support. He also was directly involved in
the training of paramedics at various level one trauma
centers.
Matt has also presented and lectured to various
healthcare groups and other educational entities
involving medical record privacy, nursing practice, and
long term care litigation. He has also presented
various courses on evidence and evidence
presentation. He has co-authored Smart Evidence,
Medical Malpractice, and an evidentiary guide for
medical malpractice cases.
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Learn more about our speakers at www.heylroyster.com
WHAT YOU NEED TO KNOW ABOUT ILLINOIS LIENS AND THE COMMON FUND DOCTRINE Presented and Prepared by:
Mark D. Hansen
[email protected]
Peoria, Illinois • 309.676.0400
Prepared with the Assistance of:
Timothy D. Gronewold
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
D-1
WHAT YOU NEED TO KNOW ABOUT ILLINOIS LIENS
AND THE COMMON FUND DOCTRINE
I.
INTRODUCTION....................................................................................................................................... D-4
II.
IMPORTANT ISSUES WHEN HANDLING CLAIMS ....................................................................... D-4
A.
B.
C.
D.
III.
THE EVOLUTION OF HEALTH CARE SERVICES LIENS ................................................................ D-6
A.
B.
C.
IV.
Potential Exposure to Further Liability ............................................................................ D-4
Validity of the Lien .................................................................................................................. D-5
Effect of Liens on Plaintiff’s Evaluation of Claim ......................................................... D-5
Personal Guarantee of Attorney to Pay Liens Found to
Violate the Rules of Professional Conduct .................................................................... D-6
Burrell v. Southern Truss, 176 Ill. 2d 171, 679 N.E.2d 1230,
223 Ill. Dec. 457 (1997) ........................................................................................................... D-6
The Legislature Responds with the Health Care Services
Lien Act (“HCSA”) − 770 ILCS 23/1 .................................................................................... D-7
Selected Cases Subsequent to HCSA Enactment......................................................... D-7
WORKERS’ COMPENSATION LIENS ................................................................................................. D-8
A.
B.
C.
D.
Introduction................................................................................................................................ D-8
Workers’ Compensation Liens Attach to Personal Injury Actions Only ............... D-8
Workers’ Compensation Liens Can Attach to Medical
Malpractice Claims................................................................................................................... D-9
Waiver of Workers’ Compensation Liens ........................................................................ D-9
V.
ILLINOIS PUBLIC AID LIENS ............................................................................................................... D-10
VI.
COMMON FUND DOCTRINE ............................................................................................................ D-11
A.
B.
Introduction.............................................................................................................................. D-11
Avoiding the Common Fund Doctrine ........................................................................... D-12
1.
2.
Send a Tenney Letter ............................................................................................. D-12
“Meaningful Participation:” Be Proactive in
Creating the Common Fund to Protect Your Interests ............................. D-13
D-2
C.
VII.
Additional Selected Cases................................................................................................... D-14
ATTORNEYS’ LIENS ............................................................................................................................... D-16
A.
B.
C.
D.
Common Law Liens ............................................................................................................... D-16
Statutory Attorney’s Lien ..................................................................................................... D-16
Equitable Liens ........................................................................................................................ D-17
Additional Selected Cases................................................................................................... D-17
D-3
WHAT YOU NEED TO KNOW ABOUT ILLINOIS LIENS
AND THE COMMON FUND DOCTRINE
I.
INTRODUCTION
In order to completely resolve a personal injury case, close attention must be paid to
outstanding liens that may exist from health care providers, state and federal agencies, as well
as other insurers that have already made payments. These materials provide an overview of the
most frequently encountered liens dealing with medical bills including the health care services
lien, workers’ compensation lien, and the Illinois Public Aid lien. In addition, these materials
update insurers on the “common fund doctrine” as well as provide a basic understanding of
attorneys’ liens.
As a preliminary matter, it is important to understand that the Illinois Supreme Court defines a
lien as “a charge upon property, either real or personal, for the payment or discharge of a
particular debt or duty in priority to the general debts or duties of the owner.” Eastman v.
Messner, 188 Ill. 2d 404, 721 N.E.2d 1154, 242 Ill. Dec. 623 (1999). In the context of personal
injury cases, health care providers and other public and private entities who pay for medical
services have statutory and/or contractual liens on the claimant for reimbursement for service or
payment provided.
Black’s Law Dictionary, 8th Edition 2004, defines subrogation as “[t]he substitution of one party
for another whose debt the party pays, entitling the paying party to rights, remedies, or
securities that would otherwise belong to the debtor.” Through the process of subrogation, the
insurer becomes substituted to the claimant’s right of recovery for medical bills from other
sources as a way to reimburse the insurer. Providers and payors of health care services can
recover from a claimant who receives payment from another source. A party who has provided
health services or made payments is a lien holder or “subrogee” for purposes of subrogation.
II.
IMPORTANT ISSUES WHEN HANDLING CLAIMS
A.
Potential Exposure to Further Liability
The most important issue concerning liens a claims handler will face relates to the additional
exposure that can arise from a failure to adequately protect a valid lien. A lien is a claim of
entitlement to all or a portion of certain property or the proceeds from that property. If a lien is
not adequately protected in a settlement, the lien holder may have its choice as to who it will
pursue to satisfy the lien. As a result, a defendant and its insurer could be required to pay the
value of the lien to the lien holder even though the settlement required the plaintiff to satisfy all
liens.
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Just because settlement release documents require the plaintiff and the plaintiff’s attorney to
satisfy all liens, this does not prohibit the lien holder from filing a claim directly against the
defendant for the lien amount. While the defendant has the right to recover the amounts paid
to the lien holder from the plaintiff pursuant to the release and settlement agreement, the
ensuing litigation would be, at the very least, time consuming. Even if the settlement agreement
provides that the plaintiff and plaintiff’s attorney are to pay the costs of any such proceeding,
there is always the possibility that they will have spent the money by the time you obtain a
judgment on your claim for breach of the settlement agreement.
B.
Validity of the Lien
A lien must be perfected and attached to the property to create a legal right. Each category of
lien may have a different method for perfection and attachment. Statutory liens have specific
enumerated procedures that must be satisfied before a valid lien will arise. These requirements
will vary depending upon the type of statutory lien. Common law liens, such as mechanics’ liens,
some attorneys’ liens, and liens which arise out of equitable principles, have other perfection
and attachment requirements.
C.
Effect of Liens on Plaintiff’s Evaluation of Claim
A plaintiff’s willingness to settle is largely dependent upon the liens he will have to pay back
from his settlement proceeds. To better understand their “bottom line,” a good understanding
of the rules applying to the various liens will allow the claims handler to assess what the plaintiff
will ultimately receive. The Common Fund Doctrine requires the lien holder who benefits from
the plaintiff’s attorney’s work in pursuing the claim to pay a portion of the amount they are
reimbursed on their lien to the attorney for the plaintiff for the attorney’s fees and costs
associated with the litigation.
With respect to statutory liens, the limits provided by statute are instructive, as they will also
affect the plaintiff’s “bottom line.” As described more fully below, the lien holder may be
required to establish a causal relationship between the injury and the services rendered which
led to the establishment of the lien. A tenuous causal relationship may give the plaintiff leverage
in negotiating a settlement with the lien holder for much less than the lien’s value. Thus, many
lien holders are willing to negotiate the value of their liens, especially in cases where the success
of the lawsuit is uncertain. In many instances, the claims handler can negotiate the amount of
the lien directly with the lien holder. This can be beneficial in cases where the claims handler has
a large volume of claims involving liens from the same lien holder. By negotiating a favorable
lien waiver from the lien holder, the insurer could obtain the benefit of negotiation rather than
the plaintiff.
D-5
D.
Personal Guarantee of Attorney to Pay Liens Found to Violate the Rules of
Professional Conduct
In July of 2006, the Illinois State Bar Association submitted an advisory opinion on professional
conduct finding that a lawyer may not provide a personal guarantee to pay the liens and
subrogation claims chargeable against a client's settlement proceeds. It should be noted that,
while the opinions such as the one addressed herein express the ISBA interpretation of the
Illinois Rules of Professional Conduct and other relevant materials in response to a specific
hypothesized fact situation, they do not have the weight of law and should not be relied upon
as a substitute for individual legal advice.
In considering the question of whether the Illinois Rules of Professional Conduct prohibit a
lawyer representing a party receiving money in a settlement from providing a personal
guarantee that the settlement funds will be paid to all lienholders and indemnifying the
defendant against all such claims, the ISBA found that such a guarantee (even if payments are to
be made from the settlement funds) constituted financial assistance to his client and violated
Rule 1.8 (d) of the Model Rules of Professional Conduct. ISBA opinion No. 06-01 (issued July,
2006). See also Steven G. Pietrick, Settlement: A Plaintiff’s Attorney’s Personal Guarantee to Pay
Liens Is Found to Violate the Rules of Professional Conduct, 52 Trial Briefs 6 (Nov. 2006).
III.
THE EVOLUTION OF HEALTH CARE SERVICES LIENS
A.
Burrell v. Southern Truss, 176 Ill. 2d 171, 679 N.E.2d 1230, 223 Ill. Dec. 457
(1997)
At the time of the Burrell decision, there were a plethora of individual lien acts including: the
Clinical Psychologists Lien Act, the Dentists Lien Act, the Emergency Medical Services Personnel
Lien Act, the Home Health Agency Lien Act, the Hospital Lien Act, the Optometrists Lien Act, the
Physical Therapist Lien Act and the Physicians Lien Act.
In Burrell, the Illinois Supreme Court considered whether each statutory lien category had a
separate limit of one-third of the amount recovered by the injured party or whether they are to
be considered together in determining the limit. The court held that the plain language of the
statute recognized a lien for each category of health care provider up to one-third of the injured
person’s recovery based on the determination that each of the statutes was separate and
independent of the others, and that a construction requiring that all lien claims be aggregated
and capped by a one-third maximum would impose “an additional limitation that the legislature
did not include.”
Thus, a hypothetical plaintiff with a $100,000 recovery could see each type of medical provider,
hospital, physician, dentist, home health care etc., assert a lien for $33,333.33 each, rather than
group all providers’ liens together for a total maximum lien of one-third. In such a case, a
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plaintiff could be left with no recovery after the various liens were paid. See Kevin T. Veugeler,
The Health Care Services Lien Act, 39 Tort Trends 3-4 (Dec. 2003).
B.
The Legislature Responds with the Health Care Services Lien Act (“HCSA”) −
770 ILCS 23/1
The Health Care Services Lien Act (“HCSA”) became effective on July 1, 2003. It created two
classes of liens, one for “health care professionals” and another for “health care providers.” 770
ILCS 23/5. Furthermore, it significantly consolidated Illinois’ statutory liens by repealing the acts
listed above (the Clinical Psychologists Lien Act, the Dentists Lien Act, the Emergency Medical
Services Personnel Lien Act, the Home Health Agency Lien Act, the Hospital Lien Act, the
Optometrists Lien Act, the Physical Therapist Lien Act and the Physicians Lien Act).
The HCSA applies to the rendering of health services in the treatment, care, or maintenance of
an injured person, except under the Workers’ Compensation Act or the Workers’ Occupational
Disease Act. 770 ILCS 23/10(a). It attaches to any verdict, judgment, award, settlement, or
compromise secured by or on behalf of an injured person. 770 ILCS 23/20. Further, it applies to
the health care professional’s or health care provider’s reasonable charges up to the date of
payment of damages. 770 ILCS 23/10(a). Finally, the injured person must give written notice to
the health care professional or health care provider that holds a lien. 770 ILCS 23/15.
In addition, the HCSA limits the total amount of all liens to 40 percent of the damages paid
to the injured person. 770 ILCS 23/10(a). The lien holder must provide notice to the injured
person and to the party against whom the claim or right of action exists, 770 ILCS 23/10(b), and
the recovery for multiple liens in same class (professionals or providers) must be proportionate
and no one class can receive more than one-third of the total recovery. 770 ILCS 23/10(c).
Special rules apply when the total amount of lien is equal to or greater than 40 percent of the
recovery including: (1) All liens of professionals shall not exceed 20 percent; (2) All liens of
providers shall not exceed 20 percent; (3) Attorney’s liens are limited to 30 percent, but if the
case is appealed, HSCA does not apply. 770 ILCS 23/10(c).
C.
Selected Cases Subsequent to HCSA Enactment
Lopez v. Morley, 352 Ill. App. 3d 1174, 817 N.E.2d 592, 288 Ill. Dec. 234 (2d Dist. 2004) − A patient
brought an action against a motorist for injuries sustained in an automobile accident, and the
treating hospital took a lien for the full amount of its charges, even though it accepted less than
its charges as full payment pursuant to a contract with patient’s insurer. The circuit court
granted patient’s motion to extinguish the lien and the Appellate Court affirmed, holding that
the hospital could not maintain the lien.
Progressive Universal Ins. Co. of Illinois v. Taylor, 375 Ill. App. 3d 495, 874 N.E.2d 910, 314 Ill. Dec.
545 (4th Dist. 2007) − Where a medical provider sought 100 percent of the medical payments
benefits paid by insurer to two passengers injured in a single-car accident, the Appellate Court
held that the medical provider’s right to payment from medical payments checks from insurer
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was limited to 40 percent of the amount paid; the medical provider’s status as a joint payee on
the checks did not limit its right to payment to one-third of the amount of the checks; and the
attorneys had no lien rights in checks under the Attorneys Lien Act.
Galvan v. Northwestern Memorial Hospital, 382 Ill. App. 3d 259, 888 N.E.2d 529, 321 Ill. Dec. 10
(1st Dist. 2008) − A patient brought a class action against the hospital and other similarly
situated not-for-profit hospitals challenging, under the Consumer Fraud and Deceptive Business
Practices Act, the hospital’s practice of billing uninsured patients for gross hospital charges or
list hospital charges that were higher than charges for services provided to insured patients, and
asserting a claim for unjust enrichment. The Appellate Court held that the hospital, by filing a
lien under HCSA, did not retain a benefit, which is a necessary element of the unjust enrichment
claim.
IV.
WORKERS’ COMPENSATION LIENS
A.
Introduction
A statutory lien is created under section 5(b) of the Illinois Workers’ Compensation Act. 820 ILCS
305/5(b). Pursuant to the Act, if an employer pays related medical bills to an injured worker, the
employer possesses a lien against the injured worker’s third-party recovery. The employer may
sue to enforce the lien if the worker does not. If the worker sues a third party, the worker must
give notice to the employer and the employer may intervene in the lawsuit to protect its lien.
When the employer holds a lien against the worker’s attempt to recover from a third party, the
worker cannot enter into a settlement and release without the employer’s written consent. If the
injured worker recovers from a third party, the employer is entitled to full reimbursement of its
lien, even if the amount recovered from the third party is less than the lien. However, the
employer has to pay 25 percent of the plaintiff’s attorney’s fees plus a pro rata share of
expenses.
B.
Workers’ Compensation Liens Attach to Personal Injury Actions Only
The lien created by the Workers’ Compensation Act is intended to prevent a double recovery by
an injured employee or his personal representative. However, the lien attaches only to personal
injury actions resulting from an injury incurred by a plaintiff which would be compensable
pursuant to the Act. As a result, workers’ compensation liens have been held to not attach to
legal malpractice claims, even when the attorney’s work related to an action for the work-related
injury, Woodward v. Pratt, Bradford & Tobin, P.C., 291 Ill. App. 3d 807, 684 N.E.2d 1028, 226 Ill.
Dec. 32 (5th Dist. 1997); Mosier v. Warren E. Danz, P.C., 302 Ill. App. 3d 731, 706 N.E.2d 83, 235 Ill.
Dec. 823 (4th Dist. 1999); Eastman v. Messner, 188 Ill. 2d 404, 721 N.E.2d 1154, 242 Ill. Dec. 623
(1999); to underinsured motorist claims Terry v. State Farm Mut. Auto. Ins. Co., 287 Ill. App. 3d 8,
677 N.E.2d 1019, 222 Ill. Dec. 485 (2d Dist. 1997); and to the portion of a wrongful death
settlement allocated to a spouse’s individual loss of consortium claim, Borden v. Servicemaster
Mgmt. Serv., 278 Ill. App. 3d 924, 663 N.E.2d 153, 215 Ill. Dec. 403 (1st Dist. 1996).
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In St. Pierre v. Koonmen, 371 Ill. App. 3d 466, 863 N.E.2d 279, 309 Ill. Dec. 49 (2d Dist. 2007), an
automobile insurer intervened in an insured's legal malpractice action to claim a lien against
settlement proceeds. The circuit court denied the claim and the insurer appealed. The Appellate
Court held that a policy provision (which required insured to reimburse insurer if the insured
recovered damages from another) did not entitle the insurer to reimbursement from the
settlement. The Court noted that the policy was ambiguous as to the insured's settlement of a
legal malpractice action alleging failure to bring timely suit against an alleged tortfeasor and,
thus, the injury for which the insured collected damages had to be the same injury for which the
insurer had paid benefits; read literally, the reimbursement provision would require repayment if
the insured recovers any damages from anyone for any reason.
C.
Workers’ Compensation Liens Can Attach to Medical Malpractice Claims
Employers have been allowed to assert liens in medical malpractice actions. In Kozak v.
Moiduddin, 294 Ill. App. 3d 365, 689 N.E.2d 217, 228 Ill. Dec. 345 (1st Dist. 1997), an injured
employee sustained a crush injury to his left foot and ankle during his course of employment at
Yellow Freight. The employer settled the plaintiff’s workers’ compensation claim and made
payment for medical expenses, temporary total disability, and permanent partial disability. The
employer then attempted to intervene in the employee’s medical malpractice action based on
the argument that the treatment provided by the defendant doctor caused plaintiff to develop
reflex sympathetic dystrophy and, therefore, even though Kozak was injured during the course
of his employment, payment was made by Yellow Freight for damages resulting from
malpractice. Specifically, Yellow Freight’s payment for medical expenses, temporary total
disability, and permanent partial disability correlated with plaintiff’s claims for medical expenses,
loss of mobility and disability, and loss of earnings and earnings capacity in the medical
malpractice case. Given the purpose of section 5(b) to prevent an employee from obtaining a
double recovery, the Court held that the workers’ compensation lien should attach to the
medical malpractice action.
D.
Waiver of Workers’ Compensation Liens
The Illinois Supreme Court has held that an employer who is a third-party defendant in a civil
action may waive its workers’ compensation lien post-trial. LaFever v. Kemlite Co., 185 Ill. 2d 380,
706 N.E.2d 441, 235 Ill. Dec. 886 (1998). The Supreme Court upheld the employer’s post-trial
waiver of its workers’ compensation lien thereby allowing the employer to avoid liability to
plaintiff’s counsel for a pro rata share of costs and the 25 percent attorney’s fee on the amount
reimbursed to the employer on its lien. A determinative factor in the Supreme Court’s analysis
was that the employer did not request nor receive post-trial payment in satisfaction of its lien. In
essence, the employer waived its lien, post-trial, prior to there being a satisfaction of its lien. The
LaFever case provides third-party defendant employers considerable leverage in negotiating
their lien amounts in conjunction with a settlement between plaintiff and defendant.
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The First District Appellate Court discussed this issue at length in Gallagher v. Lenart, 367 Ill.
App. 3d 293, 854 N.E.2d 800, 305 Ill. Dec. 208 (1st Dist. 2006). In Gallagher, after an injured truck
driver settled his claim against a defendant truck driver’s employer, the injured truck driver’s
employer was granted leave to intervene and sought to enforce its workers’ compensation lien
against the settlement proceeds allocated to the injured truck driver. The circuit court
determined that the employer had waived its lien. On the appeal, the First District held that an
employer’s failure to specifically reserve its right to file a workers’ compensation lien against any
proceeds employee recovered in a personal injury action did not waive the employer’s lien.
The Seventh Circuit has also addressed this topic recently. In Baltzell v. R&R Trucking Co., 554
F.3d 1124 (7th Cir. 2009), a workers’ compensation claimant critically injured when crushed by a
tractor-trailer, sought workers' compensation benefits from the employer and brought strict
liability claims (with his wife) against the owner of the tractor-trailer, the manufacturer of the
tractor, and the manufacturer of the trailer, all of whom filed third-party claims against the
employer for contribution. After the claimant prevailed against all defendants, the district court
for the Southern District of Illinois denied the employer's motion to dismiss the contribution
claims and the employer appealed. The court of appeals held that the employer was entitled to
post-verdict waiver of workers' compensation lien in exchange for dismissal of contribution
claims, and the owner and manufacturers were entitled to setoff for workers' compensation
benefits that the employer had already paid to its employee. See also Steven P. Garmisa,
Employer Gets to Waive Comp Lien After Verdict on Contribution Claim, 155 Chi. L. Bull. 1 (Apr. 7,
2009).
V.
ILLINOIS PUBLIC AID LIENS
The Illinois Department of Healthcare and Family Services (“IDHFS”) f/k/a the Illinois Department
of Public Aid may also assert a lien on a personal injury case. See Davis v. City of Chicago, 59 Ill.
2d 439, 322 N.E.2d 29 (1974). Section 305 ILCS 5/11-22 provides that the IDHFS shall have a
“charge” upon all claims, demands, and causes of action for injuries to an applicant or a
recipient of financial aid for the total amount of medical assistance provided from the time of
injury to the date of recovery upon such claim, demand, or cause of action. In order to perfect
this lien, the IDHFS must serve notice by certified or registered mail upon the party or parties
against whom the applicant or recipient has a claim, demand, or cause of action. The notice shall
state the charge and describe the interest the Illinois department, local government unit, or
county has in the claim, demand, or cause of action. The charge will then attach to any
judgment or recovery made pursuant to any claim, demand, or cause of action pursued after
service of the notice.
Additionally, 305 ILCS 5/11-22a provides the IDHFS with the right of subrogation. The IDHFS
may subrogate a public aid recipient’s recovery from any private or public health care coverage
or casualty coverage, including coverage under the Workers’ Compensation Act and the
Workers’ Occupational Diseases Act. 305 ILCS 11/22a. In order to enforce its subrogation right,
the IDHFS can intervene in a pending lawsuit or bring its own against a liable party. 305 ILCS
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11/22a. The IDHFS can also bring its own action against an insurance carrier that may be liable
for medical benefits of the injured recipient, but must provide the recipient written notice of the
suit advising him of his right to intervene. 305 ILCS 11/22b(b)(1), (d)(2).
When the IDHFS possesses an interest, no judgment, award, or settlement in any action or claim
by a beneficiary to recover damages for injuries, can be satisfied without first giving IDHFS
notice and a reasonable opportunity to perfect and satisfy its lien. 305 ILCS 11-22b(g). The entire
amount of any settlement of the injured recipient’s claim is subject to the IDHFS’ claim for
reimbursement of its lien. 305 ILCS 5/11-22b(i). It should be noted, however, that an IDHFS lien
does not have priority over an attorney’s lien.
VI.
COMMON FUND DOCTRINE
A.
Introduction
Illinois courts recognize the equitable principle of the common fund doctrine. In Baier v. State
Farm Ins. Co., 66 Ill. 2d 119, 361 N.E.2d 1100, 5 Ill. Dec. 572 (1977), the Illinois Supreme Court
adopted this doctrine as a way to protect the recovery of attorney’s fees in insurance
subrogation cases. Most insurance policies include subrogation agreements for medical
payments with its insured, which requires the insured to reimburse the insurer for monies
recovered from the responsible party. In the process of recovering money for an injured client,
whether by settlement or judgment, the plaintiff’s attorney creates a fund for their client.
The doctrine guarantees the plaintiff’s attorney compensation for creating the fund from which
the client receives settlements or judgments. Because the client may be required to reimburse
his insurer for prior medical payments, the doctrine also insures that the plaintiff’s attorney is
paid his fees and costs in creating the fund and recovering monies in favor of the plaintiff’s
insurance company.
The common fund doctrine applies when an insurance company does not participate in the
creation of the fund. The plaintiff’s attorney who creates the common fund from which the
plaintiff recovers and reimburses his insurer, is entitled to compensation from the monies
recovered in favor of the passive insurance company. In other words, when an insurer receives
reimbursement for medical payments it paid for the injured insured, that recovery is offset by
the plaintiff’s attorney’s fees and costs in creating the common fund. The following three
requirements must be present for the common fund doctrine to apply: (1) the fund must be
created as the result of legal services performed by an attorney; (2) the subrogee or the
insurance company must not participate in the creation of the fund; (3) the subrogee must
benefit from the fund.
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B.
Avoiding the Common Fund Doctrine
1.
Send a Tenney Letter
In Tenney v. American Family Mut. Ins. Co., 128 Ill. App. 3d 121, 470 N.E.2d 6, 83 Ill. Dec. 251 (4th
Dist. 1984), the Fourth District Appellate Court held that a plaintiff’s attorney is not entitled to
recovery of his attorney’s fees under the common fund doctrine for services that have been
knowingly rendered for unwilling recipients. Based on this case, an insurance company could
become an “unwilling recipient” by sending what is commonly known as a “Tenney letter.”
In Tenney, the plaintiff’s insurer, American Family, promptly sent a letter to the plaintiff that
informed the plaintiff of its subrogation lien on medical payments. The letter, most importantly,
expressed the insurer’s intention of dealing with the defendant’s insurance company regarding
this claim. The insurer promptly sent this letter to the plaintiff’s attorney, who did not file suit on
behalf of the plaintiff until nine months after receiving the Tenney letter. The Fourth District
Appellate Court held that American Family had immediately and unequivocally informed the
attorney of its intention to be an “unwilling participant” in the plaintiff’s lawsuit. Because of this
prompt notification, the plaintiff’s attorney could not recover his fees and costs under the
common fund doctrine.
Since the decision in Tenney, insurers have often thought that sending the letter to its insured or
his attorney was enough to protect its subrogation interest. However, recent case law has clearly
indicated that the letter might not be enough. Without overruling Tenney, Illinois Appellate
Courts have held that in addition to sending the Tenney letter, insurers must follow-up and
participate in creating the fund.
For example, in Taylor v. American Family Ins. Group, 311 Ill. App. 3d 1034, 725 N.E.2d 816, 244
Ill. Dec. 343 (5th Dist. 2000), American Family sent its insured’s attorney a Tenney letter within a
month of the underlying accident. The letter advised the insured’s attorney of American Family’s
intent to represent its own subrogation interests as to the medical payments, indicated
American Family’s interest that the insured’s attorney not represent its subrogation interest, and
stated American Family would not recognize “any lien upon the subrogation amount under the
‘Fund Doctrine’ for services gratuitously given.” A month later, American Family sent a follow-up
letter to the insured’s attorney, which was identical to the initial Tenney letter. American Family
also sent a copy of this letter to the tortfeasor’s insurer, State Farm, expressing its intent to
represent its own subrogation interests. American Family also filed a petition for arbitration of its
subrogation interest and notified the insured’s attorney. American Family sent a third follow-up
Tenney letter to the insured’s attorney restating its position as an unwilling recipient of the
attorney’s services. Up to this point, it appeared that American Family had gone above and
beyond the requirements of Tenney, but the Fifth District Appellate Court still held that the
common fund doctrine applied.
After American Family sent its second Tenney letter, the insured settled her claim with State
Farm. State Farm issued two checks − one for the amount of medical payments paid by
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American Family, and the other for the amount of the underlying settlement. With respect to the
medical payments, State Farm addressed the check to the insured, the insured’s attorney, and
American Family. When the insured’s attorney notified American Family of the check and
requested one-third for attorney’s fees, American Family responded that it was in a pending
arbitration with State Farm and that the attorney should return the check to State Farm. The
insured’s attorney responded by noting that she included American Family’s subrogation
interest in the settlement because American Family would not release its lien against the insured
with State Farm.
The trial court awarded the insured’s attorney her share of attorney’s fees. The Fifth District
Appellate Court affirmed, holding that merely writing to the insured’s attorney and expressing a
desire to represent one’s own interest, without more, was not enough to overcome the common
fund doctrine. The Fifth District Appellate Court noted that the insurer’s conduct must reflect
“meaningful participation” in creating the fund or reaching the settlement, which may involve
filing a timely petition to intervene in the underlying personal injury action.
2.
“Meaningful Participation:” Be Proactive in Creating the Common
Fund to Protect Your Interests
The Tenney letter is the first step in avoiding the application of the common fund doctrine.
However, subsequent decisions after Tenney have narrowed its application by requiring insurers
to be more proactive in establishing their status as an “unwilling participant.” Today, sending the
Tenney letter is not enough to avoid the application of the common fund doctrine.
Courts look for “meaningful participation” by the insurer in the creation of the common fund
that reflects more than just the insurer’s intention to protect its interests. While the courts have
repeatedly used the phrase “meaningful participation,” they have offered little guidance as to
the level of participation necessary to avoid the common fund doctrine. Nevertheless, it has
been held that the insurer “meaningfully participated” when it sent a Tenney letter to the
plaintiff’s attorney three weeks after the accident and attempted to intervene in the plaintiff’s
lawsuit over the insured’s vigorous opposition. Ritter v. Hachmeister, 356 Ill. App. 3d 926, 827
N.E.2d 504, 292 Ill. Dec. 975 (2d Dist. 2005).
In order to avoid paying plaintiff’s attorney’s fees and costs under the common fund doctrine,
the following steps should be considered:
Promptly send a Tenney letter to your insured: As soon as you learn of an insured’s accident
and claim, send a letter to the insured unequivocally informing them of your subrogation lien for
medical payments and your intention to represent your own interests with the tortfeasor’s
insurance company.
Promptly send a Tenney letter to the tortfeasor’s insurance company: This letter must clearly
indicate that you plan on representing your own subrogation interests. The letter should also
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request that the tortfeasor’s insurance company not include any medical payments in any
settlement offer to the injured insured.
If your insured retained his own attorney, promptly send a Tenney letter to the attorney:
The letter must state that you plan to represent your own subrogation interests and that you are
unwilling to pay for his services under the common fund doctrine.
Arbitrate or intervene: If your company and the tortfeasor’s insurance company participate in
an arbitration program, file a petition for arbitration as soon as you can determine the amount
of medical expenses paid to the insured.
If arbitration is not available, consider filing your own lawsuit to protect your subrogation lien on
the medical payments. If the insured has already filed suit, then file a petition to intervene in that
action. Your suit can ultimately be consolidated with the personal injury case.
Communicate: Instruct your retained attorney to communicate with the insured’s attorney on
issues related to the medical payments from settlement negotiations to trial preparation. If the
insured’s personal injury suit goes to trial and you have successfully intervened in the suit, be
active in that portion of the trial related to medical expenses.
While this is not an exhaustive list, taking the aforementioned actions demonstrates the insurer’s
genuine interest to be an “unwilling participant,” as well as “meaningful participation” in the
creation of a common fund that should enable the insurer to avoid paying attorney’s fees to the
insured’s attorney. The insurer should still send the Tenney letter promptly, but that alone is no
longer enough to protect subrogation interest in medical expenses. Given the undefined
requirements of “meaningful participation,” the insurer should retain experienced defense
counsel, where necessary, to protect its subrogation lien in order to recover medical payments
and to avoid paying unnecessary attorney’s fees.
C.
Additional Selected Cases
Perez v. Kujawa, 234 Ill. App. 3d 957, 602 N.E.2d 38, 176 Ill. Dec. 731 (1st Dist. 1992) − The
equitable “fund doctrine” did not justify an award of attorney fees to insured and other plaintiff
represented by the same attorney, out of automobile insurer’s medical payments subrogation
lien. The insurer had promptly and unequivocally informed plaintiffs’ previous attorney of its
subrogation lien and disclaimed any intention to employ insured’s attorney for that purpose,
and that notice was chargeable to the attorney to whom the notified attorney referred the case.
Brase by Brase v. Loempker, 267 Ill. App. 3d 415, 642 N.E.2d 202, 204 Ill. Dec. 740 (5th Dist.
1994) − Plaintiff's attorney was entitled to one-third of total medical subrogation claim paid to
plaintiff's insurer, as a result of an automobile accident, despite fact that plaintiff's insurer
notified plaintiff's attorney prior to plaintiff's attorney filing suit that insurer did not want
attorney's assistance but wanted to deal directly with defendant's insurer on its medical
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subrogation claim, and where plaintiff's insurer asked defendant's carrier to keep subrogation
rights of plaintiff's insurer in mind when settling claim with plaintiff's attorney.
Country Mutual Ins. Co. v. Birner, 293 Ill. App. 3d 452, 688 N.E.2d 859, 228 Ill. Dec. 161 (3d Dist.
1997) − Insured's attorney filed action against automobile insurer to recover payment from
settlement with liability insurer. The Appellate Court held that: (1) attorney was entitled to
payment under common fund doctrine, and (2) insurer was estopped from pursuing arbitration
award noting that, under the “common fund doctrine,” a lawyer who recovers common fund for
benefit of persons other than client is entitled to reasonable attorney fees from fund as whole.
Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir. 1997) – Common Fund Doctrine not
preempted by provisions of Employee Retirement Income Security Act (ERISA); See also, Bishop
v. Burgard, 198 Ill. 2d 495, 764 N.E.2d 24, 261 Ill. Dec. 733 (2002).
Young v. Mory, 294 Ill. App. 3d 839, 690 N.E.2d 1040, 228 Ill. Dec. 965 (5th Dist. 1998) – State
Employees Retirement System (SERS) does not preempt common fund doctrine.
Share Health Plan of Illinois, Inc. v. Alderson, 285 Ill. App. 3d 489, 674 N.E.2d 69, 220 Ill. Dec. 798
(1st Dist. 1996) – Health Maintenance Organization subject to application of the common fund
doctrine.
Kim v. Alvey, Inc., 322 Ill. App. 3d 657, 749 N.E.2d 368, 255 Ill. Dec. 267 (1st Dist. 2001) – Where
parties agree to settlement figure and workers’ compensation lien is not addressed, the payor is
not entitled to a set-off for the amount of the workers’ compensation lien.
Johnson v. State Farm Mut. Auto. Ins. Co., 323 Ill. App. 3d 376, 752 N.E.2d 449, 256 Ill. Dec. 569
(5th Dist. 2001) – Plaintiff’s attorney was not entitled to fees under common fund doctrine for
arbitration award in uninsured motorist action as no fund was created that benefitted the lien
holder.
Eddy v. Sybert, 335 Ill. App. 3d 1136, 783 N.E.2d 106, 270 Ill. Dec. 531 (5th Dist. 2003) − An
insured filed a motion in personal injury action to adjudicate a lien concerning insurer's
subrogation claim regarding payment of insured's medical expenses under automobile
insurance policy. The Appellate Court held that: (1) language of policy controlled in determining
whether insurer had right to subrogation; (2) insurer's right to subrogation did not depend on
whether insured was made whole by settlement with tortfeasor; and (3) insurer was obligated to
pay medical bill, but insurer was entitled to subrogate that claim.
TM Ryan Co. v. 5350 South Shore, L.L.C., 361 Ill. App. 3d 352, 836 N.E.2d 803, 297 Ill. Dec. 72 (1st
Dist. 2005) − A judgment creditor filed a petition for relief, alleging it was entitled to judgment
debtor’s insurance proceeds deposited in client funds account of judgment debtor’s law firm.
The law firm filed its own petition asserting an interest in the insurance proceeds. The Appellate
Court held that the insurance proceeds were not a common fund out of which the law firm was
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entitled to its fees and noted that the common fund doctrine does not apply where the debt
paid from the fund existed independently of the creation of the fund.
VII.
ATTORNEYS’ LIENS
A.
Common Law Liens
A common law lien arises as a result of an attorney’s right to retain possession of property
belonging to his client which comes into his hands within the scope of the attorney’s
employment until his charges are paid. Needham v. Voliva, 191 Ill. App. 256 (1st Dist. 1915). The
most common “property” the attorney holds in regard to a common law lien is the client’s file.
Although generally the attorney will not be allowed to withhold the file, particularly where an
action is still pending, the attorney does have the right to insist that the court determine the
value of the attorney’s services prior to the time the file is released so that an amount can be
paid or otherwise adequately secured before the file is released to the former client. Upgrade
Corp. v. Michigan Carton Co., 87 Ill. App. 3d 662, 410 N.E.2d 159, 43 Ill. Dec. 159 (1st Dist. 1980).
This lien, commonly referred to as a “retaining lien,” is waived when the client’s file is turned
over to her new counsel or to the plaintiff herself. This lien can only be asserted in a defensive
capacity. The attorney cannot bring an action to obtain payment for his services in return for the
file. Instead, it is a defense to a motion to compel production of the file, and the court is not
allowed to determine the value of the attorney’s services unless it is within this context. Twin
Sewer and Water, Inc. v. Midwest Bank and Trust Co., 308 Ill. App. 3d 662, 720 N.E.2d 636, 242 Ill.
Dec. 15 (1st Dist. 1999).
In order to establish a common law lien, there must be an attorney/client relationship, the
client’s property to which the lien attaches must come into the possession of the attorney, and
the client must owe the attorney compensation for services rendered in the course of the
relationship. There are no other formal requirements to perfect the common law attorney’s lien.
B.
Statutory Attorney’s Lien
Attorneys, like health care providers, have their own lien statute. The Attorneys Lien Act found at
770 ILCS 5/1 provides that attorneys shall possess a lien upon all claims, demands, and causes of
action, including all claims for unliquidated damages, which may be placed in their hands by
their clients for suit or collection, or upon which suit or action has been instituted, for the
amount of any fee which may have been agreed upon by and between such attorneys and their
clients.
To enforce this lien, the attorney must serve written notice by registered or certified mail upon
the party against whom their clients may have such claims, claiming a lien and stating the
interest they have in the suit, claim, demand, or cause of action. The attorney’s lien attaches to
any verdict, judgment, or order entered and any money or property which may be recovered.
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The notice of lien must be served during the existence of the attorney/client relationship.
Triskett Illinois, Inc. v. Dixon (In re T. C. Associates Ltd. Partnership), 163 B.R. 140 (N.D. Ill. 1994).
An attorney’s lien will not be perfected where it is served upon a former client after termination
of the attorney/client relationship. Muller v. Jones, 243 Ill. App. 3d 711, 613 N.E.2d 271, 184 Ill.
Dec. 244 (4th Dist. 1993). In addition to the attorney’s lien statute, an attorney may also have a
claim for recovery of attorney’s fees based upon theories of breach of contract and quantum
meruit. Kannewurf v. Johns, 260 Ill. App. 3d 66, 632 N.E.2d 711, 198 Ill. Dec. 381 (5th Dist. 1994);
Stefanich, McGarry, Wols & Okrei, Ltd. v. Hoeflich, 260 Ill. App. 3d 758, 632 N.E.2d 1064, 198 Ill.
Dec. 453 (3d Dist. 1994).
In order for the statutory attorney’s lien to attach, there must be a valid attorney/client contract,
the attorney must serve proper notice on the parties against whom the lien is sought to be
enforced during the existence of the attorney/client relationship, and finally, there must be a
recovery to which the lien can attach.
Where an attorney asserts an attorney’s lien after he has been terminated, the courts will not
enforce the lien under the Attorneys Lien Act. A court, however, may award against his former
client on a quantum meruit basis in such a circumstance. This means that the court will
determine the value of the services rendered by the attorney to the client. Although this
recovery would most likely be enforced only as to the client, and not the adverse party, it is
strongly recommended that any such claim of lien be adjudicated prior to issuance of drafts in
satisfaction of settlement or judgment.
C.
Equitable Liens
Most equitable liens arise from an express contract between an attorney and a client. Normally,
the equitable lien arises from contract provisions providing for an assignment or security
interest, held by the client, which is pledged to the attorney as payment for legal work. In order
to establish an equitable lien, an attorney needs a valid contract with the client, and there has to
be an equitable assignment to the attorney of a property in the contract. The equitable lien
arises or is perfected merely through execution of a contingent fee agreement containing the
appropriate language.
D.
Additional Selected Cases
TM Ryan Co. v. 5350 South Shore, L.L.C., 361 Ill. App. 3d 352, 836 N.E.2d 803, 297 Ill. Dec. 72 (1st
Dist. 2005) − A judgment creditor filed a petition for relief, alleging it was entitled to judgment
debtor’s insurance proceeds deposited in client funds account of judgment debtor’s law firm.
The law firm filed its own petition asserting an interest in the insurance proceeds. The Appellate
Court held that a valid attorney’s lien had not been created in the insurance proceeds, noting
that attorneys who do not strictly comply with the Attorney’s Lien Act have no lien rights.
Johnson v. Cherry, 422 F.3d 540 (7th Cir. 2005) − In a civil rights action, a motion for substitution
of counsel was filed on behalf of the plaintiff. Plaintiff’s counsel moved to strike the motion,
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alleging that her signature had been forged. The district court imposed monetary sanctions on
the attorney, finding that she had, in fact, signed the motion. The court of appeals held that the
district court was required to balance the attorney’s right to compensation against the client’s
interests before ordering the attorney to produce the client’s file despite the attorney’s assertion
of retaining a lien.
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Mark D. Hansen
- Partner
Public Speaking
• “Tort Law Update”
Illinois Association of Defense Trial Counsel's
Fall Conference 2008
• “Settlement Values”
Greater Peoria Claims Association 2007
• “Chair”
Illinois Association of Defense Trial Counsel's
Spring Defense Tactics Seminar 2006
• “Chair”
Illinois Association of Defense Trial Counsel's
Rookie Seminar 2004
Mark concentrates his practice in the area of civil
litigation. He has handled commercial litigation
matters including contractual breaches, business torts,
fraud and misrepresentation, commercial foreclosures,
mechanics liens, replevin actions, trademark
agreements, eminent domain (condemnation), real
estate disputes, zoning issues, and business losses. He
has also provided counsel on various litigation issues
affecting corporate clients.
Mark has been involved in the defense of cases
involving catastrophic injury, including the defense of
complex cases in the areas of medical malpractice,
products liability, and professional liability. He has
defended doctors, nurses, hospitals, clinics, dentists,
and nursing homes in healthcare malpractice cases.
He has also been involved in the defense of numerous
other insurance-related matters.
Professional Associations
• Illinois Association of Defense Trial Counsel
(former ex officio member of the Board of
Directors and co-chair of Young Lawyers
Committee)
• Illinois Society of Healthcare Risk Management
• Abraham Lincoln American Inn of Court
(Barrister)
• Defense Research Institute
• American Bar Association
• Illinois State Bar Association (past member of
Civil Practice Section Council)
• Peoria County Bar Association (member of
Courts and Procedures and Civil Practice
Committees)
Mark is a graduate of the 33rd Annual International
Association of Defense Counsel (IADC) Trial Academy
which was held at Stanford Law School. The IADC Trial
Academy is one of the oldest and most well respected
programs for developing defense trial advocacy skills.
Significant Cases
• Rosewood Care Center, Inc. v. Caterpillar Inc.,
226 Ill.2d 559 (2007) Illinois follows the
"leading object" test in determining application
of the Statute of Frauds.
• Romack v. R. Gingerich Co., 314 Ill. App. 3d
1065 (3d Dist. 2000) Determination of whether
partial waiver of workers' compensation lien is
good faith settlement under Illinois
Contribution Act.
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
• United States Supreme Court
Selected Publications
• Co-Editor, Trial Briefs, the Civil Practice and
Procedure Section newsletter published by the
Illinois State Bar Association
• Co-Author, "The Statute of Frauds" in Contract
Law Handbook, published by Illinois Institute of
Continuing Legal Education (2006)
Education
• Juris Doctor (Cum Laude), University of Illinois
College of Law, 1994
• Bachelor of Science - Finance (Cum Laude),
Northern Illinois University, 1991
D-19
Learn more about our speakers at www.heylroyster.com
WHAT YOU NEED TO KNOW ABOUT MEDICARE LIENS, CONDITIONAL PAYMENTS, AND SET‐ASIDE TRUSTS Presented and Prepared by:
Bradford J. Peterson
[email protected]
Urbana, Illinois • 217.344.0060
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
E-1
WHAT YOU NEED TO KNOW ABOUT
MEDICARE LIENS, CONDITIONAL PAYMENTS, AND SET-ASIDE TRUSTS
I.
INTRODUCTION.......................................................................................................................................... E-3
II.
HISTORY ........................................................................................................................................................ E-3
III.
MEDICARE LIENS AND THE SECONDARY PAYER ACT ................................................................. E-3
A.
B.
C.
IV.
Medicare Liens ............................................................................................................................. E-3
Conditional Payments Search ................................................................................................. E-4
Future Medical Expenses .......................................................................................................... E-4
MANDATORY MEDICARE REPORTING REQUIREMENTS............................................................. E-9
A.
B.
C.
D.
E.
SCHIP Extension Act ................................................................................................................... E-9
Responsible Reporting Entities .............................................................................................. E-9
Registration .................................................................................................................................E-10
Triggers to Reporting ..............................................................................................................E-10
Reporting Thresholds ..............................................................................................................E-10
1.
2.
3.
F.
Medical Expenses .......................................................................................................E-10
Total Settlement .........................................................................................................E-11
Closed Cases ................................................................................................................E-11
Medicare Resources .................................................................................................................E-12
E-2
WHAT YOU NEED TO KNOW ABOUT
MEDICARE LIENS, CONDITIONAL PAYMENTS, AND SET-ASIDE TRUSTS
I.
INTRODUCTION
Medicare’s lien for conditional payments was created under the Medicare Secondary Payer Act,
42 USC. § 1395y(b) (2). This article will address the significance of Medicare super liens as well as
issues that have arisen with regard to insurer obligations with regard to future medical expenses
under the Medicare Secondary Payer Act. In addition, the enactment of the SCHIP Extension Act
in 2007 signals further efforts by Medicare to identify and track civil and workers’ compensation
claims where lien rights may exist or arise. The reporting requirements for the SCHIP Extension
Act are summarized below and applicable deadlines are also identified.
II.
HISTORY
In 1965 the Social Security Act, 42 USC § 670 et seq., established both Medicare and Medicaid.
Medicare was the responsibility of the Social Security Administration (SSA). As originally
enacted, Medicare acted as a primary payer for medical services to Medicare beneficiaries. An
exception existed where Medicare expected a workers’ compensation plan to cover a
beneficiary’s claims, in which case Medicare would only make payment on the condition that the
workers’ compensation plan would reimburse Medicare. 42 USC § 1395y(b)(2)(B)(iii)(2006). Due
to rapidly increasing Medicare expenses, Congress expanded Medicare’s right to recovery for
conditional payments in the 1980 Omnibus Reconciliation Act of 1980, P.L. 96-499, § 900, et seq.,
94 Stat. 2599, 2609 (1980). The Omnibus Reconciliation Act expanded Medicare Secondary Payer
status and right to reimbursement for conditional payments to include liability, auto liability and
no fault insurance.
III.
MEDICARE LIENS AND THE SECONDARY PAYER ACT
A.
Medicare Liens
The conditional payments made by Medicare for which it seeks reimbursement are now
commonly known as “super liens.” The term super lien is used because they take priority over all
other liens. Under the Medicare Secondary Payer Act, Medicare is subrogated to any right of an
individual or entity to recover payments from an insurer for medical bills. 42 USC
§ 1395y(b)(2)(B)(iv). In such instances, Medicare may also seek double damages. 42 USC
§ 1395y(b)(2)(B)(iii). Since Medicare is a secondary payer under the Medicare Secondary Payer
Act, Medicare can recoup from the rightful primary payer or from the recipient of such payment
if Medicare paid for a service that should have been covered by the primary insurer. U.S. v.
Baxter Intern., Inc., 345 F.3d 866 (11th Circuit, 2003). 42 CFR § 411.24(i)(1-2) of the federal
regulations, governing Medicare’s right of reimbursement for conditional payments, states:
E-3
(1) In the case of liability insurance settlements and disputed claims under
employer group health plans, workers’ compensation insurance or plan, and no
fault insurance, the following rule applies: If Medicare is not reimbursed as
required by paragraph (h) of this section, the primary payer must reimburse
Medicare even though it has already reimbursed the beneficiary or other party.
(2) The provisions of paragraph (i)(1) of this section also apply if a primary payer
makes its payment to an entity other than Medicare when it is, or should be,
aware that Medicare has made a conditional primary payment.
B.
Conditional Payments Search
Upon written request, the Center for Medicare Services will undertake a conditional payments
search to identify any payments made by Medicare of medical bills related to the claimant’s
alleged injury. The claimant will be required to cooperate and provide signed releases and
additional information for Medicare to initiate this search. In approximately 60 to 90 days,
Medicare will respond with correspondence identifying the amount of Medicare conditional
payments that constitute their Medicare lien.
Due to the inherent delay in the conditional payment search process, insurers and litigants
should initiate the search very early in the settlement stage of a case. Where Medicare has not
made any conditional payments, that information will also be conveyed by correspondence from
the Center for Medicare Services.
C.
Future Medical Expenses
The Medicare Secondary Payer Act, 42 USC § 1395y(b)(2), applies to “primary plans,” which are
defined as follows:
In this subsection, the term ‘primary plan’ means a group health plan or large
group health plan, to the extent that clause (i) applies, and a workmen’s
compensation law or plan, an automobile or liability insurance policy or plan
(including a self-insured plan) or no fault insurance, to the extent that clause (ii)
applies. An entity that engages in a business, trade, or profession shall be
deemed to have a self-insured plan if it carries its own risk (whether by a failure
to obtain insurance, or otherwise), in whole or in part.
42 USC § 1395y(b)(2)(A)(ii).
The primary plan’s obligation to reimburse Medicare for any conditional payments by Medicare
provides:
A primary plan, and an entity that receives payment from a primary plan, shall
reimburse the appropriate Trust Fund for any payment made by the secretary
E-4
under this subchapter with respect to an item or service if it is demonstrated that
such primary plan has or had a responsibility to make payment with respect to
such item or service. 42 USC § 1395y(b)(2)(A)(ii).
With regard to the federal government’s subrogation rights under the Medicare Secondary
Payer Act, the statute provides:
In order to recover payment made under this subchapter for an item or service,
the United States may bring an action against any or all entities that are or were
required or responsible (directly, as an insurer or self-insurer, as a third-party
administrator, as an employer that sponsors or contributes to a group health
plan, or large group health plan, or otherwise) to make payment with respect to
the same item or service (or any portion thereof) under the primary plan. The
United States may, in accordance with paragraph (3)(A) collect double damages
against any such entity. In addition, the United States may recover under this
clause from any entity that has received payment from a primary plan or from the
proceeds of a primary plan’s payment to any entity . . .
42 USC § 1395y(b)(2)(A)(iii).
The Medicare Secondary Payer Act does not clearly set forth any obligation for a primary plan to
protect Medicare’s interests for future medical expenses where the primary plan is an auto
liability or liability carrier. To date, Medicare has not brought suit pursuant to the Medicare
Secondary Payer Act in an attempt to allege a violation for an insurer’s failure to fund future
medical expenses in a civil settlement.
Early litigation as to application of the Medicare Secondary Payer Act to tort claims focused on
Medicare’s ability to recover their liens (conditional payments) on tort settlements. These actions
focused on liens that had arisen from previous conditional payments. No case law exists with
regard to any purported obligation to protect Medicare’s interests with regard to future medical
expenses related to an underlying tort claim. As to the Medicare lien (conditional payments),
arguments focused on whether the statutory requirement that the insurer be required to “pay
promptly” under the Act would necessarily exclude tort defendants, as there is no such
requirement for prompt payment in a tort context. See U.S. v. Baxter Intern. Inc., 345 F.3d 866
(11th Cir. 2003; In Re: Zyprexa Products Liability Litigation, 451 F.Supp.2d 458 (E.D. NY 2006).
Conflicting federal court decisions led to amendments to the Medicare Secondary Payer Act. In
2003, for example, Congress approved the Medicare Modernization Act, P.L. 108-173, 117 Stat.
2066 (2003). Such amendments were intended, in part, to clarify the application of the Medicare
Secondary Payer Act to tort liability claims. Surprisingly, however, the issue of whether the
Medicare Secondary Payer Act may be properly applied to liability claims (particularly for future
medical expenses) has not been litigated since the 2003 amendment.
E-5
Several individuals and entities have authored articles with regard to application of the Medicare
Secondary Payer Act to personal injury settlements. Some have commented as to whether
parties to a liability claim are required to protect Medicare’s interest with regard to future
medical expenses. The Center for Medicare Services has failed to set forth any official written
policy or procedure outlining their position on the issue. “Unofficially,” CMS has been more
forthcoming. This author has personally conferred with representatives of the CMS Chicago
Regional Office and has been advised that CMS’s position is that the “Medicare Secondary Payer
Act does require liability insurers and auto liability insurers to protect Medicare’s interests with
regard to future medical expenses where there is an allocation for future medical as a part of the
settlement.“
Two CMS Regional Offices have stated the following:
CMS’ position is that we expect any funds that are allocated for future medicals
to be spent before any claims are submitted to Medicare for payment and the
beneficiary will probably be asked about it on the initial enrollment questionnaire
that is systems-generated, but, we are not asking that MSA’s be established in
these cases, nor are we reviewing/approving/denying them.
One author has stated:
CMS has no current plans or formal process for reviewing and approving liability
Medicare Set-Aside arrangements. However, even though no formal process
exists, there is an obligation to inform CMS when future medicals are a
consideration in reaching a liability settlement, judgment or award as well as any
instances where settlement, judgment or award specifically provides for medicals
in general or future medicals.
John J. Campbell, “Preserving Public Benefits in Physical Injury Settlements: Special Needs Trusts
and Beyond,” at FN 26, Medicare Set-Aside Bulletin, Issue No. 32 (July 10, 2006).
In addition, vendors who prepare Medicare Set-Asides and handle submissions to CMS have
also taken a position that the Secondary Payer Act applies to future medical expenses in tort
claims. Gould and Lamb, LLC, has advised clients of CMS’s intention to require Medicare SetAsides in liability claims and has advertised that it has already done so on numerous occasions
and obtained CMS approval in some situations. See http://www.gouldandlamb.com/
liability_primer.html, Williamson v. Thales Geosolutions, Inc., G-03-990, 2007 WL 737475 (S.D.
Tex, March 2, 2007). In addition, the Center for Lien Resolution has advised in a June 2004,
Medicare Set-Aside Conference that a representative of the Office of General Counsel for the
United States confirmed the intention of Medicare to begin enforcing the MSP in liability cases.
http://www.thecenterforlienresolution.com/medicaresetaside.html.
Prior to 2001, insurers and practitioners were, for the most part, unaware of Medicare’s position
with regard to protecting Medicare as to future medical expenses through a Medicare Set Aside
E-6
Trust. In July 2001, CMS published the “Patel Memo” setting forth the first written policy with
regard to the need to protect Medicare’s interests as to future medical expenses in workers’
compensation settlements. Memo, July 23, 2001, from the Deputy Director of the Purchasing
Policy Group (available at: http://www.cms.hss.gov/WorkersCompAgencyServices/ Downloads
/72301 Memo.pdf). Since 2001, no less than a dozen additional Memoranda have been issued
by Medicare further clarifying and at times changing policies and procedures with regard to
future medical expenses in workers’ compensation claims. Most practitioners expect that CMS
will publish Memoranda in the event they begin attempts to actively enforce the Medicare
Secondary Payer Act with regard to liability and auto liability claims. As has been seen in the
field of workers’ compensation, it is anticipated that these Memoranda would be generated over
time as policy and procedure evolve. As recently as April 2009, this author has been advised by
CMS that a Memoranda is are anticipated from CMS addressing future medical expenses on
auto liability and liability claims. Frankly, however, such a Memorandum has been anticipated for
several years. Does the failure to publish any policy or procedure with regard to future medical
expenses in liability claims simply signal a lack of staff to enforce the Act with regard to liability
claims?
Another issue is whether the Medicare Secondary Payer Act vests the Department of Health and
Human Services with recovery rights relative to future medical expenses paid to the plaintiff as a
part of a civil settlement. As stated above, the Medicare Secondary Payer Act specifically
identifies and addresses previous “conditional payments” by Medicare but does not specifically
set forth rights or obligations with regard to future medical expenses in either workers’
compensation, auto liability or liability plans. 42 USC § 1395y(b)(2). Nevertheless, the
Department of Health and Human Services promulgated regulations in the Code of Federal
Regulations setting forth the obligations to protect Medicare’s interests under the Secondary
Payer Act. What stands out is the clear distinction between how workers’ compensation claims
are handled as compared to liability and auto liability claims on the issue of future medical
expenses. The Code of Federal Regulations enacted pursuant to the Medicare Secondary Payer
Act contains specific provisions with regard to the “primary plans” obligations to Medicare with
regard to settlements involving future medical expenses. 42 CFR § 411.46. In addition, as to the
beneficiaries’ responsibilities, the code of federal regulations specifically provides:
(b) Except as specified in § 411.45(a) Medicare does not pay until the beneficiary
has exhausted his or her remedies under workers’ compensation.
(c) Except as specified in § 411.45(b), Medicare does not pay for services that
would have been covered under workers’ compensation if the beneficiary had
filed a proper claim.
USC 42 CFR § 411.43.
Accordingly, an insurer need not have actual knowledge of the Medicare lien pursuant to the
applicable code of federal regulations. Medicare’s subrogation rights include the right to sue an
E-7
insurer to recover benefits paid out by Medicare that should have been covered by the primary
insurer.
The Code of Regulations contains no such similar provisions with regard to liability and auto
liability claims, 42 CFR § 411.40; § 411.50.
Assuming, arguendo, that CMS has statutory authority to require insurers to protect its interest
in future medical expenses, then one must attempt to determine the applicable scope of the
CMS policy. As set forth above, CMS’s unwritten policy has been to communicate that Medicare
must be protected where there is an allocation for future medical expenses in the settlement of
a tort claim. It is, in fact, extremely rare that litigants would specifically allocate settlement funds
to a plaintiff’s particular element of damages. The overwhelming majority of cases are resolved
with a lump sum payment for all damages in exchange for a comprehensive release from the
plaintiff releasing the tortfeaser from all claims arising out of the alleged occurrence.
What constitutes an allocation under such a policy? Black’s Law Dictionary simply defines
allocation as an “assignment or allotment.” Jacobsen v. Bowles, D.C. Tex., 53 F.Supp. 532, 534. The
term allocate is commonly defined as “to apportion for a specific purpose or to particular
persons or things; to set apart or earmark.” http://www.merriam-webster.com/dictionary
/allocate. Applying a plain meaning to CMS’s apparent policy suggests that CMS is not asserting
that its interests be protected with regard to future medical expenses in the overwhelming
majority of tort cases. Simply stated, such tort cases only rarely allocate a specific sum for future
medical expenses (specific purpose) or otherwise set apart or earmark such damages.
When may such an allocation arise in the settlement of a tort liability claim? The most common
examples of settlements involving specific allocations for future medical expenses arise with
settlements involving mentally disabled adults or minors. In each such instance, courts will
scrutinize the terms of the settlement reached between the insurer and the guardian for the
mentally disabled or minor plaintiff. This often requires that elements of damages be itemized
for the court.
In conclusion, many more questions than answers exist with regard to this issue. Does the
Department of Health and Human Services have the authority under the Medicare Secondary
Payer Act to require protection from insurers with regard to future medical expenses that
otherwise might be covered under Medicare? Will the Department promulgate regulations as to
tort and liability settlements as have previously been promulgated with regard to workers’
compensation settlements? When will the Center for Medicare Services release a formal policy
statement as to its position? What is clear is that CMS believes it has the authority to require
that auto liability and liability insurers protect Medicare’s interests with regard to future medical
expenses under the Medicare Secondary Payer Act.
E-8
IV.
MANDATORY MEDICARE REPORTING REQUIREMENTS
A.
SCHIP Extension Act
The Medicare/Medicaid and SCHIP Extension Act, P.L. 110-173, 121 Stat. 2492, became effective
in December 2007. The new statute created mandatory reporting requirements for claims
involving Medicare eligible individuals. The statute places specific obligations on group health
plans, liability insurers (including self insurance), no fault insurers and workers’ compensation
insurers. These reporting requirements constitute a further effort by Medicare to enforce the
Medicare Secondary Payer Act, 42 USC § 1395y(b)(2). The reporting requirements will assist
Medicare in the enforcement of their liens and further protect Medicare’s interests with respect
to future medical expenses.
Section 111 of the Act contains the new mandatory reporting requirements. Proposed
guidelines were first published in the Federal Register, Volume 73 at 45013, on August 1, 2008.
CMS then published through their website a “supporting statement for the Medicare Secondary
Payer (MSP) Mandatory Insurer Reporting requirements . . .” http://www.cms.hhs.gov/Mandatory
InsRep. It must be noted that the supporting statement is only a proposed guideline and
amendments to this proposal continue to appear. These include the March 16, 2009, “Medicare
Secondary Payer Mandatory Reporting User Guide version 1.0.
The entities responsible for complying with the reporting requirements for § 111 are referred to
as “responsible reporting entities” (RREs). Responsible reporting entities include, but are not
limited to, workers’ compensation, auto liability and liability insurers. The information provided
through the notice will allow CMS to identify “primary payers” that Medicare’s payments would
be secondary to. In addition to Medicare claims processing, the information is also acquired for
possible MSP recovery actions and identifying claims where Medicare may, in fact, hold a lien for
prior conditional payments. Notification to Medicare will be undertaken by the responsible
reporting entity and provided to the CMS “coordination of benefits contractor” (COBC).
Technical aspects of the data submission process will be managed by the COBC.
B.
Responsible Reporting Entities
Responsible reporting entities are defined as follows:
(F) Applicable plan. In this paragraph, the term ‘applicable plan’ means the
following laws, plans or other arrangements, including the fiduciary or
administrator for such law, plan or arrangement:
i. Liability insurance (including self insurance).
ii. No fault insurance.
iii. Workers’ compensation laws or plans.
42 USC § 1395y(b)(8)
E-9
Third-party administrators may be contractually assigned to meet the reporting requirements on
behalf of insurers or self insureds. Any contractual assignment by the RRE to a third-party
administrator does not, however, limit the overall responsibility of the RRE for compliance with
the Act.
C.
Registration
RREs are required to register with CMS and begin testing prior to June 30, 2009. Testing will be
undertaken through December 31, 2009, and compliance through the production of data will
begin in January 2010.
D.
Triggers to Reporting
The responsible reporting entities are to report only with respect to Medicare beneficiaries. If a
reported individual is not a Medicare beneficiary or CMS is unable to validate a particular SSN or
HICN, then the report will be rejected by CMS.
Triggers to the reporting requirement also vary depending upon the type of primary plan
(insurance). For liability cases, the trigger will be the settlement, judgment, award or other
payment to a Medicare beneficiary. Claims will need to be reported regardless of whether or not
there is an admission or determination of liability. Once again, the obligation to report does not
exist if the claimant is not a Medicare beneficiary as of the assigned reporting date.
Claims involving workers’ compensation claimants will have an obligation to report when there
is an ongoing payment responsibility for medical expenses. Where the RRE has an ongoing
responsibility for medical bills, they must report two events: when that responsibility has been
assumed and when it has been terminated. The RRE may submit a termination date for ongoing
responsibility for medical (ORM) if they acquire a signed statement from the injured individual’s
treating physician that they will require no further medical services associated with the claimed
injuries. MMSEA Section 111 “Medicare Secondary Payer Mandatory Reporting User Guide
version 1.0, March 16, 2009.”
E.
Reporting Thresholds
1.
Medical Expenses
Medicare publications refer to the insurer’s ongoing responsibility for medicals (ORM). For
liability insurance there is no diminumus dollar threshold for reporting the assumption
/establishment of ORM. All such claims need to be reported.
E-10
For workers’ compensation claims the ongoing responsibility for medicals are excluded from
reporting through December 31, 2010, when all of these criteria are met:
a)
b)
c)
d)
Medicals only
Lost time of no more than seven calendar days
All payment(s) has/have been made directly to the medical provider
Total payment does not exceed $600.
For Illinois workers’ compensation claims please note that TTD would be paid after the three-day
waiting period. 820 ILCS §305/8(b). If payment of TTD is commenced on the fourth day, the
claim would not qualify for the exception under subsection (b) above.
2.
Total Settlement
Medicare publications do not refer specifically to the “total amount of settlement” but rather to
the “total payments” obligations to the claimant (TPOC). See MMSEA Section 111 “Medicare
Secondary Payer Mandatory Reporting User Guide version 1.0, March 16, 2009.” Reporting
thresholds for liability and workers’ compensation with regard to the total payment obligations
to the claimant are as follows:
a) For TPOCs dates July 1, 2009 through December 31, 2010, TPOC amounts of
$0.00-$5,000.00 are exempt from reporting except as specified in “d” below.
b) For TPOCs dates of January 1, 2011, through December 31, 2011, TPOC
amounts of $0.00-$2,000.00 are exempt from reporting except as specified in “d”
below.
c) For TPOCs dates of January 1, 2012 through December 31, 2012, TPOC
amounts of $0.00-$600.00 are exempt from reporting except as specified in “d”
below.
d) Where there are multiple TPOCs reported by the same RRE on the same
record, the combined TPOC amounts must be considered in determining whether
or not the reporting exception threshold is met. For TPOCs involving a
deductible, where the RRE is responsible for reporting both any deductible and
any amount above the deductible, the threshold applies to the total of these two
figures.
CMS Alert for Liability Insurance (including self insurance), no fault, and workers’ compensation,
March 20, 2009.
3.
Closed Cases
If an insurer has an ongoing responsibility for medical (ORM) that was assumed prior to July 1,
2009 and continued as of that date then the RRE must report this individual. Medicare
recognizes, however, that RREs may not have collected necessary data for individuals where
responsibility was assumed prior to July 1, 2009. For these individuals an extension allows
reporting until October 2010. This extension only applies where the RRE has accepted ongoing
E-11
responsibility for medical after July 1, 2009, but the original claim resolution or partial resolution
was prior to July 1, 2009.
If a claim was actively closed or removed from current claims records prior to January 1, 2009,
the RRE is not required to identify and report that ORM under the requirement for reporting
ORM assumed prior to July 1, 2009. If, however, this claim is later reopened, it must then be
reported. CMS MMSEA Section 111 “Medicare Secondary Payer Mandatory Reporting User
Guide version 1.0, March 16, 2009.”
F.
Medicare Resources
Resources are available through the CMS website with regard to the SCHIP Extension Act and
reporting requirements. These resources include links to the MMSEA § 111 User Guide as well as
Memoranda regarding implementation of § 111.
http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPUserGuide031609.pdf
http://www.cms.hhs.gov/MandatoryInsRep/Downloads/NGHPInterim120508.pdf
http://www.cms.hhs.gov/MandatoryInsRep/03_Liability_Self_No_Fault_Insurance_and_Workers_C
ompensation.asp#TopOfPage
The website contains downloads of the User Guide and Interim Record Layout of December 5,
2008.
Additional information can be found at http://www.medicareapproval.com.
E-12
Bradford J. Peterson
- Partner
Public Speaking
• “Medicare Set-Asides and the SCHIP Extension
Act”
Illinois State Bar Association Advanced
Workers' Compensation Seminar 2008
• “Medicare Set Aside Issues and Update”
22nd Annual HRVA Claims Handling Seminar
2007
• “Workers’ Compensation and Medicare Set Aside
Proposals”
Illinois State Bar Association Hot Topics and
Workers’ Compensation 2005
• “Aggressive and Successful Workers’
Compensation Defense Strategies for Today’s
Industrial Commission”
19th Annual HRVA Claims Handling Seminar
2004
Brad has spent his entire career with Heyl Royster
beginning in 1987, in the Urbana office. He became a
partner with the firm in 1997. Brad concentrates his
practice in the defense of workers' compensation,
construction litigation, auto liability, premises liability
and insurance coverage issues. In recent years, Brad
has become a leader in the field on issues of Medicare
Set-Aside trusts and workers' compensation claims.
He has written and spoken frequently on the issue. He
was one of the first attorneys in the State of Illinois to
publish an article regarding the application of the
Medicare Secondary Payer Act to workers'
compensation claims: "Medicare, Workers'
Compensation and Set-Aside Trusts," Southern Illinois
Law Journal (2002).
Brad is a member of the Champaign County, Illinois
State, and American Bar Associations. He currently
serves on the Illinois State Bar Association Assembly
and has also served several previous terms. He has
also been a member of the ISBA Bench and Bar
Section Council and served as its chairman 2000-2001.
Currently, he serves as a member of the ISBA Workers'
Compensation Council and is past editor of the
Workers' Compensation Section Newsletter.
Professional Associations
• Champaign County Bar Association
• Illinois State Bar Association
• American Bar Association
• Illinois Association of Defense Trial Counsel
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
• United States Court of Appeals, Seventh Circuit
• United States Supreme Court
Significant Cases
• West v. Kirkham, 207 Ill. App. 3d 954 (4th Dist.
1991) Recognized that trial court may find
plaintiff contributorily negligent as a matter of
law.
• Propst v. Weir, 937 F. 2d 338 (7th Cir. 1991)
Application of qualified immunity for university
officials in First Amendment Retaliatory
Transfer claim.
Education
• Juris Doctor, Southern Illinois University, 1987
• Bachelor of Science (with honors), Illinois State
University, 1984
Selected Publications
• "Medicare, Workers' Compensation and Set
Aside Trusts," Southern Illinois Law Journal
(2002)
• "Survey of Illinois Law-Workers'
Compensation," Southern Illinois Law Journal
(1991)
E-13
Learn more about our speakers at www.heylroyster.com
WHAT YOU NEED TO KNOW ABOUT ARBITRATION Presented and Prepared by:
Scott G. Salemi
[email protected]
Rockford, Illinois • 815.963.4454
Prepared with the Assistance of:
Bhavika D. Amin
[email protected]
Rockford, Illinois • 815.963.4454
Heyl, Royster, Voelker & Allen
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
F-1
WHAT YOU NEED TO KNOW
ABOUT ARBITRATION
I.
WHAT IS IT?
........................................................................................................................................... F-3
II.
WHICH COUNTIES HAVE MANDATORY ARBITRATION? ......................................................... F-3
III.
WHICH CASES MUST BE ARBITRATED? ........................................................................................... F-4
IV.
WHO ARE THE ARBITRATORS? .......................................................................................................... F-4
V.
CAN I CHOOSE THE ARBITRATORS?................................................................................................. F-4
VI.
CAN I ASK TO CHANGE ARBITRATORS IF I THINK THERE
IS PREJUDICE, A CONFLICT OR OTHER PROBLEMS? .................................................................. F-4
VII.
CAN ARBITRATORS HEAR MOTIONS? ............................................................................................. F-5
VIII.
HOW IS DISCOVERY CONDUCTED IN ARBITRATION CASES? ................................................ F-5
IX.
CAN DISCOVERY BE CONDUCTED AFTER THE HEARING?....................................................... F-5
X.
HOW LONG DOES AN ARBITRATION HEARING LAST? ............................................................. F-6
XI.
WHAT HAPPENS IF ONE PARTY DOES NOT SHOW UP? .......................................................... F-6
XII.
WHAT HAPPENS IF ONE OF THE PARTIES DOES NOT
PRESENT A CASE? .................................................................................................................................... F-6
XIII.
WHAT CONSTITUTES PARTICIPATION “IN GOOD FAITH
AND IN A MEANINGFUL MANNER”? ............................................................................................... F-6
XIV.
HOW IS AN ARBITRATION HEARING CONDUCTED? ................................................................. F-7
XV.
WILL A DETERMINATION OF THE AWARD BE
MADE THE SAME DAY AS THE HEARING? ..................................................................................... F-7
XVI.
IS THE AWARD BINDING? ................................................................................................................... F-8
XVII.
WHAT IS THE COST OF REJECTING AN ARBITRATION AWARD? .......................................... F-8
XVIII. HOW DOES THE ARBITRATION AWARD BECOME FINAL?....................................................... F-8
F-2
WHAT YOU NEED TO KNOW
ABOUT ARBITRATION
I.
WHAT IS IT?
Court-annexed arbitration was established in Illinois as a mandatory, non-binding form of
alternative dispute resolution. The program is a deliberate effort on the part of the judiciary, bar
and public to reduce the length and cost of litigation in Illinois. Though the result is technically
non-binding, a failure by one party to participate “in good faith” can result in that party losing
its right to reject the award, thus making the arbitration award binding.
Court-annexed arbitration is governed by Illinois Supreme Court Rules 86-95.
II.
WHICH COUNTIES HAVE MANDATORY ARBITRATION?
Circuit Court of Cook County
Chicago, IL
Amount in Dispute: less than $30,000
3rd Judicial District
Madison County
Wood River, IL
Amount in Dispute: $10,000 - $50,000
17th Judicial District
Winnebago and Boone Counties
Rockford, IL
Amount in Dispute: $10,000 - $50,000
11th Judicial District
Ford and McLean Counties
Bloomington, IL
Amount in Dispute: $5,000 - $50,000
18th Judicial District
DuPage County
Wheaton, IL
Amount in Dispute: $10,000 - $50,000
12th Judicial District
Will County
Joliet, IL
Amount in Dispute: $10,000 - $50,000
19th Judicial District
Lake County
Waukegan, IL
Amount in Dispute: $10,000 - $50,000
14th Judicial District
Henry, Mercer, Rock Island and Whiteside
Counties
Rock Island, IL
Amount in Dispute: $5,000 - $50,000
20th Judicial District
St. Clair, Perry, Monroe, Randolph and
Washington Counties
Belleville, IL
Amount in Dispute: $5,000 - $50,000
16th Judicial District
DeKalb, Kane and Kendall Counties
Geneva, IL
Amount in Dispute: $10,000 - $50,000
22nd Judicial District
McHenry County
Woodstock, IL
Amount in Dispute: $10,000 - $50,000
F-3
III.
WHICH CASES MUST BE ARBITRATED?
Civil actions seeking only money damages between $5,000 and $50,000, depending on the
county. In addition, some counties permit arbitration of small claims cases.
Supreme Court Rule 86(d) provides that cases not assigned to the arbitration calendar may be
ordered to arbitration at a status call, pre-trial or case management conference when it appears
to the court that no claim in the action has a value in excess of the monetary limit (generally
$50,000). On the other hand, if it is determined prior to the arbitration hearing that the potential
damages exceed the jurisdictional limit, the case may be transferred to the law division through
the filing of an appropriate motion. Eissman v. Pace Suburban Bus Div. of Regional Transp.
Authority, 315 Ill. App. 3d 574, 734 N.E.2d 940, 248 Ill. Dec. 649 (1st Dist. 2000).
IV.
WHO ARE THE ARBITRATORS?
A panel of three arbitrators presides over each arbitration hearing. Rule 87 states that arbitrators
must be members of the bar engaged in the practice of law or retired judges within the circuit.
The panel must be chaired by a member of the bar who has practiced law for at least 3 years.
Local rules generally further limit the eligibility of attorneys and retired judges to act as
arbitrators. Many jurisdictions provide training programs for attorneys and judges to certify
them to act as arbitrators.
V.
CAN I CHOOSE THE ARBITRATORS?
No. Arbitrators are chosen at random prior to the hearing date in order to insure against
prejudice or bias. Parties will not know who the arbitrators are until the panel members
introduce themselves at the beginning of the hearing. Panel members are advised of the parties
and witnesses in the case prior to the hearing and are expected to recuse themselves from any
case in which they have a conflict.
VI.
CAN I ASK TO CHANGE ARBITRATORS IF I THINK THERE IS PREJUDICE, A
CONFLICT OR OTHER PROBLEMS?
No. As noted above, under Supreme Court Rule 87(c), arbitrators may recuse themselves if they
believe there may be a conflict or if “grounds appear to exist for disqualification***.” There is,
however, no provision made in the rules for a substitution of arbitrators or change of venue
from the panel or any of its members. The remedy of rejection of an award and the right to
proceed to trial has been deemed a sufficient response to any perceived bias or prejudice.
F-4
VII.
CAN ARBITRATORS HEAR MOTIONS?
The arbitrators’ authority to hear motions is limited. Their authority and power exist only in
relation to the conduct of the hearing at the time it is held. Therefore, arbitrators can hear and
determine motions to exclude witnesses, motions in limine, rulings on the admissibility of
evidence and motions of directed finding. Any other motions must be brought before the
arbitration judge and should generally be noticed up well in advance of the hearing. Arbitrators
may not hear and determine motions seeking to continue the hearing.
VIII.
HOW IS DISCOVERY CONDUCTED IN ARBITRATION CASES?
Supreme Court Rule 89 indicates that discovery shall be conducted in accordance with Supreme
Court Rule 222, except that timelines may be shortened by local rules. Rule 222 provides for
quicker and more limited discovery.
Rule 222 mandates that the parties make initial disclosures of various facts, claims, defenses,
witnesses and documents within 120 days after the filing of a responsive pleading to the
complaint unless otherwise dictated by local rules. In most counties, judges presiding over
arbitration cases require the filing of what is known as the Rule 222 Disclosure Statement within
30 days or less after the first appearance or status date. Parties are under a continuing duty to
supplement these disclosures as new information becomes available.
Rule 222 also limits the number of interrogatories propounded and depositions taken by the
parties. Evidence depositions are not allowed without leave of court for good cause shown.
IX.
CAN DISCOVERY BE CONDUCTED AFTER THE HEARING?
In most instances, no. Supreme Court Rule 89 provides that no discovery shall be permitted after
the hearing, except by leave of court and good cause shown. Some courts rarely, if ever, permit
additional discovery.
The prohibition of discovery after the arbitration hearing helps force cases to a quicker
resolution and prevents abuse of the arbitration system by those who do not take the
arbitration seriously or intend to use the arbitration as a tool to discover his or her adversary’s
case while preparing for an eventual bench or jury trial.
The Committee Comments following Rule 89 describe the courts attitude towards this rule: “An
early and timely disposition of arbitrable matters must be doomed by courts that are tolerant of
late attention to discovery. Firmness of the courts in the implementation of this rule will help to
insure the successful results that are available from this procedure. Prohibiting discovery after
award places a premium on as early, and as thorough, a degree of preparation as is necessary to
achieve a full hearing on the merits of the controversy.”
F-5
The Comments do indicate some leeway may be forthcoming: “If the lapse of time between an
award and a requested trial is substantial or if in that period there has been a change in the
circumstances at issue, additional discovery would appear to be appropriate and should be
granted.”
X.
HOW LONG DOES AN ARBITRATION HEARING LAST?
Most arbitration hearings are limited to two hours. In most jurisdictions, the local rules allow for
up to four hours but only after the court has approved such a request on good cause shown.
XI.
WHAT HAPPENS IF ONE PARTY DOES NOT SHOW UP?
If a party fails to appear at the hearing, the hearing will proceed ex parte. Pursuant to Supreme
Court Rule 91(a), the non-appearing party waives the right to reject the award and consents to
entry of a judgment on the award.
XII.
WHAT HAPPENS IF ONE OF THE PARTIES DOES NOT PRESENT A CASE?
Rule 91(b) provides that all parties to an arbitration hearing must participate in good faith and in
a meaningful manner. If the panel unanimously finds that a party has failed to participate in the
hearing in good faith and in a meaningful manner, they may so state on the appropriate Rule
91(b) form or on the award along with the factual basis therefor. The court can then impose
sanctions against the non-good faith participant, including an order prohibiting that party from
rejecting the award.
XIII.
WHAT CONSTITUTES PARTICIPATION “IN GOOD FAITH AND IN A MEANINGFUL
MANNER”?
In order to satisfy the requirement of good faith participation in the arbitration hearing, a party
must subject the case to the type of adversarial testing that would be expected at a trial.
Government Employees Ins. Co. v. Smith, 355 Ill. App. 3d 915, 824 N.E.2d 1087, 291 Ill. Dec. 837
(1st Dist. 2005). A party may be found to have participated in bad faith in an arbitration hearing
due to inept preparation or intentional disregard of the process. Anderson v. Mercy, 338 Ill. App.
3d 685, 788 N.E.2d 765, 273 Ill. Dec. 174 (3d Dist. 2003).
Even if the arbitrators do not include a written finding that a party participated in bad faith, the
trial court may still bar rejection of an award based on lack of good faith. State Farm Mut. Ins.
Co. v. Koscelnik, 342 Ill. App. 3d 808, 795 N.E.2d 1001, 277 Ill. Dec. 333 (1st Dist. 2003).
F-6
XIV.
HOW IS AN ARBITRATION HEARING CONDUCTED?
Similar to a trial, the parties are permitted to give opening statements, present evidence, crossexamine witnesses and give closing arguments. Pursuant to Supreme Court Rule 90, a party can
compel the appearance of a witness, subpoena the maker of an admissible document and crossexamine an adverse witness at the arbitration hearing.
At the hearing, the established rules of evidence and procedure apply as they would in any civil
trial with certain exceptions set forth in Supreme Court Rule 90.
Since one of the principal goals of arbitration is to permit a party to present his or her case at a
minimal expense, Rule 90(c) provides a method which focuses on the substance rather than the
form of evidence. It creates a presumption of admissibility for medical bills, medical records, the
written opinion of an expert, the deposition of a witness or the statement of a witness, repair
bills or estimates, and other various documents.
This rule eliminates the foundational requirement for the documents and overcomes the
objection of hearsay so as to permit a party to get meaningful evidence before the panel
without the traditional formal method of introduction.
Regardless of the presumptive admissibility of documents, however, the arbitrators are required
to apply the tests under established rules of evidence otherwise relating to admissibility and
credibility and to determine the weight to be given to such evidence.
In order to take advantage of presumptive admissibility, the parties seeking to offer the
documents in evidence must, at least 30 days prior to the hearing, give notice to the other side
of such parties’ intention to offer the documents accompanied by a copy of the document.
Nothing in Rule 90 prohibits the non-offering party from bringing the author or maker of a
document admissible under Rule 90 to the hearing under subpoena and examining that witness
as if under cross-examination.
XV.
WILL A DETERMINATION OF THE AWARD BE MADE THE SAME DAY AS THE
HEARING?
Yes. The panel of arbitrators will make an award promptly upon termination of the hearing. The
award cannot exceed the sum authorized by that particular circuit (generally $50,000). A majority
of the arbitrators must sign the award. The award will dispose of all claims. (Rule 92(b).)
The panel does not announce the award to the parties. Usually, the award is filed the day of the
hearing with the clerk of the court who is responsible for serving notice of the award to all
parties.
F-7
XVI.
IS THE AWARD BINDING?
No. Supreme Court Rule 93 states that any party who was present at the hearing either in
person or through counsel, except one that has been debarred from rejecting the award, may
within 30 days of the filing of the award, file a rejection of the award with the clerk of the court.
The party must pay the proper rejection fee and give notice to all parties. This 30-day period
begins to run from the date the award is filed with the clerk. If one party files a rejection, any
other party wishing to reject the award may rely on that notice and need not file his or her own
notice of rejection.
Rule 93 allows for rejection of the arbitration award, but there is no provision authorizing a party
to withdraw that rejection later. Stemple v. Pickerill, 377 Ill. App. 3d 788, 879 N.E.2d 1042, 316 Ill.
Dec. 654 (2d Dist. 2007).
Note that Rule 93(b) indicates that an arbitrator cannot be called to testify at a subsequent trial
nor can any reference be made to the fact that an arbitration hearing took place or that an
award was made.
XVII.
WHAT IS THE COST OF REJECTING AN ARBITRATION AWARD?
$200 for awards of $30,000 or less and $500 for awards greater than $30,000 as specified in Rule
93(a).
XVIII. HOW DOES THE ARBITRATION AWARD BECOME FINAL?
Pursuant to Supreme Court Rule 92(c), if no rejection is filed within the 30-day period after the
hearing, any party may thereafter move the court to enter a judgment on the award.
If the arbitration hearing was ex parte, Supreme Court Rule 91(a) allows the party appearing to
move at any time after the award has been filed with the clerk of the court for an entry of
judgment on the award.
F-8
Scott G. Salemi
- Partner
Prior to joining Heyl Royster, Scott served as Senior
Assistant State's Attorney in Rockford, Illinois, and
later as an Assistant Illinois Attorney General, assigned
to a statewide trial assistance division. Scott is an
accomplished trial lawyer, having tried significant
litigation to verdict throughout Illinois. Scott joined
the firm in its Rockford office in January of 2003 and
became partner in 2007.
Professional Associations
• Illinois Association of Defense Trial Counsel
• Illinois State Bar Association
• American Bar Association
• Winnebago County Bar Association
Court Admissions
• State Courts of Illinois
• United States District Court, Northern District
of Illinois (Trial Bar)
Scott concentrates his practice in the defense of
complex civil litigation, with an emphasis on civil
rights, medical malpractice and first-party and thirdparty property cases.
Education
• Juris Doctor, Northern Illinois University
College of Law, 1992
• Bachelor of Arts-Political Science, DePauw
University, 1989
F-9
Learn more about our speakers at www.heylroyster.com
WHAT YOU NEED TO KNOW ABOUT E‐DISCOVERY Presented and Prepared by:
Christine A. Heinsz
[email protected]
Edwardsville, Illinois • 618.656.4646
Prepared with the Assistance of:
Melanie E. Riley
[email protected]
Edwardsville, Illinois • 618.656.4646
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
G-1
WHAT YOU NEED TO KNOW ABOUT E-DISCOVERY
I.
PRODUCING ELECTRONIC DISCOVERY IN ILLINOIS.................................................................... G-4
A.
B.
II.
PRODUCING ELECTRONIC DISCOVERY IN FEDERAL COURT ................................................... G-4
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
III.
Defining “Documents” to Include Electronically Stored
Information − Illinois Supreme Court Rule 201(b)(1).................................................... G-4
Producing in Printed Format − Illinois Supreme Court Rule 214 ............................. G-4
Defining “Documents” to Include Electronically Stored
Information − Federal Rules of Civil Procedure, Rule 34 ........................................... G-4
Limitations on Requesting Electronically Stored
Information − Federal Rules of Civil Procedure, Rule 26(b) ....................................... G-5
Limitations on Scope of Request for Electronically Stored
Information − Federal Rules of Civil Procedure, Rule 26(b) ....................................... G-5
Safe Harbor for Good Faith Implementation of a Document
Retention Policy − Federal Rules of Civil Procedure, Rule 37(e) ............................. G-5
The Process for Requesting and Responding to the Form of
E-Discovery − Federal Rules of Civil Procedure, Rule 34(b) ....................................... G-5
E-Discovery Planning and Pre-Trial Conference − Federal Rules
of Civil Procedure, Rule 26(f) and Rule 37(f) .................................................................... G-6
Party Verification That Discovery Responses Are Complete and
Accurate − Federal Rules of Civil Procedure, Rule 26(g) ............................................ G-6
Resolving Disclosures of Privileged or Protected
Information − Federal Rules of Civil Procedure, Rule 26(b)(5)(B) ............................. G-7
Subject Matter Waiver Protection Through Inadvertent Disclosure
− Federal Rules of Evidence, Rule 502(a) and (b) .......................................................... G-7
Planning for Intentional or Inadvertent Disclosure and Protection
from Non-Party Disclosure − Federal Rules of Evidence, Rule 502(c) and (d) .... G-7
E-DISCOVERY CASES: WHAT YOU SHOULD KNOW .................................................................... G-7
A.
B.
C.
Relevant Data That Is Reasonably Accessible Must Be Produced
at Plaintiff’s Cost − Zubulake v. UBS Warburg LLC (Zubulake I),
217 F.R.D. 309 (S.D.N.Y. 2003) ............................................................................................... G-7
Relevant Data That Is Not Reasonably Accessible May Be Subject
to Cost-Shifting Analysis and the Use of Sampling in Cost-Shifting
Analysis – Zubulake v. UBS Warburg LLC (Zubulake I), 217 F.R.D.
309 (S.D.N.Y. 2003); Zubulake v. UBS Warburg LLC (Zubulake III),
216 F.R.D. 280 (S.D.N.Y. 2003) ............................................................................................... G-8
A Party’s Document Retention Policy Need Not Maintain
Electronically Searchable Formats – Oppenheimer Fund, Inc.
v. Sanders, 437 U.S. 340 (1978).............................................................................................. G-9
G-2
D.
E.
F.
G.
IV.
Discovery Issues Parties Must Address − Hopson v. Mayor
and City Council of Baltimore, 232 F.R.D. 228 (D.Md. 2005) ...................................... G-9
Courts May Require Federal Rules of Evidence, Rule 702
Expert Advice for Information Technology Issues − Equity
Analytics, LLC v. Lundin, 248 F.R.D. 331 (D.D.C. 2008) ................................................ G-10
Requests for Forensic Investigation Requires Reasonable
Justification − Balboa Threadworks, Inc. v. Stucky, No. 05-1157,
2006 WL 763668 (D.Kan. 2006) ........................................................................................... G-10
Forensic Costs of Discovery Borne by Embezzling Defendant
− United States v. Gordon, 393 F.3d 1044 (9th Cir. 2004) .......................................... G-11
E-DISCOVERY CASES: WHAT YOU SHOULD AVOID .................................................................. G-11
A.
B.
C.
D.
E.
F.
G.
H.
Faulty Document Review Methods Could Result in Waiver
of Attorney-Client Privilege or Work Product Protection –
Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D.Md. 2008) ................. G-11
Circumstances That Triggered the Duty to Preserve, Finding
of Bad Faith Not Necessary for Sanctions, and Sanctions
Imposed for Improper Litigation Hold Procedures − Keithley v.
Home Store.com, Inc., No. C-03-04447, 2008 WL 3833384
(Aug. 12, N.D.Cal. 2008) ......................................................................................................... G-12
Circumstances That Triggered the Duty to Preserve and
Sanctions Imposed for Finding of Fault Regarding Dilatory
Electronic Document Production and Partial Compliance with
Previous Discovery Order − In re Kmart Corp., 371 B.R. 823
(Bkrtcy. N.D.Ill. 2007); Zubulake v. UBS Warburg L.L.C. (Zubulake IV),
220 F.R.D. 212 (S.D.N.Y. 2003) ............................................................................................. G-13
Monetary Sanctions Imposed for Ineffective Monitoring and
Compliance with a Litigation Hold – Zubulake v. UBS Warburg LLC
(Zubulake V), 229 F.R.D. 422 (S.D. N.Y. 2004). ............................................................... G-14
Failing to Reasonably Investigate and Timely Produce Relevant
Information Resulted in Defendants and Their Counsel Sustaining
Monetary Sanctions − Phoenix Four, Inc. v. Strategic Resources Corp.,
No. 05-Civ.-4837, 2006 WL 1409413 (S.D. N.Y. May 23, 2006) ............................... G-14
Metadata and Embedded Data, When Relevant, Must Be Produced
− Williams v. Sprint/United Management Co., 230 F.R.D. 640 (D. Kan. 2005) .... G-15
Court Disapproval of Data Degradation − In Re Verisign, Inc. Securities
Litigation, No. C 02-02270, 2004 WL 2445243 (N.D. Cal. March 10, 2004) ........ G-16
Parties Have an Obligation to Notify the Opposition of Relevant
Evidence Not In Their Control or Possession − Silvestri v. General
Motors Corp., 271 F.3d 583 (4th Cir. 2001)...................................................................... G-16
G-3
WHAT YOU NEED TO KNOW ABOUT E-DISCOVERY
I.
PRODUCING ELECTRONIC DISCOVERY IN ILLINOIS
A.
Defining “Documents” to Include Electronically Stored Information − Illinois
Supreme Court Rule 201(b)(1)
Illinois Supreme Court Rule 201(b)(1) defines documents to include “all retrievable information
in computer storage.” The Committee comments explain that the amendment of the definition
of documents “obligates a party to produce on paper those relevant materials which have been
stored electronically.”
B.
Producing in Printed Format − Illinois Supreme Court Rule 214
Illinois Supreme Court Rule 214 provides that “a party served with a written request shall (1) . . .
produce all retrievable information in computer storage in printed form . . . .” (emphasis added).
The Committee comments explain that the amendment is “intended to prevent parties
producing information from computer storage on storage disks or in any other manner which
tends to frustrate the party requesting discovery from being able to access the information
produced.”
The facts in Sattar v. Motorola, Inc., 138 F.3d 1164 (7th Cir. 1998) demonstrate a potential reason
for the amendment to Illinois Supreme Court Rule 214. In Sattar, an employee sued an employer
and two supervisors for religious discrimination under Title VII. In response to discovery
requests, the defending employer produced magnetic tapes containing 210,000 pages of e-mail
information to the plaintiff who had no means to process the tapes’ information. However, the
7th Circuit held that the district court did not abuse its discretion in denying the plaintiff's
motion to compel the employer to reproduce the information in printed format. The district
court decided that a more reasonable accommodation was some combination of downloading
the data from tapes to conventional computer disks or computer hard-drive and loaning the
plaintiff a copy of the necessary software, offering him on-site access to the system, or having
parties share the cost of processing the information in paper format. The 7th Circuit held that
the district court’s solution was entirely reasonable.
II.
PRODUCING ELECTRONIC DISCOVERY IN FEDERAL COURT
A.
Defining “Documents” to Include Electronically Stored Information −
Federal Rules of Civil Procedure, Rule 34
“In General. A party may serve on any other party a request . . . to produce . . . items in the
responding party’s possession, custody, or control [including]: (A) any designated documents or
electronically stored information – including writings, drawings, graphs, charts, photographs,
sound recordings, images, and other data or data compilations – stored in any medium from
G-4
which information can be obtained either directly or, if necessary, after translation by the
responding party into a reasonably usable form . . . .”
B.
Limitations on Requesting Electronically Stored Information − Federal Rules
of Civil Procedure, Rule 26(b)
Federal Rules of Civil Procedure, Rule 26(b)(2)(C) dictates that the court may limit the “frequency
or extent of discovery” if it determines that: “(i) the discovery sought is unreasonably cumulative
or duplicative, or can be obtained from some other source that is more convenient, less
burdensome or less expensive; (ii) the party seeking discovery has had ample opportunity to
obtain the information by discovery in the action; or (iii) the burden or expense of the proposed
discovery outweighs its likely benefit . . . .”
C.
Limitations on Scope of Request for Electronically Stored Information −
Federal Rules of Civil Procedure, Rule 26(b)
Federal Rules of Civil Procedure, Rule 26(b)(2)(B) further specifies limitations on the scope of
electronically stored information. The rule states that “a party need not provide discovery of
electronically stored information from sources that the party identifies as not reasonably
accessible because of undue burden or cost.” On a motion to compel discovery or on a motion
for a protective order, the rule requires that the party from whom discovery is sought must show
that the information “is not reasonably accessible because of undue burden or cost.” However,
even if that showing is made, the court may “nonetheless order discovery from such sources if
the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C).”
D.
Safe Harbor for Good Faith Implementation of a Document Retention Policy
− Federal Rules of Civil Procedure, Rule 37(e)
“Absent exceptional circumstances, a court may not impose sanctions under these rules on a
party for failing to provide electronically stored information lost as a result of the routine, goodfaith operation of an electronic information system.” However, once a party reasonably
anticipates litigation, it must suspend its routine document retention/destruction policy and put
in place a litigation hold to ensure the preservation of relevant data and documents. Intentional
or inadvertent failure to preserve accessible or inaccessible information relevant to the litigation
could result in sanctions by the court.
E.
The Process for Requesting and Responding to the Form of E-Discovery −
Federal Rules of Civil Procedure, Rule 34(b)
Federal Rules of Civil Procedure, Rule 34(b) specifies the procedure both for requesting and
responding to e-discovery. The request may specify the “form or forms in which electronically
stored information is to be produced.” Rule 34(b)(1)(C). If the responding party objects to a
requested form, or if no form was specified in the request, the responding party “must state the
form or forms it intends to use.” Rule 34(b)(2)(D).
G-5
Federal Rules of Civil Procedure, Rule 34(b)(2)(E)(i)-(ii) dictates that unless otherwise ordered by
the court, “[a] party must produce documents as they are kept in the usual course of business,”
or “[i]f a request does not specify form . . . a party must produce it in a form or forms in which it
is ordinarily maintained or in a reasonably usable form or forms.” However, a party does not
need to produce the same electronically stored information in more than one form.
F.
E-Discovery Planning and Pre-Trial Conference − Federal Rules of Civil
Procedure, Rule 26(f) and Rule 37(f)
“In conferring, the parties must . . . discuss any issues about preserving discoverable
information.” Rule 26(f)(2). Inter alia, the discovery plan must detail the parties’ views and
proposals on: “any issues about disclosure or discovery of electronically stored information,
including the form or forms in which it should be produced.” Rule 26(f)(3)(C). The parties must
also specify what limitations on discovery will be imposed in the litigation. Furthermore, a
discovery plan must state the parties’ views and proposals on: “any issues about claims of
privilege or of protection as trial-preparation materials, including – if the parties agree on a
procedure to assert these claims after production – whether to ask the court to include their
agreement in an order.” Rule 26(f)(3)(D).
“If a party or its attorney fails to participate in good faith in developing and submitting a
proposed discovery plan as required by Rule 26(f), the court may, after giving an opportunity to
be heard, require that party or attorney to pay to any other party the reasonable expenses,
including attorney’s fees, caused by the failure.” Rule 37(f).
G.
Party Verification That Discovery Responses Are Complete and Accurate −
Federal Rules of Civil Procedure, Rule 26(g)
Federal Rules of Civil Procedure, Rule 26(g) mandates that “[e]very disclosure . . . and every
discovery request, response, or objection must be signed by at least one attorney of record [and
that] . . . [b]y signing, an attorney or party certifies that to the best of the person’s knowledge,
information, and belief formed after a reasonable inquiry: (A) with respect to a disclosure, it is
complete and correct as of the time it is made.”Rule 26(g)(1).
“If a certification violates this rule without substantial justification, the court, on motion or on its
own, must impose an appropriate sanction on the signer, the party on whose behalf the signer
was acting, or both. The sanction may include an order to pay the reasonable expenses,
including attorney’s fees, caused by the violation.” Rule 26(g)(3).
The Advisory Committee Notes to the 1983 Amendments to Rule 26(g) emphasize that an
attorney cannot simply pass-through discovery responses from the client to the opposing party.
“Rule 26(g) imposes an affirmative duty [on the attorney] to engage in pretrial discovery in a
responsible manner that is consistent with the spirit and purposes of Rules 26 through 37.”
However, an attorney is entitled to rely on the assertions of the client (or the client’s in-house
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counsel), provided that “the investigation undertaken by the attorney and the conclusions drawn
therefrom are reasonable under the circumstances.”
H.
Resolving Disclosures of Privileged or Protected Information − Federal Rules
of Civil Procedure, Rule 26(b)(5)(B)
After being notified of disclosure of privileged or protected information, the receiving party
“must promptly return, sequester, or destroy the specified information and any copies it has;
must not use or disclose the information until the claim is resolved; must take reasonable steps
to retrieve the information if the party disclosed it before being notified; and may promptly
present the information to the court under seal for a determination of the claim.” Furthermore,
the “producing party must preserve the information until the claim is resolved.”
I.
Subject Matter Waiver Protection Through Inadvertent Disclosure − Federal
Rules of Evidence, Rule 502(a) and (b)
Federal Rules of Civil Procedure, Rule 502 protects litigants from subject matter waiver resulting
from inadvertent disclosures. Rule 502 provides that disclosures will not waive privilege or
protection as long as the party takes reasonable steps to prevent disclosure and acts promptly
to retrieve the disclosure. See also Resolving Disclosures of Privileged or Protected Information,
above.
J.
Planning for Intentional or Inadvertent Disclosure and Protection from NonParty Disclosure − Federal Rules of Evidence, Rule 502(c) and (d)
Pursuant to Federal Rules of Civil Procedure, Rule 502, parties may seek a court order providing
that disclosures of privileged or protected information, whether intentional or inadvertent, do
not constitute waiver. A court order may also provide that a nondisclosure agreement between
the litigating parties bind non-parties as well.
III.
E-DISCOVERY CASES: WHAT YOU SHOULD KNOW
A.
Relevant Data That Is Reasonably Accessible Must Be Produced at Plaintiff’s
Cost − Zubulake v. UBS Warburg LLC (Zubulake I), 217 F.R.D. 309 (S.D.N.Y.
2003)
In Zubulake v. UBS Warburg LLC, a former employee brought an action against her former
employer asserting gender discrimination and retaliation claims. The plaintiff sought discovery
of relevant e-mails of key employees of her former employer that were stored only on backup
disks; the estimated cost was over $292,000.00.
The court reasoned that because “electronic evidence is no less discoverable than paper
evidence . . . the presumption is that the responding party must bear the expense of complying
with discovery requests.”
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B.
Relevant Data That Is Not Reasonably Accessible May Be Subject to CostShifting Analysis and the Use of Sampling in Cost-Shifting Analysis −
Zubulake v. UBS Warburg LLC (Zubulake I), 217 F.R.D. 309 (S.D.N.Y. 2003);
Zubulake v. UBS Warburg LLC (Zubulake III), 216 F.R.D. 280 (S.D.N.Y. 2003)
Despite many of the relevant emails being on inaccessible backup tapes that were costly to
restore, the Zubulake I court held that cost-shifting may be considered when electronic
discovery imposes an “undue burden or expense” on the responding party. “[W]hether
production of documents is unduly burdensome or expensive turns primarily on whether it is
kept in an accessible or inaccessible format.”
The court provided examples of accessible and inaccessible formats. Active, online data, nearline data, and offline data were determined reasonably accessible such that defendants should
presumptively pay for producing information in these electronically stored mediums. However,
backup tapes and data that had been erased, fragmented, or damaged are considered
inaccessible and amenable to cost-shifting analysis.
In Zubulake I, the court ordered that the plaintiff was to choose five of the total 77 backup tapes
to restore at the defendant’s expense and the Court would then analyze cost-shifting after the
sampling restoration.
In Zubulake III after restoration of the five backup tapes, 600 of 1,075 restored emails were
determined to be relevant. The plaintiff filed a motion to compel production of all remaining
backup emails at the employer’s expense. The United States District Court in the Southern
District of New York held that the plaintiff was entitled to discovery of all relevant e-mail but
that cost-shifting considerations should be examined. The court considered seven factors in its
cost-shifting analysis:
1.
2.
3.
4.
5.
6.
7.
The extent to which the request is specifically tailored to discover relevant
information;
The availability of such information from other sources;
The total cost of production, compared to the amount in controversy;
The total cost of production, compared to the resources available to each
party;
The relative ability of each party to control costs and its incentive to do so;
The importance of the issues at stake in the litigation; and
The relative benefits to the parties of obtaining the information.
Based on these factors, the court held that the plaintiff should pay 25 percent of the
approximately $166,000 total cost of restoring and searching the 77 backup tapes. The court
stated that the plaintiff should pay 25 percent of this cost ($58,000) because many of the e-mails
restored from the backup tapes may not contain evidence of discrimination, but would still need
to be processed. However, the court held that 75 percent of the costs ($108,000) of producing
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e-mails restored from the 77 backup tapes should be borne by the defendant employer because
the restored e-mails would no longer be inaccessible and the employer had the exclusive ability
to control the costs of reviewing the documents and determining their relevance.
C.
A Party’s Document Retention Policy Need Not Maintain Electronically
Searchable Formats − Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340
(1978)
In Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S.Ct. 2380 (1978), the plaintiffs brought a
class action against an open-end investment fund, its management corporation, and others to
recover the amount of the artificially inflated price each plaintiff had paid for fund shares. The
plaintiffs sought a list of the putative class members' names and addresses that would require a
third party “to sort manually through many records, keypunch 150,000 to 300,000 computer
cards, and create several new computer programs . . . .” as no program existed to effectively
retrieve the information requested by plaintiffs. Plaintiffs argued that defendant should bear the
costs of compiling the list because had the defendant used different systems, the compilation
cost could have been substantially less. However, the Supreme Court rejected this argument and
held that a business should not be penalized for not maintaining records “in the form most
convenient to some potential future litigants whose identity and perceived needs could not have
been anticipated.”
D.
Discovery Issues Parties Must Address − Hopson v. Mayor and City Council of
Baltimore, 232 F.R.D. 228 (D.Md. 2005)
In Hopson v. Mayor and City Council of Baltimore, 232 F.R.D. 228 (D.Md. 2005), the court
explained that, at a minimum, the following issues should be discussed by the parties regarding
an electronic discovery plan:
•
•
•
•
•
•
the type of information technology systems in use and the persons most knowledgeable in
their operation;
preservation of electronically stored information that may be relevant to the litigation;
the scope of the electronic records sought (i.e. e-mail, voice mail, archived data, back-up or
disaster recovery data, laptops, personal computers, PDA's, deleted data)
the format in which production will occur (will records be produced in “native” or searchable
format, or image only; is metadata sought);
whether the requesting party seeks to conduct any testing or sampling of the producing
party's IT system;
the burdens and expenses that the producing party will face based on the Rule 26(b)(2)
factors, and how they may be reduced (i.e. limiting the time period for which discovery is
sought, limiting the amount of hours the producing party must spend searching, compiling
and reviewing electronic records, using sampling to search, rather than searching all records,
shifting to the producing party some of the production costs);
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•
•
the amount of pre-production privilege review that is reasonable for the producing party to
undertake, and measures to preserve post-production assertion of privilege within a
reasonable time; and
any protective orders or confidentiality orders that should be in place regarding who may
have access to information that is produced.
Recognizing the discovery burden imbalance between plaintiffs and defendants in certain types
of cases, the Hopson court went on to advise the plaintiffs “to have reasonable expectations as
to what should be produced by the defendant.”
E.
Courts May Require Federal Rules of Evidence, Rule 702 Expert Advice for
Information Technology Issues − Equity Analytics, LLC v. Lundin, 248 F.R.D.
331 (D.D.C. 2008)
In Equity Analytics, LLC v. Lundin, 248 F.R.D. 331 (D.D.C. 2008), when faced with computer
technology arguments beyond its understanding, the court ordered a forensic expert to prepare
an affidavit explaining why the defendant’s proposed search of his computer would be
insufficient to find relevant evidence. In Equity, the defendant, a former employee, was alleged
to have illegally accessed his former employer’s corporate systems eighteen times over a 90-day
period and potentially reviewed and/or copied confidential information. After the employee’s
alleged clandestine access, the defendant employee installed a new operating system upon his
file structure. The plaintiff argued that the defendant’s proposed keyword and file type searches
would be insufficient to determine whether the employer’s confidential information had been
accessed. The court explained that “determining whether a particular search methodology, such
as keywords, will or will not be effective certainly requires knowledge beyond the ken of a lay
person (and a lay lawyer) and requires expert testimony that meets the requirements of Rule 702
of the Federal Rules of Evidence.” See also United States v. O'Keefe, 537 F. Supp. 2d 14, 24 (D.D.C.
2008).
F.
Requests for Forensic Investigation Requires Reasonable Justification −
Balboa Threadworks, Inc. v. Stucky, No. 05-1157, 2006 WL 763668 (D.Kan.
2006)
In Balboa Threadworks, Inc. v. Stucky, No. 05-1157, 2006 WL 763668 (D.Kan. March 24, 2006), the
court had to decide whether to permit the plaintiffs’ request for forensic copies of the computer
hard drives of the defendant husband and wife. In Balboa, the plaintiffs asserted that defendants
wrongfully copied digital embroidery designs and then sold the designs to at least one third
party. The Balboa court stressed that while it “is not unusual for a court to enter an order
requiring the mirror imaging of the hard drives of any computers that contain documents
responsive to an opposing party's request for production of document . . . [c]ourts have been
cautious in requiring the mirror imaging of computers where the request is extremely broad in
nature and the connection between the computers and the claims in the lawsuit are unduly
vague or unsubstantiated in nature.” In finding that mirrored image copies should be made at
the plaintiffs’ expense, the court explained that “because the alleged infringement in this case is
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claimed to have occurred through the use of computers to download copyrighted material, the
importance and relevance of computer evidence is particularly important.”
G.
Forensic Costs of Discovery Borne by Embezzling Defendant − United States
v. Gordon, 393 F.3d 1044 (9th Cir. 2004)
In U.S. v. Gordon, 393 F.3d 1044 (9th Cir. 2004), an employer, after discovering missing stock
shares, suspected the defendant was embezzling from the company and requested his laptop
computer for examination. The employer specifically instructed the defendant not to delete any
information from the hard drive before the examination. Despite this instruction, a computer
forensic analysis revealed that the defendant attempted to overwrite files on the computer by
running “evidence eliminator,” a software wiping program, at least five times before turning over
the computer to his employer. The defendant was convicted of embezzlement and ordered to
reimburse the employer for a portion of the investigation costs. On appeal, the defendant
argued that the trial court should not have awarded the employer investigation costs. The
Appellate Court rejected this argument noting that the defendant had “purposefully covered his
tracks as he concealed his numerous acts of wrongdoing from [his employer] over a period of
years.” The Appellate Court held that the employer “cannot be faulted for making a concerted
effort to pick up his trail and identify all the assets he took amid everything he worked on.”
IV.
E-DISCOVERY CASES: WHAT YOU SHOULD AVOID
A.
Faulty Document Review Methods Could Result in Waiver of Attorney-Client
Privilege or Work Product Protection − Victor Stanley, Inc. v. Creative Pipe,
Inc., 250 F.R.D. 251 (D.Md. 2008)
In Victor Stanley, Inc. v. Creative Pipe, Inc., 250 F.R.D. 251 (D.Md. 2008), the ineffective review
procedures implemented by defendant attorneys resulted in the waiving of attorney-client
privilege or work product protected status for electronically stored documents that had
previously been voluntarily produced by defendant pursuant to discovery requests. The
defendant attorneys claimed that in order to meet time deadlines, they could not review the
content of documents whose title page did not imply potential privilege or protection and
whose content they claimed were not text-searchable. The plaintiff countered that the majority
of the electronically stored documents were in an Adobe .pdf format that was searchable using
readily available computer search tools and that the remainder of the documents not in a
searchable .pdf format “could have been made searchable using readily available OCR [optical
character recognition] software,” i.e. computer software that converts non-searchable images of
text into searchable text. In denying the defendant’s privilege claims, the court explained that
the defendants had not taken reasonable steps to protect the privilege before disclosure by
failing to have qualified persons construct the search criteria for privileged documents and by
not testing the results to determine whether they were under or over inclusive. Furthermore, the
court explained that the defendants had not acted reasonably promptly in correcting the error
after disclosure.
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B.
Circumstances That Triggered the Duty to Preserve, Finding of Bad Faith
Not Necessary for Sanctions, and Sanctions Imposed for Improper Litigation
Hold Procedures − Keithley v. Home Store.com, Inc., No. C-03-04447, 2008
WL 3833384 (Aug. 12, N.D.Cal. 2008)
In Keithley v. Home Store.com, Inc., No. C-03-04447, 2008 WL 3833384 (N.D.Cal. Aug. 12, 2008), a
patent infringement case regarding internet software for accessing industry specific information,
such as real estate properties for sale through multimedia personal computers, the plaintiff filed
a motion to impose sanctions for defendant’s spoliation of evidence, i.e. source code; early
architectural, design and implementation documents; and reports.
Setting the tone of the decision, the court stated that the defendant’s conduct during discovery
was “the most egregious this Court has seen.” The court stopped short of the extreme measure
of terminating the case in favor of the plaintiff because it found that the defendant had not
engaged in deliberate spoliation.
The court recognized that, pursuant to Federal Rules of Civil Procedure, Rule 37, the “lack of bad
faith does not immunize a party or its attorney from sanctions, although a finding of good or
bad faith may be a consideration in determining whether imposition of sanctions would be
unjust. . . .”
The Keithley court noted that imminence of litigation is sufficient to trigger the duty to preserve
and stay normal destruction procedures if normal procedures would destroy information
relevant to the litigation. Citing Zubulake IV and Hynix Semiconductor Inc. v. Rambus, Inc., No. C00-20905, 2006 WL 565893 (N.D.Cal. January 5, 2006) as precedents, the Keithley court
recognized that the “duty to preserve documents attaches ‘when a party should have known
that the evidence may be relevant to future litigation’ [and] future litigation must be ‘probable,’
which has been held to mean ‘more than a possibility.’” The Keithley court held that although
defendants had “notice of infringement” at least by 1998 in a letter to the defendants regarding
licensing, the duty to preserve arose well before the lawsuit was filed on October 1, 2003. The
court found the duty to preserve had certainly arisen by August 3, 2001, “when Plaintiffs sent
Defendants a letter stating that ‘we assume that Homestore.com wishes to litigate this matter.
Unless we hear otherwise by close of business Tuesday, August 7, 2001, we will advance this
matter accordingly.’”
Despite the duty to preserve having been triggered, the defendants never issued a written
litigation hold to its employees. The court held that the “lack of a written document retention
and litigation hold policy and procedures for its implementation, including timely reminders or
even a single e-mail notice to relevant employees, exemplifies Defendants' lackadaisical attitude
with respect to discovery of these important documents.”
The defendants had verbally instructed their employees to preserve relevant information, but
they never explained what information might be relevant. Consequently, when the IT personnel
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destroyed old source code logs, the court found that the duty to preserve had been violated.
“Defendants had a duty to notify and periodically remind technical personnel of Defendants'
preservation obligation and ensure that they took adequate steps to safeguard the data. At a
minimum, Defendants were reckless in their conduct regarding the Development Computer.
Had Defendants imposed a proper litigation hold in this case, the evidence on the Development
Computer, in particular, the log of changes to the websites’ source code, would have been
preserved. Instead, evidence of prior versions of source code was destroyed.”
The court also found that the defendants were dilatory because it was not until “fifteen months
after the Court's express order to produce all versions of source code, did Defendants make any
real effort to fulfill their discovery obligations to search for and gather source code.”
Ultimately the court imposed monetary sanctions and an adverse inference instruction regarding
the destroyed evidence.
C.
Circumstances That Triggered the Duty to Preserve and Sanctions Imposed
for Finding of Fault Regarding Dilatory Electronic Document Production and
Partial Compliance with Previous Discovery Order − In re Kmart Corp., 371
B.R. 823 (Bkrtcy. N.D.Ill. 2007); Zubulake v. UBS Warburg L.L.C. (Zubulake
IV), 220 F.R.D. 212 (S.D.N.Y. 2003)
In In re Kmart Corp., 371 B.R. 823 (Bkrtcy. N.D.Ill. 2007), the plaintiff filed a motion for entry of a
default judgment as to liability, imposition of an adverse inference, and/or the imposition of a
fine for the defendant’s alleged spoliation of evidence. The court explained that three types of
improper behavior could warrant sanctions for evidence spoliation: willfulness (intentional
defiance), bad faith (intentional or grossly negligent conduct intended to hide adverse
information by), or fault (unreasonable conduct). Furthermore, sanctions should correspond to
the quantum of proof regarding the severity of the conduct. “In cases where spoliation is the
result of ‘fault,’ as opposed to willfulness or bad faith, courts often use prejudice [to the
opposing party] as a ‘balancing tool’ to tip the scales in favor of or away from severe sanctions.”
Before imposing sanctions, however, a complaining party must demonstrate that the duty to
preserve had been triggered. In a discrimination suit against her former employer, the Zubulake
IV court had found the defendant’s duty to preserve had been triggered months before the
complaint was filed because the plaintiff/employee provided evidence that “almost everyone
associated with [the plaintiff] recognized the possibility that she might sue.” However, the Kmart
court found that, although two executives were concerned about potential litigation prior to the
filing of the complaint, the duty to preserve was not triggered until the “[plaintiff’s]
administrative claims . . . were filed . . . or a short period thereafter.”
Finding that the defendant’s conduct evidenced fault, the Kmart court determined that the
plaintiff “failed to establish that [defendant] knew there was relevant, discoverable information
among the documents being destroyed . . . [and that] it is not entirely clear that such
information was, in fact, destroyed.”
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Ultimately, the court held that despite the defendant producing a massive amount of
documents, the defendant’s actions constituted “dilatory and disjointed disclosure and
production efforts [as well as] fractional compliance with the [court’s previous] Order.”
Consequently, the court awarded “some of the attorney's fees and costs incurred by [plaintiff] in
the drafting, presentation, and trial of its motion, such award to be determined after trial . . .”
D.
Monetary Sanctions Imposed for Ineffective Monitoring and Compliance
with a Litigation Hold – Zubulake v. UBS Warburg LLC (Zubulake V), 229
F.R.D. 422 (S.D. N.Y. 2004)
In Zubulake V, a former employee had brought an action against her former employer asserting
gender discrimination and retaliation claims. The employer faced sanctions as a result of its
failure to produce relevant material and its tardy production of other relevant material. The
court emphasized the importance of counsel effectively communicating to her client “its
discovery obligations so that all relevant information is discovered, retained, and produced.” The
court particularly focused on the duty to preserve and that counsel must identify all sources of
relevant information once this duty attaches. To preserve all relevant information, counsel must
impose a litigation hold and must monitor employees’ compliance with the instructions. As a
sanction for the willful destruction of relevant e-mails by employees despite the litigation hold
and corporate counsel’s instructions not to do so, the court permitted an adverse instruction to
be given to the jury. As a sanction for its tardy production of relevant e-mails, the employer was
required to pay the costs of any depositions or re-depositions required by the late production
and to the pay the costs of the plaintiff’s motion for sanctions.
E.
Failing to Reasonably Investigate and Timely Produce Relevant Information
Resulted in Defendants and Their Counsel Sustaining Monetary Sanctions −
Phoenix Four, Inc. v. Strategic Resources Corp., No. 05-Civ.-4837, 2006 WL
1409413 (S.D. N.Y. May 23, 2006)
In Phoenix Four, Inc. v. Strategic Resources Corp., No. 05-Civ.-4837, 2006 WL 1409413 (S.D. N.Y.
May 23, 2006), plaintiff alleged, inter alia, breach of fiduciary duty, common law fraud, and
negligent misrepresentation. When moving into new offices and establishing a new business,
the defendants abandoned documents and computer workstations. Of the computers and
servers retained by defendant, defendants only searched one of the computers believing that no
relevant documents were on the other computer systems. When no relevant electronic
documents were found on the searched computer, the defendants advised their counsel that no
relevant electronic files existed, only hard-copy documents that the defendants’ counsel then
reviewed and produced. By chance, a freelance computer technician responding to a
maintenance call discovered 25 gigabytes (200-300 boxes – four times the original production)
of potentially relevant data in a separate partition of the server. The newly found electronic
documents were then promptly produced.
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The court refused to give an adverse inference instruction based on defendant’s abandoning
information at its former worksite because plaintiff had failed to adduce any evidence “that the
abandoned evidence would have supported [plaintiffs’] claims or defenses.”
However, the court found that the information newly discovered by the technician was very
relevant to the litigation. The Phoenix Four court reiterated the mandate to outside counsel
found in Zubulake v. UBS Warburg, 229 F.R.D. 422 (S.D.N.Y. 2004) (Zubulake V): “Counsel has the
duty to properly communicate with its client to ensure that ‘all sources of relevant information
[are] discovered. To identify all such sources, counsel should ‘become fully familiar with [its]
client's document retention policies, as well as [its] client's data retention architecture.’” The
Phoenix Four court found that the defendants’ counsel’s conduct constituted gross negligence
because it had “simply accepted the defendants' representation that, because [the former
company] was no longer in operation, there were no computers or electronic collections to
search.” The court found the defendant’s conduct negligent by “carelessly representing to
counsel that ‘there were no computers . . . to search‘ when they knew that they still possessed,
and were actually using at least one of, the servers . . . .”
Because the newly discovered information was immediately reported and quickly produced, the
court believed an adverse inference instruction would be too severe. But the court did award
monetary sanctions under its inherent authority. Both the defendants and defendants’ attorneys
were ordered to reimburse plaintiff equally for costs and fees associated with the filing of the
motion for sanctions. The district court had to approve the amount once time records were
produced. Defendants and their counsel were also ordered to pay $10,000 for each of the redepositions of three witnesses for the limited purpose of inquiring into issues raised by the
documents newly recovered from the defunct server. The district court further ordered that the
defendants’ monetary sanctions could not be paid by their insurers.
F.
Metadata and Embedded Data, When Relevant, Must Be Produced −
Williams v. Sprint/United Management Co., 230 F.R.D. 640 (D. Kan. 2005)
In Williams v. Sprint/United Management Co., 230 F.R.D. 640 (D. Kan. 2005), plaintiffs that had
been terminated during a reduction in force brought a class action against their former
employer alleging age discrimination. The plaintiffs objected to the redacted form in which the
employer had disclosed spreadsheets containing the names of candidates for the reduction in
force. The employer had scrubbed metadata from the spreadsheets in addition to locking and
hiding certain data in the spreadsheets. The court held that because the court had repeatedly
stated that the spreadsheets were to be disclosed in the native format in which they were
maintained in the ordinary course of business, the spreadsheets should have been produced
with the relevant metadata intact. In addition, the court held that the employer could not
unilaterally and without notice lock data and cells within the spreadsheets as doing so was not
in the spirit of producing information as it was maintained in the ordinary course of business.
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G.
Court Disapproval of Data Degradation − In Re Verisign, Inc. Securities
Litigation, No. C 02-02270, 2004 WL 2445243 (N.D. Cal. March 10, 2004)
In In Re Verisign, Inc. Securities Litigation, No. C 02-02270, 2004 WL 2445243 (N.D. Cal. March 10,
2004), the defendants sought to produce hundreds of thousands of documents in Tagged
Image File Format (“TIFF”) despite the court’s previous order stating that the “’[p]roduction of
TIFF version alone is not sufficient,’ and that ’[t]he electronic version must include metadata as
well as be searchable.’” The defendants argued that converting the voluminous amount of
documents back to their .pst format (a Microsoft Outlook native email format) would be
extremely time-consuming, expensive, and burdensome. The court held that the documents
must be produced in their native .pst format. The court explained that the defendants had ample
notice of the production requests and that due to their noncompliance regarding a series of
court orders, the defendants “are solely at fault for their now inconvenient predicament.”
H.
Parties Have an Obligation to Notify the Opposition of Relevant Evidence
Not In Their Control or Possession − Silvestri v. General Motors Corp., 271
F.3d 583 (4th Cir. 2001)
While not specifically related to electronic evidence, the analysis is instructive for potential
spoliation claims regarding evidence not in possession of a litigating party.
In Silvestri v. General Motors Corp., 271 F.3d 583 (4th Cir. 2001), the plaintiff filed a products
liability claim against defendant when the airbag did not deploy as warranted in an automobile
crash. The court dismissed the claim because the car – “the sole piece of evidence in this case” –
was repaired four months after the accident but three years before the defendant was given
notice of the claim and an opportunity to inspect.
The plaintiff argued that because he was not the car’s owner and because he did not have
possession of the car that the spoliation claim should not be imputed to him. The court
disagreed. The court explained that the duty to preserve “extends to that period before the
litigation when a party reasonably should know that the evidence may be relevant to anticipated
litigation.”
More specifically, the court held that if “a party cannot fulfill this duty to preserve because he
does not own or control the evidence, he still has an obligation to give the opposing party
notice of access to the evidence or of the possible destruction of the evidence if the party
anticipates litigation involving that evidence.”
The court found that during the months before the car was repaired that the plaintiff had
sufficient access to the car in its damaged state to allow his attorney and his retained experts,
apparently hired for future litigation, “unlimited access to the vehicle for inspection purposes.”
The plaintiff also argued that dismissal was too harsh a sanction. However, in justifying the
dismissal of the case under these facts, the court determined that while the spoliation conduct
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may or may not have been so “egregious as to amount to a forfeiture of [the] claim, . . . the
effect of the spoliator's conduct was so prejudicial [to the defendant] that it substantially denied
the defendant the ability to defend the claim.”
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Christine A. Heinsz
- Associate
Christine focuses her practice in civil litigation,
particularly the defense of asbestos personal injury
matters, class actions, real estate litigation, and
employment-related disputes. Christine is responsible
for preparing numerous defense motions and, given
her business background in technology, handles many
of the firm's electronic discovery issues. In asbestos
matters, she regularly defends the firm's clients at
depositions of plaintiffs and co-workers.
Significant Cases
• Bowling & Amesquita v. Flavors of North
America v. Frutarom USA Mediation, 2nd Chair,
regarding products liability in popcorn lung
case.
Professional Associations
• Madison County Bar Association
• Illinois State Bar Association
• The Missouri Bar
• American Bar Association
Prior to receiving her law degree, Christine earned her
MBA from the University of Chicago and worked for
several years in the technology industry. During law
school, she clerked for the Missouri Office of the
Attorney General, Consumer Protection Division, and
for a St. Louis law firm assisting with products liability,
insurance and medical malpractice cases. Christine
was a member of the Law Review: Journal of Law and
Policy. She also participated in Moot Court and was a
member of the Trial and Advocacy Team. Christine
joined the firm's Edwardsville office as an associate in
August 2005.
Court Admissions
• State Courts of Illinois and Missouri
Education
• Juris Doctor, Washington University School of
Law, 2005
• Master of Business AdministrationMarketing/Finance, University of Chicago, 1985
• Bachelor of Science-Physical
Education/Mathematics (Cum Laude), Southern
Illinois University, 1973
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Learn more about our speakers at www.heylroyster.com
INSURANCE COVERAGE UPDATE Presented and Prepared by:
Gary D. Nelson
[email protected]
Peoria, Illinois • 309.676.0400
Prepared with the Assistance of:
Patrick D. Cloud
[email protected]
Edwardsville, Illinois • 618.656.4646
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
H-1
INSURANCE COVERAGE UPDATE
I.
DEFINITION OF INSURED ......................................................................................................................... H-4
A.
B.
C.
D.
II.
Landlord/Tenant: Hacker v. Shelter Ins. Co. ........................................................................ H-4
Definition of Residency: State Farm Fire and Cas. Co. v. Martinez............................. H-4
Definition of Ward: Clayton v. Millers First Ins. Co. .......................................................... H-5
Definition of Person: Supreme Laundry Service, LLC v. Hartford
Cas. Ins. Co. ..................................................................................................................................... H-5
SCOPE OF THE INSURING AGREEMENT ............................................................................................. H-6
A.
The Extent of Omnibus Coverage .......................................................................................... H-6
1.
2.
B.
C.
D.
E.
F.
G.
III.
State Farm Mut. Auto. Ins. Co. v. Enterprise Leasing Co.
of Chicago ........................................................................................................................ H-6
Zurich American Ins. Co. v. Key Cartage, Inc. ...................................................... H-6
Definition of Occurrence: Stoneridge Development Co. v. Essex Ins. Co. ................. H-7
Number of Occurrences/Burden of Proving Number: Addison
Ins. Co. v. Fay.................................................................................................................................. H-7
Definition of Loss: St. Paul Fire and Marine Ins. Co. v. Village of
Franklin Park .................................................................................................................................. H-8
Anti-Stacking Provisions: Progressive Premier Ins. Co. v. Cannon.............................. H-8
Scope of Professional Liability Coverage: Westport Ins. Corp.
v. Jackson Nat. Life Ins. Co......................................................................................................... H-8
Coverage for Spoliation of Evidence: United Fire & Cas. Co. v.
Keeley & Sons, Inc. ....................................................................................................................... H-9
CONDITIONS FOR COVERAGE ............................................................................................................ H-10
A.
B.
C.
Anti-Assignment Clauses: Cincinnati Ins. Co. v. American
Hardware Mfrs. Ass’n ................................................................................................................ H-10
Notice Provisions: West American Ins. Co. v. Yorkville Nat. Bank ........................... H-10
Voluntary Payments Clauses: Myoda Computer Center, Inc.
v. American Family Mut. Ins. Co. .......................................................................................... H-11
H-2
IV.
EXCLUSIONS ........................................................................................................................................... H-11
A.
B.
C.
D.
V.
Exclusions for Use of Automobile: State Farm Fire and Cas.
Co. v. Perez ................................................................................................................................... H-11
Mold Exclusion: DeVore v. American Family Mut. Ins. Co. ......................................... H-12
Entitlement Exclusions: Founders Ins. Co. v. Munoz ...................................................... H-12
Work by Contractors Exclusion: Nautilus Ins. Co. v. 1452-4 N.
Milwaukee Avenue, LLC ........................................................................................................... H-13
PROCEDURAL ISSUES ............................................................................................................................. H-13
A.
B.
C.
Conflict of Interest: Economy Fire & Cas. Co. v. Brumfield ......................................... H-13
Ripeness: Czapski v. Maher .................................................................................................... H-14
Determination of a Duty to Defend ................................................................................... H-15
1.
2.
VI.
American Economy Ins. Co. v. DePaul University ............................................ H-15
Clarendon America Ins. Co. v. BGK Sec. Services, Inc. .................................... H-15
SUBROGATION.......................................................................................................................................... H-16
A.
B.
Permissibility of Liens: Compton v. Country Mut. Ins. Co. ........................................... H-16
Common Fund Doctrine: Stevens v. Country Mut. Ins. Co. ......................................... H-16
VII.
SECTION 155: STATUTORY BAD FAITH: SIWEK V. WHITE ......................................................... H-17
VIII.
LACK OF DUTY TO SETTLE ON BEHALF OF NON-INSUREDS:
IOWA PHYSICIANS’ CLINIC MEDICAL FOUNDATION V.
PHYSICIANS INS. CO. OF WISCONSIN .......................................................................................... H-17
H-3
INSURANCE COVERAGE UPDATE
I.
DEFINITION OF INSURED
A.
Landlord/Tenant: Hacker v. Shelter Ins. Co.
In Hacker v. Shelter Ins. Co., No. 5-07-0387, 2009 WL 325549 (5th Dist. Feb. 10, 2009), a landlord
was the named insured under an Apartment Owners/Rental Dwelling Insurance Policy. “The
policy defined ’insured’ as ’the person(s) or organization named in the Declarations of the policy,
* * * the insured's spouse, * * * any person * * * acting as real estate manager for the insured,’
and ’any employee of the insured while acting within the scope of their duties.’” While visiting a
tenant at the landlord’s building, a guest fell on the stairway. The guest sued the landlord for
negligently “maintaining the stairway,” and the landlord filed a third-party complaint against the
tenant. The tenant sought a defense and indemnification under the Apartment Owners Policy
alleging that she qualified as an “insured.”
In the ensuing coverage litigation, the Appellate Court determined that the tenant fell outside of
the policy’s definition of an “insured” because the landlord was “the only person named as an
insured on the policy declarations page,” and the tenant did “not otherwise fit within the policy's
definition of ‘insured.’” Furthermore, the Court rejected an argument that the tenant was a coinsured under the policy as a matter of law by distinguishing this case from decisions extending
fire insurance coverage to tenants as a matter of law. The Court reasoned that fire insurance
“covers losses to the leased property, and it is 'common business practice' for landlords to
insure leased premises against fire.” Conversely, liability insurance "covers losses resulting from
an individual's liability to third parties," and it “is not common business practice for landlords to
insure their tenants against liability to third parties arising out of the tenant's negligence." As a
result, the tenant could not “reasonably expect to be considered an insured under a landlord's
liability insurance, particularly when there is no evidence of that intent in the parties' lease
agreement or in the language of the insurance policy."
B.
Definition of Residency: State Farm Fire and Cas. Co. v. Martinez
In State Farm Fire and Cas. Co. v. Martinez, 384 Ill. App. 3d 494, 893 N.E.2d 975, 323 Ill. Dec. 501
(1st Dist. 2008), the named insureds held legal title to a home and purchased property insurance
for the home, but never resided, or intended to reside, at the home. Rather, a relative of the
named insureds lived in the home with her own family. One day, a dog belonging to the
relative's family bit a child, and the child sued the relative. Personal liability coverage under the
named insureds' homeowners’ policy, however, only applied to relatives “if a resident of [the
named insureds’] household.” The Appellate Court found that no coverage existed for the
relative because the named insureds were not residents of the home. The Court reasoned that
The named insured] testified that he and his wife never lived or intended to live
at the [home], and no evidence was presented that the [relative] ever intended to
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live at the address where the [named insureds] maintained their household. The
evidence showed that at the time of the incident, the [relative] and [the named
insureds] maintained two separate and independent households each operating
as separate domestic units.
Id. at 500.
C.
Definition of Ward: Clayton v. Millers First Ins. Co.
In Clayton v. Millers First Ins. Co., 384 Ill. App. 3d 429, 892 N.E.2d 613, 322 Ill. Dec. 976 (5th Dist.
2008), the named insured’s auto policy provided uninsured motorist coverage and applied to
the “family members” of the named insured. The policy defined “family member” as “a person
related to you by blood, marriage, or adoption who is a resident of your household. This
includes a ward or foster child.” A minor lived with the named insured and was the son of the
named insured's fiancée. In 2002, the minor child was involved in a motor vehicle accident and
submitted an uninsured motorist claim under the auto policy. Although the named insured and
the minor were not related by blood, the named insured had lived at the same residence of the
minor since 1998, had “nurtured, cared, and provided for the support and upbringing of” the
minor, and “stated that his relationship with [the minor] was of a ‘parental nature.’” The auto
insurer denied coverage maintaining that the minor was not a "ward" of the named insured
because he had no legal guardianship over the minor.
In the coverage litigation, the Appellate Court extended coverage to the minor as a “ward.” It
reasoned that the term "ward" was ambiguous and not limited to the "legal definition" of ward.
According to the Court, Illinois courts had "recognized that the term 'ward' could be used to
describe a person despite no prior adjudication of that status." The Court also found that the
minor child and the named insured "could be seen" as having a “guardian/ward relationship”
because the child was a minor, he was financially dependent on the named insured, and the
named insured described their relationship as having “a parental nature.”
D.
Definition of Person: Supreme Laundry Service, LLC v. Hartford Cas. Ins. Co.
In Supreme Laundry Service, LLC v. Hartford Cas. Ins. Co., 521 F.3d 743 (7th Cir. 2008), the
insured’s CGL policy provided coverage for “personal and advertising injury,” which was defined
as “injury . . . arising out of . . . the wrongful eviction from, wrongful entry into, or invasion of the
right of private occupancy of a room . . . or premises that a person occupies.” The insured was
sued by a corporation and submitted the claim under the CGL policy as a “personal and
advertising injury.” The insurer refused to defend, asserting that the term “person” only applied
to a natural person and not a corporation.
After the insured brought an action for declaratory judgment against the insurer, the Seventh
Circuit found that the term “person” was ambiguous and that the insurer owed a defense.
According to the Seventh Circuit, “[t]he term ‘person’ [was] not defined by the policy, and Illinois
courts have held that if a term in a contract is undefined, a court should afford the term its
H-5
‘plain, ordinary and popular meaning . . . [as] derived from the term’s dictionary definition.’” The
Seventh Circuit found that the dictionary definition of “person” included a “corporation.” As
such, “the ‘personal and advertising injury’ provision [could] apply to both natural persons and
corporations which, at the very least, means that the use of ‘person’ in the policy is ambiguous.”
II.
SCOPE OF THE INSURING AGREEMENT
A.
The Extent of Omnibus Coverage
1.
State Farm Mut. Auto. Ins. Co. v. Enterprise Leasing Co. of Chicago
In State Farm Mut. Auto. Ins. Co. v. Enterprise Leasing Co. of Chicago, 386 Ill. App. 3d 945, 899
N.E.2d 408, 326 Ill. Dec. 191 (1st Dist. 2008), the insured’s personal vehicle was insured under an
owner’s policy. On vacation, the insured rented a vehicle from a rental agency and allowed a
permissive driver to operate the rental vehicle. The permissive driver was subsequently involved
in a single car accident and caused significant damage to the rental vehicle. The rental agency
asserted that the insured's policy covered the property damage because the policy was an
“owner's policy” under the Illinois Safety and Family Financial Responsibility Law (“Financial
Responsibility Law”) and the Financial Responsibility Law required omnibus coverage (i.e.
coverage for permissive drivers). The Appellate Court disagreed, finding that the language of the
Financial Responsibility Law required omnibus coverage only for vehicles owned by the insured.
In this case, the rental vehicle was not owned by the insured and, as such, omnibus coverage for
permissive users was not required. Furthermore, the Court reasoned that the Vehicle Code had a
separate chapter dealing with rental vehicles, and the “legislature's choice to treat the owned
vehicles separate from rental vehicles show[ed] that it did not intend for the Financial
Responsibility Law to be applicable to rental vehicles.”
2.
Zurich American Ins. Co. v. Key Cartage, Inc.
In Zurich American Ins. Co. v. Key Cartage, Inc., 386 Ill. App. 3d 1, 896 N.E.2d 400, 324 Ill. Dec. 614
(1st Dist. 2008), a commercial truck policy contained a reciprocal coverage provision which
excluded certain permissive users if the permissive user’s own policy did not provide coverage
to the named insured. After an accident involving a permissive driver implicated this policy, the
insurer disclaimed coverage arguing that the permissive driver had insufficient personal
coverage to qualify as an insured under the reciprocal coverage provision. It also asserted that
the reciprocal coverage provision did not violate the Illinois Vehicle Code or its definition of
“owner's policy” (which mandates coverage for permissive users) because interstate truckers
were exempt from these requirements under the Vehicle Code. The Appellate Court disagreed,
finding that commercial vehicles were not exempt from the omnibus coverage requirements of
an “owner’s policy” under the Insurance Code.
H-6
B.
Definition of Occurrence: Stoneridge Development Co. v. Essex Ins. Co.
In Stoneridge Development Co. v. Essex Ins. Co., 382 Ill. App. 3d 731, 888 N.E.2d 633, 321 Ill. Dec.
114 (2d Dist. 2008), the insured, a general contractor, had a CGL policy that only covered
“property damage” caused by an “occurrence.” The policy defined “occurrence” as “an accident.”
Two homeowners sued the insured "for damage to their townhome, allegedly caused by [the
insured's] construction of the residence on and/or near improperly compacted soil.” In
determining that the homeowner’s complaints were not covered, the Appellate Court found that
no occurrence happened because “damages that are the natural and ordinary consequences of
faulty workmanship do not constitute an ‘occurrence’ or ‘accident.’” The Court reasoned that
“the cracks that developed in [the home] were not an unforeseen occurrence that would qualify
as an 'accident,' because they were natural and ordinary consequences of defective
workmanship, namely, the faulty soil compaction. While defective workmanship could be
covered if it damaged something other than the project itself . . . in this case [the homeowners]
alleged damage only to the home.”
C.
Number of Occurrences/Burden of Proving Number: Addison Ins. Co. v. Fay
In Addison Ins. Co. v. Fay, No. 105752, 2009 WL 153859 (Jan. 23, 2009), two boys became
trapped in a flooded excavation pit. One died of hypothermia; the other drowned. Furthermore,
the boys went missing on April 30th, their bodies were found on May 3, and no one could
ascertain the time of death of either boy, how closely in time the boys had perished, or the
length of time between their respective entrapments. The business that operated the excavation
pit was insured under a policy with limits of one million dollars for each occurrence and two
million dollars in aggregate. The boys' families brought a claim against the business on the
grounds that it negligently failed to maintain the property - a negligent omission theory.
Although the insurer agreed to settle the claims for policy limits, the parties disputed whether
the boys' deaths constituted a single occurrence or two separate occurrences.
During the coverage litigation, the Supreme Court found that a time and space test was
appropriate to determine whether the two deaths constituted a single or multiple occurrences.
According to the Court, “[w]here negligence is the result of an ongoing omission rather than
separate affirmative acts, a time and space test effectively limits what would otherwise
potentially be a limitless bundling of injuries into a single occurrence.” Under a time and space
test, “if cause and result are simultaneous or so closely linked in time and space as to be
considered by the average person as one event, then the injuries will be deemed the result of
one occurrence.” The Court, however, also ruled that the insurer had the burden to prove that
two occurrences happened and found that, in this case, the insurer had insufficient evidence to
satisfy this burden.
H-7
D.
Definition of Loss: St. Paul Fire and Marine Ins. Co. v. Village of Franklin
Park
In St. Paul Fire and Marine Ins. Co. v. Village of Franklin Park, 523 F.3d 754 (7th Cir. 2008), an
insured, a municipality, had an insurance policy which required the insurer to provide a defense
“to defend any person against a claim or suit for loss covered by” the insurance contract. The
insured was sued for underfunding its firefighters’ pension plan over the course of the previous
thirty years. It submitted the claim to its insurer who denied that it fell within the scope of the
policy. In the ensuing coverage litigation, the Seventh Circuit, applying Illinois law, concurred. It
explained that “a settlement paid to remedy the failure to make required contributions to a
pension was not ‘loss’ because the money paid in the settlement was money the insured had no
‘right to possess in the first place.’” Put another way, “‘loss’ does not ‘include the restoration of
an ill-gotten gain.’”
E.
Anti-Stacking Provisions: Progressive Premier Ins. Co. v. Cannon
In Progressive Premier Ins. Co. v. Cannon, 382 Ill. App. 3d 526, 889 N.E.2d 790, 321 Ill. Dec. 525
(3d Dist. 2008), the insured owned two jet skis covered by the same watercraft policy. The
declarations page of the policy listed the premium owed for each jet ski but listed the per
person bodily injury limit of $100,000 only once at the bottom. Similarly, the watercraft policy
contained an anti-stacking provision stating that “[t]he bodily injury limit for ‘each person’
includes the total of all claims made for bodily injury and all claim of others derived from such
bodily injury.” Both jet skis collided in an accident that resulted in injuries to a girl, who with her
parents filed a claim against the operators of the jet skis. In the coverage litigation, the Court
determined that the policy limited recovery to a single per person limit of $100,000. The Court
reasoned that the anti-stacking provision was unambiguous. The Court also found that no
conflict existed between the declarations page and the anti-stacking clause. While the
declarations page listed the premiums owed for each jet ski separately, it only listed the per
person limits once.
F.
Scope of Professional Liability Coverage: Westport Ins. Corp. v. Jackson Nat.
Life Ins. Co.
In Westport Ins. Corp. v. Jackson Nat. Life Ins. Co., 387 Ill. App. 3d 408, 900 N.E.2d 377, 326 Ill.
Dec. 741 (2d Dist. 2008), the insured, an insurance agency, was sued in a class action for
transmitting unsolicited faxes advertising products sold by the insurance agency. The insured
submitted this claim under a professional liability policy entitled "Insurance Company Coverage
for Insurance Agents and Brokers Professional Liability." The insurer denied coverage, claiming
that the professional liability policy did not cover claims related to the unsolicited faxes. The
Appellate Court agreed, noting that “‘[t]o qualify as a professional service, the task must arise
out of acts particular to the individual's specialized vocation.’” The Court concluded that
advertisements were “merely an overture to potential customers,” that they “did not amount to
rendering a service as an insurance professional within the contemplation of the policy,” and
that “[n]o expertise was employed to help a particular customer purchase a particular product.”
H-8
G.
Coverage for Spoliation of Evidence: United Fire & Cas. Co. v. Keeley & Sons,
Inc.
In United Fire & Casualty Company v. Keeley & Sons, Inc., 381 Ill. App. 3d 1119, 887 N.E.2d 911,
320 Ill. Dec. 767 (5th Dist. 2008), the insured had a CGL policy which contained the following
language:
1.
Insuring Agreement
a.
We will pay those sums that the insured becomes legally obligated to pay
as damages because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies.
***
2.
Exclusions
This insurance does not apply to:
***
j.
Damage to Property
‘Property damage’ to:
(1) Property you own, rent, or occupy;
***
(4) Personal property in the care, custody[,] or control of the insured.
The policy defined “property damage” as “physical injury to tangible property” and “loss of use
of tangible property that is not physically injured.” Employees of the insured were injured when
they fell from an I-beam. The employees sued the insured for spoliation of evidence after the
insured allegedly destroyed the I-beam. The insured submitted the spoliation of evidence claims
to its CGL insurer, and the CGL insurer denied coverage.
In the resulting coverage litigation, the Appellate Court ruled that the spoliation claims against
the insured/employer were not covered. The Court found that the insured tried to characterize
the “property damage” in two different ways: 1) damage to the I-beam itself or 2) damage to the
employees’ cause of action against third-parties. The Court maintained that neither
characterization was covered by the policy. If the “property damage” is characterized as the
damage to the I-beam itself, then the claim fell within the policy’s “care, custody, or control”
exclusion. On the other hand, if the “property damage” is characterized as the damage to the
H-9
lawsuit, then the claim did not fall within the insuring agreement because, under the policy,
“[p]roperty damage is limited to damage to tangible property” and “[t]he damage to the cause
of action is not damage to tangible property.”
III.
CONDITIONS FOR COVERAGE
A.
Anti-Assignment Clauses: Cincinnati Ins. Co. v. American Hardware Mfrs.
Ass’n
In Cincinnati Ins. Co. v. American Hardware Mfrs. Ass’n, 387 Ill. App. 3d 85, 898 N.E.2d 216, 325 Ill.
Dec. 483 (1st Dist. 2008), the insured, who was covered under two separate liability policies, was
sued in a multi-count counterclaim, including claims for defamation and consumer fraud. After
one insurer refused to defend the insured in the counterclaim, the other insurer took an
assignment of the insured's rights against the insurer denying coverage for payment of defense
expenses incurred during the defense of the counterclaim. The policy of the insurer denying
coverage, however, contained an anti-assignment clause prohibiting assignment of rights under
the policy without its consent. In the resulting coverage litigation, the Court found that the
assignment was valid despite the anti-assignment clause. It reasoned that the assignment did
not require consent because it occurred after a claim arose under the policy and was for
proceeds under the policy. Thus, the assignment was an assignment of a chose in action which,
despite the presence of an anti-assignment clause, requires no consent.
B.
Notice Provisions: West American Ins. Co. v. Yorkville Nat. Bank
In West American Ins. Co. v. Yorkville Nat. Bank, No. 3-07-0104, 2009 WL 537174 (3d Dist. Feb.
27, 2009), the insured had a CGL policy requiring that the insured provide “written notice” of a
claim to the insurer “as soon as practicable” after the claim was made. In 2001, the insured was
sued. The insured contended that it provided the insurer with informal, oral notices of the claim
on five or six occasions between 2001 and 2004. It was uncontested, however, that the insured
did not provide “written notice” to the insurer until January 19, 2004 - 27 months after suit was
filed.
After the insurer denied coverage and a declaratory judgment action was filed, the Appellate
Court found that the insured had violated the notice provision and had forfeited coverage. It
ruled that notice provisions are enforceable and that failure by the insured to give reasonable
notice forfeits coverage, even if the insurer did not suffer prejudice. The Court determined that
the 27-month delay in giving written notice was unreasonable. Furthermore, the Court rejected
the insured's arguments that the informal contacts with the insurer satisfied the notice provision
by giving the insurer “actual notice.” According to the Court, the policy required “written notice,”
this provision was enforceable, written notice was not given for 27 months, and the substitution
of “actual notice” for “written notice” would be tantamount to improperly re-writing the
insurance contract.
H-10
C.
Voluntary Payments Clauses: Myoda Computer Center, Inc. v. American
Family Mut. Ins. Co.
In Myoda Computer Center Inc. v. American Family Mut. Ins. Co., No. 1-07-1915, 2009 WL 884902
(1st Dist. March 31, 2009), an insured was covered under an insurance policy with the following
voluntary payments clause within its liability coverage:
If there is an occurrence or offense that may be covered under Section II which
may lead to a claim or suit being made against you . . .
***
h. Do not make any payment or accept any financial obligations without our
authorization. If you do, we may not reimburse you, even if the cost is otherwise
covered by this policy.
After the insured was subsequently sued in a trademark infringement case, the insurer agreed to
pay the insured’s defense costs but, due to a potential conflict of interest, allowed the insured to
choose its own independent counsel. The insurer, however, reserved its right to later deny
coverage. As the trademark infringement case progressed, the insured had an opportunity to
settle for $50,000 – an amount within its policy limits. Although the insurer refused to consent to
the settlement, the insured proceeded to settle the case. After the settlement, the insurer filed a
declaratory judgment action seeking a declaration that the insured was not entitled to
indemnification because it had breached the voluntary payment clause.
The Appellate Court disagreed with the insurer’s position. It reasoned that the settlement did
not prejudice the insurer’s rights to pursue its coverage defenses. Likewise, because the insurer
had “surrendered the defense [of the case] to [the insured’s] independent legal counsel and
therefore no longer had control over the course of the litigation,” “a reasonable settlement by
the insured should not prevent an action for (in opposition to) indemnification.”
IV.
EXCLUSIONS
A.
Exclusions for Use of Automobile: State Farm Fire and Cas. Co. v. Perez
In State Farm Fire and Cas. Co. v. Perez, 387 Ill. App. 3d 549, 899 N.E.2d 1231, 326 Ill. Dec. 580
(1st Dist. 2008), the insured had a homeowner's policy that excluded coverage for “bodily injury
or property damage arising out of the ownership, maintenance, use, loading, and unloading of
. . . a motor vehicle owned or operated by or rented or loaned to any insured.” The insured was
driving his personal vehicle when he was involved in an accident which injured his passengers.
The passengers sued the insured, alleging that his negligent modification and alteration of the
vehicle made it unsafe for use. The claim was submitted to the home-owners insurer, and it filed
an action for declaratory judgment.
H-11
In the declaratory judgment action, the Appellate Court found that the passengers’ complaint
fell “squarely under the ‘use of a motor vehicle’” language of the exclusion. According to the
Court, the negligent modification claim “arose from injuries . . . sustained while the car was
being used in a manner consistent with its customary use.” Furthermore, the modification only
created a risk when the “car was in motion and used as a mode of transportation - an actual
legitimate purpose of the car contemplated by the parties to the insurance contract.” Finally,
“the negligent modification claim was only a rephrasing of the fact that [the passengers’] injuries
arose out of [the insured's] use of the car and, thus, was not wholly independent of the
negligent operation of the car.”
B.
Mold Exclusion: DeVore v. American Family Mut. Ins. Co.
In DeVore v. American Family Mut. Ins. Co., 383 Ill. App. 3d 266, 891 N.E.2d 505, 322 Ill. Dec. 490
(2d Dist. 2008), homeowners had an insurance policy with the following exclusion:
We do not cover loss to the property *** resulting directly or indirectly from or
caused by one or more of the following. Such loss is excluded regardless of any
other cause or event contributing concurrently or in any sequence to the loss.
***
6. Other Causes of Loss: *** (c) smog, rust, frost, condensation, mold, wet or dry
rot.
While the homeowners were away, a valve burst, and water damaged the home. During the
repairs, the insurer refused to pay "for services related to the removal of 'mold and/or its
containment'" based on the aforementioned mold exclusion. In the subsequent coverage
litigation, the Appellate Court found that the mold exclusion was clear and unambiguous and,
thus, precluded coverage. Moreover, the Court rejected making a distinction adopted in other
jurisdictions between mold resulting from an otherwise covered event and mold being the
independent cause of damage. The Court concluded that the "language [of the exclusion was]
clear and unambiguously indicat[ed] that a loss from mold from any cause at any time is
excluded."
C.
Entitlement Exclusions: Founders Ins. Co. v. Munoz
In Founders Ins. Co. v. Munoz, Nos. 1-07-0792, 1-08-0208, 1-08-0415, 1-08-2042, 1-08-2059, and
1-08-2283, 2009 WL 839946 (1st Dist. March 27, 2009), the insurers’ policies contained an
exclusion stating that liability coverage did not apply “to bodily injury or property damage
arising out of the use by any person of a vehicle without a reasonable belief that the person is
entitled to do so.” The appeal itself was a consolidation of a number of declaratory judgment
actions involving permissive drivers who lacked valid driver licenses at the time of their
accidents. The insurers took the position that the entitlement exclusion precluded coverage
H-12
because drivers without valid driver’s licenses had no reasonable belief that they were entitled to
operate the vehicle. The Appellate Court, however, found the term “entitle” ambiguous.
According to the Court, a reasonable interpretation of “entitle” could mean having the
permission of the vehicle’s owner. As a consequence, the Court construed the exclusion in favor
of the insureds and found that “although coverage [under the exclusion] is excluded for persons
using the insured vehicle without a reasonable belief that he or she was a permissive driver, the
exclusion does not necessarily encompass unlicensed drivers.”
D.
Work by Contractors Exclusion: Nautilus Ins. Co. v. 1452-4 N. Milwaukee
Avenue, LLC
In Nautilus Ins. Co. v. 1452 N. Milwaukee Avenue, LLC, No. 07-3147, 2009 WL 922818 (7th Cir.
April 7, 2009), a property owner was insured under a CGL policy that contained a contractorsubcontractor exclusion which excluded “property damage ‘arising out of operations performed
. . . by contractors or subcontractors’” and “damage arising out of [the property owner’s] own
‘acts or omissions in connection with [its] general supervision of such operations.’” The property
owner hired contractors to perform excavation work on its property, and the excavation work
caused property damage to the adjacent property. The adjacent property owners sued the
insured under various theories of relief, including an alleged violation of 765 ILCS 140/1. 765
ILCS 140/1 requires that a property owner “intending to make or to permit an excavation to be
made on his land shall give due and reasonable notice in writing to the owner or owners of
adjoining lands.” The CGL insurer filed a complaint for declaratory judgment alleging that it had
no duty to defend. The insured opposed the complaint arguing that the statutory claim against
landowner implicated a duty independent of claims related to its hiring and supervision of the
subcontractors.
The Seventh Circuit, deciding the case under Illinois law, agreed with the insurer and found that
the exclusion precluded coverage. According to the Seventh Circuit, “[w]hile it is true that the
statutory duty of the property owner is independent of the duties of contractors and
subcontractors, there is no separate or independent compensable injury; a failure to comply
gives rise to liability for any property damage ‘arising from’ the excavation.” As a consequence,
“the statutory claims in the underlying complaints seek recovery for the same loss as all the
other claims the property damage arising out of the faulty excavation performed by [the
insured’s] contractors and subcontractor – and coverage for that property damage is excluded
by the contractor-subcontractor exclusion.”
V.
PROCEDURAL ISSUES
A.
Conflict of Interest: Economy Fire & Cas. Co. v. Brumfield
In Economy Fire & Cas. Co. v. Brumfield, 384 Ill. App. 3d 726, 894 N.E.2d 421, 323 Ill. Dec. 654
(4th Dist. 2008), the son of the named insured was involved in an accident while operating the
named insured's vehicle without permission. After the son was sued in a personal injury action,
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the insurer filed a declaratory judgment action asserting that the son was not a permissive driver
and, thus, not covered. The insurer did not provide a defense to the son. After the filing of the
declaratory judgment action, an amended complaint was filed against both the named insured
and his son adding a theory that the named insured had negligently entrusted his vehicle to his
son. In the declaratory judgment action, the named insured and his son argued that the insurer
had breached its duty to defend to the son because the amended complaint created a conflict
of interest between the son and the insured and insurer, and the insurer failed to advise the son
that he was entitled to independent counsel.
The Appellate Court dismissed these arguments. It stated that an insurance company has two
distinct options when a complaint alleges potential coverage: 1) defend under a reservation of
rights or 2) file a declaratory judgment. When the suit was brought against the son, the insurer
properly filed an action for declaratory judgment. Furthermore, even when the amended
complaint was filed, no conflict between the insurer and the son of the named insured existed
because the insurer had already properly declined coverage, filed an action for declaratory
judgment, and was not controlling or participating in the defense of the son.
B.
Ripeness: Czapski v. Maher
In Czapski v. Maher, 385 Ill. App. 3d 861, 896 N.E.2d 394, 324 Ill. Dec. 608 (1st Dist. 2008), an
individual was test-driving a vehicle when he was involved in an accident. The dealership held
three policies relevant to the case: 1) a garage policy, 2) a commercial umbrella policy, and 3) a
commercial excess policy. The insurer which had issued the garage policy did not dispute that
the test-driver was an "insured" under its policy and provided a defense to the test-driver in
lawsuits filed by those injured in the accident. The insurers which issued the commercial
umbrella policy and commercial excess policy denied coverage to the test-driver on the grounds
that, as a "customer," the test driver was excluded under the policy. The personal injury plaintiffs
suing the test-driver filed a declaratory judgment action against the insurers denying coverage.
Because the garage policy insurer was providing a defense, the declaratory judgment action
only concerned whether the excess insurers had a duty to indemnify.
The Appellate Court held that the declaratory judgment against the insurers was not ripe. It
found that the declaratory judgment actions “concern[ed] only the duty to indemnify.”
According to the Court, “‘whether the insurer has a duty to indemnify the insured for a particular
liability is only ripe for consideration if the insured has already incurred liability in the underlying
claim against it.’” In this case, because there had been no "determination of liability" of the
insured, a decision concerning whether the excess insurers had a duty to indemnify was
premature.
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C.
Determination of a Duty to Defend
1.
American Economy Ins. Co. v. DePaul University
In American Economy Ins. Co. v. DePaul University, 383 Ill. App. 3d 172, 890 N.E.2d 582, 321 Ill.
Dec. 860 (1st Dist. 2008), an electrical contractor had an insurance policy which included as
additional insureds “the person or organization shown in the Schedule but only with respect to
liability arising out of ‘your work’ for that insured by or for you.” The electrical contractor was
hired to install lighting for a building constructed by a university and, during the course of its
work, added the university to its policy pursuant to the aforementioned language. During its
work, the insured selected and installed unshielded fluorescent lighting. After construction, an
individual who worked at the building became ill, blamed her illness on the unshielded
fluorescent lighting, and sued the university for negligence. The Complaint did not mention the
electrical contractor, but the university filed a third-party action against the contractor alleging
that it installed the injury-causing light fixtures. After the university submitted the claim to the
insurer, the insurer filed a declaratory judgment action asserting that it had no duty to defend
because the underlying complaint against the university did not mention the electrical
contractor and did not trigger the additional insured provisions of the policy.
The Appellate Court disagreed and found that a duty to defend existed. It determined that
“consideration of a third-party complaint in determining a duty to defend is in line with the
general rule that a trial court may consider evidence beyond the underlying complaint if in
doing so the trial court does not determine an issue critical to the underlying action.”
Consequently, a court can “consider all the relevant facts contained in the pleadings, including a
third-party complaint, to determine whether there is a duty to defend.” Furthermore, even
though the university supplied the facts of the third-party complaint, the Court also noted that a
duty to defend existed because "true and unpleaded facts" that did not come from the potential
insured raised the possibility of coverage.
2.
Clarendon America Ins. Co. v. BGK Sec. Services, Inc.
In Clarendon American Ins. Co. v. BGK Sec. Services, Inc., 387 Ill. App. 3d 697, 900 N.E.2d 385, 326
Ill. Dec. 749 (1st Dist. 2008), the insured, a security firm, had a CGL policy excluding coverage for
liability arising from undisclosed joint ventures. After a fire occurred at a premises where the
insured and another security firm provided security services, 22 lawsuits were filed against the
insured and the other security firm. The insured tendered its defense to its CGL carrier, and the
CGL carrier denied coverage contending that the complaints arose from an undisclosed joint
venture and thus were not covered. The CGL carrier filed a declaratory judgment action, during
which it sought a finding that the insured and the other security firm had entered into an
undisclosed joint venture − a contention denied by the insured. To support this finding, the CGL
carrier wished to introduce extrinsic evidence.
The Appellate Court prohibited the CGL carrier from pursuing its declaratory judgment until the
resolution of the underlying case. It reasoned that a court cannot consider extrinsic evidence to
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rule that no duty to defend exists where the extrinsic evidence “involves an ‘ultimate fact.’” An
ultimate fact is one “that ‘would estop the plaintiff in the underlying case from pursuing one of
his theories of recovery’ or one in which ‘an issue crucial to the insured’s liability’ in the
underlying case is determined.” In this case, the Court found that proving a joint venture
between the insured and the other security firm would "clearly impact" the insured's liability in
the underlying litigation by arguably making the insured and the other security firm liable for
each other’s actions.
VI.
SUBROGATION
A.
Permissibility of Liens: Compton v. Country Mut. Ins. Co.
In Compton v. Country Mut. Ins. Co., 382 Ill. App. 3d 323, 887 N.E.2d 878, 320 Ill. Dec. 734 (1st
Dist. 2008), a policy provided for reimbursement to the insurer for benefits paid under the policy
through various provisions, including a provision stating that, “[i]f we make a payment under
this policy . . ., and the person to or for whom payment was made recovers damages from
another, that person must hold the proceeds of the recovery in trust for us and must reimburse
us to the extent of our payment.” After the insurer paid benefits resulting from an accident, it
filed a lien with the tortfeasor's insurer. In response, the insured filed a claim against the insurer
for breach of contract and consumer fraud asserting that the policy did not authorize the insurer
to assert a lien. The trial court dismissed the claim, and the Appellate Court affirmed reasoning
that the provision of the policy quoted above permitted the filing of a lien.
B.
Common Fund Doctrine: Stevens v. Country Mut. Ins. Co.
In Stevens v. Country Mut. Ins. Co., No. 4-08-0216, 2008 WL 5473299 (4th Dist. Dec. 31, 2008), the
insured had a policy which provided $100,000 in underinsured motorist benefits and med-pay
benefits. The policy also contained a subrogation agreement and set-off provisions for the
underinsured motorists reducing the benefit by paid med-pay benefits and the amount paid by
any responsible party. After the insured was involved in an accident, the insurer paid $20,000 in
med-pay benefits and asserted a subrogation lien in that amount. The insured hired a lawyer
who settled with the underinsured tortfeasor for the tortfeasor's policy limits of $50,000. In
paying the underinsured motorist benefits, insurer and the insured disagreed over whether the
insurer needed to reduce its med-pay benefits lien pursuant to the common-fund doctrine. The
common-fund doctrine permits “someone who is not a party to the contractual agreement
between, for example, an insured and his insurer, to recover an unpaid debt-namely, a
reasonable fee in quantum meruit for legal services rendered.”
The Appellate Court found that the common-fund doctrine applied and reduced the lien. It
reasoned that “(1) [the insured] sustained injuries resulting from an automobile collision . . ., (2)
[the insurer] paid $20,420.60 to [the insured] under the terms of its medical-payment coverage
policy, (3) thereafter, [the insured's attorney] pursued [the tortfeasor’s] insurance company [for]
damages on [the insured’s] behalf, (4) [the attorney] created a $50,000 common fund as the
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result of his legal services, and (5) [the insurer] did not participate in the creation of the common
fund.” In a dissent, however, the dissenting judge criticized the majority for failing to account for
the fact that the policy's set-off provisions provided for the insurer to recoup the med-pay
benefits “from the reduction of its liability under the underinsured-motorist coverage, not by
way of reimbursement from any funds generated by plaintiff's counsel's efforts.”
VII.
SECTION 155: STATUTORY BAD FAITH: SIWEK V. WHITE
In Siwek v. White, No. 1-07-2600, 2009 WL 528934 ( 1st Dist. Feb. 27, 2009), after the insured was
involved in an automobile accident, she reported her claim to the Illinois Department of
Transportation (IDOT) advising IDOT of the identity of her insurer. The insurer responded by
informing IDOT that the insured's policy had been cancelled, and IDOT certified the insured to
the Secretary as a driver involved in an accident who had failed to maintain required coverage.
The Secretary of State issued a notice of suspension of the insured's driving privileges. The
insured then requested an administrative hearing on the notice of suspension and filed a
declaratory judgment action against the insurer asserting that coverage existed on the day of
the accident. During the declaratory judgment action, the insurer filed a number of affirmative
defenses, which were stricken and eventually dismissed with prejudice. After insurer's affirmative
defenses had been stricken with prejudice, it sent the insured a letter advising her that “although
[the insurer] does not agree with the ruling to strike the affirmative defenses, they are not going
to appeal the decision and will agree to defend and indemnify . . . pursuant to the terms of the
policy.”
After receiving the correspondence admitting coverage, the insured sought attorneys' fees and
costs pursuant to section 155 of the Insurance Code, which the trial court allowed. On appeal,
the Appellate Court affirmed the award of section 155 damages, finding that the insurer’s
incorrect notification of no coverage to IDOT forced the insured to pursue a declaratory
judgment action to correct the error and avoid suspension of her license. Furthermore, the
insurer had asserted a number of affirmative defenses over the two-year course of the litigation,
which had all been stricken and, eventually, with prejudice.
VIII.
LACK OF DUTY TO SETTLE ON BEHALF OF NON-INSUREDS: IOWA PHYSICIANS’
CLINIC MEDICAL FOUNDATION V. PHYSICIANS INS. CO. OF WISCONSIN
In Iowa Physicians’ Clinic Medical Foundation v. Physicians Ins. Co. of Wisconsin, 547 F.3d 810 (7th
Cir. 2008), a clinic was the policyholder of a professional liability policy but a doctor at the clinic
was the only insured under the policy. Both the physician and the clinic were sued in a
malpractice lawsuit. The professional liability insurer provided a defense to the physician.
Because it was only the policyholder and not an insured, the clinic retained its own counsel. The
insurer had the opportunity to settle the malpractice case within policy limits at different times
during the case; it, however, declined to settle. The malpractice case went to trial and resulted in
an excess verdict against the physician and the clinic.
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After the trial, the clinic sued the insurer for bad faith failure to settle. Interpreting Illinois law,
the Seventh Circuit ruled that an insurer’s duty to settle in good faith did not extend beyond its
insureds. First, the court reasoned that an insurer’s good faith duty to settle “is designed to
protect the bargain embodied in an insurance contract” – i.e. insurance coverage. The clinic was
not an insured under the contract and, thus, had no legitimate expectation of coverage.
Furthermore, the Court explained that “the duty to settle is predicated on the ‘insurer’s exclusive
control over settlement negotiations and defense of litigation.’” Because it was not an insured,
however, the clinic was providing for its own defense, had its own lawyers, and had the ability to
settle the lawsuit if it wished.
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Gary D. Nelson
- Partner
Gary is the Chair of our state-wide Insurance
Coverage Practice Group, as well as the Truck/Motor
Carrier Litigation Practice Group. He began his legal
career with Heyl Royster in 1977 in the Peoria office.
He concentrates his practice on liability insurance
coverage cases for CGL, umbrella/excess, automobile,
home, life, health and disability policies, as well as civil
litigation in trial and ADR settings with a special focus
on trucking and common carrier disputes,
construction litigation, and architect/engineer
professional liability claims.
•
reconstruction testimony that the semi was
parked in the travel portion of the interstate.
Obtained summary judgment for a design
engineering firm in multiple wrongful death
claims arising out of an accident during the
repair of a bridge over the Illinois River.
Professional Recognition
• Martindale-Hubbell AV Rated
• Selected as a Leading Lawyer in Illinois. Only
five percent of lawyers in the state are named
as Leading Lawyers.
• Named to the Illinois Super Lawyers list (20082009). The Super Lawyers selection process is
based on peer recognition and professional
achievement. Only five percent of the lawyers
in each state earn this designation.
• Illinois State Bar Association, Past Chair,
Insurance Law Section Council
• American Bar Association, Past Chair, SelfInsurers & Risk Managers Committee
• American Bar Association, Past Chair, Insurance
Law Coverage Committee
• Illinois Association of Defense Trial Counsel,
Past Chair, Insurance Coverage Committee
• Abraham Lincoln American Inn of Court
(Master)
He has represented more than 100 insurers and selfinsureds in over 1,000 cases in his career.
Gary has litigated a wide range of coverage issues in
both the state and federal courts, including the
defense of insurance carriers in bad faith and
vexatious refusal to pay cases. He has also had the
opportunity to represent several trucking companies
and construction companies in catastrophic injury
cases, utilizing accident reconstruction and animation
techniques, defending against fatigue, distraction, and
conspicuity issues, as well as the medical and
biomechanical issues confronted in those types of
catastrophic injury cases.
Gary is a frequent speaker on insurance issues to bar
and industry groups, both in Illinois and nationally, as
well as addressing motor carrier groups and counsel
and design professionals on issues unique to those
industries. He has authored a chapter on "Other
Insurance" in The Law & Practice of Insurance
Coverage Litigation published by West Group and has
published a chapter on "The Intentional Act Exclusion"
in the Illinois Institute of Continuing Legal Education
handbook on Commercial and Professional Liability
Insurance.
Professional Associations
• Federation of Defense and Corporate Counsel
• Defense Research Institute
• Illinois Association of Defense Trial Counsel
• Trucking Industry Defense Association
• American Bar Association
• Illinois State Bar Association
• Peoria County Bar Association
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois (trial bar)
• United States Courts of Appeals, Seventh
Circuit
• United States Supreme Court
Gary served in the U.S. Army in Korea from 1972-1974.
Significant Cases
• Obtained summary judgment for a design
engineer in construction injury claims in the
construction of a nuclear power facility.
• Successfully defended national trucking firm
and driver in catastrophic injury claim when
client driver struck the rear of a parked tractortrailer unit by demonstrating through accident
Education
• Juris Doctor, University of Illinois, 1977
• Bachelor of Arts-Political Science, University of
Illinois, 1974
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Learn more about our speakers at www.heylroyster.com
WHAT’S ON THE HORIZON? CASES PENDING IN THE ILLINOIS SUPREME COURT Presented and Prepared by:
Karen L. Kendall
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
I-1
WHAT’S ON THE HORIZON?
CASES PENDING IN THE ILLINOIS SUPREME COURT
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the March 2009 Term ............................................................................................................................................ I-3
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the January 2009 Term.......................................................................................................................................... I-3
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the November 2008 Term ................................................................................................................................... I-5
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the September 2008 Term ................................................................................................................................... I-7
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the January 2008 Term.......................................................................................................................................... I-9
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the September 2007 Term .................................................................................................................................I-10
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the November 2006 Term .................................................................................................................................I-12
I-2
WHAT’S ON THE HORIZON?
CASES PENDING IN THE ILLINOIS SUPREME COURT
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the March 2009 Term
Interstate Scaffolding, Inc. v. Illinois Workers’ Compensation Commission
S. Ct. Docket No.:
107852
Appellate Citation:
385 Ill. App. 3d 1040, 896 N.E.2d 1132, 324 Ill. Dec. 913 (3d Dist.
2008)
Topic:
Workers’ Compensation
Issue Presented:
Whether an employee is entitled to continued receipt of TTD benefits after the employee was
terminated for defacing company property during the time when the employee had been
performing light-duty work after sustaining a work-related injury.
Appellate Court Decision:
The Appellate Court reversed the decision of the commission and the trial court, finding that the
employee was not entitled to collect TTD benefits after he voluntarily removed himself from the
workplace for reasons unrelated to the injury. Two justices dissented finding that the majority
had announced a new principle which provides that the temporary disability benefits may be
discontinued where an employee who, upon returning to light duty or to a rehabilitation
assignment, is terminated from the workforce as a result of his volitional acts of conduct or
misconduct that are unrelated to his disabling condition.
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the January 2009 Term
Keener v. City of Herrin
S. Ct. Docket No.:
107658
Appellate Citation:
385 Ill. App. 3d 545, 895 N.E.2d 1141, 324 Ill. Dec. 426 (5th Dist.
2008)
Topic:
Immunity
I-3
Issue Presented:
Whether the trial court properly dismissed the plaintiff’s action alleging willful and wanton
misconduct on the part of the defendant-police department where the plaintiff’s decedent was
killed by a vehicle while walking home intoxicated from the police station after having been
arrested and released on a charge of underage consumption of alcohol.
Appellate Court Decision:
The Appellate Court reversed the trial court’s dismissal of the plaintiff’s action rejecting the
defendant’s argument that it was entitled to absolute immunity pursuant to sections 4-102 and
4-107 of the Tort Immunity Act.
De Bouse v. Bayer A.G.
S. Ct. Docket No.:
107528
Appellate Citation:
385 Ill. App. 3d 812, 896 N.E.2d 882, 324 Ill. Dec. 806 (5th Dist.
2008)
Topic:
Consumer Fraud Act
Issue Presented:
Whether an Illinois consumer who purchased a pharmaceutical product that was later withdrawn
from the market because it was deemed unsafe could maintain a cause of action under the
Illinois Consumer Fraud Act even though the manufacturer did not engage in direct
communication or advertisement with the consumer.
Appellate Court Decision:
The Appellate Court found that the consumer could maintain the cause of action where the
allegations concerned indirect deception by silent concealment. The defendants argued that any
alleged deceptive advertising could not be a proximate cause of the damages unless the
plaintiffs were actually deceived by any misrepresentation. One justice dissented.
Zurich American Insurance Co. v. Key Cartage, Inc.
S. Ct. Docket No.:
107472
Appellate Citation:
386 Ill. App. 3d 1, 896 N.E.2d 400, 324 Ill. Dec. 614 (1st Dist. 2008)
Topic:
Insurance
Issue Presented:
Whether the trial court properly granted the plaintiff-insurance company’s motion for summary
judgment in an action seeking a declaration that it did not owe a primary duty to defend and
indemnify a third party who borrowed a truck from the lessee (who was the named insured on
the policy) and who was in an accident while using the truck.
Appellate Court Decision:
The Appellate Court reversed the trial court and found that omnibus insurance coverage as
required by section 7-317(b)(2) of the family responsibility law applied to the entire Illinois
I-4
vehicle code including the commercial transportation law governing motor carriers and that the
plaintiff’s reciprocal coverage clause that precluded coverage for permissive users of the truck
was void as against public policy.
Solon v. Midwest Medical Records Ass’n, Inc.
S. Ct. Docket No.:
107719
Appellate Citation:
386 Ill. App. 3d 78, 898 N.E.2d 207, 325 Ill. Dec. 474 (1st Dist. 2008)
Topic:
Medical Records
Issue Presented:
Whether the trial court properly denied defendant’s motion to dismiss plaintiff’s action alleging
that the defendant’s policy of charging a flat $20 handling fee in processing requests for copies
of medical records violated sections 8-2001 and 8-2003 of the Code of Civil Procedure.
Appellate Court Decision:
The Appellate Court rejected the defendant’s claim that it is per se reasonable for healthcare
providers, through defendant services, to charge a flat $20 fee to process requests for copies of
medical records even though said fee was within the maximum amount allowed to be charged
under the statute. One justice dissented.
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the November 2008 Term
Turner v. Memorial Medical Center
S. Ct. Docket No.:
107317 (Oral Argument March 17, 2009)
Appellate Citation:
No. 4-07-0934 (4th Dist. 2008) Rule 23 Order
Topic:
Retaliatory Discharge
Issue Presented:
Whether the trial court properly dismissed for failure to state a cause of action the plaintiff’s
lawsuit alleging that he was terminated in retaliation for informing the Joint Commission of
Accreditation of Healthcare Organization that the defendant’s charting practices were different
from the JCAHO’s recommended standards.
Appellate Court Decision:
The Appellate Court affirmed the dismissal of plaintiff’s amended complaint by the trial court.
The Appellate Court ruled that the plaintiff’s report did not concern his social rights, duties and
responsibilities so as to render his termination an exception to the employment at will doctrine.
The plaintiff had argued that his termination violated public policy.
I-5
Green v. Rogers
S. Ct. Docket No.:
107129
Appellate Citation:
384 Ill. App. 3d 946, 895 N.E.2d 647, 324 Ill. Dec. 152 (2d Dist.
2008)
Topic:
Defamation
Issue Presented:
Whether the trial court properly dismissed plaintiff’s defamation per se action arising out of
alleged negative statements that the defendant allegedly made to the Little League organization
and community with respect to plaintiff’s application to become a coach.
Appellate Court Decision:
The Appellate Court partially reversed the trial court finding that the alleged statements, that the
plaintiff had exhibited a long pattern of misconduct with children and that the plaintiff abused
players, coaches and umpires, stated a claim for defamation per se because the statements were
prejudicial to the plaintiff in both his dental and legal professions. The defendant had argued
that the dismissal was appropriate because the plaintiff failed to allege the precise words used
by the defendant.
Thornton v. Garcini
S. Ct. Docket No.:
107028
Appellate Citation:
382 Ill. App. 3d 813, 888 N.E.2d 1217, 321 Ill. Dec. 284 (3d Dist.
2008)
Topic:
Expert Witness
Issue Presented:
Whether the record contained sufficient evidence to support the jury’s verdict in favor of the
plaintiff in an action alleging negligent infliction of emotional distress arising out of the death of
the plaintiff’s son during childbirth.
Appellate Court Decision:
The Appellate Court found that, unlike medical malpractice claims, expert testimony was not
necessary to establish the severity of the plaintiff’s distress. The defendant had argued that
expert testimony was necessary to prove the claim.
Slovinski v. Elliott
S. Ct. Docket No.:
107146
Appellate Citation:
No. 1-05-0423 (1st Dist. 2008) Rule 23 Order
Topic:
Damages
I-6
Issue Presented:
Whether the Appellate Court properly reduced the jury’s $2 million punitive damage award in a
defamation action to $81,680 which represented the same amount awarded by the jury as
compensatory damages. The basis of the defamation action was the plaintiff’s contention that
the defendant had defamed him by stating, among other things, that the plaintiff was not doing
his job, was coming in late and leaving early, and was spending his time chasing women all day.
Appellate Court Decision:
The jury had originally awarded the plaintiff $2 million in punitive damages which the trial court
reduced to $1 million. The Appellate Court found that $1 million in punitive damages was
excessive. One justice dissented stating that he would affirm the original remittitur of the trial
court.
Lazenby v. Mark’s Construction Company, Inc.
S. Ct. Docket No.:
107192
Appellate Citation:
No. 1-06-2969 (1st Dist. 2008) Rule 23 Order
Topic:
Negligence
Issue Presented:
Whether the trial court properly denied the plaintiff’s motion for judgment n.o.v. in an action
seeking recovery for injuries sustained while the plaintiff-firefighter was responding to a fire on
the defendants’ construction project.
Appellate Court Decision:
The Appellate Court affirmed the trial court’s denial of the plaintiff’s motion for judgment n.o.v.
finding that the matter was properly resolved by the jury where the record contained conflicting
evidence as to the proximate cause of the plaintiff’s injuries, as well as allegations of negligence
asserted by each party against others as to the cause of the plaintiff’s injuries. The plaintiff had
argued that the defendant had admitted negligence by failing to barricade the floor opening.
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the September 2008 Term
Doe A. v. Diocese of Dallas
S. Ct. Docket No.:
106546
Appellate Citation:
379 Ill. App. 3d 782, 885 N.E.2d 376, 319 Ill. Dec. 105 (5th Dist.
2008)
Topic:
Statute of Limitations
I-7
Issue Presented:
Whether the trial court properly dismissed as time-barred the plaintiff’s complaint alleging that
he was sexually abused in 1984 by a Catholic priest at a time when other allegations of sexual
misconduct had been lodged against the priest.
Appellate Court Decision:
The Appellate Court reversed the trial court and agreed with the plaintiff that the 2003
amendment to the applicable statute of limitations, 735 ILCS 5/13-202.2, could be applied
retroactively to revive the plaintiff’s stale claim since the plaintiff alleged that the instant lawsuit
was filed within five years of discovery that his injuries had been caused by sexual abuse that
allegedly occurred in his childhood. One justice dissented.
Beelman Trucking v. Illinois Workers’ Compensation Commission
S. Ct. Docket No.:
106680 (Oral Argument, March 12, 2009)
Appellate Citation:
381 Ill. App. 3d 701, 886 N.E.2d 479, 319 Ill. Dec. 716 (5th Dist.
2008)
Topic:
Workers’ Compensation
Issue Presented:
Whether the commission properly awarded benefits for specific losses to each of the claimant’s
arms under section 8(e)(1) in conjunction with the statutory permanent total disability award
under section 8(e)(18) where the claimant’s injuries were incurred in a single accident.
Appellate Court Decision:
The Appellate Court reversed the commission and found that the commission did not have the
power to award benefits for specific losses of permanent partial disability and permanent total
disability resulting from the same accident.
American Economy Insurance Co. v. DePaul University
S. Ct. Docket Nos.:
106517, 106831 (cons.)
Appellate Citation:
383 Ill. App. 3d 172, 890 N.E.2d 582, 321 Ill. Dec. 860 (1st Dist.
2008)
Topic:
Insurance
Issue Presented:
Whether the trial court properly found that the plaintiff-insurance company had a duty to
defend the defendants (as additional insureds named in the insurance policy) in the underlying
action alleging that the defendants had selected and installed certain fluorescent light fixtures
without also installing protective filters.
Appellate Court Decision:
The Appellate Court ruled that a duty to defend arose where the additional insured
endorsement in the policy provided coverage for liability arising out of the original insured’s
I-8
work and where the third-party complainant in the underlying action accused the original
insured of failing to properly install subject fluorescent lights. It rejected the insurer’s claim that
it had no duty to defend the defendant where the underlying complaint did not specifically
name the original insured named in the policy.
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the January 2008 Term
Sangamon County Sheriff’s Dept. v. Illinois Human Rights Commission
S. Ct. Docket Nos.:
105517 & 105518 (cons.) (Oral Argument Jan. 15, 2009)
Appellate Citation:
375 Ill. App. 3d 834, 875 N.E.2d 10, 314 Ill. Dec. 631 (4th Dist. 2007)
Topic:
Employment & Sexual Harassment
Issue Presented:
Whether the Illinois Human Rights Commission properly determined that the Sangamon County
Sheriff’s Department was liable for sexual harassment perpetrated by an employee who was not
a direct supervisor of the victim.
Appellate Court Decision:
The Illinois Human Rights Commission ruled that the Sheriff’s Department was liable for sexual
harassment perpetrated by an employee who was not a direct supervisor of the victim. The
Appellate Court disagreed, holding that in order for the Sheriff’s Department to be strictly liable,
the perpetrator must have been the immediate supervisor of the victim.
LeBron v. Gottlieb Memorial Hospital, et al.
S. Ct. Docket Nos.:
105741 & 105745 (cons.) (Oral Argument Nov. 13, 2008)
Appellate Citation:
Direct appeal from Cook County Circuit Court, No. 06-L-12109
Topic:
Constitutionality of 735 ILCS 5/2-1706.5 (non-economic damage
caps in medical malpractice litigation)
Issue Presented:
Whether section 2-1706.5’s cap on non-economic damages in medical malpractice cases
violates the separation of powers clause of the Illinois Constitution.
Cook County Circuit Court Decision:
The circuit court struck down section 2-1706.5, as well as the remaining provisions of the socalled Insurance Act (embodied in P.A. 94-677), as unconstitutional. The court based its finding
of unconstitutionality on the prior Illinois Supreme Court case of Best v. Taylor Machine Works,
179 Ill. 2d 367, 689 N.E.2d 1057, 228 Ill. Dec. 636 (1997), and specifically found that the cap
constituted an impermissible legislative remittitur.
I-9
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the September 2007 Term
Tedrick v. Community Resource Center
S. Ct. Docket Nos.:
104861 & 104876 (cons.) (Oral Argument Sept. 16, 2008)
Appellate Citation:
373 Ill. App. 3d 761, 869 N.E.2d 421, 311 Ill. Dec. 747 (5th Dist.
2007)
Topic:
Tort - Duty to Warn
Issue Presented:
Whether a cause of action is permitted under a theory of transferred negligence against an
outpatient mental health clinic that treated a man who soon after murdered his wife.
Appellate Court Decision:
The plaintiffs filed a wrongful-death and survival action. They alleged that the defendants
breached their duty to warn and protect the deceased, Teresa Street, from foreseeable violent
acts of her husband, Richard Street. Richard had been receiving treatment for psychiatric
illnesses and an attempted suicide. He told his physicians that he had thoughts of killing Teresa.
After being admitted and treated, he was released and ordered to follow-up at the Community
Resource Center (CRC).
On June 6, 2003, Richard arrived at the CRC requesting voluntary admission because he planned
to kill Teresa. During the admission process, he changed his mind and did not voluntarily admit
himself. Meanwhile, Teresa was on her way to the CRC. When she arrived, she expressed her
concern about Richard. She was given a crisis line telephone number and told to call the police
in an emergency.
Richard and Teresa met with his family physician. Teresa expressed her concerns. His doctor
prescribed him Xanax and Zypreza and informed him that he could not treat him for his
condition. Richard was told to seek psychiatric care. Three days later, Richard killed Teresa and
overdosed on medication. He pled guilty to second degree murder and is serving 18 years in
prison.
The defendants moved to dismiss the action on the ground that the allegations failed to show
that the defendants owed Teresa Street a duty of care. The circuit court granted the motion and
the Appellate Court reversed. The issue before the Appellate Court was whether the complaint
contained sufficient factual allegations to indicate that Teresa Street fell within the class of
persons to whom the health care providers who evaluated and treated Richard owed a duty of
care.
The Illinois Supreme Court has held that the concept of transferred negligence is a limited
exception to the customary rule barring malpractice liability to non-patient third parties. The
I-10
Supreme Court has recognized transferred negligence in cases involving a mother and an infant
in Renslow v. Mennonite Hospital, 67 Ill. 2d 348, 367 N.E.2d 1250, 10 Ill. Dec. 484 (1977). In this
case, the Appellate Court recognized that the intimate, marital relationship between Teresa and
Richard had reached the level of personal, familial intimacy that was present in Renslow. Thus,
the Appellate Court held that health care providers owed a duty to protect Teresa from Richard.
Steadfast Insurance Co. v. Caremark Rx, Inc.
S. Ct. Docket No.:
104906
Appellate Citation:
373 Ill. App. 3d 895, 869 N.E.2d 910, 311 Ill. Dec. 897 (1st Dist.
2007)
Topic:
Insurance
Issue Presented:
Whether an insurer may obtain reimbursement of defense costs in the absence of a policy
provision that permits the recovery of such costs.
Appellate Court Decision:
Caremark administered prescription drug benefits for health plans throughout the country.
Steadfast issued a managed care professional liability policy to Caremark. The policy excluded
claims for intentional, criminal, or fraudulent acts. After Caremark had two suits filed against it
for breaching its fiduciary duties under ERISA, Steadfast filed a declaratory judgment action
seeking a declaration that it had no duty to defend or indemnify Caremark.
The court granted summary judgment for Caremark and ordered Steadfast to defend Caremark.
Steadfast filed a motion to appeal the ruling but the circuit court would not stay enforcement of
the order pending the outcome of the appeal. Eventually, Steadfast was found to have no duty
to defend and indemnify Caremark. Steadfast moved for restitution, seeking to recover the
defense costs it expended in the two underlying actions. The circuit court ruled that the insurer,
Steadfast, could not recover defense costs it expended for Caremark. The court reasoned that
the finding in the declaratory judgment action was the “functional equivalent of an agreement
to defend Caremark under a reservation of rights.”
On appeal, Steadfast argued that the circuit court erred in denying its motion for restitution.
Steadfast also argued that the civil court erred in denying it leave to amend its complaint to
include a claim for unjust enrichment. The Appellate Court affirmed the circuit court’s denial of
Steadfast’s motion for restitution, reversed the circuit court’s denial of Steadfast’s motion for
leave to file an amended complaint, and remanded for further proceedings. The Appellate Court
found that Steadfast’s proposed amended complaint stated a proper complaint for unjust
enrichment and that Steadfast should be able to pursue that claim.
I-11
Petitions for Leave to Appeal Allowed
by the Illinois Supreme Court
at the November 2006 Term
Nolan v. Weil-McLain
S. Ct. Docket No.:
103137 (Oral Argument, May 16, 2007)
Appellate Citation:
365 Ill. App. 3d 963, 851 N.E.2d 281, 303 Ill. Dec. 383 (4th Dist.
2006)
Topic:
Asbestos
Issue Presented:
Whether the trial court properly excluded evidence of plaintiff-decedent’s other exposure to
asbestos in this action seeking recovery for asbestos-related injuries.
Appellate Court Decision:
The Appellate Court affirmed the ruling of the trial court finding that the refusal to admit
evidence of the decedent’s exposure to other asbestos was proper under Spain v. Owens
Corning Fiberglass Corp., 304 Ill. App. 3d 356, 710 N.E.2d 528, 237 Ill. Dec. 898 (4th Dist. 1999);
Kochan v. Owens-Corning Fiberglass Corp., 242 Ill. App. 3d 781, 610 N.E.2d 683, 182 Ill. Dec. 814
(5th Dist. 1993); and Lipke v. Celotex Corp., 153 Ill. App. 3d 498, 505 N.E.2d 1213, 106 Ill. Dec. 422
(1st Dist. 1987). According to the Appellate Court, the defendant’s only options, in order to
defeat the presumption of proximate cause, were either to establish that: (1) decedent was not
exposed to defendant’s product; or (2) decedent’s exposure was insufficient to cause his injuries;
or (3) defendant’s product contained too low an amount of asbestos to be hazardous. Justice
Steigmann dissented and would have reversed the trial court’s judgment.
I-12
Karen L. Kendall
- Partner
Karen is the Chair of our statewide Appellate Practice
Group and began her legal career with Heyl Royster in
1984 after serving as law clerk to the Honorable Jay J.
Alloy, Presiding Justice, Illinois Appellate Court, Third
District. Previously, she served as law clerk to the
Honorable Howard C. Ryan, Chief Justice, Illinois
Supreme Court, from 1981 to 1982.
•
•
•
With extensive appellate experience, Karen has
handled over 600 appeals, 300 of which have resulted
in published opinions. Over 40 of the appeals have
been in the Illinois Supreme Court. Many have been
cases of first impression and have served to develop
and interpret the laws of Illinois for not only the firm's
clients, but for the entire legal profession. Karen's
diverse experience includes appeals of cases tried by
our firm in the trial courts, as well as cases tried by
others, where her involvement begins at the appellate
level. Karen represents clients ranging from Fortune
500 companies to small businesses and individuals
who refer cases to her regardless of whether they are
the appellant or the appellee, confident that she has
total familiarity with the complex appellate rules and
procedures. Karen is well skilled in the persuasive
analytical writing and speaking so necessary to prevail
in the appellate arena.
•
achievement. Only five percent of the lawyers in
each state earn this designation.
Top 50 Female Illinois Super Lawyers (2005present)
Top 50 Women Business Lawyers in Illinois
(2007)
Top 10 Leading Business Lawyers in Downstate
Illinois (2007)
Named S.I.U. Law School Alumnus of the Year
(1996)
Professional Associations
• American Academy of Appellate Lawyers
(Treasurer)
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President)
• American Bar Association (Past Chair, Tort and
Insurance Practice Section, Appellate Advocacy
Committee)
• Illinois Association of Defense Trial Counsel
(Member and Past Chair, Amicus Committee)
• Illinois Supreme Court Committee on Civil Jury
Instructions (Past Associate Member)
• Abraham Lincoln American Inn of Court (Past
President)
• Peoria County Bar Association (Past President)
• Association of Defense Trial Attorneys
• DRI Appellate Advocacy Steering Committee
• American Bar Foundation
• Bar Association of the Seventh Federal Circuit
• Bar Association of the Central and Southern
Federal Districts of Illinois
• Illinois State Bar Association
• Scribes, the American Society of Writers on
Legal Subjects
Karen regularly speaks at national, statewide and local
bar seminars on effective appellate practice and tort
and insurance coverage issues and presents mock
appellate arguments on various issues.
Currently, Karen is Treasurer of the American Academy
of Appellate Lawyers, an organization that was
founded in 1990 to advance the highest standards and
practices of appellate advocacy and to recognize
outstanding appellate lawyers. She has been
designated one of the "Leading Lawyers" in Illinois as a
result of a survey of Illinois attorneys conducted by the
Chicago Daily Law Bulletin; another survey, published
recently in Chicago magazine listed Karen among the
top 100 attorneys and top 50 female attorneys in the
State of Illinois.
Court Admissions
• State Courts of Illinois
• United States District Court, Central, Northern,
and Southern Districts of Illinois
• United States Courts of Appeals, Seventh and
Eighth Circuits
• United States Supreme Court
Professional Recognition
• Martindale-Hubbell AV Rated
• The Best Lawyers in America (2008)
• Selected as a Leading Lawyer in Illinois. Only five
percent of lawyers in the state are named as
Leading Lawyers.
• Named to the Illinois Super Lawyers list (20052009). The Super Lawyers selection process is
based on peer recognition and professional
Education
• Juris Doctor (Cum Laude), Southern Illinois
University School of Law, 1981
• Master of Arts-American History, Southern
Illinois University, 1976
• Bachelor of Arts-Philosophy, Southern Illinois
University, 1967
I-13
Learn more about our speakers at www.heylroyster.com
ADVANTAGE PLAINTIFFS: ALLOCATION OF FAULT IN MULTI‐PARTY LITIGATION Presented and Prepared by:
Matthew S. Hefflefinger
[email protected]
Peoria, Illinois • 309.676.0400
Prepared with the Assistance of:
Jesse A. Placher
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
J-1
ADVANTAGE PLAINTIFFS:
ALLOCATION OF FAULT IN MULTI-PARTY LITIGATION
I.
BACKGROUND ............................................................................................................................................. J-4
A.
Unzicker v. Kraft Food Ingredients Corp. .............................................................................. J-5
II.
SECTION 2-1117 IN ITS CURRENT FORM .......................................................................................... J-6
III.
SETTLING PARTIES ...................................................................................................................................... J-8
A.
A Historical Perspective ............................................................................................................. J-8
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
B.
C.
Third District Implies That the Fault of a Settling
Party (Plaintiff’s Employer) Should Be Considered ........................................... J-8
Supreme Court follows Alvarez ............................................................................... J-9
Fifth District Finds That the Fault of a Settling Party
Should Be Considered, Following Lannom .......................................................... J-9
Fifth District Finds That the Fault of a Settling
Party Should Not Be Considered ............................................................................ J-9
Seventh Circuit Follows Blake and Holds the Fault
of a Settling Party Should Not Be Considered ................................................ J-10
District Court Says Frieslinger Was Wrongly
Decided and Follows Lannom ............................................................................... J-10
First District Suggests, Somewhat Awkwardly,
That Settling Parties Should Be Considered .................................................... J-10
District Court Finds That the Settling Party’s Fault
Should Be Considered, Following Lannom ....................................................... J-11
Fourth District Interprets Current Section 2-1117
and Finds Settling Party’s Fault Should Be Considered ............................... J-12
First District Holds that Settling, Non-Parties Are
“Defendants Sued by the Plaintiff” Pursuant to 2-1117 .............................. J-12
The Next Day, the First District Decides Differently ...................................... J-13
Ready or Not, Here It Comes! ............................................................................................... J-15
Ready in Practice − What Does It Mean? ......................................................................... J-16
J-2
IV.
STRATEGIC CONSIDERATIONS ........................................................................................................... J-17
A.
B.
C.
D.
E.
F.
G.
H.
V.
Is Sole Proximate Cause a Defense in Illinois? ............................................................... J-17
Should a Contribution Claim Be Filed Against Plaintiff’s Employer? ..................... J-19
What About Set-Offs and Section 2-1117? ..................................................................... J-19
Should Plaintiff’s Co-Workers Be Added As Third-Party Defendants? ................. J-21
Does 2-1117 Apply to Defendants Acting in Concert? ............................................... J-21
What About the Fault of Non-Parties? ............................................................................. J-22
What About the Statute of Limitations? ........................................................................... J-23
Is Any Version of Section 2-1117 Constitutional? ........................................................ J-23
CONCLUSION ........................................................................................................................................... J-24
J-3
ADVANTAGE PLAINTIFFS:
ALLOCATION OF FAULT IN MULTI-PARTY LITIGATION
I.
BACKGROUND
The apportionment of fault in multi-party litigation can be difficult to determine and raises many
unanswered questions. Effective June 3, 2003, the General Assembly amended the 1986 version
of 735 ILCS 5/2-1117 (“Joint Liability”). The text of the provision states:
[I]n actions on account of bodily injury or death or physical damage to property,
based on negligence, or product liability based on strict tort liability, all
defendants found liable are jointly and severally liable for plaintiff’s past and
future medical and medically related expenses. Any defendant whose fault, as
determined by the trier of fact, is less than 25% of the total fault attributable to
the plaintiff, the defendants sued by the plaintiff, and any third party defendant
who could have been sued by the plaintiff, except the plaintiff’s employer, shall
be severally liable for all other damages. Any defendant whose fault, as
determined by the trier of fact, is 25% or greater of the total fault attributable to
the plaintiff, the defendants sued by the plaintiff, and any third party defendants
who could have been sued by the plaintiff, except the plaintiff’s employer, shall
be jointly and severally liable for all other damages.
735 ILCS 5/2-1117.
In this latest version of the Code, the fault of plaintiff’s employer is not considered. Without that
fault considered, the statute clearly operates to benefit plaintiffs who are injured at work.
Furthermore, pursuant to the recent Supreme Court decision in Ready v. United/Goedecke
Services, Inc., No. 103474, 2008 WL 5046833 (Nov. 25, 2008), plaintiffs are now given the
opportunity to receive an even bigger windfall when bringing suits against multiple defendants
as settling defendants will no longer be considered in the allocation of fault for apportionment
under 2-1117.
However, defendants, at least those in the asbestos realm, are now able to strike back with the
overturn of Lipke v. Celotex Corp., 153 Ill. App. 3d 498, 505 N.E.2d 1213, 106 Ill. Dec. 422 (1st Dist.
1987), via the recent Supreme Court decision in Nolan v. Weil-McLain, No. 103137, 2009 WL
1012147 (Apr. 16, 2009). In sum, defendants will not be barred from introducing evidence of
other potential causes of injury where it pursues a sole proximate cause defense.
Before we discuss these issues and more, a brief review of the history of how 2-1117 has evolved
over the years will assist us in our discussion.
J-4
A.
Unzicker v. Kraft Food Ingredients Corp.
Four months prior to the enactment of the current version of 2-1117, the Illinois Supreme Court
held the 1986 version of that statute (which closely mirrored today’s version) was constitutional.
Essentially, the Court determined the plaintiff’s employer could be included in the fault
apportionment calculations. Unzicker v. Kraft Food Ingredients Corp., 203 Ill. 2d 64, 783 N.E.2d
1024, 270 Ill. Dec. 724 (2002).
In Unzicker, plaintiff obtained a verdict in the amount of $879,400, $91,400 of which was medical
and $788,000 of which was non-medical. The jury found plaintiff’s employer 99 percent at fault
and defendant, Kraft Foods, 1 percent at fault. The trial court entered judgment on the jury’s
verdict finding Kraft and plaintiff’s employer were jointly and severally liable for plaintiff’s past
and future medical expenses of $91,400. Kraft was severally liable for 1 percent of the nonmedical damages ($7,880). Plaintiff’s employer was then liable to Kraft on Kraft’s third-party
complaint for $90,486 in contribution, which represented 99 percent of the medical damages.
On appeal, plaintiffs argued that the fault of plaintiff’s employer should not be considered for
apportionment purposes, since plaintiff’s employer was not a “third party defendant who could
have been sued by the plaintiff” given that plaintiff’s employer was immune from suit under the
Workers’ Compensation Act (820 ILCS 305/1 et seq.). Unzicker, 203 Ill. 2d at 69. In determining
that the fault of plaintiff’s employer should be considered for apportionment purposes, the
Illinois Supreme Court stated as follows:
The clear legislative intent behind section 2-1117 is that minimally responsible
defendants should not have to pay entire damage awards. The legislature set the
line of minimal responsibility at less than 25%. In order to apportion
responsibility, the legislature looked to those people in the suit: the plaintiff, the
defendants sued by the plaintiff, and any third-party defendants who could have
been sued by the plaintiff. In our opinion, the broad wording in the statute
merely shows that the legislature intended the division of responsibility to
include those people in the suit who might have been responsible for the
plaintiff’s injuries. Here, ignoring the party found to be 99% responsible for the
plaintiff’s injuries and requiring the party found 1% responsible to pay all of the
nonmedical damages would not be in accord with the clear legislative intent that
minimally responsible defendants should not be liable for entire judgments.
Id. at 78-29.
The General Assembly quickly responded to this decision by enacting the current version of 21117, which clearly states the fault of a plaintiff’s employer (which many times exceeds that of
any defendant) will not be utilized in determining whether a defendant is jointly or severally
liable. The minimally culpable defendant at present is now faced with possibility of being jointly
and severally liable.
J-5
II.
SECTION 2-1117 IN ITS CURRENT FORM
Currently, the fault of plaintiff’s employer, no matter how egregious, is removed from the
calculations for determining joint and several liability. After the jury apportions fault to the
various parties, the court must then engage in reallocation to determine joint and several
liability. The following example shows, in theory, how minimally culpable defendants may now
be asked to pay a grossly disproportionate share, if not all, of the judgment.
Verdict - $1,000,000
Medical bills: $100,000
Non-medical damages: $900,000
Defendant 1 - 1%
Defendant 2 - 1%
Defendant 3 - 1%
Plaintiff’s employer - 97%
Prior 2-1117
Current 2-1117
Defendants 1, 2 and 3 are each jointly and
severally liable for the medical bills.
Plaintiff’s employer’s fault is removed.
Defendants 1, 2 and 3 are each 33 1/3% at
fault.
Defendants 1, 2 and 3 are severally liable for
the non-medical damages (or 9,000 each).
Defendants 1, 2 and 3 are jointly and
severally liable for the medical bills and the
non-medical damages.
Under the above example, plaintiff’s employer bears almost all of the fault, but the court will
ignore the fault of plaintiff’s employer in determining joint and several liability. After the
employer’s fault is removed, each defendant will share 1/3 of the total fault. Each defendant
could be asked to satisfy the entire judgment, in theory. Any defendant doing so would then
have rights of contribution against the remaining defendants. Regardless, each defendant could
be responsible for paying a substantially larger portion of the judgment than would otherwise
have existed under the prior version of section 2-1117.
J-6
The result reached in Unzicker would also be entirely different under the current version of
section 2-1117. Using the facts in Unzicker, the following result would now occur:
Verdict - $879,400
Medical: $91,400
Non-medical: $788,000
Kraft fault - 1%
Plaintiff’s employer’s fault - 99%
Plaintiff’s recovery from Kraft - $879,400
The 99 percent fault of plaintiff’s employer is removed for determining joint and several liability.
Despite being only 1 percent at fault, Kraft’s fault is 100 percent of the fault once the court
reallocates to determine joint and several liability. Kraft would still have a right of contribution
against plaintiff’s employer, but the employer’s exposure would be substantially mitigated by
the limitation of liability provided for in Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 585
N.E.2d 1023, 166 Ill. Dec. 1 (1991) (which limits the liability of plaintiff’s employer in contribution
to the amount of the workers’ compensation benefits that the employer is obligated to pay the
injured employee). Accordingly, Kraft, under the current section 2-1117, would pay, incredibly,
the entire judgment even though the jury found it only 1 percent at fault.
Expanding upon the Unzicker example, the current application of section 2-1117 can potentially
operate to substantially reward plaintiff even where plaintiff bears more fault than the
defendant. For example, consider the following:
Total verdict - $879,400
Medical: $91,400
Non-medical: $788,000
Percentages of fault
Plaintiff’s employer: 96%
Kraft: 1%
Plaintiff: 3%
Kraft pays plaintiff: $853,018 (or $879,400 x .97)
Given the application of section 2-1117, the fault of plaintiff’s employer will be dropped out of
the equation by the court for purposes of determining joint and several liability. After the fault
of plaintiff’s employer is removed, the fault of the plaintiff versus Kraft is compared, which
represents a ratio of 3:1. In essence, Kraft would bear 25 percent and plaintiff 75 percent of the
total responsibility upon reallocation. Kraft would end up paying virtually all of the verdict even
though it was found to be only 1 percent at fault by the jury. Plaintiff’s fault of 3 percent simply
reduces Kraft’s responsibility by a very small amount.
J-7
There are obvious questions associated with this hypothetical. Plaintiff will still be allowed to
recover despite the fact that the apportionment of fault calculations reveal that plaintiff bears 75
percent of the total fault. The example again highlights the unfair application of section 2-1117
in requiring Kraft, only 1 percent at fault, to pay virtually all of the verdict. When the court
considers apportionment, Kraft suffers greatly, while plaintiff, whose fault is 75 percent of the
total fault for apportionment purposes, benefits greatly. The result seems absurd, and the court
may be faced with the decision of trying to determine how plaintiff’s fault should be evaluated
in this context.
This is an area undecided at this time, and the answer probably lies within the construction and
application of sections 2-1116 and 2-1117. Section 2-1116 provides that a plaintiff will not
recover if “the trier of fact” determines that the plaintiff is more than 50 percent at fault. The
court may take the position that section 2-1116 only operates to deny plaintiff a recovery when
the trier of fact (not the court during reallocation) finds plaintiff’s fault is more than 50 percent.
Therefore, the court only evaluates plaintiff’s fault in the context of reallocation for joint and
several liability, not to determine whether plaintiff should recover.
III.
SETTLING PARTIES
The question of whether the fault of a settling defendant who has been dismissed should be
considered for apportionment went unresolved for a great deal of time. There were opinions on
both sides of the issue. However, the recent Supreme Court decision in Ready seems to have put
this issue to rest. In Illinois, settling defendants will NOT be considered for apportionment.
A.
A Historical Perspective
For a historical perspective regarding the issue of whether to consider settling tortfeasors for
apportionment, the following cases should be addressed:
1.
Third District Implies That the Fault of a Settling Party (Plaintiff’s
Employer) Should Be Considered
Alvarez v. Fred Hintze Const., 247 Ill. App. 3d 811, 617 N.E.2d 821, 187 Ill. Dec. 364 (3d Dist.
1993) – Plaintiff was injured at a construction site and filed suit against the general contractor
and owner. Both defendants filed third-party complaints for contribution against plaintiff’s
employer. Plaintiff’s employer then reached a settlement with plaintiff and obtained a goodfaith finding. Plaintiff’s employer was then dismissed. The general contractor argued that the
dismissal of the plaintiff’s employer would deny its right to obtain apportionment under section
2-1117 (the 1986 version). The Third District concluded that, even where one tortfeasor has
settled, the jury should still be able to assess the defendant’s relative culpability.
J-8
2.
Supreme Court follows Alvarez
Lannom v. Kosco, 158 Ill. 2d 535, 634 N.E.2d 1097, 199 Ill. Dec. 743 (1994) – Plaintiff filed suit for
injuries he sustained while working alongside a highway. The defendant driver then filed a thirdparty complaint for contribution against his employer. Plaintiff’s employer then moved to
dismiss the third-party complaint on the basis that it was waiving the workers’ compensation
lien. Defendant argued that dismissing plaintiff’s employer would obstruct the purpose of
section 2-1117 (the 1986 version). The Illinois Supreme Court disagreed, stating in relevant part:
We note, however, that this dilemma arises whenever a defendant or third party
settles with the plaintiff or is dismissed from an action for any reason. Section 21117 was not intended to prohibit the dismissal of a defendant or a third party
from an action, where such dismissal is otherwise warranted. Moreover, the
defendant’s rights under section 2-1117 are not abolished simply because a
defendant or third party settles or is dismissed from an action. The jury may still
assess the remaining defendants’ relative culpability, and if the degree of fault
attributable to one or more defendants is less than 25%, those defendants’
liability is several only.
Lannom, 158 Ill. 2d at 542-43 (emphasis added).
3.
Fifth District Finds That the Fault of a Settling Party Should Be
Considered, Following Lannom
Banovz v. Rantanen, 271 Ill. App. 3d 910, 649 N.E.2d 977, 208 Ill. Dec. 617 (5th Dist. 1995).
Plaintiffs were passengers involved in a multi-vehicle accident in Madison County. They filed suit
against a driver of the vehicle in which they were passengers and against the driver of a tractor
trailer and his employer. The defendants filed counterclaims against each other seeking
contribution. The truck driver’s employer settled with one of the plaintiffs and obtained a goodfaith finding. However, the trial court did not dismiss pending contribution claims between the
truck driver’s employer (who had settled) and the driver of the vehicle in which plaintiffs were
passengers.
The Fifth District found that the failure to dismiss was improper. It noted further that upon retrial the fault of the settling party will be presented to the jury for apportionment purposes
under section 2-1117 (the 1986 version). It relied upon the reasoning employed in the Illinois
Supreme Court’s decision of Lannom v. Kosco.
4.
Fifth District Finds That the Fault of a Settling Party Should Not Be
Considered
Blake v. Hy Ho Restaurant, Inc., 273 Ill. App. 3d 372, 652 N.E.2d 807, 210 Ill. Dec. 5 (5th Dist.
1995) – A wrongful death action was filed when a City of Belleville employee was killed by
methane gas fumes while removing grease deposits that clogged a city sewer line near two
J-9
restaurants (both of which were named defendants). The City of Belleville settled and moved to
dismiss the third-party claims for contribution filed against it. The trial court found the
settlement was in good faith and dismissed all claims against the City of Belleville.
Defendants argued on appeal that the fault of the City of Belleville should still be considered by
the trier of fact to apportion fault among all tortfeasors. The Fifth District concluded that the
plain language of section 2-1117 (the 1986 version) established that once the City of Belleville
settled it was no longer a defendant for purposes of section 2-1117 apportionment. It noted
that 2-1117 does not address “former defendants” or “dismissed defendants.”
5.
Seventh Circuit Follows Blake and Holds the Fault of a Settling Party
Should Not Be Considered
Freislinger v. Emro Propane Co., 99 F.3d 1412 (7th Cir. 1996) – The Seventh Circuit followed the
analysis employed by the Illinois Fifth District Appellate Court in Blake v. Hy Ho Restaurant, Inc.
in determining that “defendants sued by the plaintiff” under section 2-1117 (the 1986 version)
only applies to defendants who remain in the case when it is submitted to the jury. It does not
apply to settled parties. Furthermore, it held that plaintiff’s employer was not to be included in
the section 2-1117 calculation since plaintiff’s employer was not a third-party defendant “who
could have been sued by the plaintiff.” Obviously, the latter part of the court’s analysis was
subsequently overruled in the Unzicker decision. It is also noteworthy that the Seventh Circuit in
this opinion appears to improperly analyze the Illinois Supreme Court’s decision in Lannom v.
Kosco. The Seventh Circuit interpreted the decision in Lannom to suggest that the fault of
settling parties is not to be included for apportionment purposes.
6.
District Court Says Frieslinger Was Wrongly Decided and Follows
Lannom
Costello v. U.S., No. 96-C-187, 1998 WL 341615 (N.D. Ill. June 23, 1998) – The lawsuit arose from
a midair collision between two airplanes. The only issue which the district court addressed was
whether the United States, as the only remaining defendant, was jointly and severally liable or
simply severally liable based upon the settlements entered into by the other defendants in the
case. The district court determined that the Illinois Supreme Court in the Lannom decision
intended to apportion fault between all defendants, including those who had settled.
Accordingly, the district court found that the trier of fact will apportion fault among all parties,
including parties who had settled. The district court specifically noted that the Seventh Circuit in
Frieslinger had misinterpreted the Illinois Supreme Court’s decision in Lannom.
7.
First District Suggests, Somewhat Awkwardly, That Settling Parties
Should Be Considered
Lombardo v. Reliance Elevator Co., 315 Ill. App. 3d 111, 733 N.E.2d 874, 248 Ill. Dec. 199 (1st Dist.
2000) – Plaintiff was employed in the maintenance department at a bank. He was injured when a
lift he was riding upon suddenly fell. He filed suit against the owner of the building, two
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companies that maintained the lift and the beneficiary of the trust which held title to the
building. Plaintiff’s employer (the bank) was then made a third-party defendant. One of the
maintenance companies settled, and plaintiff’s employer also settled.
On appeal, plaintiff argued that the maintenance company and plaintiff’s employer (who had
both settled) should not have been included on the verdict form for purposes of apportioning
fault. It is noteworthy that 90 percent of the fault was attributed to plaintiff’s employer at trial.
The First District disagreed with plaintiff’s argument. It held that including both non-parties and
settling defendants helps protect defendants’ interests in preserving their right to contribution.
In addition, upon re-trial, the First District noted that the trial court should include plaintiff’s
employer and any other settling defendants on the verdict form. It went on to add that the trial
court should only consider the fault of those parties specified within section 2-1117. This last
statement by the First District leaves the interpretation of who was to be included for
apportionment subject to debate.
8.
District Court Finds That the Settling Party’s Fault Should Be
Considered, Following Lannom
Dowe v. Nat’l R.R. Passenger Corp., No. 01-C-5808, 2004 WL 887410 (N.D. Ill. April 26, 2004) –
The lawsuit arose from a collision of an Amtrak passenger train with a truck at a railroad crossing
in Bourbonnais, resulting in the loss of many passengers’ lives and injuries to many others. The
district court held that settling defendants would not be kept off the verdict form. In dicta, the
court found there was reason to believe that the Illinois Supreme Court would find that the fault
of a settling party should be considered by the jury for apportionment purposes. The court
stated as follows:
Settling defendants and third party defendants are among the ‘defendants sued
by the plaintiff’ and, in this case at least, are among the ‘third party defendant[s]
who could have been sued by the plaintiff.’ The real question is the time at which
whether a party is or was a ‘defendant’ is to be determined. Freislinger and Blake
says that the determination depends on who remains in the case when it is
submitted to the fact finder; Lannom and Alvarez indicate that the answer
depends only on whether a party was a defendant or third party defendant at
some point during the case. Though both approaches give meaning to the
statute’s language, the latter approach is more faithful to the Illinois Supreme
Court’s statement that ‘[t]he clear legislative intent behind section 2-1117 is that
minimally responsible defendants should not have to pay entire damage awards.’
Dowe, 2004 WL 887410 at *9, quoting Unzicker, 203 Ill. 2d at 77-78.
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9.
Fourth District Interprets Current Section 2-1117 and Finds Settling
Party’s Fault Should Be Considered
Skaggs v. Senior Services of Cent. Illinois, Inc., 355 Ill. App. 3d 1120, 823 N.E.2d 1021, 291 Ill. Dec.
435 (4th Dist. 2005) – The Fourth District reviewed section 2-1117 in its current form after
determining that a settlement was in good faith, discharging a tortfeasor from any further
liability. It followed the Illinois Supreme Court’s analysis in Unzicker, finding that a minimally
responsible defendant should not have to pay entire damage awards. In determining that the
fault of a settling tortfeasor should be considered for apportionment purposes, the Fourth
District stated in relevant part:
The revision to section 2-1117 excepts a plaintiff’s employer from being
considered in the apportioning of fault, but the legislative intent remains the
same with respect to minimally responsible defendants. Forcing a minimally
responsible defendant to shoulder the nonmedical expenses only because the
more culpable defendant settled would allow plaintiffs to circumvent the purpose
of the statute. In 1993, an Illinois appellate court suggested as follows: “[T]he
rights of a nonsettling defendant under Section 2-1117 ‘cannot be negated
simply because another tortfeasor has settled with the plaintiff.’ [Citation.] . . .
[E]ven where one tortfeasor has settled with the plaintiff, ‘[t]he jury should still be
able to assess the defendant’s relative culpability, and if the defendant’s level of
fault falls below the 25[%] threshold, its liability is several only and is not affected
by the plaintiff’s settlement with the other tortfeasor.”’ [Citation omitted].
...
The plain language of the statute includes “defendants sued by the plaintiff.” 735
ILCS 5/2-1117 (West Supp. 2003). Even though a defendant settles with a plaintiff
and is dismissed from the case, that defendant does not lose its status as a
defendant sued by the plaintiff. Therefore, we hold section 2-1117 requires the
trier of fact to consider the percentage of fault of settling defendants.
Skaggs, 823 N.E.2d at 1028-29.
The Illinois Supreme Court granted a petition for leave to appeal the Skaggs decision during its
September 2005 term, but before the court was able to render a decision, the case settled.
10.
First District Holds that Settling, Non-Parties Are “Defendants Sued
by the Plaintiff” Pursuant to 2-1117
Heupel v. Jenkins, 379 Ill. App. 3d 893, 884 N.E.2d 1263, 319 Ill. Dec. 18 (1st Dist. 2008) − Here,
two vehicles, one driven by defendant and the other by Nivethitha Murugeson, collided at an
intersection in Chicago. The facts indicate that the defendant had the right of way at the time of
the collision. As a result of the collision, defendant’s vehicle spun into the adjacent sidewalk,
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striking plaintiff. Prior to filing suit, plaintiff entered into a settlement agreement with
Murugeson, the more culpable of the two defendants, for $100,000, the amount of Murugeson’s
insurance coverage. Plaintiff subsequently filed suit sounding in negligence against defendant.
Defendant prevailed at trial, and plaintiff appealed alleging the trial court erred by including
Murugeson, a settling non-party, on the jury verdict form. The facts in this case are therefore
unique as Murugeson was never a named defendant.
The First District, Third Division, held that the legislative intent of 2-1117 was to apportion fault
among all tortfeasors. Consequently, “a third party need not be a named defendant in order for
her relative fault to be considered by the jury.” Heupel, 379 Ill. App. 3d at 902. The Court further
noted its support for the holding in Skaggs that the name of a prior settling defendant must
appear on the jury verdict form. Essentially, settling defendants do not lose their status as
“defendants sued by the plaintiff” pursuant to 2-1117.
Heupel represented the first case in Illinois to find that settling non-parties should be considered
“defendants sued by the plaintiff” pursuant to 2-1117.
11.
The Next Day, the First District Decides Differently
Yoder v. Ferguson, 381 Ill. App. 3d 353, 885 N.E.2d 1060, 319 Ill. Dec. 380 (1st Dist. 2008) − Just
one day after the First District, Third Division, holding in Heupel, the First District, Fourth
Division, came to a contrary conclusion in Yoder. Here, the Court held that the trial court did not
err in refusing to consider settling defendants in the allocation of fault for apportionment.
In Yoder, a multi-vehicle accident occurred on I-90 near Rockford involving plaintiff and her
family. At the time of the accident, Scott Yoder was driving. Jerelyn Yoder was in the passenger
seat, and their two children, Zachary and Teagan, were in the back seat. Jerelyn and Scott Yoder
suffered severe injuries, Zachary was profoundly disabled, and Teagan was killed as a result of
the accident. Jerelyn Yoder brought suit individually, as next friend of Zachary, and as
administrator of Teagan’s estate against the following defendants: (1) James Ferguson and his
employer, Romar Transportation Systems (“Ferguson”); (2) Thomas Alexander and his employer,
Single Source Transportation (“Alexander”); (3) David Knoll and his employers, Kee Transport and
Roundy’s (“Knoll”); (4) Mary Beth Marshall (“Marshall”); (5) Joseph Rezetko (“Rezetko”); and
(6) her husband, Scott Yoder. Scott Yoder named the same defendants in his suit, and the cases
were consolidated for trial.
The evidence in the case revealed the following about the accident:
Marshall: The semi in front of her began to fishtail, causing her to slow down on a bridge which
was described as “like an ice skating rink.” However, she never lost control of her vehicle. While
slowing down, Rezetko rear-ended Marshall. This caused the semi behind Rezetko, driven by
Ferguson, to come to a sudden stop. In doing so, his trailer ended up perpendicular to the road,
thus blocking the Interstate. It is noteworthy that Mary Beth Marshall’s passenger testified
similarly as well.
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Rezetko: He was driving behind Marshall, who did not have her lights on. At the bridge, the
weather worsened and Rezetko lost sight of Marshall. Just after crossing the bridge, Rezetko saw
Marshall’s brake lights and realized she was stopped. He pumped his brakes but was unable to
stop his vehicle, rear-ending Marshall. The two cars remained in the right lane, and two cars
passed in the left lane. Shortly thereafter, Ferguson’s trailer blocked both lanes of the Interstate
after rear-ending Rezetko.
Ferguson: He had driven semis for 15 years. On the day of the accident, two cars passed
(Marshall and Rezetko) him before the bridge. When he got closer to the bridge, he noticed the
same two cars in front of him with their passenger sides facing him. He realized they were
blocking part of the road. To avoid hitting them, he pumped the brakes, but his truck failed to
slow down. He then directed it to the right guardrail to help stop the truck. He lost control of
the truck, and it jackknifed short of the cars, blocking the entire Interstate. Ferguson did not turn
his hazard lights on.
Alexander: Alexander had been driving semis for 14 years at the time. He admitted that at one
point, his visibility was reduced to 15-30 feet, yet he continued to drive despite having the
option to pull over. He saw Ferguson’s truck ahead but could not slow down without losing
control of his semi-trailer. He tried to veer right, but determined he could not pass on the
shoulder. He locked up his brakes and veered left to avoid a major collision. Alexander slid into
Ferguson’s truck, coming to rest diagonally. Once stopped, he turned on his hazards and looked
in his rearview mirror. He saw the Yoder vehicle careen off a vehicle in the right-hand lane, come
back across the Interstate and come to rest crashing under a semi trailer (driven by Knoll).
Alexander testified that the Yoder vehicle was traveling approximately 65 mph. He based this on
the erratic way the vehicle came through traffic and the damage to the vehicle.
Knoll: He was driving a semi at the time. He had been driving this same route three times a
week for several months. At the bridge, his visibility was reduced to about 100 feet, at which
point he reduced his speed to less than 45 mph. Shortly thereafter, he saw Alexander’s and
Ferguson’s trucks obstructing the roadway. He did not turn his hazard lights on but maintained
brake pressure for the final 17 seconds his truck was traveling. He finally came to a complete
stop partially in the median, with his trailer remaining partly in the left lane. Shortly thereafter,
Scott Yoder collided with the rear of his trailer.
Prior to trial, Jerelyn Yoder entered into good faith settlements with two defendants, Scott Yoder
and Joseph Rezetko. Scott Yoder paid approximately $500,000, and Joseph Rezetko paid
$300,000. After an eight-week trial, the jury found Scott Yoder was 51 percent at fault, and
judgment was thereby entered against him in his case. However, in Jerelyn’s cases, the jury did
not determine that Scott Yoder was the sole cause of the accident. Furthermore, as a result of
their prior settlements, Scott Yoder and Joseph Rezetko were not included on the verdict forms.
The jury entered a verdict for $38.3 million. Specifically, $7.3 million was awarded for Jerelyn’s
personal injury claims, $3.5 million as administrator of Teagan’s estate, and $27.5 million as next
friend of Zachary. Fault was allocated as follows among the remaining four defendants:
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(1) Ferguson:
(2) Alexander:
(3) Knoll:
(4) Marshall:
30% ($11,490,000)
10% ($3,830,000)
27% ($10,341,000)
33% ($12,639,000)
After trial, Marshall settled for $10.8 million, which was found to be in good faith. Knoll also
settled for $10,341,000, the full amount of his apportionment of the verdict. However, Ferguson
and Alexander both appealed a number of issues, including the issue of whether the trial court
erred by excluding the settling defendants from the jury fault allocation forms.
The First District, Fourth Division in a result-oriented decision adopted the rationale in Blake,
thus holding that settling defendants are no longer “defendants sued by the plaintiff.” The Court
noted that the legislature’s subsequent amendments to 2-1117 did not modify the language in
response to established case law, and thus the legislature must agree with the Blake
interpretation.
Yoder now serves to highlight how unfairly the Supreme Court’s decision in Ready, as will be
discussed, can operate. Minimally culpable defendants, such as Marshall, whom arguably did
very little wrong, can now be found disproportionately responsible due to our Supreme Court’s
recent decision.
B.
Ready or Not, Here It Comes!
Ready v. United/Goedecke Services, Inc., 367 Ill. App. 3d 272, 854 N.E.2d 758, 305 Ill. Dec. 166 (1st
Dist. 2006) – The lawsuit arose when plaintiff’s decedent was killed during a pipe re-fitting
project at his employer’s factory. Both decedent’s employer and the general contractor for the
project settled with plaintiff, leaving the scaffolding subcontractor (United) in the case at trial.
After trial, the jury returned a verdict of $14,230,000. They assessed 35 percent of the fault with
decedent, reducing the judgment to $9,250,000, and United was then allowed a set-off of
$1,112,502.58, which was the amount paid by the settling defendants.
On appeal, United raised numerous issues relating to the admissibility of evidence and that the
trial court erred in excluding the settling defendants from the jury verdict form.
Notably, the First District held the pre-amendment version of 2-1117 applied as the amendment
was a substantive change and could not be applied retroactively (the accident occurred in 1999
and the amendment was passed in 2003).
United relied on most of the cases cited above (including Alvarez, Dowe, and Skaggs) to support
its position that settling defendants should be included on the jury form. The First District
agreed with United and earlier interpretations of 2-1117, in that “a remaining defendant’s
culpability should be assessed relative to the culpability of all defendants, including settling
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defendants.” It further noted that a defendant that settles with a plaintiff is still “[a] defendant
sued by the plaintiff” as stated in 2-1117. In the Court’s opinion, because Lannom held a settling
defendant and its dismissal does not affect a nonsettling defendant’s rights under 2-1117, “it
follows that settling defendants must appear on the verdict form so as not to affect the rights of
the nonsettling defendants.” Since the prior 2-1117 applied in this matter, the employer was to
be included on the verdict form, and a new trial on liability was required.
The Illinois Supreme Court granted a petition for leave to appeal the Ready decision during its
November 2006 term, and finally issued its decision on November 25, 2008.
Ready v. United/Goedecke Services, Inc., No. 103474, 2008 WL 5046833 (Nov. 25, 2008) − After
embarking on a lengthy exercise of statutory construction, the Supreme Court in a plurality
decision (5-4) held that settling tortfeasors are NOT “defendants sued by the plaintiff” pursuant
to 2-1117. Therefore, settling defendants are not considered for fault apportionment purposes.
Throughout its analysis, the Supreme Court focused on the phrase “defendants sued by the
plaintiff” included in the language of 2-1117. Ultimately, the Court determined that the meaning
of the phrase is ambiguous. The Court held that where the legislature chooses not to amend a
statute after judicial construction, it is presumed the legislature has acquiesced in the Court’s
assessment of legislative intent. The Court noted that the 1995 amendments were passed by the
legislature after the holding in Blake. Consequently, the Court determined that the amendments
are a compelling indication that the legislature never intended settling defendants to be
included in the apportionment of fault under 2-1117. The Court’s analysis is particularly
interesting as it looks back to the Fifth District’s holding in Blake in 1995, but chooses to ignore
a number of other relevant cases.
On March 23, 2009, the Supreme Court denied rehearing on this matter.
C.
Ready in Practice − What Does It Mean?
The outcome in Ready increases the potential exposure of minimally culpable defendants, as the
following example illustrates:
Verdict - $1,000,000
Medical: $100,000
Non-medical: $900,000
Defendant 1 - 10%
Defendant 2 - 20%
Defendant 3 - 30%
Employer - 40%
Plaintiff settles with defendants 2 and 3 for a total of $200,000.
Employer’s workers’ compensation lien of $300,000 is waived.
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Settling Parties Not Considered Per Ready
Settling Parties Considered
for Apportionment
Defendant 1 is only 10% at fault
Defendant 1 represents 16% of the total
fault for apportionment
But, Defendant 1 still represents 100% of
the total fault for apportionment
Defendant 1's responsibility:
Medical:
$100,000
Non-Medical: $144,000
$244,000
Defendant 1 is jointly and severally liable for
the entire $1,000,000 verdict
Defendant 1 gets a set-off of $500,000
Defendant 1 gets a set-off of $500,000
Defendant 1 has no exposure after set-off
Defendant 1's responsibility is $500,000
IV.
STRATEGIC CONSIDERATIONS
A.
Is Sole Proximate Cause a Defense in Illinois?
In Lipke v. Celotex Corp., 153 Ill. App. 3d 498, 505 N.E.2d 1213, 106 Ill. Dec. 422 (1st Dist. 1987),
the First District distinguished the rights of a defendant involved in asbestos litigation. In Lipke,
an asbestos worker filed suit against 27 asbestos manufacturers to recover for damages
sustained as a result of continued exposure to asbestos products. By the time of trial, all of the
defendants, except one, had obtained settlement with plaintiff. A verdict of $629,000 in
compensatory damages was awarded, along with $175,000 in punitive damages.
The remaining defendant appealed this decision, and argued, among other things, that a series
of errors made by the trial court resulted in the denial of a fair trial. One such error was the
exclusion of evidence of plaintiff’s exposure to other asbestos-containing products. The First
District did not find this to constitute error. Evidence of other exposures was deemed irrelevant.
The Lipke court noted that where there is more than one proximate cause of an injury, a party
guilty of negligence cannot avoid responsibility just because another is also guilty of negligence
contributing to the same injury. See Lipke, 153 Ill. App. 3d at 509, citing, Sears v. Kois Bros. Equip.,
Inc., 110 Ill. App. 3d 884, 889, 443 N.E.2d 214, 66 Ill. Dec. 531 (1st Dist. 1982). The First District
concluded that where such guilt is present, it is no defense that another contributed to bring
about the result for which damages are claimed; either or both are liable and, therefore, the fact
that plaintiff used a variety of asbestos products does not relieve a defendant of liability.
However, there are circumstances where a defendant would argue its actions were not the
proximate cause to an injury suffered by a plaintiff. In those circumstances, nothing should
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prevent that defendant from presenting evidence of a settled party’s negligence under the
auspices that the settling defendant was the “sole proximate cause” of the injury.
Since this decision, defendants in asbestos-related cases face the potential of being the only
party left on the hook for damages in the event all other defendants settle and it stands alone
when a verdict is announced. The only arguments remaining for such a defendant are set-off
and sole proximate cause.
Asbestos defendants continued in their efforts to have Lipke overturned. In 2006, the Fourth
District ruled in Nolan v. Weil-McLain, 365 Ill. App. 3d 963, 851 N.E.2d 281, 303 Ill. Dec. 383 (4th
Dist. 2006), that a boiler manufacturer was barred from introducing evidence of a decedent’s
exposures to other asbestos-containing products. The defendant in that matter petitioned for
leave to appeal this decision (essentially, asking for the Illinois Supreme Court to overrule Lipke).
The Supreme Court accepted defendant’s petition, and oral arguments were made May 16,
2007.
On April 16, 2009, the Supreme Court reversed the circuit court and Fourth District and
remanded to the circuit court. Nolan v. Weil-McLain, No. 103137, 2009 WL 1012147 (April 16,
2009). In a decision that overturns Lipke, the Supreme Court held the following:
The single paragraph in Lipke from which the exclusionary rule of other-exposure
evidence is derived neither suggested nor held that a defendant should be
barred from introducing evidence of other potential causes of injury where it
pursues a sole proximate cause defense, nor that juries should be deprived of
evidence critical to a causation determination. As observed by the dissenting
justice below, the appellate court’s erroneous interpretation of Lipke, Thacker and
Leonardi in its rulings in Kochan and Spain left Illinois standing alone in excluding
evidence of other asbestos exposures, and conflicted with our well-settled rules
of tort law that the plaintiff exclusively bears the burden of proof to establish the
element of causation through competent evidence, and that a defendant has the
right to rebut such evidence and to also establish that the conduct of another
causative factor is the sole proximate cause of the injury. We hold that the circuit
court erred by relying on the appellate court’s erroneous - and now overruled decisions to prevent defendant from presenting evidence of decedent’s other
asbestos exposures in support of its sole proximate cause defense.
Nolan, 2009 WL 1012147 at *15.
The Nolan decision is a significant victory for defendants. Nolan makes it quite clear that
defendants should be allowed to argue that its actions were not the proximate cause of an
injury suffered by a plaintiff. Accordingly, nothing should prevent defendants from presenting
evidence of the negligence of either a settling tortfeasor or a non-party tortfeasor under the
auspice that the actions of other tortfeasors were the “sole proximate cause” of the injury.
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Despite Ready, sole proximate cause remains an available strategy to utilize at trial. Section 21117 deals strictly with apportionment of fault. If fault can only be apportioned to one
defendant (100 percent vs. 0 percent), then the party that is 0 percent liable should not be
forced to pay.
B.
Should a Contribution Claim Be Filed Against Plaintiff’s Employer?
Given the operation of section 2-1117, the fault of plaintiff’s employer will not be considered by
the court in reallocating fault for purposes of 2-1117. However, the contribution claim is still a
valuable tool. The Contribution Act (740 ILCS 100/0.01 et seq.) is designed to make sure that a
joint tortfeasor does not pay more than its pro rata share. A contribution claim will reduce the
amount of the exposure even in situations where the minimally culpable defendant ends up
paying substantially more than it ever should.
Plaintiff’s employer’s contribution liability will still be limited by its Kotecki cap. The operation of
section 2-1117 will not ensure the result intended by the Contribution Act (i.e., joint tortfeasors
should pay their pro rata share of liability), but it will still help limit the exposure of the
defendant found jointly and severally liable. Furthermore, the third-party contribution claim
against plaintiff’s employer may help get the workers’ compensation lien waived, which will
operate as a set-off, should a good-faith finding be obtained, at the time of trial. See, Wilson v.
Hoffman Group, Inc., 131 Ill. 2d 308, 546 N.E.2d 524, 137 Ill. Dec. 579 (1989).
It is important to note, however, that getting a complete lien waiver may become more difficult
since the minimally culpable defendant may now be compelled to pay the entire judgment
ensuring plaintiff’s employer payback of the lien. Lastly, contract documents should be carefully
reviewed to determine whether plaintiff’s employer may have waived its Kotecki lien protection.
If so, the contribution claim could help even more to offset the injustice foisted upon a
minimally culpable defendant by section 2-1117.
C.
What About Set-Offs and Section 2-1117?
Illinois provides a right of contribution where two or more persons are subject to liability in tort
arising out of the same injury. 740 ILCS 100/2. If a tortfeasor settles and obtains a good-faith
finding, the non-settling tortfeasor is entitled to a set-off against the judgment by the amount
paid by the settling tortfeasor. 740 ILCS 100/2(c). The non-settling tortfeasor is entitled to the
set-off even if the resulting judgment in favor of plaintiff is reduced to zero. Pasquale v. Speed
Products Engineering, 166 Ill. 2d 337, 654 N.E.2d 1365, 211 Ill. Dec. 314 (1995). Nothing within
section 2-1117 suggests that a non-settling tortfeasor should be deprived of a set-off.
A non-settling tortfeasor’s right to a set-off arises under the Contribution Act (740 ILCS
100/0.01, et seq.) as a result of settlements reached between plaintiff and other joint tortfeasors.
A defendant’s right to apportion liability for joint and several liability purposes arises under
section 2-1117. The defendant’s rights to a set-off and apportionment are wholly independent.
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Therefore, the non-settling tortfeasor should be entitled to apportionment under section 2-1117
and to a set-off under the Contribution Act for any amounts paid by settling tortfeasors.
Expanding upon an earlier example, please consider the following:
Verdict - $1 million
Medical: $100,000
Non-medical: $900,000
Percentages of fault
Defendant 1 - 1%
Defendant 2 - 1%
Defendant 3 - 1%
Plaintiff’s employer - 97%
Before trial, plaintiff settles with Defendants 2 and 3 as well as his employer.
Plaintiff’s employer’s workers’ compensation lien of $400,000 is waived.
Defendant 2 pays $100,000 in settlement and Defendant 3 pays $150,000 in settlement.
What happens?
Defendant 1 is jointly and severally liable under section 2-1117.
Defendant 1 is entitled to a set-off of $400,000, the amount of the waived workers’
compensation lien.
Defendant 1 is entitled to a set-off of $250,000, the total amounts paid in settlement by
Defendants 2 and 3.
Defendant 1's total set-off is $650,000.
Defendant 1 pays plaintiff $350,000 ($1 million minus $650,000).
A recent Seventh Circuit decision, Baltzell v. R & R Trucking Co., 554 F.3d 1124 (7th Cir. 2009),
sheds further light on this subject. In Baltzell, plaintiff-employee was critically injured when he
was crushed by a tractor-trailer while working. Plaintiff received workers’ compensation benefits
from his employer. Additionally, plaintiff and his wife brought suit against the owner of the
tractor-trailer, the tractor manufacturer, and the trailer manufacturer. All three defendants filed
third-party claims for contribution against the employer. Plaintiffs prevailed before a jury against
all three defendants and were awarded $13,980,120. The employer waived its workers’
compensation lien after trial and moved to dismiss the contribution claims, which the district
court denied. It is noteworthy that the workers’ compensation case was not closed and future
payments were undetermined at the time of trial.
On appeal, the Seventh Circuit vacated and remanded. The Court held that the employer could
waive the workers’ compensation lien after trial and was thus not liable in contribution.
However, the Court concluded that the defendants were entitled to a set-off for any workers’
compensation benefits the employee and his wife received from the employer. Furthermore,
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once future workers’ compensation benefits were determined, the defendants would be entitled
to a set-off for those amounts as well.
D.
Should Plaintiff’s Co-Workers Be Added As Third-Party Defendants?
Under the current joint liability statute, the only tortfeasor whose fault is excluded from the
apportionment process is the “plaintiff’s employer.” The statute is silent with respect to any
other culpable parties, such as plaintiff’s co-workers. Section 5(a) of the Workers’ Compensation
Act, 820 ILCS 305/5(a), immunizes employers and co-workers from liability to the plaintiff,
Fregeau v. Gillespie, 96 Ill. 2d 479, 484, 451 N.E.2d 870, 71 Ill. Dec. 716 (1983); Rylander v.
Chicago Short Line Ry. Co., 17 Ill. 2d 618, 628, 161 N.E.2d 812 (1959). The immunity provided by
the Workers’ Compensation Act is an affirmative defense which must be asserted. Doyle v.
Rhodes, 101 Ill. 2d 1, 461 N.E.2d 382, 77 Ill. Dec. 759 (1984).
The Illinois Supreme Court has also recognized that, for Contribution Act purposes, any liability
for the fault of a co-worker must be paid by the employer, not by the co-worker. Ramsey v.
Morrison, 175 Ill. 2d 218, 231, 676 N.E.2d 1304, 222 Ill. Dec. 100 (1997). The Ramsey court
determined that the co-worker immunity that exists within the Workers’ Compensation Act bars
a direct suit against the co-worker and also bars a third-party contribution action against the coemployee. Id. at 229-30. However, the Illinois Supreme Court also held that this immunity must
be asserted in order to be effective, citing section 5(a) of the Workers’ Compensation Act. Id. at
231. This is an area that has not been addressed by the courts. If a co-worker is added as a
third-party defendant, a motion to dismiss will likely be filed, contending that the co-worker is
immune from a third-party claim for contribution. The motion to dismiss will likely be granted.
The question which remains unanswered is whether the co-worker, who was named as a thirdparty defendant but subsequently dismissed, is considered a “third-party defendant” for
apportionment purposes under section 2-1117. This appears to be a difficult argument to make
given the rationale employed in the Ramsey decision, but it is an area that is unsettled. Section
2-1117 by its very terms excludes the plaintiff’s employer from the fault calculations, not
plaintiff’s co-workers.
E.
Does 2-1117 Apply to Defendants Acting in Concert?
Under the common law, a tortfeasor who acts in concert with other individuals in causing
plaintiff’s injury is jointly and severally liable for the injury because the tortfeasor is legally
responsible for the actions of the other individuals. The Supreme Court has held that section 21117 does not apply to cases where tortfeasors act in concert, stating that it is “legally
impossible to apportion liability among tortfeasors who act in concert.” Woods v. Cole, 181 Ill. 2d
512, 519-520, 693 N.E.2d 333, 230 Ill. Dec. 204 (1998).
In Rice v. White, 374 Ill. App. 3d 870, 874 N.E.2d 132, 314 Ill. Dec. 222 (4th Dist. 2007), three
individuals hosted a party at the home of the mother of one of the individuals. Prior to the party,
a flyer was distributed advertising the party and stating, “We will check for weapons.” One of the
J-21
guests at the party was shot and killed by the third-party defendant. A Sangamon County jury
awarded plaintiff’s estate $700,000 and found that the three individuals who hosted the party, as
well as the mother at whose home the party was held, acted in concert with one another in
bringing about the victim’s death. Interestingly, the jury was allowed to apportion fault and
attributed 19 percent to the mother, 2 percent to each of the three individuals who hosted the
party, and 75 percent to the shooter. Because the mother and three individuals who hosted the
party had liability which totaled 25 percent, the trial court held them jointly and severally liable
under section 2-1117 for the entire $700,000 award.
One of the issues on appeal was whether the “in concert” defendants were jointly and severally
liable for the damages. The Fourth District declined to address the issue regarding joint and
several liability. Instead, it found that there was not sufficient evidence to allow a claim to
proceed upon a theory of voluntary assumption of duty and, accordingly, defendants were
entitled to a directed verdict.
F.
What About the Fault of Non-Parties?
There is no language within section 2-1117 which addresses whether the fault of non-party
tortfeasors should be considered for purposes of determining joint and several liability under
section 2-1117. Under Ready, non-party tortfeasors who have settled with plaintiff prior to suit
will not be considered. However, there may be circumstances where a non-party has not settled
and is not a named party. Obviously, the inclusion of non-parties could operate to reduce the
potential exposure to a defendant. The inclusion of a non-party is certainly consistent with the
language within the Unzicker decision which suggests that minimally responsible defendants
should not have to pay entire damage awards. On the other hand, plaintiffs will argue that
Ready makes it clear that only those parties at the time of trial should be considered for
apportionment purposes.
Illinois courts will generally consider the fault of non-parties for contribution purposes. See,
Truszewski v. Outboard Motor Marine Corp., 292 Ill. App. 3d 558, 685 N.E.2d 992, 226 Ill. Dec. 537
(1st Dist. 1997) (excluding a non-party tortfeasor’s fault on the verdict form causes an unfair
determination of a party’s pro rata share under the Contribution Act); Bofman v. Material Service
Corp., 125 Ill. App. 3d 1053, 1063-64, 466 N.E.2d 1064, 81 Ill. Dec. 262 (1st Dist. 1984) (the fault
of non-party tortfeasors was allowed to be considered in determining the extent of plaintiff’s
responsibility in a purely comparative fault setting). The Illinois Pattern Jury Instructions suggest
that the jury apportion fault between the plaintiff, all defendants, third-party defendants and
non-parties. The First District’s decision in Lombardo suggests that the inclusion of non-parties
and settling defendants should be on the verdict form, since it helps protect the rights of a
plaintiff to an appropriate attribution of plaintiff’s own fault, as well as protecting defendant’s
contribution rights. However, it is unclear whether a non-party (a party never sued) should be
considered for apportionment of fault under section 2-1117.
J-22
G.
What About the Statute of Limitations?
The Contribution Act states that claims for contribution must be filed within two years of being
served with process in the underlying action. 735 ILCS 5/13-204. In addition, section 13-204(b)
allows the two-year period to be extended where a party, or its privy, did not know or did not
have reason to know of any act or omission giving rise to the action for contribution.
In addition, a contribution claim can be filed despite the passing of the two-year statutory
period under section 5/13-204 of the Contribution Act. The Supreme Court has held that section
5/13-207 of the Code of Civil Procedure is a saving provision for counterclaims which can be
utilized to file a responsive contribution claim despite the passing of the two-year limitations
period. Barragan v. Casco Design Corp., 216 Ill. 2d 435, 837 N.E.2d 16, 297 Ill. Dec. 236 (2005).
Here, the Court reasoned that 13-207 was not a statute of limitations because it serves to
preserve cases, not bar them. Id. at 448-49. Furthermore, the Court noted that nothing from
section 13-204 indicates that it was meant to circumvent the saving clause of 13-207. Id. at 449.
The two-year statute of limitations period for contribution claims, rather than the one-year
statute of limitations under the Tort Immunity Act, will apply to a contribution action against a
local public entity. Brooks v. Illinois Cent. R. Co., 364 Ill. App. 3d 120, 846 N.E.2d 931, 301 Ill. Dec.
328 (1st Dist. 2005). In Brooks, the First District noted that the plain language of the Contribution
Act states that, “in actions for contribution, its applicable limitations preempts all other statutes
of limitation or repose.” Additionally, the Court recognized that contribution claims might not
arise until well after the event giving rise to the underlying action, thus the two-year statute
applies. Id. at 123. As such, in actions for contribution, the two-year statute of limitations should
trump all other potentially applicable statutes.
Finally, keep in mind that a contractually shortened statute of limitations is enforceable, so long
as the limitations period is otherwise reasonable. Village of Lake In the Hills v. Illinois Emcasco
Ins. Co., 153 Ill. App. 3d 815, 506 N.E.2d 681, 106 Ill. Dec. 881 (2d Dist. 1987). Accordingly, it is
imperative to review all contracts pertaining to an underlying claim as the contract’s language
may shorten your client’s time to file a valid contribution claim.
H.
Is Any Version of Section 2-1117 Constitutional?
In 1986, the Illinois Legislature enacted the version of section 2-1117 which provided that
defendants found less than 25 percent at fault would be severally liable only, except as to
medical expenses. This particular provision, along with several others, was amended by the
Illinois Legislature in 1995 when it adopted pure several liability. The amended version was
subsequently declared unconstitutional in Best v. Taylor Mach. Works, 179 Ill. 2d 367, 689 N.E.2d
1057, 228 Ill. Dec. 636 (1997), resulting in the 1986 version being reinstated. The Supreme Court
in Best found that section 2-1117 was unconstitutional because it was special legislation
exempting medical malpractice claims from its scope. Best, 179 Ill. 2d at 432-33. In essence, the
Illinois Supreme Court in Best found that special benefits were conferred upon medical
malpractice plaintiffs.
J-23
The rationale utilized in the Best decision can apply with equal force to the current version of
section 2-1117. The Unzicker decision made it clear that minimally responsible defendants
should not have to pay entire damage awards. The current version of section 2-1117 unfairly
benefits a certain class of plaintiffs (i.e., those injured at work). If a plaintiff is injured at work, he
or she stands to benefit greatly from the operation of the statute, something clearly forbidden
based upon the rationale employed by the Supreme Court in its Best decision.
The constitutionality of the statute has not been addressed and, as a practical matter, will have
little relevance to handling most cases. In an appropriate setting, consideration should be given
to challenging the provision. It is noteworthy that even though the Supreme Court in Ready
looked at the prior version of 2-1117, the constitutionality of the current version was never
addressed.
V.
CONCLUSION
Evaluating fault in multi-party cases can be a confusing task. However, due to the recent
Supreme Court holdings in Ready and Nolan, a great deal of light has been shed on this subject.
Although defendants will be able to introduce the fault of other tortfeasors to argue sole
proximate cause, plaintiffs benefit greatly with the recent decision in Ready, since settling
defendants are not considered “defendants sued by the plaintiff” pursuant to 2-1117, and thus
will not be considered in the allocation of fault. Consequently, defendants, particularly deeppocket defendants, may be forced to pay a disproportionate share in settlement even where
they are only minimally culpable.
J-24
Matthew S. Hefflefinger
- Partner
Born in Pennsylvania, Matt began his legal career with
Heyl Royster while he was still in law school by
clerking with the firm during the summer. Following
graduation, he joined the firm in the Peoria office in
1989 and became a partner in 1997.
•
Matt is an aggressive advocate who has tried many
cases to verdict and enjoys the challenges of complex
litigation. He handles the defense of personal injury
cases primarily focusing upon the trucking and
construction industries. Matt is frequently contacted
immediately after a catastrophic loss to visit an
accident scene and help develop the facts and case
strategy with an eye toward a successful result once
litigation is filed. Beyond his expertise in trucking and
construction matters, he has always handled cases
touching upon a wide variety of areas including
construction delay claims, covenants not to compete,
breach of contract, aviation accidents, premises
liability, auto accidents and products liability.
•
National City Bank of Michigan/Illinois f/k/a
N.C. Illinois Trust Company, as Executor of the
Estate, 01 L 138, 01 L 171, Florida airplane crash
occurred just after take-off due to a faulty
throttle linkage assembly installed just 1.7 flight
hours before the accident. The pilot and his
wife, along with another couple, all perished in
the accident. The maintenance facility settled
before suit. The issue was whether the pilot
engaged in appropriate measures after the
power failure occurred. Complex case with
multi-million dollar demand settled favorably
through mediation.
Avemco Ins. Co., Inc. v. Elliott Aviation Flight
Services, Inc., 86 F. Supp. 2d 824 (C.D.Ill. 2000)
Trial of an airplane crash case involving a
Bonanza A36 during a biennial flight review.
The issue was determining who was the pilot in
command between the flight instructor and the
pilot undergoing the biennial flight review.
Matt has taught a Masters level course in the
graduate business program at Bradley University and
is a frequent speaker at continuing legal education
seminars held across the state addressing a variety of
different legal topics.
Professional Recognition
• Martindale-Hubbell AV rated
• 40 Leaders Under 40 - Peoria, 2000
• Abraham Lincoln American Inn of Court
(President 2005-2006)
Matt is a Martindale-Hubbell AV rated lawyer who has
remained extensively involved in the community
serving on a number of boards of community
organizations. He has also been instrumental in
founding two local charitable organizations dedicated
to, among other things, awarding college scholarships
to local high school seniors. Matt has also been
recognized as one of Peoria's "40 Leaders Under 40."
Professional Associations
• Abraham Lincoln American Inn of Court (Past
President)
• American Bar Association
• Defense Research Institute
• Illinois State Bar Association
• Illinois Association of Defense Trial Counsel
• Peoria County Bar Association
Significant Cases
• Cornett v. Gromenn Service Company v.
Caterpillar Inc, 227 Ill. App. 3d 148 (3d Dist.
1992) Third Party Complaint for Contribution
against Caterpillar was dismissed as timebarred under the product liability statute of
repose.
• Morton Community Bank v. Nash-Hasty
Investments Tazewell County, 98 L 133, NASD
Arbitration No. 98-03671 Represented two
stockbrokers against a bank in the successful
arbitration of a covenant not to compete
before the National Association of Securities
Dealers.
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
Education
• Juris Doctor, Southern Illinois University School
of Law, 1989
• Master of Business Administration, Southern
Illinois University, 1989
• Bachelor of Science (Magna Cum Laude),
Bradley University, 1984
J-25
Learn more about our speakers at www.heylroyster.com
WHAT CAN THE PLAINTIFF RECOVER? DAMAGES UPDATE Presented and Prepared by:
Edward M. Wagner
[email protected]
Urbana, Illinois • 217.344.0060
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
K-1
WHAT CAN THE PLAINTIFF RECOVER?
DAMAGES UPDATE
I.
INTRODUCTION............................................................................................................................................K-3
II.
PART ONE: LIVING PLAINTIFFS – SAMPLE VERDICT FORMS.......................................................K-3
A.
B.
III.
Living Injured Adult Plaintiff......................................................................................................K-3
Living Injured Minor with Parents & Sibling –
Plaintiff-Minor with the Right to Recover Expenses
Not Assigned to the Minor........................................................................................................K-4
PART TWO: DEATH CASES ........................................................................................................................K-5
A.
Deceased Adult − The Three Basic Causes of Action in a
Death Case for a Deceased Adult and the Recoverable Damages ............................K-5
1.
2.
3.
B.
Deceased Minor with Parents and Siblings Surviving –
The Same Three Basic Causes of Action Are Available
in a Death Case for a Deceased Minor .................................................................................K-6
1.
2.
3.
IV.
Survival Act Count/755 ILCS 5/27-6 of the Illinois Probate Act ...................K-5
Wrongful Death Act Count/740 ILCS 180/1 et seq. ...........................................K-5
Family Expense Act Count/750 ILCS 65/15 ..........................................................K-5
Survival Act Count..........................................................................................................K-6
Wrongful Death Act Count .........................................................................................K-6
Family Expense Act Count ..........................................................................................K-6
PART THREE: NEW DEVELOPMENTS ....................................................................................................K-6
A.
NEW: Medical Bills ........................................................................................................................K-6
1.
2.
B.
C.
D.
E.
F.
G.
Arthur v. Catour (2005).................................................................................................K-6
Wills v. Foster (2008) .....................................................................................................K-7
NEW: Pending SB 184 Would Provide for Prejudgment Interest ..............................K-7
NEW: Parent Caretaking Services for Injured Minor ........................................................K-9
NEW: Parent Caretaking Services for Disabled Adult Child ..........................................K-9
NEW: Grief and Sorrow in Death Cases ................................................................................K-9
OLD: No Punitive Damages in Survival or Wrongful Death Cases .......................... K-10
NEW: Shortened Life Expectancy ......................................................................................... K-10
K-2
WHAT CAN THE PLAINTIFF RECOVER?
DAMAGES UPDATE
I.
INTRODUCTION
Gone are the days when you could call up your opponent and often reach an agreed settlement
in the range of “three times specials.” Recent legislation, judicial decisions and publicized
“runaway” jury verdicts have contributed to a new settlement environment where the defense
must be aware of what elements of damages are recoverable in each type of case.
The best method of evaluating or predicting a reasonable jury verdict range is to actually
construct a “draft” jury verdict form and list the elements of damages which will be itemized
and go to the jury for their determination. If there is evidence presented at trial to support
including an element of damage on the jury verdict form, that element will have its own specific
“line” on the verdict form. In the eyes of the plaintiff, “the more lines, the more money” is likely
to be awarded. To get a clear picture of what type of verdict form a jury in a personal injury case
may receive, we include the potential available “line items” below from a claim involving an
adult and then a minor.
We also discuss the three typical counts or causes of action the defense faces in a death case.
Finally, we discuss and highlight five significant new developments in the area of recoverable
damages which continue the recent trend of potentially increasing the amount of total
damages a plaintiff may recover under Illinois law.
II.
PART ONE: LIVING PLAINTIFFS – SAMPLE VERDICT FORMS
A.
Living Injured Adult Plaintiff
Disfigurement
$_____________________
Disability/loss of a normal life
$_____________________
The increased risk of future harm resulting from the injury
$_____________________
Pain and suffering (past and future)
$_____________________
Loss of earnings (past and present cash value of earnings
reasonably certain to be lost in the future)
$_____________________
K-3
Reasonable caretaking expenses (past and present cash
value of such expenses reasonably certain to be required in
the future)
$_____________________
Medical expenses (past and present cash value of the
reasonable expenses of medical care reasonably certain to
be received in the future)
$_____________________
NEW: Shortened life expectancy
$_____________________
TOTAL:
B.
$_____________________
Living Injured Minor with Parents & Sibling − Plaintiff-Minor with the Right
to Recover Expenses Not Assigned to the Minor
Disfigurement
$_____________________
Disability/loss of a normal life
$_____________________
The increased risk of future harm resulting from the injury
$_____________________
Pain and suffering (past and future)
$_____________________
Loss of future earnings (the present cash value of earnings
reasonably certain to be lost in the future after plaintiff has
reached the age of 18)
$_____________________
Reasonable caretaking expenses (the present cash value of
such expenses reasonably certain to be required in the
future after plaintiff has reached the age of 18) [NEW: This
element may now include “parent caretaking services”]
$_____________________
Medical expenses (the present cash value of medical care
reasonably certain to be incurred in the future after plaintiff
has reached the age of 18)
$_____________________
Shortened life expectancy
$_____________________
TOTAL:
K-4
$_____________________
III.
PART TWO: DEATH CASES
A.
Deceased Adult − The Three Basic Causes of Action in a Death Case for a
Deceased Adult and the Recoverable Damages
1.
Survival Act Count/755 ILCS 5/27-6 of the Illinois Probate Act
2.
Wrongful Death Act Count/740 ILCS 180/1 et seq.
Generally, the “next of kin,” which includes any surviving spouse, is entitled to recover fair
compensation for their “pecuniary injuries” sustained due to a decedent’s death. In re Estate of
Finley, 151 Ill. 2d 95, 601 N.E.2d 699, 176 Ill. Dec. 1 (1992). The law also provides that the jury be
instructed that with regard to these, “pecuniary injuries,” a surviving spouse and children of a
decedent are entitled to a presumption that they have sustained some “substantial pecuniary
loss” by reason of the decedent’s death. I.P.I. (Civil) No. 31.04. Any future losses are to be limited
by the decedent’s life expectancy.
“Pecuniary injures” include:
•
•
•
•
loss of consortium/loss of society
loss of support (future losses discounted to present cash value)
loss of household personal services (future losses discounted to present cash value)
NEW: the grief, sorrow and mental suffering of the “next-of-kin”
“Pecuniary injuries” do not include:
•
•
•
•
•
•
the pain and suffering of the decedent
the poverty or wealth of the decedent or the widow/next-of-kin
investment income lost from cashing in estate assets to discharge the estate’s tax liability
or other debts, Elliott v. Willis, 92 Ill. 2d 530, 442 N.E.2d 163, 65 Ill. Dec. 852 (1982).
hedonic damages
punitive damages, Ballweg v. City of Springfield, 114 Ill. 2d 107, 499 N.E.2d 1373, 102 Ill.
Dec. 360 (1986).
NOTE: The jury “may” also consider what the evidence shows concerning the decedent’s
personal expenses and other relevant deductions in possibly reducing any amount
shown or argued by plaintiff. “Other deductions” do not include income taxes.
3.
Family Expense Act Count/750 ILCS 65/15
A surviving spouse, parent or legal guardian may recover for the medical, medically-related,
caretaking, and rehabilitation costs and expenses, as well as funeral and burial expenses, under
the statute. This recovery should only be available under a separate count brought by an
individual who is statutorily liable for the claimed expenses and bills under the strict terms of the
Family Expense Act. The Estate cannot pursue a claim under this statute.
K-5
B.
Deceased Minor with Parents and Siblings Surviving − The Same Three Basic
Causes of Action Are Available in a Death Case for a Deceased Minor
1.
Survival Act Count
2.
Wrongful Death Act Count
Generally, the “next-of-kin” include the parents and siblings, and each is entitled to recover fair
compensation for their “pecuniary injures” sustained due to the minor’s death. The jury will be
instructed that the parents are entitled to a presumption that they have sustained some
“substantial pecuniary loss” as a result of their minor-child’s death. However, the siblings are
not entitled to any such presumption.
The jury is also instructed that a parent’s “pecuniary loss” must be reduced by the expenditures
that the parents would have been likely to incur for that child had the child lived. I.P.I. (Civil)
31.01. However, to request and argue this “child rearing expenses” deduction, there must be
some evidence of those expenses admitted during trial.
NEW: The inclusion of a possible specific and itemized award to the parents for their grief,
sorrow and mental suffering as a result of their child’s death is a substantial new element which
is likely to increase case values for the death of minors.
3.
Family Expense Act Count
A surviving parent or legal guardian may bring a separate count in their individual capacity to
recover medical, hospital, caretaking, and rehabilitation costs and expenses, as well as funeral
and burial expenses, of the deceased minor-child.
NEW: Parent caretaking services are now recoverable at the reasonable value of caretaking
services charged by the relevant professional services.
IV.
PART THREE: NEW DEVELOPMENTS
A.
NEW: Medical Bills
1.
Arthur v. Catour (2005)
In Arthur v. Catour, 216 Ill. 2d 72, 833 N.E.2d 847, 295 Ill. Dec. 641 (2005), our Illinois Supreme
Court ruled that a personal injury plaintiff can present to a jury and recover the full amount of
medical bills initially billed for the service rendered, even though the provider had accepted a
lower amount pursuant to a preferred provider agreement with a private health insurance
company, as payment in full.
K-6
The rationale behind this rule was the “well established” principle that a wrongdoer should not
benefit from a contractual situation where he did not pay any of the insurance premiums. Also,
the Court was fearful that any other result would somehow allow the presence of health
insurance to be before the jury, which could then conclude that the plaintiff sustained no losses
if his medical bills were paid for by insurance.
The Arthur v. Catour case implied that there was a difference in the way paid medical bills should
receive treatment, depending on whether they were paid or compromised by private insurance
versus paid by Medicare, Medicaid or some governmental plan.
2.
Wills v. Foster (2008)
In Wills v. Foster, 229 Ill. 2d 393, 892 N.E.2d 1018, 323 Ill. Dec. 26 (2008), our Supreme Court
clearly withdrew any prior notion that there was some distinction on how medical bills were to
be given evidentiary treatment depending on who paid them. The Court changed the focus from
the actual cost or amount of the payment of the plaintiff’s medical bills to the “reasonable value”
of the services rendered.
Thus, under the Wills decision, a plaintiff may place the entire initial billed amount into evidence,
provided the plaintiff establishes the proper foundational requirements to show the bill’s
reasonableness. The Court noted that since the entire billed amount had not been paid, the
plaintiff would be faced with the problem of not being able to establish a prima facie case of
reasonableness based on the bills alone.
Also, the Wills decision prohibits a defendant from introducing any evidence regarding the
payment of the medical bills in an effort to circumvent the collateral source rule. Thus, it is now
irrelevant whether bills were paid by insurance or a health plan, by Medicare or Medicaid at less
than the amount claimed, or provided by Easter Seals at no cost to the plaintiff – the only issue
now is what is the “reasonable value” of the medical services which were rendered.
B.
NEW: Pending SB 184 Would Provide for Prejudgment Interest
Proposed as a new section to the Code of Civil Procedure at 735 ILCS 5/2-1303.1, this Senate Bill
184 would provide that prejudgment interest must be awarded in a civil suit or arbitration under
certain circumstances. This proposal, which was initiated by the Illinois State Bar Association and
has the full support of its leadership, would be very beneficial to plaintiff attorneys. If enacted,
the proposal would apply to all causes of action accruing on or after its proposed effective
dates of January 1, 2010.
Good news! As of April 7, 2009, this SB 184 has been amended in a fashion that literally gutted
the legislation and stalled its progress, at least for now. Nevertheless, it is likely that the concept
will be resurrected or reincarnated within some other legislation, so the basic concepts of SB 184
are worth reviewing.
K-7
The proposed statute would award prejudgment interest from the date the party from whom
damages are sought is given written notice of the claim for money damages, or when the suit or
arbitration is filed, whichever is earlier, until the award or judgment is entered.
The written notice would have to refer to the statute (735 ILCS 5/2-1303.1) and be served either
by personal service by the sheriff or a private process server; or by certified mail, return receipt
requested; or by any documented method considered to be an accepted business practice.
The written notice could be sent by the party seeking money damages or its attorney to the
party from whom the money damages are sought, or to its attorney or liability insurer.
The proposal would allow a defendant to possibly avoid paying prejudgment interest by making
a written offer of settlement to the plaintiff any time after that defendant files an Answer, but no
later than 120 days after filing an Answer. The amount of that written settlement offer would be
significant and there would be no prohibition against making more than one such offer during
the 120-day period. If the plaintiff did not accept the offer of settlement in writing within 30
days of receipt, and the plaintiff’s judgment or arbitration award was less than or equal to that
offer of settlement, then no prejudgment interest could be awarded against that defendant. If
there was no offer made within the specified 120-day period, or if the plaintiff’s judgment or
arbitration award was more than the defendant’s offer, then prejudgment interest must be
awarded.
The parties could agree in writing to extend the 120-day period.
The proposal would require that the monthly prejudgment interest rate be calculated by the
State Comptroller and published on his website each month.
The proposed statute would not apply to:
•
•
•
•
a unit of local government, school district, community college district, or other
governmental entity;
a small claims case;
a claim for punitive damages; or
any suit or action governed by a more specific State statute, including but not limited to
the Interest Act, or preemptive federal law
Comment:
The “written notice” would not require the plaintiff to include a demand, but the
defendant or his insurer would be forced to unilaterally make an offer.
Comment:
There was no provision for the trial court to extend the 120-day period. As a
consequence, unfair gamesmanship could lead to a plaintiff delaying or refusing
to respond to defendant’s discovery during the 120-day period, thus leaving the
defendant or his insurer with little or no information upon which to reasonably
evaluate the case and formulate an offer.
K-8
Comment:
The insured would need to be kept informed of all such “written notices” and
“offers” in a timely manner.
Comment:
The statute, as originally formulated, would also presumably apply to
counterclaims, third party actions, and claims for contributions, and thus might
provide some tactical leverage by forcing reluctant co-defendants to participate
in a joint settlement effort.
Chuck Timmerwilke of our Rockford office will provide an update on this legislation in his
discussion of legislative developments at the May 21 seminar.
C.
NEW: Parent Caretaking Services for Injured Minor
In Worley v. Barger, 347 Ill. App. 3d 492, 807 N.E.2d 1222, 283 Ill. Dec. 381 (5th Dist. 2004), a
mother settled her daughter’s injury claim and then filed suit for her own lost wages sustained in
order to provide care to her injured daughter. Although other states have allowed parents to
recover their own lost wages for caring for their injured child, the court denied this request, but
allowed the mother to recover the reasonable value of caretaking services that would have been
incurred as if someone had been employed to take care of her child, plus the present cash value
of such expenses reasonably certain to be required in the future.
D.
NEW: Parent Caretaking Services for Disabled Adult Child
In Clark v. Children’s Memorial Hospital, No. 1-08-0610, 2009 WL 987413 (April 9, 2009, 1st Dist.),
an appeals court extended potential damages recoverable by parents in a “wrongful birth” suit
to now include recovery for the reasonable value of caretaking services for a severely disabled
child beyond the age of majority. The court reasoned that since a parent could be ordered to
provide support for an unemancipated, disabled adult child, these post-majority caretaking
expenses should be available in a suit on behalf of the disabled adult child by his parents. See
750 ILCS 5/513(a)(1). This appellate decision will likely be appealed to the Supreme Court.
E.
NEW: Grief and Sorrow in Death Cases
Until May 31, 2007, the law in Illinois did not allow plaintiffs in a Wrongful Death Act case to
recover for grief, sorrow or bereavement suffered by the surviving spouse or next-of-kin. In fact,
there was a specific jury instruction which told the jury they were not to consider such elements
in assessing damages in a death case. I.P.I. (Civil) No. 31.07 (2006). All that changed when the
legislature passed an amended § 2.0 of the Wrongful Death Act, which now allows a jury award
to include money damages to a surviving next-of-kin for grief, sorrow and mental suffering
caused by the decedent’s death, for any cause of action which accrued on or after May 31, 2007.
740 ILCS 180/2.
K-9
F.
OLD: No Punitive Damages in Survival or Wrongful Death Cases
Several recent Appellate Court opinions (LaSalle National Bank v. Willis, 378 Ill. App. 3d 307, 880
N.E.2d 1075, 317 Ill. Dec. 83 (1st Dist. 2007) and Marston v. Walgreen, No. 1-07-0209, 2009 WL
884813 (March 31, 2009, 1st Dist.) have reaffirmed the long-standing Illinois public policy and
established law that actions for punitive damages in survival or wrongful death cases will not
survive the death of the original plaintiff because the Illinois legislature has not specifically
authorized such actions. Will this be the next area of legislative initiative on the part of the
plaintiff’s bar?
G.
NEW: Shortened Life Expectancy
In mid-2008, the Illinois Supreme Court approved a Civil Jury Instruction on “Shortened Life
Expectancy.” IPI (Civil) No. 30.04.05. Assuming there is evidence at trial to support this new
measure of damages, this new instruction adds one more “line item” to the list of potential
elements of damages a plaintiff may now recover. While the plaintiff’s bar had been advocating
for this additional element of damages, their cause was strengthened by the Appellate Court’s
decision in Bauer v. Memorial Hospital, 377 Ill. App. 3d 895, 879 N.E.2d 478, 316 Ill. Dec. 411 (5th
Dist. 2007), which affirmed the trial court’s giving of an instruction which included “Shortened
Life Expectancy” as an additional damage measure. To present and preserve such a claim,
plaintiffs will most likely be required to produce medical expert witness opinion testimony, all of
which will likewise require an expert from the defense to counter any such opinion. It is not clear
whether a mere treating physician would have the necessary training and qualifications to
render an opinion on life expectancy, but it is expected that many will try, regardless of how
speculative the resulting opinion may be. However, this new strategy by plaintiffs may also
“open the door” for the defense to introduce many facts about a plaintiff which would otherwise
be totally irrelevant, namely the plaintiff’s health habits such as smoking, alcohol consumption
and other dangerous hobbies in order to counter any opinion on what would otherwise be a
normal life expectancy. In addition, if a plaintiff pursues this new element, the defense should
argue that any instruction on the element of “disability” is correspondingly limited so no jury
award over-compensates a plaintiff for overlapping periods of time.
K-10
Edward M. Wagner
- Partner
Ed is the partner in charge of our Urbana office, which
covers east central Illinois. He has spent his entire
legal career with Heyl Royster, beginning in 1980.
•
Prior to law school, Ed served in the United Sates
Marine Corps from 1973 to 1977 and was discharged
at the rank of Captain.
Ed concentrates his civil litigation practice on
defending healthcare providers in malpractice claims,
employers in civil rights discrimination and
termination claims, and professional liability claims.
With extensive trial experience throughout central
Illinois, Ed has successfully defended or skillfully
negotiated over 500 medical, hospital, dental or
nursing home cases.
•
rotator cuff repair surgery with allegations of
lack of monitoring and medication errors.
Plaintiff asked jury for $6.7 million.
Campbell v. Wagner, 303 Ill. App. 3d. 609 (4th
Dist. 1999), appeal denied, 184 Ill. 2d. 554
(1999) Trial; not guilt jury verdict for alleged
negligence during gynecological surgery
resulting in near-death post-operative
complications.
Lane v. Troxtell and Rockwell, Trial; minimal jury
verdict in favor plaintiff-passenger on the back
of a motorcycle that was struck by insureddriver's pick-up.
Professional Recognition
• Martindale-Hubbell AV Rated
• Selected as a Leading Lawyer in Illinois. Only
five percent of lawyers in the state are named
as Leading Lawyers.
• Named to the 2009 Illinois Super Lawyers list.
The Super Lawyers selection process is based
on peer recognition and professional
achievement. Only five percent of the lawyers
in each state earn this designation.
• Appointed by the Illinois Supreme Court to its
Rules Committee and is serving in his third
three-year term
Ed is currently in his third term as an appointed
member of the Illinois Supreme Court Rules
Committee which drafts, reviews and submits
proposed rules and revisions to the Supreme Court on
all areas of practice, procedure and ethics. He is also
co-chair of the Professional Liability Committee of the
Illinois Defense Counsel.
Ed has spoken and written for many civic
organizations on the issues of employers' liability and
rights in the workplace and has presented at an
Illinois State Bar Association seminar on corporate
internal audits and investigations in Employment Law.
Ed has also lectured at the University of Illinois
College of Law on the topic of federal civil discovery.
He has been designated one of the "Leading Lawyers"
in Illinois as a result of a survey of Illinois attorneys
conducted by the Chicago Daily Law Record. Ed has
also been named to the 2009 Illinois Super Lawyers
list. The Super Lawyers selection process is based on
peer recognition and professional achievement. Only
five percent of the lawyers in each state earn this
designation.
Professional Associations
• Illinois Supreme Court Rules Committee
• Illinois Association of Defense Trial Counsel
(IDC co-chair of Professional Liability
Committee
• Defense Research Institute
• American Bar Association
• Illinois State Bar Association
• Champaign County Bar Association
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
• United States Court of Appeals, Seventh Circuit
He has, on occasion, been appointed as a Special
Assistant by the Attorney General's Office in
extraordinary civil litigation against state officials.
Education
• Juris Doctor (Cum Laude), Creighton University,
1980
• Bachelor of Arts-History, Marquette University,
1973
Significant Cases
• Ehrbright v. R, M.D., et al., Trial; hung jury after
2 week trial against our orthopedic surgeon
and hospital for alleged wrongful death of a 42
year old father and wage earner following
K-11
Learn more about our speakers at www.heylroyster.com
UNINSURED AND UNDERINSURED MOTORIST UPDATE Presented and Prepared by:
Douglas R. Heise
[email protected]
Edwardsville, Illinois • 618.656.4646
Prepared with the Assistance of:
Gary C. Pinter
[email protected]
Edwardsville, Illinois • 618.656.4646
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
L-1
UNINSURED AND UNDERINSURED
MOTORIST UPDATE
I.
DRIVER BEWARE ......................................................................................................................................... L-3
II.
A BRIEF HISTORY OF ILLINOIS UM/UIM LEGISLATION ............................................................... L-3
III.
RECENT CASES DEALING WITH UM/UIM CLAIMS ........................................................................ L-4
A.
B.
C.
D.
Set-Off: Workers’ Compensation Benefits
in Connection with Uninsured Motorist Coverage –
the Illinois Supreme Court Speaks ........................................................................................ L-4
Does Renewal or Reinstatement of a Prior Policy Require
the Insurer to Make a New Offer of Increased Underinsured
Coverage Pursuant to 215 ILCS 5/143A-2? ....................................................................... L-5
Is Your Live-In Fiancé’s Son a “Family Member” Such
That He Is Entitled to UM Coverage? .................................................................................. L-6
Can a Definition of an “Insured” Under UIM Coverage
Be Different Than “Insured” Under the UM Coverage .................................................. L-8
1.
2.
E.
F.
G.
H.
Shultz v. Farmers ........................................................................................................... L-8
Farmers v. Weglar ....................................................................................................... L-8
Be Careful Who You Release ................................................................................................. L-9
Choice of Law Equitable Estoppel and
Out of State Policy Exclusions ..............................................................................................L-10
To Stack or Not to Stack: That Is the Question.............................................................. L-11
The Common Fund Doctrine ................................................................................................ L-12
L-2
UNINSURED AND UNDERINSURED
MOTORIST UPDATE
I.
DRIVER BEWARE
According to the 2007 Illinois Crash Facts and Statistics, there were a total of 422,778 traffic
crashes in Illinois in 2007. More than 90 percent of those crashes were vehicle vs. vehicle. That
results in approximately 380,000 vehicles v. vehicle crashes. The total estimated cost of crashes
in Illinois in 2007 was $11.5 billion dollars. Fatal accidents were estimated to cost $1.2 million
dollars per accident. Non-fatal incapacitating injuries had an average estimated cost of $64,400
while non-incapacitating injuries had an average estimated cost of $20,900.
In a 2008 study by the Insurance Research Council, the estimated percentage of uninsured
motorists in Illinois in 2007 was 15 percent. Using the vehicle v. vehicle statistics noted above,
that would result in an estimated 57,000 vehicle v. vehicle crashes where an uninsured motorist
was involved. Due to the current state of the economy, that percentage is expected to rise.
II.
A BRIEF HISTORY OF ILLINOIS UM/UIM LEGISLATION
Statistics such as these underscore the need for responsible motorists to carry insurance. In
1970, the General Assembly passed the Illinois Safety and Family Financial Responsibility Law.
625 ILCS 5/7-201 et seq. It requires Illinois motorists to maintain minimum liability limits in the
amount of $20,000 for bodily injury or death of a person per accident, and $40,000 total per
accident. It also requires minimum limits of $15,000 for property damage. Regardless of the
penalties and risks involved, a significant number of Illinois motorists remain uninsured. In
recognition of this risk, the Insurance Code requires insurers to offer their insured customers
coverage against uninsured drivers (UM coverage) in the same minimum amounts as dictated by
the Illinois Safety and Family Financial Responsibility Law. 215 ILCS 5/143a(1). Further, the Illinois
Insurance Code also requires insurers to offer underinsured motorist coverage (UIM) as well as
uninsured motorist coverage in the same amount as the insurance purchaser shows for their
liability coverage. 215 ILCS 5/143a-2(1). For instance, if a customer chose $100,000 per person,
$500,000 per accident primary coverage, the insurer would have to offer those same limits for
UM and UIM coverage. This coverage must be offered, but does not have to be accepted by the
insurance purchaser. In the event the customer does not wish to purchase UM or UIM coverage,
the Insurance Code requires that they must do so in writing. 215 ILCS 143a-2(2).
If an insured driver with $100,000/$500,000 UM and UIM coverage has an accident with an
uninsured at-fault driver, the insured driver submits claims to his/her own insurance for
reimbursement under his/her uninsured motorist coverage. If, however, the at fault driver
carried the minimum $20,000/$40,000 policy, and the non-fault driver had injuries in excess of
$20,000, he/she would then make a claim under his/her UIM coverage. Amounts paid by the atfault driver would be set-off against any claim under the UIM coverage. 215 ILCS 5/143a-2(4).
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Any dispute between the insured and the insurer must be submitted to arbitration. 215 ILCS
5/143a(1).
III.
RECENT CASES DEALING WITH UM/UIM CLAIMS
A.
Set-Off: Workers’ Compensation Benefits in Connection with Uninsured
Motorist Coverage – the Illinois Supreme Court Speaks
Taylor v. Pekin Ins. Co., 231 Ill. 2d 390, 899 N.E.2d 251, 326 Ill. Dec. 34 (2008) − This case was
discussed at last year’s conference by Keith Fruehling in his Uninsured/Underinsured Motorist
Update. The case came to the Illinois Supreme Court from the Fifth District Court of Appeals.
Here, the Supreme Court reversed the Fifth District and affirmed the Madison County Court’s
decision.
Mr. Taylor was an employee of Herr Funeral Home. Herr had insured its business’ vehicles with
Pekin Insurance Company and also procured from Pekin its workers’ compensation insurance.
Mr. Taylor was driving a Herr vehicle in the scope of his employment, when he was struck by an
uninsured motorist. As a result of the accident, Taylor was awarded workers’ compensation
benefits totaling $162,588.33. Taylor then pursued an uninsured motorist claim under Herr’s
vehicle insurance. An arbitration award of $250,000 was obtained by Taylor. Pekin tendered a
check in the amount of $87,412 claiming a full credit for the workers’ compensation benefits.
Taylor cried foul and filed a complaint for declaratory judgment alleging he was entitled to
statutory attorney’s fees for recovery of the workers’ compensation lien. Pekin responded with a
motion to dismiss, which was granted. Taylor appealed, seeking to be compensated for
attorney’s fees pursuant to section 5(b) of the Illinois Workers’ Compensation Act. 820 ILCS
305/5(b). Section 5(b) requires an employer or its carrier to pay an attorney 25 percent of the
gross amount recovered pursuant to the workers’ compensation lien.
On appeal to the Fifth District, Taylor argued that the trial court incorrectly interpreted the
language of the insurance contract, overlooked public policy and contradicted the intent of the
Illinois Insurance Code in granting the motion to dismiss. Pekin countered by arguing that
section 5(b) of the Workers’ Compensation Act should not be applicable because “it applies only
where there is recovery from a third-party tortfeasor, not the first party uninsured motorist claim
herein at issue.” Taylor v. Pekin Ins. Co., 376 Ill. App. 3d 834, 837, 876 N.E.2d 1048, 315 Ill. Dec.
458 (5th Dist. 2007).
In deciding in favor of Taylor, the Appellate Court quoted section 5(b) of the Illinois Workers’
Compensation Act at length. The Appellate Court addressed the defendant’s assertion that
section 5(b) applied only in cases involving recovery from a third-party tortfeasor, not pursuant
to a first-party uninsured motorist claim. The Court explained that the policy identified “Workers’
Compensation Law” as a statutory basis for calculating the available set-off. The Court further
noted that “Workers’ Compensation Law” includes section 5(b) of the Workers’ Compensation
Act, “which sets forth the terms and conditions for calculating the workers’ compensation lien
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and requires a 25 percent reduction for the payment of the attorneys fees.” The Court concluded
that “defendants should not be allowed to pick and choose which portions of the policy are
applicable.” Id. at 841.
It is noteworthy that Justice Donovan of the Fifth District dissented, arguing that plaintiff was
not entitled to the attorney fee because section 5(b) by its terms, was inapplicable to the facts of
the case. The Illinois Supreme Court agreed. It noted that Taylor obtained recovery for his injury
through his employer’s uninsured motorist coverage. No legal proceedings were undertaken
against a third party responsible for the injuries. Therefore, there was no “Third party claim,
action or suit” under the express language of section 5(b). The court determined “As Justice
Donovan correctly noted in his dissent: ‘No monies were paid back to the workers’
compensation carrier or employer. There simply was no recovery or reimbursement triggering
the reduction for 25 percent attorney’s fees under section 5(b) of the Act.’” Taylor at 231 Ill. 2d
396.
In addition, the Illinois Supreme Court determined that the Fifth District misconstrued the way
the section 5(b) attorney’s fees operate. Under the Fifth District’s holding, the plaintiff would
receive the additional sum of $40,467 which reflected the 25 percent paid to plaintiff’s attorney
in the workers’ compensation case. This would distort the statute for two reasons. First, plaintiff
is not entitled to the reimbursement for any attorney’s fees he may have incurred in his workers’
compensation case. The 25 percent fee in section 5(b) is payable to plaintiff’s attorney, based on
the attorney’s services in obtaining a recovery against a third-party tortfeasor in his tort claim.
Second, under the plain language of the statute, the 25 percent fee is payable to the attorney,
not to the plaintiff. The second paragraph of section 5(b) contemplates a single recovery against
a third party with the employee’s share of the attorney’s fees to be paid or to be based on the
part he recovers and the employer share of the fee to be based on the part he recovers. While
the employee’s counsel is entitled to a part of his fee from the employee and a part from the
employer, the total fee is in essence a single fee based on the single recovery from the third
party. Therefore, under the auto policy, Pekin was entitled to a set-off of the full amount of
workers’ compensation benefits paid to plaintiff, without deducting 25 percent for attorney’s
fees.
B.
Does Renewal or Reinstatement of a Prior Policy Require the Insurer to
Make a New Offer of Increased Underinsured Coverage Pursuant to 215 ILCS
5/143A-2?
Chatlas v. Allstate Ins. Co., 383 Ill. App. 3d 565, 892 N.E.2d 106, 322 Ill. Dec. 859 (1st Dist. 2008) −
From 1980 to March 4, 2002, Ms. Chatlas maintained automobile insurance through Allstate,
which was renewed on six-month intervals. During this period, Allstate offered Ms. Chatlas the
opportunity to increase her underinsured coverage from $20,000 to an amount equal to her
policy’s bodily injury liability limit of $250,000 as required by 215 ILCS 5/143a-2; however, Ms.
Chatlas rejected all four offers. On March 4, 2002, Ms. Chatlas contacted Allstate and cancelled
her policy; however, she called Allstate back two days later and requested to be insured by
Allstate again. Consequently, Allstate re-issued a policy that had the same coverage limits,
L-5
vehicles and ratings as the cancelled policy, and was also at the same premium. The policy
expired on the same six-month expiration date as Ms. Chatlas’ cancelled policy and did not start
a new six-month period. Additionally, Ms. Chatlas was not required to complete a new
application. The only difference between the March 6, 2002 policy and the cancelled policy was
that it had a different policy number.
On April 15, 2003, Ms. Chatlas was involved in an automobile accident with Ms. Foster in which
Ms. Chatlas incurred $13,527.85 in medical bills. Ms. Chatlas brought suit against Ms. Foster and
settled the matter for $20,000 (Ms. Foster’s policy limit). Thereafter, Ms. Chatlas submitted an
underinsured claim with Allstate. However, Allstate denied coverage arguing that Ms. Chatlas
only had underinsured coverage for $20,000 and it would be offset by the settlement. Ms.
Chatlas then filed a declaratory judgment action against Allstate seeking a declaration that she
was entitled to $250,000 in underinsured coverage because the policy instituted on March 6,
2002 was a new policy and Allstate failed to offer her underinsured coverage equal to her bodily
injury limits as required by 735 ILCS 5/143a-2. Allstate argued that the March 6, 2002 policy was
merely a renewal or reinstatement of the prior policy and thus Allstate was not required under
section 143a-2 to make a new offer of increased underinsured coverage in light of Ms. Chatlas’
previous rejections.
Both the trial court and the Appellate Court agreed that under the circumstances of this case the
March 6, 2002 policy did not amount to a new policy, but was instead a renewal or
reinstatement of the prior policy. Consequently, the Court held that Allstate was not obligated to
contact Ms. Chatlas regarding rejection of additional underinsured coverage equal to her bodily
injury limits, as set out in 735 ILCS 5/143a-2. Therefore, the Appellate Court affirmed the trial
court’s granting of Allstate’s Motion for Summary Judgment and denial of Ms. Chatlas’ similar
motion.
Insurer Beware: The court emphasized that under the facts of this case there was a renewal or
reinstatement due, in part, to the two-day time span. A different set of facts could well lead to a
different result.
C.
Is Your Live-In Fiancé’s Son a “Family Member” Such That He Is Entitled to
UM Coverage?
Clayton v. Millers First Ins. Cos., 384 Ill. App. 3d 429, 892 N.E.2d 613, 322 Ill. Dec. 976 (5th Dist.
2008) − Steven Clayton, a minor, was a passenger in a car that was involved in a one-car
accident. The driver was also a minor. Steven filed suit against the minor driver and the owner of
the vehicle, the minor’s father. The driver’s father subsequently filed for bankruptcy, and Steven
filed an amended complaint naming the minor’s mother as a defendant. She subsequently filed
for bankruptcy. The car was uninsured.
On the date of the accident, Steven lived with his mother, Carol Clayton, and her then fiancé,
Nick Gregory. Mr. Gregory submitted an affidavit claiming that Steven had lived at his residence
since 1998 and that he had “nurtured, cared for, and provided for the support and upbringing of
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Steven.” Mr. Gregory stated his relationship with plaintiff was of a “parental nature” and that it
was his understanding that plaintiff was covered by his insurance policy. Mr. Gregory had
automobile insurance with uninsured motorist coverage through Millers First.
Steven notified Millers First that he was seeking compensation under the uninsured motorist
coverage of the policy issued to Gregory. Millers First responded that Steven was not insured
under the policy.
Millers First filed for summary judgment on its subsequent declaratory judgment action. Steven
filed a response and a cross motion for summary judgment. The Bond County Court granted
summary judgment to Millers First, and this appeal followed. In examining the case, the Fifth
District determined that the pertinent question in the underlined declaratory judgment action
was whether Steven qualified as “family member” under the terms of the Gregory policy. Under
the definitions portion of the policy, it provided:
‘Family member’ means a person related to you by blood, marriage, or adoption,
who was a resident of your household. This includes a ward or foster child.
Steven contended that the terms “ward” and “foster child” had several different meanings.
Many definitions of “ward” were presented to the court. The Fifth District noted that no Illinois
court had directly addressed the issue of what constitutes a ward for purposes of an insurance
policy held by an individual. Clayton, 384 Ill. App. 3d at 436. The court distinguished cases that
previously defined the term “ward” as applied to a corporation (a nursing home resident, hit by
an uninsured driver, could not make a claim under the nursing home’s uninsured motorist policy
because a corporation could not have family members, but could have “wards”), or cases
defining “wards of the court”(requiring a special statutory proceeding). Instead, the court turned
to federal court decisions interpreting insurance policies and the definition of ward. Those cases
concluded that the term ward was ambiguous. It could not be restricted to a technical, legal
definition including only a person on behalf of whom a legal guardian had been appointed. Id.
at 437.
The Fifth District determined that Steven had sufficiently supported a claim that he was a family
member under the policy as a ward of Gregory.
Insurer beware: Steven had also sought sanctions under 215 ILCS 5/155 claiming that Millers
First had acted vexatiously and in bad faith. The court noted that although the terms of the
policy were ambiguous, Millers First had presented a bonafide dispute regarding coverage.
Disputes as to whether a live-in’s children are covered under uninsured or underinsured
coverages may not obtain similar results.
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D.
Can a Definition of an “Insured” Under UIM Coverage Be Different Than
“Insured” Under the UM Coverage
Schultz v. Illinois Farmers Ins. Co., 387 Ill. App. 3d 622, 901 N.E.2d 957, 327 Ill. Dec. 224 (1st Dist.
2009) − This was a case of consolidated appeals involving the definition of an “insured” for
purposes of both uninsured (UM) and underinsured (UIM) motorist coverage in automobile
insurance policies issued by Illinois Farmers Insurance Company.
1.
Shultz v. Farmers
Patricia Smetana was a passenger in an automobile that was being driven by Kathleen O’Connor.
The automobile was owned by the Hummelbergs. The vehicle was struck by another vehicle
being driven by Fotopoulos. Ms. Smetana died of her injuries. Schultz was appointed
independent administrator of Smetana’s estate. Both vehicles were insured by Farmers. The
Fotopoulos’ policy had liability limits of $100,000 per person and $300,000 per accident. Farmers
settled with both the O’Connor and Smetana estates for $100,000 each. The Hummelberger
policy had bodily injury liability, UM and UIM limits of $250,000 per person and $500,000 per
accident. Farmers recognized the claim submitted by the O’Connor’s estate for UIM coverage,
but denied the claim submitted by Smetana’s estate on the grounds that Smetana did not fit the
definition of an insured for purposes of UIM coverage.
The Farmers’ policy defined “insured person” to include an occupant of the vehicle for purposes
of UM coverage but restricted the definition in the UIM coverage to the policy holder or a family
member. The trial court held that the more restrictive definition under the UIM coverage in the
policy did not violate public policy or the Illinois Insurance Code and awarded summary
judgment to Farmers.
2.
Farmers v. Weglarz
In this case, Weglarz was a passenger in an automobile that was owned by her son, Krzysztof
Majchrowicz (Krzysztof) and was being driven by Jolanta Majchrowicz (Jolanta). The vehicle was
struck by an uninsured motorist, Kovalyz, and Weglarz was injured. The Kovalyz’s vehicle was
insured by Allstate and provided UIM coverage in the amount of $25,000. The Majchrowicz
vehicle was insured by Farmers and provided $50,000/$100,000 in UM and UIM coverage.
Weglarz filed a claim for UIM coverage with Farmers. It was denied on the grounds that Weglarz
was not an insured as defined by the UIM endorsement to the policy. Although Weglarz was the
mother of Krzysztof, the policy further defined “family member” as a resident of the household.
Weglarz did not reside with Krzysztof.
Farmers filed a declaratory complaint asking for a court order confirming that it had no duty to
provide UIM coverage to Weglarz. Weglarz argued that the language in the policy was
ambiguous. In the UIM endorsement, the first paragraph stated that all the terms and conditions
of UM coverage applied to UIM coverage. However, the final paragraph stated that the UIM
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endorsement suppresses and controls anything to the contrary in the policy. The trial court
agreed with Weglarz.
In finding an ambiguity in the policy, the Appellate Court referred to the language of the Illinois
Insurance Code and noted that the Illinois Supreme Court had construed subsection 4 of section
143a-2 to provide that UIM coverage was mandatorily set at the amount of UM coverage that
was selected and has acknowledged that the true coverages are inextricably linked in the
statute. Farmers argued that the statutory provision applied only to insurance limits and not to
the definition of who qualified as an insured for coverage.
The First District Appellate Court disagreed and determined that the Farmers’ policy violated
Illinois law. It noted that the Illinois Supreme Court has construed subsection 4 of section 143a-2
to provide that UIM coverage is mandatorily set at the amount of UM coverage that is selected
and has acknowledged that the two coverages are in inextricably linked in the statute. Farmers
argued that the statutory provision applied only to insurance limits and not to the definition of
who qualified as an insured for coverage. Once again the Court disagreed. It cited to Heritage
Ins. Co. of American v. Phelan, 59 Ill. 2d 389, 321 N.E.2d 357 (1974), for the proposition that
section 143a does not restrict the parties to an insurance contract from determining initially who
will be insured under the policy, but once that determination has been made, section 143
mandates that UM coverage be extended to anyone who is an insured for purposes of liability
coverage. Here, the parties had already designated who was to be an “insured” under the
automobile liability policy, thus the question was whether section 143a-2(4) prohibited Farmers
from denying UIM coverage. The Court found that once the parties determined who was to be
an insured for purposes of UM coverage, section 143a-2(4) prohibits an insurance company
from either directly or indirectly denying UIM coverage to an insured. The Court concluded that
section 143a-2(4) required UM and UIM provisions are to be interpreted coextensively regarding
the definition of an insured.
E.
Be Careful Who You Release
Farmers Auto. Ins. Ass’n v. Wroblewski, 382 Ill. App. 3d 688, 887 N.E.2d 916, 320 Ill. Dec. 772 (1st
Dist. 2008) − Mrs. Wroblewski was involved in an automobile accident with a vehicle driven by
Ms. Drolet who was insured by Gallant Insurance Company at the time. Ms. Drolet died as a
result of the accident. Mrs. Wroblewski initiated a personal injury against Ms. Drolet’s estate, as
well as Walgreens Company given that Ms. Drolet was an employee of Walgreens and was
driving in her capacity as an employee at the time of the accident.
The personal injury action resulted in a $1.25 million settlement with Walgreens and a $10,000
settlement with Ms. Drolet’s estate. Mrs. Wroblewski’s settlement involved the execution of a
release, which expressly included Walgreens, as well as its “agents” and “employees.” Mrs.
Wroblewski received payment from Walgreens; however, she was unable to collect the $10,000
from Gallant Insurance Company because Gallant subsequently became insolvent. Consequently,
Mrs. Wroblewski filed a claim with Farmers seeking uninsured motorist coverage under her
policy, which had a limit of $100,000.
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Farmers filed a Complaint seeking a declaratory judgment that Mrs. Wroblewski was not entitled
to uninsured motorist coverage. Farmers asserted essentially two arguments: (1) that Mrs.
Wroblewski’s Walgreens release included Ms. Drolet because she was a Walgreens’ employee,
and thus, Farmers was absolved of coverage; and (2) that the $100,000 uninsured policy limit
had been completely offset by the $1.25 million settlement received by Mrs. Wroblewski from
Walgreens. The trial court disagreed with the first argument and held that Mrs. Wroblewski’s
damages would have to be adjudicated before argument number two could be addressed. An
arbitration panel subsequently found in favor of Mrs. Wroblewski and assessed damages in the
amount of $1.85 million. The trial court confirmed the arbitration award and entered judgment
against Farmers for $100,000. Farmers appealed.
The Appellate Court found in Farmers’ favor and held that the plain and unambiguous language
of Mrs. Wroblewski’s Walgreens release included a release of the claims against Ms. Drolet, an
employee of Walgreens at the time of the accident. Consequently, the Appellate Court vacated
the arbitration award, reversed the trial court’s decision and remanded the case for entry of
judgment in Farmers favor. The Court did not address Farmers’ second argument because it was
rendered moot.
F.
Choice of Law Equitable Estoppel and Out of State Policy Exclusions
United Farm Family Mut. Ins. Co. v. Frye, 381 Ill. App. 3d 960, 887 N.E.2d 783, 320 Ill. Dec. 639
(4th Dist. 2008) − A married couple (Mr. and Mrs. Frye), Indiana residents, were traveling in Pike
County, Illinois in their Indiana registered and licensed automobile, which was insured under an
Indiana policy. The insurance policy contained a “household” exclusion, under which liability
coverage was excluded for claims between, amongst others, insured spouses, as well as an
“owned-vehicle” exclusion, under which uninsured and underinsured coverage was excluded for
vehicles that were insured under the policy. In Pike County, the Frye’s were involved in an
automobile accident that occurred while Mrs. Frye was driving and which resulted in both Mr.
and Mrs. Frye’s death.
Over $62,000 was paid under the policy’s medical-expense and physical-damage coverage for
medical expenses, death benefits and property damage; however, Mr. Frye’s estate demanded
the policy limits for the liability and uninsured coverages in the policy and subsequently filed a
wrongful death claim against Mrs. Frye’s estate in an attempt to secure the policy limits for
liability. United Farm Family Mutual Insurance Company (Farm Bureau) filed a complaint for
declaratory judgment in response, arguing that the Farm Bureau had no duty to defend or
indemnify Mrs. Frye’s estate under the liability coverage due to the “household” exclusion and
that the Farm Bureau did not have a duty to defend or indemnify Mrs. Frye’s estate under the
uninsured coverage due to the “owned-vehicle” exclusion. Applying Indiana law pursuant to a
conflict-of-law analysis using Illinois choice-of-law principles, the trial court agreed with the
Farm Bureau and granted summary judgment in its favor. Mr. Frye’s estate appealed. The
Appellate Court affirmed the trial court’s decision finding that Indiana law did apply to the case
and that under Indiana law, unlike Illinois, owned-vehicle exclusions are legal and enforceable.
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In denying Mr. Frye’s estate’s assertion that the doctrine of equitable estoppel prohibited the
Farm Bureau from denying coverage in the case because the Farm Bureau undertook the
defense of Mrs. Frye’s estate without a reservation of rights and failed to seek a declaratory
judgment until after the estate’s initial motion to dismiss was denied, the Court explained the
requirements for the application of the doctrine of equitable estoppel to prevent a denial of
coverage. A court will apply the doctrine if it is later found that the insurer wrongfully denied
coverage and the insurer failed to either: (1) defend the lawsuit under a reservation of rights; or
(2) failed to seek a declaratory judgment that no coverage existed. The insured does not have to
prove prejudice under these circumstances. However, under the circumstances where the insurer
initially undertakes the defense without a reservation of rights, but later reserves the rights or
files a declaratory judgment action, the insured must show he or she was prejudiced in order for
the doctrine to apply. Mr. Frye’s estate failed to show prejudice, thus the doctrine was
inapplicable.
G.
To Stack or Not to Stack: That Is the Question
Collins v. St. Paul Mercury Ins. Co., 381 Ill. App. 3d 41, 886 N.E.2d 1035, 319 Ill. Dec. 911 (1st Dist.
2008) − Mr. Collins was an employee of Cummins-Allison Corp. and was a passenger in a
Cummins’ fleet vehicle that was being driven in Illinois by another Cummins’ employee during a
trip to a job related training session being held in Illinois. The Cummins’ vehicle Mr. Collins was a
passenger in was registered and garaged in Illinois. While traveling to the training session in
Illinois, the vehicle was struck by an underinsured motor vehicle and Mr. Collins was killed.
St. Paul Mercury Insurance Company issued a general commercial liability policy to Cummins,
which included fleet auto coverage for all vehicles owned by Cummins (approximately 268). The
St. Paul policy provided $1,000,000 in underinsured coverage; however, the policy contained
separate underinsured endorsements for each state in which Cummins had vehicles registered,
and each state’s underinsured endorsement clearly stated that it applied to vehicles which were
registered and garaged within the state. Illinois’ underinsured endorsement did not provide for
stacking, but Mississippi’s did.
Notwithstanding that the Cummins vehicle Mr. Collins was traveling in at the time of the
accident was registered and garaged in Illinois, Mr. Collins’ estate filed a claim for underinsured
benefits under the St. Paul policy and filed a complaint for declaratory judgment seeking a
declaration that the Mississippi underinsured endorsement applied rather than Illinois. Part of
plaintiff’s argument relied on the fact that Mr. Collins drove a company car insured under the
St. Paul policy that was registered and garaged in Mississippi. Both the trial court and the
Appellate Court found this irrelevant and denied the relief sought by Mr. Collins’ estate, holding
that the Illinois’ underinsured endorsement applied based on the unambiguous language of the
policy and the fact that the Cummins’ vehicle involved in the accident was registered and
garaged in Illinois.
L-11
H.
The Common Fund Doctrine
Stephens v. Country Mutual Ins. Co., No. 4-08-0216, 2008 WL 5473299 (4th Dist. Dec. 31, 2008) −
Stephens, a Country Mutual insured, suffered injuries caused by an automobile accident with
another motorist, Heather Phares, a State Farm insured. Stephens’ attorney notified State Farm
that he was representing Stephens’ interest, sought the limits of liability and was asserting an
attorney’s lien on any proceeds.
Stephens had medical expenses in excess of $150,000. To partially defray those costs, he
received $20,420.60 from Country under his medical pay coverage. The policy provisions entitled
Country to later recover what it paid to Stephens. Country informed State Farm that it asserted a
subrogation lien for the amount of their medical payments. Stephens’ attorney and Country
conferred regarding the status of settlement negotiations with State Farm. In a letter confirming
one such conversation, he stated: (1) Country does not intend to pursue an action against
Phares; (2) Country authorized him to accept State Farm’s $50,000 settlement offer, which
represented Phares’ maximum liability coverage; and (3) Stephens intended to file a claim for
$50,000 under the terms of his $100,000 underinsured motorist coverage with Country. The
attorney also requested that Country waive its subrogation lien for medical benefits payments.
Country acknowledged the UIM demand but refused to waive its subrogation lien. Country
calculated that it owed $29,579.40 under the UIM claim. A calculation of this amount is as
follows:
Policy limit: $100,000 less $50,000 paid by State Farm, less $20,420.60 paid under
the med-paid provisions.
State Farm issued its check for $50,000 naming Stephens, his attorney, and Country as payees.
Country refused to endorse the check based on its subrogation claim. Stephens filed suit to
adjudicate the lien. Stephens argued that under the common fund doctrine, Country was
entitled to receive only 2/3 or $13,613.72, of its $20,420.60 subrogation lien. Stephens
contended he was entitled to an additional $6,806.88. Country argued that Stephens was not
entitled to any additional funds suggesting that it did not receive any benefit from the common
fund and that the medical payment it made to Stephens was being recovered under the terms
of its UIM coverage.
The Fourth District disagreed. The common fund doctrine, it reasoned, allows the attorney who
creates, preserves, or increases the value of a fund in which others have ownership interest to be
reimbursed from that fund for litigation expenses incurred, including attorney’s fees. The Court
noted these undisputed facts:
1.
Stephens sustained injuries resulting from an automobile collision with
Phares;
L-12
2.
Country paid $20,420.60 to Stephens under the terms of its medical
payments policy;
3.
Thereafter, Stephens’ attorney pursued Phares’ insurance company for
damages on Stephens behalf;
4.
The attorney created a $50,000 common fund as a result of his legal
services; and
5.
Country did not participate in the creation of that common fund.
This was not a unanimous decision. Justice Appleton dissented stating that he did not find that
the common fund doctrine applied to either the medical payment or underinsured motorist
benefits paid by Country. Justice Appleton reasoned that Country was not seeking
reimbursement from the State Farm check, rather, it was deducting its subrogation lien from the
proceeds of its own underinsured obligations to Stephens. Thus, the repayment of the
$20,420.60 to Country was not from the proceeds of the settlement with the tortfeasor, but,
rather, was a deduction from the underinsured motorist coverage payment fully controlled by
Country and paid to plaintiff pursuant to the insurance contract. Plaintiff’s counsel, said the
dissent, did nothing to create that “fund.”
Consider: If, as the dissent argues, Country was only withholding funds from its own
underinsured motorist payments, why did Country refuse to endorse the $50,000 State Farm
payment to Stephens.
Note: At the time these materials were prepared, this opinion had not been released for
publication in the permanent law reports. Until released, it is subject to revision or
withdraw.
L-13
Douglas R. Heise
- Partner
Public Speaking
• “Casualty and Property Seminar - Premises
Liability Update”
Heyl Royster 2008
• “Current Issue in Illinois Law”
United States Arbitration and Mediation,
Midwest, Inc. 2007
• “Claims Against Governmental Agencies /
Tort Immunity”
Illinois State Bar Association 2006
Doug joined the Edwardsville office of Heyl Royster in
2004. His practice includes general civil litigation
including municipal, civil rights and employment
litigation in both state and federal courts. With over
25 years of litigation experience, Doug has defended a
broad range of clients from individuals involved in a
car accident to major corporations in products liability
claims.
Significant Cases
• City of Belleville v. Doe by Doe, 523 U.S. 1001
(1998) Whether same sex harassment is
actionable under Title 7.
• Longstreet v. Cottrell, 374 Ill. App. 3d 549
(5th Dist. 2007) The estate of a deceased
party cannot introduce the discovery
deposition of the deceased party at trial as
an exception to the hearsay rule.
• Steelman v. City of Collinsville, 319 Ill. App.
3d 1131 (5th Dist. 2001) The IRS's seizure of
funds being held by a municipal police
department did not constitute a conversion
of those funds by the department.
• T.H.E. Insurance v. City of Alton, 277 F.3d 802
(7th Cir. Ill. 2000) Whether a certificate of
insurance can modify the language
contained in the policy of insurance.
• City of East St. Louis v. Circuit Court for the
20th Judicial Circuit, St. Clair County, IL, 986
F.2d 1142 (7th Cir. Ill. 1998) The Federal
District Court properly entered Rule 11
sanctions against Plaintiff's counsel for
bringing suit against a judicial circuit.
Professional Associations
• Illinois State Bar Association
• St. Clair County Bar Association
• Bar Association for the Central and Southern
Federal Districts of Illinois
• East St. Louis Bar Association
Court Admissions
• State Courts of Illinois
• United States District Court, Southern and
Central Districts of Illinois (Trial Bar)
• United States Court of Appeals, Seventh Circuit
• United States Supreme Court
Education
• Juris Doctor, John Marshall Law School, 1983
• Bachelor of Science-Political Science, Eastern
Illinois University, 1980
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Learn more about our speakers at www.heylroyster.com
MEDIATION TACTICS AND PROCEDURES: A MEDIATOR’S VIEW Presented and Prepared by:
Rex K. Linder
[email protected]
Peoria, Illinois • 309.676.0400
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
M-1
MEDIATION TACTICS AND PROCEDURES:
A MEDIATOR’S VIEW
I.
INTRODUCTION........................................................................................................................................ M-3
II.
VOLUNTARY MEDIATION ..................................................................................................................... M-3
A.
B.
III.
MANDATORY COURT-ORDERED MEDIATION ............................................................................. M-4
A.
B.
IV.
Why Mediate?............................................................................................................................. M-3
When to Mediate ...................................................................................................................... M-4
Purpose ......................................................................................................................................... M-4
Court-Ordered Mediation Rules/Orders .......................................................................... M-5
THE MEDIATION PROCESS ................................................................................................................... M-6
A.
Pre-Mediation............................................................................................................................. M-6
1.
2.
3.
B.
Mediation ..................................................................................................................................... M-7
1.
2.
3.
4.
C.
Choosing the Mediator ............................................................................................ M-6
Mediation Submission.............................................................................................. M-6
Preparation of Clients ............................................................................................... M-7
Participants ................................................................................................................... M-7
Opening Statement ................................................................................................... M-7
Joint Session................................................................................................................. M-7
Negotiations ................................................................................................................ M-8
Post-Mediation .......................................................................................................................... M-8
V.
TECHNIQUES IN MEDIATION .............................................................................................................. M-9
VI.
CONCLUSION .......................................................................................................................................... M-10
M-2
MEDIATION TACTICS AND PROCEDURES:
A MEDIATOR’S VIEW
I.
INTRODUCTION
In the past 25 years, alternative dispute resolution (ADR) has become very popular as a
supplement to the judicial system. ADR generally includes both mediation and arbitration in
their various forms. Arbitration is generally an adversary procedure bearing many similarities to
a trial, although much less expensive. However, mediation is an informal process in which a
neutral third party (mediator) presides over settlement negotiations. Unlike arbitration
proceedings, the mediator does not issue a decision, but rather facilitates settlement discussions
between the parties. However, it is not unusual for an arbitrator to recommend a settlement
amount at some point in the process, based upon the mediator’s familiarity with the case and
arguments of counsel.
Courts, attorneys and clients are increasingly turning to various forms of ADR as a means of
reaching settlement and avoiding the costs and potential financial exposure of trial. Courts are
also issuing orders and rules either authorizing or requiring mandatory mediation as a means of
relieving congested court dockets.
Illinois has adopted the Uniform Mediation Act. 710 ILCS 35/1 et seq. It applies to both voluntary
and court or administratively ordered mediations. It provides that mediation communications
are privileged and not subject to discovery or admissible in evidence unless waived by a party
under the Act. A mediator cannot be called to testify as to any statements made by the parties
during mediation. An exception is that a mediator may testify to prove the terms of an agreed
settlement reached at mediation.
II.
VOLUNTARY MEDIATION
A.
Why Mediate?
There are several benefits to voluntarily engaging in mediation. While many cases are
negotiated to successful resolution between the parties without mediation, mediation may be
advisable when settlement negotiations reach an impasse. Benefits to mediation include:
•
•
•
•
•
•
•
Reduced litigation expenses
Timely settlement
Privacy
Discovery tool
Reality check versus unreasonable expectations
Strategic advantage
Neutral second opinion and evaluation of case
M-3
•
•
Avoid creating an undesirable precedent
Good success rates
The most commonly expressed benefits to mediation are the reduced litigation expenses and
the timeliness in which a settlement can be reached. Strategically, mediation can also be
beneficial even if a settlement is not reached. One can discover strengths and weaknesses in
their own case, as well as their opponent’s case, through the mediation process. This can
potentially be both beneficial and detrimental once the case proceeds to trial. A successful
mediation may also be advantageous where counsel foresees admissibility problems at trial on
key issues in the case. Evidence in support of your position can be produced and argued during
the mediation process and potentially influence the outcome, although admissibility during trial
may be questionable.
B.
When to Mediate
The issue of when to proceed with mediation can vary considerably based upon the type of the
case and the parties involved. In a relatively simple case, mediation can occur prior to suit.
Customarily, in personal injury cases mediation takes place after initial discovery has occurred
and the parties and key witnesses have been deposed. Prior to this stage in discovery, it may be
difficult for the parties to accurately evaluate their case. Generally, the greater the complexity of
the case, the more likely it will be necessary to engage in more extensive discovery prior to
mediation. The key for the timing of a successful mediation is when each side has exchanged
sufficient information so that the case can be fairly and honestly evaluated.
Often, mediation occurs when the parties have begun settlement negotiations but have reached
an impasse. When this occurs, mediation can be a valuable method to bring the case to a
conclusion. Obviously, each party needs to come to the mediation prepared to further negotiate
their position. Mediation is rarely successful when one party fails to move from their premediation offer or demand. Accordingly, mediation should be undertaken when the parties still
have room to negotiate, but do not foresee a settlement based upon the current posture of the
case.
It is also important to identify goals prior to proceeding to mediation. If a party is unable to set
a realistic settlement range prior to mediation, it is probably too early to mediate the case.
Flexibility, however, remains the key to a successful mediation.
III.
MANDATORY COURT-ORDERED MEDIATION
A.
Purpose
Congested court dockets have led to an increasing trend by courts to require or recommend
alternative dispute resolution. Illinois Supreme Court Rule 99 authorizes the judicial circuits to
establish a mediation program and adopt appropriate rules. Those rules must address: what
M-4
type of case is eligible for mediation; the appointment, qualification and compensation of the
mediator; confidentiality; scheduling of the mediation; and sanctions for the absence of a party
at the mediation.
B.
Court-Ordered Mediation Rules/Orders
At the trial court level, the Illinois court system is divided into twenty-one circuit courts. Each
circuit court possesses authority to issue rules as to the administration of cases before the court,
including rules requiring parties to engage in arbitration or mediation. Some circuits have not
promulgated formal “rules” as to mandatory mediation, but have issued an administrative order
authorizing counties within the circuit to order mediation. There is usually a jurisdictional limit
for mediation, often cases having a value less than $30,000. This contrasts to mandatory
arbitration rules and orders, which are customarily applicable to cases with a lesser value.
Selection of a mediator in a court-ordered mediation is usually left to the parties to agree upon.
When agreement is not reached in a timely manner, the court will select the mediator.
Customarily, only persons certified by the court can act as a mediator in court-ordered
mediations.
When a mediation is ordered by the court, the parties are under time deadlines to proceed with
mediation. Usually a mediation conference must be held within eight weeks of the court order.
Typically, 10 days prior to the mediation, each side is required to submit a concise written
summary of the case containing a list of issues as well as the names and addresses of all
participants in the mediation.
Parties who object to the court-ordered mediation can file a written objection with the court
within 14 days. Alternatively, a motion to continue the mediation, for specified reasons, can also
be brought.
Sanctions also exist for parties who refuse to comply with a court-ordered mediation. Sanctions
can include the mediator’s fees, attorneys’ fees, and other costs of mediation.
Confidentiality is also a key element contained in most, if not all, orders and rules pertaining to
mediation. All oral and written communications throughout the mediation process are deemed
confidential and inadmissible as evidence in the underlying case unless agreed otherwise by the
parties. Mediators are strictly prohibited from disclosing any information obtained during the
mediation process.
Once court-ordered mediation is completed, mediators are required by an order/rule to report
to the circuit court the result of the mediation.
M-5
IV.
THE MEDIATION PROCESS
A.
Pre-Mediation
1.
Choosing the Mediator
One of the most important decisions in the mediation process is the selection of a mediator. By
definition, the mediator is to be a neutral third party. Strategically, it is important to select a
mediator in whom you have confidence. This customarily requires that you select a mediator
with whom you have prior experience or upon the referral of a reliable source. The style,
demeanor, and procedures employed by mediators can vary considerably. Counsel experienced
in mediation may very well select different mediators depending on the nature of the case and
its settlement posture.
An important consideration in selecting a mediator is whether that person has the ability to
effectively communicate with the attorneys and clients. The mediator should have the patience
and skill to deal with the non-attorney parties.
The value of a case can be dramatically affected by the venue where trial will occur.
Consequently, it is important to select a mediator who has knowledge of the locale where the
case will be tried. It is also helpful if the mediator has experience in the subject matter of a case.
This is particularly important if the case involves either complicated factual or legal issues.
2.
Mediation Submission
Prior to mediation, each party will submit to the mediator a case summary and exhibits. The
summary should include a discussion of the factual background of the incidents which give rise
to the claim. The more facts that are in dispute, the more detail you should provide. You should
also advocate the strengths of your particular case and point out weaknesses in your opponent’s
case.
Along with the case summary, the parties usually submit a copy of key pleadings. Additional
documents submitted to the mediator may include discovery depositions or excerpts, expert
witness disclosures, photos and key exhibits. Selected potential jury instructions can also be
helpful. The mediation submission will be kept confidential by the mediator if requested by the
party submitting it.
If there are unusual questions of law, it is helpful to include applicable statutes and case
authorities. This need not be as detailed as an appellate brief, but should give the mediator
sufficient information to understand the disputed legal issues so that he or she can conduct
additional research and analysis.
It is also helpful to include some history of past negotiations. This advises the mediator of what
has transpired and who should make the next movement with respect to settlement.
M-6
Although many mediation submissions remain confidential at the request of the party
submitting it, it can be helpful to send a copy to the opposition. By so doing, your opponent is
advised of the strengths of your position on various matters and may help influence their
evaluation of the value of the claim.
3.
Preparation of Clients
Occasionally, an attorney will appear at mediation without preparing the client for the process
and issues that will be discussed. That usually frustrates progress during the mediation. The
attorney should review the mediation submission with the client and explain that not all of the
claims made in the submission may be realized at the mediation. The client must understand the
need to confront the possibility that a case may be lost at trial or that a jury could determine the
award would be far different than the client may expect. The attorney should get the client to
understand that one of the primary reasons to mediate is risk avoidance.
B.
Mediation
1.
Participants
In addition to the mediator, all parties should be present with their attorneys. Where the
defendant has insurance, by agreement, it is often acceptable for the insurer’s claim
representative responsible for the file to be present. The important thing is that the persons
attending the mediation are those in a position to make decisions with respect to settlement.
2.
Opening Statement
Similar to a jury trial, each party will be allowed to present an opening statement at the
commencement of mediation. Although much more informal than a trial, the opening statement
can be a valuable tool in persuading the mediator that your position with regard to settlement is
the correct and fair position. In cases involving a client with unreasonable expectations, the
opponent’s opening statement may well begin to persuade that client to reconsider their prior
settlement position.
Some prefer not giving an opening as it can have a polarizing effect, particularly for the parties
who have never been through the process. If the parties have given the mediator thorough
submissions, the mediator should have a good understanding of the contested facts and legal
issues. Therefore, an opening statement may not be necessary and the risk of generating
emotion which may impede a reasonable resolution of the case can be avoided.
3.
Joint Session
Following the opening statements, or at the beginning of the mediation, the mediator may
engage the parties in a general discussion as to their respective positions and bases thereof. The
mediator may further facilitate exchanges between counsel (although not argumentative) as to
key issues or factual contentions in the case. The mediator will usually state what he or she sees
M-7
as the important issues and contentions in the case to ensure the mediator has an accurate
understanding of the case and its key disputes. The parties will then be separated for
negotiations.
4.
Negotiations
The mediator usually begins a private caucus or discussion with the plaintiff and plaintiff’s
counsel. Shuttle diplomacy commences and the mediator will meet throughout the remaining
negotiations with each party in private. Customarily, the discussions between the mediator and
the parties will be kept confidential. It is not unusual for a mediator to specifically inquire as to
whether it would be agreeable to communicate to the opponent a particular statement, theory
or argument presented during the private meetings.
As parties begin to make movement through the course of the mediation, the mediator may
very well attempt to short circuit further negotiations by recommending a settlement for a
certain amount or specified terms. This is typically called a “mediator’s figure.” The mediator
may also engage in speculation as to what he believes the opponent may expect in a settlement
if the sum were offered or demanded.
As with any negotiation, each party’s position will be re-evaluated throughout each step of the
mediation process. Having identifiable goals for the settlement amount will allow parties some
flexibility in monitoring the mediation and the degree of success being experienced through the
course of negotiations. A degree of flexibility is necessary to most successful mediations and
pre-determined increments of settlement offers or demands are often problematic. Tactics to be
employed through the course of the mediation are often dictated by the degree of success
being experienced through the course of negotiations. Accordingly, parties must remain flexible
in determining their next move and any arguments they wish to further pursue and present
during the course of negotiations.
C.
Post-Mediation
In a successful mediation which results in a settlement, the mediator will likely bring the parties
together and recite the settlement terms so that there is no misunderstanding as to the
obligations of each side. At this point, there is a binding settlement. Although there is no written
document, oral settlements are enforceable. Lampe v. O’Toole, 292 Ill. App. 3d 144, 685 N.E.2d
423, 226 Ill. Dec. 320 (2d Dist. 1997). Even if a plaintiff later claims he did not understand the
settlement terms, it would be a unilateral mistake which would not void the settlement. Brewer v.
National R. R. Passenger Corp., 256 Ill. App. 3d 1083, 628 N.E.2d 331, 194 Ill. Dec. 834 (1st Dist.
1993). The post-mediation meeting is also an opportunity to discuss any particular issues, such
as wording of the settlement documents, time for payment, and similar issues.
When mediation is unsuccessful, the mediator will often bring the parties together and explain
why the mediation failed. Particular stumbling blocks will be addressed and the parties are
encouraged to further reconsider their respective positions. The mediator will suggest that
M-8
settlement negotiations continue, either directly between the parties or by reconvening the
mediation. Often during the mediation process, many figures are discussed by each side. It can
be helpful for the mediator to write a letter to the parties confirming the last official demand
and offer so there is no confusion as to the positions of the parties and the specific demands
and offers.
V.
TECHNIQUES IN MEDIATION
The goal of mediation is to help the parties reach a mutually agreeable outcome. There are
many techniques mediators can use to assist in attaining this goal.
Avoid emotion-laden terms that communicate anger or frustration. Rather, the mediator should
use neutral language, thereby diffusing highly emotional discussions. For example, the mediator
might ask:
•
“What fact or facts in your case would you like to change?” This helps a party to
understand the potential weakness in his or her position should the case go to trial.
•
“What are the potential consequences if you can’t resolve the case now?” This helps the
client understand the potential delay in getting money, ongoing litigation costs and the
failure to bring closure to the dispute.
A mediator should coach the parties.
•
Help the parties identify their specific needs and suggest the best approach to achieve
them.
•
Acknowledge the positions of the parties in a non-judgmental manner.
•
Employ body language that communicates attention is being paid, such as nodding the
head, leaning forward, making eye contact.
Role reversal.
•
Ask a party to “put themselves in the other’s shoes.”
•
This helps re-focus a party’s thinking away from solely looking at their own position.
Stress the risks of going to trial. Every case has some potential risk for the parties.
•
A case with good liability for a plaintiff usually has questions regarding damages.
•
A case of clear and significant damages will often have liability issues.
M-9
•
Where there is both good liability and strong damages, a jury may still come back with a
relatively low verdict.
Have discussions with attorneys outside the client’s presence.
•
Allows the mediator to talk more candidly to the attorneys about problems with the case
without the risk of hurting the mediator’s credibility with the client.
•
Mediator can solicit information from the attorney that can be used to help convince a
reluctant party to settle.
Consider paying the mediator’s fee.
•
A plaintiff’s attorney will often take the position that settlement at a certain figure will
result in his client receiving very little. This can help hurdle that obstacle.
•
This should only be done at the very end of a mediation as your last offer.
Attempt to get plaintiff’s attorney to commit to an anticipated reasonable damage assessment
by a jury.
VI.
•
Once this is done, there is a ceiling on the position plaintiff’s attorney can take.
•
Then attempt to get an assessment of the chances for a not guilty verdict and/or the
degree of plaintiff’s contributory negligence.
CONCLUSION
The cost of litigation and congested court dockets has popularized mediation as an efficient and
economical way to voluntarily resolve a dispute. It affords an opportunity for dialogue through a
neutral third party which can often be more comfortable than direct face to face negotiations.
Some lawyers or parties feel negotiating is a sign of weakness, but can overcome that emotion
by involving a mediator.
In most mediations, the mediator has only the power to listen, persuade and inspire. While
those may not sound like strong tools, a good mediator can effectively use them to improve
communication between the parties, persuade the parties to look at the situation from a
different perspective, and eventually arrive at a mutually satisfactory agreement. Mediation
works because in general, people hope to avoid conflict and uncertainty. Consequently, if parties
participate on a voluntary basis, most cases can be resolved at the mediation. In those situations
where the mediation fails, cases often later settle because the parties were moved closer to a
resolution at the mediation.
M-10
Rex K. Linder
- Partner
Professional Recognition
• Martindale-Hubbell AV rated
• Named to the Illinois Super Lawyers list (20052009). The Super Lawyers selection process is
based on peer recognition and professional
achievement. Only five percent of the lawyers
in each state earn this designation.
• Selected as a Leading Lawyer in Illinois. Only
five percent of lawyers in the state are named
as Leading Lawyers.
• DRI Service Award
Rex concentrates his practice in the area of civil
litigation in federal and state courts, including the
defense of professional and product liability cases
involving potentially significant damages. He has
represented numerous physicians, hospitals, medical
schools and attorneys in professional liability matters.
He is a recognized product liability authority
representing many manufacturers and distributors in
catastrophic injury cases.
Rex is frequently called upon to speak on product and
professional liability issues before business and
professional organizations. He is also a regular
lecturer and author for various legal organizations
concerning trial tactics and strategies.
Professional Associations
• International Association of Defense Counsel
(President 1998-99, Executive Committee 19942000)
• Lawyers for Civil Justice (President 2002-03)
• Bar Association of the Central and Southern
Federal Districts of Illinois (President 2007-08)
• Defense Research Institute (Board of Directors
1997-2000)
• Illinois Association of Defense Trial Counsel
(Past-Chair, Product Liability Committee)
• Seventh Circuit Bar Association (Central
District-Illinois Liaison)
• Peoria County Bar Association (President 200506)
• American College of Trial Lawyers (Adjunct
State Committee)
• Society of Trial Lawyers-Illinois
• American Bar Association
• Illinois State Bar Association
Significant Cases
• Main v. B., 116 Ill. App. 3d 1040 (3rd Dist. 1983)
Obtained not guilty verdict for manufacturer of
roll able ladder in strict liability claim.
• Pennington v. R., Obtained not guilty verdict in
strict liability claim for manufacturer of alumaplank scaffold after worker fell.
• Hobson v. L., Obtained not guilty verdict for
chiropractor whose manipulation allegedly
caused herniated disc.
• Wortz v. O., Obtained not guilty verdict in favor
of orthopedic surgeon and nurse following bad
result from surgery.
• Baldwin v. R., Obtained not guilty verdict for
aluminum ladder manufacturer when plaintiff
fell sustaining a triple leg fracture and shoulder
dislocation.
• Vezena v. Cornbelt Electric, Not guilty verdict
for electrical coop when lineman fell from
allegedly defective pole resulting in paralysis.
• Garza v. A., - 97 L 43 (Livingston) Not guilty
verdict defending wrongful death medical
malpractice against a trauma surgeon for
failure to diagnose bleeding pancreas in 20year-old male.
• Yeaman v. Shelby Electric Cooperative, 00 L 42
(Christian) Obtained not guilty verdict in
double wrongful death against electrical coop
where a 38-year-old farmer and 14-year-old
nephew moved auger into power line near
grain bins.
• Nye v. S., 00 L 367 (Peoria) Not guilty verdict
defending a lawyer who failed to timely file a
medical malpractice claim.
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
• United States Court of Appeals, Seventh Circuit
• United States Supreme Court
Education
• Juris Doctor, Washburn University School of
Law, 1973
• Bachelor of Science-History, Bradley University,
1969
M-11
Learn more about our speakers at www.heylroyster.com
LOOMING LEGISLATION: DEVELOPMENTS IN THE ILLINOIS GENERAL ASSEMBLY Presented and Prepared by:
Charles E. Timmerwilke
[email protected]
Rockford, Illinois • 815.963.4454
Heyl, Royster, Voelker & Allen
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
N-1
LOOMING LEGISLATION: DEVELOPMENTS
IN THE ILLINOIS GENERAL ASSEMBLY
HOW A BILL BECOMES LAW IN ILLINOIS ......................................................................................................... N-3
I.
PREJUDGMENT INTEREST ........................................................................................................................ N-4
A.
B.
C.
D.
II.
VICTIMS’ ECONOMIC SECURITY AND SAFETY ACT (VESSA) ...................................................... N-7
A.
B.
III.
Impetus Behind Bills − Distracted Drivers Task Force Final Report .......................... N-8
Distracted Driving − Key Points of House Bill 349 .......................................................... N-8
Text Messaging While Driving − Key Points of Senate Bill 29 .................................... N-8
Considerations Related to SB009 and HB0349 ................................................................. N-8
HB0349 Vehicle Code – Distracted Driving – Full Text of Bill ...................................... N-9
SB0029 Vehicle Code – Text Communication – Full Text of Bill .............................. N-10
TRANSPARENCY IN LAWSUITS PROTECTION ACT ..................................................................... N-11
A.
B.
V.
Status of Bill.................................................................................................................................... N-7
Key Provisions of SB1770 .......................................................................................................... N-7
PROPOSED ADDITIONS TO MOTOR VEHICLE CODE –
DISTRACTED DRIVING AND TEXT MESSAGING .............................................................................. N-8
A.
B.
C.
D.
E.
F.
IV.
Bill Currently “Dead” in Senate
(But No Bill Is Ever “Dead” in Illinois) .................................................................................... N-4
Overview of Bill ............................................................................................................................. N-4
Key Points and Considerations ............................................................................................... N-5
SB0184 − Prejudgment Interest – Full Text of Bill ........................................................... N-6
Key Points of Senate Bill 1772 .............................................................................................. N-11
SB1772 Transparency in Lawsuit Protection Act – Full Text of Bill ......................... N-11
AMENDED RECREATIONAL USE OF LAND AND WATER AREAS ACT .................................. N-12
A.
B.
Key Provisions of HB0494 ..................................................................................................... N-12
HB0494 Recreational Land – Conservation –
Education – Full Text of Bill ................................................................................................... N-12
N-2
N-3
LOOMING LEGISLATION: DEVELOPMENTS
IN THE ILLINOIS GENERAL ASSEMBLY
I.
PREJUDGMENT INTEREST
A.
Bill Currently “Dead” in Senate (But No Bill Is Ever “Dead” in Illinois)
Proposed as a new section to the Code of Civil Procedure (735 ILCS 5/2-1303.1), Senate Bill 184
would provide that prejudgment interest be awarded in a civil suit or arbitration under certain
circumstances. This proposal has the full support of the leadership of the Illinois State Bar
Association and would greatly benefit plaintiff attorneys. The proposal was expected to easily
pass the House and Senate and be signed by the Governor. This Act would have applied to all
causes of action accruing on or after its proposed effective date of January 1, 2010.
As of March 4, 2009, SB0184 was amended in a fashion that literally gutted the legislation and
stalled its progress. However, due to the political interest and support for this bill, it is expected
that the concept will be resurrected or reincarnated within some other legislation by the end of
this year.
B.
Overview of Bill
The proposed statute would award prejudgment interest from the date the party from whom
damages are sought is given written notice of the claim for money damages, or when the suit or
arbitration is filed, whichever is earlier, until the award or judgment is entered.
The written notice must refer to the statute (735 ILCS 5/2-1303.1) and be served by personal
service by the sheriff or a private process server; or by certified mail, return receipt requested; or
by any documented method considered to be an accepted business practice.
The written notice may be sent by the party seeking money damages or their attorney to the
party from whom the money damages are sought or their attorney or liability insurer.
The proposal will allow a defendant to possibly avoid paying prejudgment interest by making a
written offer of settlement to the plaintiff any time after that defendant files an Answer, but no
later than 120 days after filing an Answer. The amount of the written settlement offer is
important as indicated below and there is no prohibition of making more than one offer during
the 120-day period. If the plaintiff does not accept the offer of settlement in writing within 30
days of receipt, and the plaintiff’s judgment or arbitration award is less than or equal to that
offer of settlement, then no prejudgment interest can be awarded against that defendant. If
there is no offer made within the specified 120-day period, or if the plaintiff’s judgment or
arbitration award is more than the defendant’s offer, then prejudgment interest must be
awarded.
N-4
The parties may agree in writing to extend the 120-day period.
The proposed statute would not apply to:
(1)
(2)
(3)
(4)
a unit of local government, school district, community college district, or other
governmental entity;
a small claims case;
a claim for punitive damages; or
any suit or action governed by a more specific State statute including, but not
limited to, the Interest Act or preemptive federal law.
This proposal would require that the monthly prejudgment interest rate be calculated by the
State Comptroller and published on the Comptroller’s website each month.
C.
Key Points and Considerations
(1)
The “written notice” does not require the plaintiff to include a demand, which
forces defendants/insurers to unilaterally make an offer.
(2)
There is no penalty to plaintiffs who do not settle and receive a judgment less
than or equal to the settlement offer (other than not receiving prejudgment
interest). Therefore, a plaintiff has no pressure to enter into an early settlement,
while enormous pressure is exerted on the defendant to make an offer. This does
not allow for a level playing field like the one that exists with an offer of
judgment in federal court.
(3)
There is no provision for the trial court to extend the 120-day period. Unfair
gamesmanship may result with a plaintiff delaying or refusing to respond to
defendant’s discovery during the 120-day period, leaving the defendant/insurer
with little or no information upon which to reasonably evaluate the case and
formulate an offer.
(4)
The insured needs to be kept informed of all such “written notices” and “offers” in
a timely manner.
(5)
This statute, in its initial form, would also apply to counterclaims, third party
actions, and claims for contribution, and thus may provide some tactical leverage
in forcing reluctant co-defendants to join in a joint settlement effort.
(6)
With the pressure placed on defendants to make an offer and avoid prejudgment
interest, the statute could lead to many questionable (e.g., junk) lawsuits being
filed in Illinois with the hopes of extracting some type of settlement.
N-5
D.
SB0184 − Prejudgment Interest – Full Text of Bill
AN ACT concerning civil law.
Be it enacted by the People of the State of Illinois, represented in the General Assembly:
Section 5. The Code of Civil Procedure is amended by adding Section 2-1303.1 as follows:
(735 ILCS 5/2-1303.1 new)
Sec. 2-1301.1. Prejudgment interest.
(a)
If a party seeks money damages in an action at law or in arbitration, prejudgment
interest must be awarded from the date the party from whom money damages are sought is
given written notice of the claim for money damages or the action or arbitration is filed,
whichever is earlier, until the award or judgment is entered. Actions at law include counter
claims, third party actions, and claims for contribution. The written notice of the claim for money
damages must reference this Section and be tendered by (1) personal service by the sheriff or
private process server; (2) certified mail, return receipt requested; or (3) any method in which
delivery is documented and tracked by accepted business practices. The written notice may be
tendered by the party seeking money damages or his or her attorney and may be tendered to
the party from whom money damages are sought, that party’s attorney, or that party’s liability
insurer.
(b)
The monthly prejudgment interest rate shall be calculated by the Comptroller and
published on his or her website each month. The monthly prejudgment interest rate shall be
calculated by adding 2% to the interest rate of the one-year Treasury constant maturity stated in
the last H15 report of the previous month, published by the Federal Reserve System.
(c)
The prejudgment interest rate to be applied to an award or judgment is the monthly
prejudgment interest rate calculated and published by the comptroller in the month preceding
the date that the award or judgment is entered.
(d)
Any defendant may avoid paying prejudgment interest by making a written offer of
settlement to the plaintiff at any time after that defendant has filed an answer to a complaint,
petition, or demand for arbitration but no later than 120 days after filing an answer. If the
plaintiff does not accept that offer of settlement in writing within 30 days of his or her receipt of
it, and the plaintiff’s award or judgment against that defendant is less than or equal to that offer
of settlement, no prejudgment interest may be awarded against that defendant. The parties may
agree in writing to extend the 120-day period for defendant to make a written offer of
settlement.
(e)
This Section does not apply to any of these parties, claims, or circumstances:
N-6
(1)
A unit of local government, as defined Section 1 of Article VII of the Constitution,
a school district, a community college district, or any other governmental entity.
(2)
An action in small claims.
(3)
A claim for punitive damages.
(4)
If the action is governed by a more specific State statute, including but not
limited to the Interest Act, or preemptive federal law.
(f)
This Section applies only to causes of action accruing on or after the effective date of this
amendatory Act of the 96th General Assembly.
Section 99. Effective date. This Act takes effect January 1, 2010.
II.
VICTIMS’ ECONOMIC SECURITY AND SAFETY ACT (VESSA)
A.
Status of Bill
This bill originated in the Illinois Senate (Senate Bill 1770) and recently passed in the Senate on
4/1/09. The vote was 30-19-2. The bill is now working its way through the House and was
assigned to the Labor Committee on 4/14/09. Given the vote in the Senate and the current
makeup of the House, this bill may very well pass in the House and be sent to the Governor for
signature.
B.
Key Provisions of SB1770
This Act provides certain rights to an employee, or an employee with a family or household
member, who is a victim of domestic or sexual violence, and also places various obligations
upon employers. The prior version of VESSA already allowed an employee, or an employee with
a family or household member who was the victim of domestic violence, to take 12 weeks of
unpaid leave per year (among other rights) and prohibited employers from discriminating
against these employees.
Significant additions to this prior statute are included in SB1770. The prior statute only applied
to employers with 50 employees, but that number has been reduced to 15. Additionally,
although the prior version of the statute required the employer to post a notice regarding
VESSA, the amendments add a penalty of $5,000 in liquidated damages for an employee
"aggrieved" by the failure of any employer to post the notice. The amendments also provide a
private cause of action to the employee in circuit court without regard to exhaustion of any
alternative administrative remedies, and additionally allows compensatory damages for
emotional distress.
N-7
The amendments to VESSA would impose additional burdens on Illinois businesses, especially
small businesses, who now fall within the purview of the Act. In a difficult economic climate, this
bill will only add to the woes of small business.
III.
PROPOSED ADDITIONS TO MOTOR VEHICLE CODE − DISTRACTED DRIVING AND
TEXT MESSAGING
A.
Impetus Behind Bills − Distracted Drivers Task Force Final Report
There are currently two proposed amendments to the Motor Vehicle Code, one pending in the
Senate and one pending in the House. These bills followed a report issued by the Illinois
Secretary of State in 2008 detailing the perceived risks of operating a car while "distracted."
Although the report provided a fairly nebulous definition of distracted driving as "anything that
diverts the driver's attention" away "from the primary tasks of navigating a vehicle and
responding to critical events," the report primarily focused on the use of cell phones, including
text messaging while driving. The report also noted that legislation prohibiting the use of hand
held cell phones altogether has already been passed in several states (The Distracted Drivers
Task Force Final Report, can be found at http://www.cyberdriveillinois.com/departments/drivers/
traffic_safety/ddtaskforcefinalreport08.pdf).
A flood of bills followed this report. Currently, two bills are advancing through the House and
Senate respectively. Both these bills have bipartisan sponsorship and support, and some version
of either of these bills will likely be enacted in the future.
B.
Distracted Driving − Key Points of House Bill 349
This bill proposes a new section to the Motor Vehicle Code (625 ILCS 5/11-503.5), which would
prohibit text messaging and reading a newspaper, book or magazine while operating a motor
vehicle while driving. The original version of the bill also prohibited reading a map, but this was
dropped in the amendment. A violation is considered a petty offense.
C.
Text Messaging While Driving − Key Points of Senate Bill 29
This bill also proposes a new section of the Motor Vehicle Code (625 ILCS 5/12-610.2), which
prohibits driving a car while using a wireless telephone or other mobile electronic device to
send, read or write a text-based communication. However, the bill exempts such usage in
emergency situations, and also exempts using a phone to read, select, or enter a number or
name for purposes of making a telephone call. Finally, the bill exempts typing or reading if a
device is permanently affixed to the vehicle or is part of a navigation system.
D.
Considerations Related to SB009 and HB0349
Since the proposed bills are additions to the Motor Vehicle Code, these bills could potentially
impact the handling and defense of automobile accident cases as follows:
N-8
(1)
A guilty plea to a ticket if either of these bills were enacted would likely support a
statutory violation on which a jury would be instructed. The most problematic
guilty plea would be to the charge of "Distracted Driving." While not negligence
per se, a guilty plea to this charge would be extremely difficult to "undo" in front
of a jury.
(2)
From the initial investigation of the case, cell phone usage needs to be identified
even if there is no initial charge of distracted driving or text messaging. Plaintiff
attorneys are now obtaining cell phone records in automobile accident cases. A
claim or case that initially appears to be defensible could be torpedoed with
evidence of text messaging, cell phone, or email usage. Any number of activities
could distract a person from driving, but the activities outlined in these proposed
bills are easily discovered and leave an electronic “trail." Changing a radio dial
cannot be documented; text messaging on your cell phone can be documented.
(3)
Aggressive plaintiff attorneys may attempt to use a violation in conjunction with
expert testimony about various studies identified in the Task Force Report to
advance a willful and wanton theory. Again, early identification of cell phone
usage in the claims process could allow for settlement and avert any potential for
willful and wanton theories or punitive damages.
E.
HB0349 Vehicle Code – Distracted Driving – Full Text of Bill
AN ACT concerning vehicles.
Be it enacted by the People of the State of Illinois represented in the General Assembly:
Section 5. The Illinois Vehicle Code is amended by adding Section 11-503.5 as follows:
(625 ILCS 5/11-503.5 new)
Sec. 11-503.5. Distracted driving.
(a)
A person commits distracted driving when he or she fails to operate a motor vehicle
according to the law or ordinance governing the movement of vehicles while (i) engaging in text
messaging, or (ii) reading a newspaper, book, or magazine.
(b)
Any person found in violation of subsection (a) of this Section commits a petty offense.
N-9
F.
SB0029 Vehicle Code – Text Communication – Full Text of Bill
AN ACT concerning transportation.
Be it enacted by the People of the State of Illinois, represented in the General Assembly:
Section 5. The Illinois Vehicle Code is amended by adding Section 12-610.2 as follows:
(625 ILCS 5/12-610.2 new)
Sec. 12-610.2. Text messaging while driving.
(a)
As used in this Section:
“Wireless telephone” means a device that is capable of transmitting or receiving telephonic
communications without a wire connecting the device to the telephone network.
“Send, read, or write a text-based communication” means to use a wireless telephone or other
mobile electronic device to manually communicate with any person by using a text-based
communication referred to as a text message, instant message, or electronic mail. For purposes
of this Section, a person does not send, read, or write a text-based communication when he or
she reads, selects, or enters a telephone number or name for the purpose of making a
telephone call.
(b)
A person may not operate a motor vehicle while using a wireless telephone or other
mobile electronic device to send, read, or write a text-based communication.
(c)
This Section does not apply to the use of:
(1)
a wireless telephone or other mobile electronic device for emergency purposes,
including but not limited to, an emergency call to a law enforcement agency, health care
provider, fire department, or other emergency services agency or entity; or
(2)
a device that is permanently affixed to the vehicle, or a global positioning system
or navigation system when the system is used exclusively for navigation purposes.
(d)
A violation of this Section is a petty offense punishable by a fine of $75; however, if a
violation occurs at the time of a traffic accident, the violator shall pay an additional fine of $200.
Section 99. Effective date. This Act takes effect upon becoming law.
N-10
IV.
TRANSPARENCY IN LAWSUITS PROTECTION ACT
A.
Key Points of Senate Bill 1772
This proposed bill was introduced by Senator Kirk Dillard (R) from Westmont, Illinois. The bill
would allow a private cause of action arising out of an Act only if this right is expressly stated in
the Act.
This proposed bill would prevent "judicial legislation" in which courts imply a private cause of
action in a statute under the current case law in Illinois, which allows a private cause of action if:
(1)
The plaintiff is a member of a class the statute was enacted to benefit;
(2)
The plaintiff's injury is one the statute was designed to prevent;
(3)
A private right of action is consistent with the underlying purpose of the statute;
and
(4)
Implying a private right of action is necessary to provide an adequate remedy for
violating the statute.
Further, this proposed bill would allow for much greater clarity when a bill is being debated as
to the intent of the legislature. Under the current state of Illinois law, courts must try and
determine the intent of the legislature regarding a private cause of action based on legislative
debate, which is often disjointed, vague, and at times, virtually absent.
Given the current makeup of the House and Senate, this bill will have a difficult time being
enacted.
B.
SB1772 Transparency in Lawsuit Protection Act – Full Text of Bill
AN ACT concerning civil law.
Be it enacted by the People of the State of Illinois, represented in the General Assembly:
Section 1. Short title. This Act may be cited as the Transparency in Lawsuits Protection Act.
Section 5. Purpose. The purpose of this Act is to ensure that any Act, regulatory or otherwise,
enacted in this State shall not create a private right of action unless such a right is expressly
stated in the Act.
Section 10. Transparency required. Any Act enacted in this State creating a private right of action
shall contain express language providing for such a right. Courts of this State shall not construe
a statute to imply a private right of action in the absence of such express language.
N-11
Section 15. Applicability. This Act shall apply to any action that has not yet been initiated or is
pending on the effective date of this Act.
Section 99. Effective date. This Act takes effect upon becoming law.
V.
AMENDED RECREATIONAL USE OF LAND AND WATER AREAS ACT
A.
Key Provisions of HB0494
This is a bipartisan sponsored bill introduced on February 4, 2009 in the House. The bill
underwent a second reading on April 2, 2009 and was re-referred to the Rules Committee on
April 3, 2009.
A prior version of this statute has been in effect in Illinois for many years and provides that no
duty of care is owed by landowners under a negligence theory when their land is made available
for recreational use. The amendments define that the purpose of the Act is to make land and
water areas available for recreational or conservation purposes (rather than available to "any
individuals or members of the public" for recreational or conservation purposes as in the prior
statute). The bill contains the prior definition of "land," which excludes residential property or
residential buildings. Finally, the amendments define "recreational or conservation purposes" to
be:
(1)
entry by individuals or members of the public onto the land of another for
hunting, recreational shooting, or a related activity;
(2)
entry by the general public onto the land of another for any activity undertaken
for conservation, restoration, resource management, education, nature study and
exploration, exercise, outdoor recreational use, any combination thereof, or any
use solely related to such activities.
The effect of these amendments is to more clearly spell out activities applying to individuals as
well as the general public. Additionally, subsection (2) provides more detail into the activities
encompassed under the Act.
B.
HB0494 Recreational Land – Conservation – Education – Full Text of Bill
AN ACT concerning civil law.
Be it enacted by the People of the State of Illinois, represented in the General Assembly:
Section 5. The Recreational Use of Land and Water Areas Act is amended by changing Sections 1
and 2 as follows:
N-12
(745 ILCS 65/1) (from Ch. 70, par. 31)
Sec. 1. This Act shall be known and may be cited as the “Recreational Use of Land and Water
Areas Act”.
The purpose of this Act is to encourage owners of land to make land and water areas available
to any individual or members of the public for recreational or conservation purposes, as set
forth in subsection (c) of Section 2, by limiting their liability toward persons entering thereon for
such purposes.
(Source: P.A. 94-625, eff. 8-18-05.)
(745 ILCS 65/2) (from Ch. 70, par. 32)
Sec. 2. As used in this Act, unless the context otherwise requires:
(a)
“Land” includes land, roads, water, watercourses, private ways and buildings, structures,
and machinery or equipment when attached to the realty. , but Land used for a recreational or
conservation purpose, as set forth in paragraph (1) of subsection (c) of this Section, does not
include residential buildings or residential property.
(b)
“Owner” includes the possessor of any interest in land, whether it be a tenant, lessee,
occupant, the State of Illinois and its political subdivisions, or person in control of the premises.
(c)
“Recreational or conservation purpose” means:
(1) entry by individuals or members of the public onto the land of another to conduct
hunting or recreational shooting or a combination thereof or any activity solely related
to the aforesaid hunting or recreational shooting; or
(2) entry by the general public onto the land of another for any activity undertaken for
conservation, restoration, resource management, education, nature study and
exploration, exercise, outdoor recreational use, any combination thereof, or any use
solely related to such activities.
(d)
“Charge” means an admission fee for permission to go upon the land, but does not
include: the sharing of game, fish or other products of recreational use; or benefits to or arising
from the recreational use; or contributions in kind, services or cash made for the purpose of
properly conserving the land.
(e)
“Person” includes any person, regardless of age, maturity, or experience, who enters
upon or uses land for recreational purposes.
N-13
(Source: P.A. 94-625, eff. 8-18-05.)
Section 99. Effective date. This Act takes effect upon becoming law.
N-14
Charles E. Timmerwilke
- Partner
Professional Associations
• Illinois State Bar Association
• Winnebago County Bar Association (Past Chair
Trial Section)
Prior to joining the firm in 2005, Chuck first worked as
an associate for a large defense litigation firm
following law school and then was a partner in his
own firm in Rockford. He became a partner with Heyl
Royster in 2009.
Court Admissions
• State Courts of Illinois
• United States District Court, Northern and
Central Districts of Illinois
Chuck concentrates his practice in a wide range of
civil litigation, including product liability, professional
liability, construction, and transportation cases. He has
tried numerous cases to verdict throughout Northern
Illinois, and has extensive experience in both
arbitrations and mediations. He is a certified arbitrator
through the Winnebago County Circuit Court.
Education
• Juris Doctor (Magna Cum Laude), Valparaiso
University School of Law, 1991
• Bachelor of Arts-History (Summa Cum Laude),
Carthage College, 1988
He has lectured and made presentations at Illinois
State Bar Association and Winnebago County Bar
Association seminars on topics related to personal
injury defense. In addition, he has been a guest
lecturer for the trial advocacy class at Northern Illinois
University School of Law. Chuck is a past Chair of the
Trial Section for the Winnebago County Bar
Association.
Public Speaking
• “Defending Damage Evidence In An
Automobile Case: A Trial Perspective”
Illinois State Bar Association Law Ed Series
(Chicago) 2003
• “Amended Supreme Court Rule 213: What
Does It Mean?”
Illinois State Bar Association Law Ed Series
(Rockford) 2002
• “Closing Argument”
Winnebago County Bar Association Trial
Section Seminar (Rockford) 2008
• “The Death of Common Sense? Expert
Testimony, the Admission of Photographs, and
the Expansion of Voykin”
Northern Illinois Adjusters Association 2005
N-15
Learn more about our speakers at www.heylroyster.com
TORT LAW UPDATE Presented and Prepared by:
Daniel R. Simmons
[email protected]
Springfield, Illinois • 217.522.8822
The cases and materials presented here are in
summary and outline form. To be certain of their
applicability and use for specific claims, we
recommend the entire opinions and statutes be read
and counsel consulted.
© 2009 Heyl, Royster, Voelker & Allen
Heyl, Royster, Voelker & Allen
PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE
O-1
TORT LAW UPDATE
I.
DID THE DEFENDANT OWE A LEGAL DUTY TO THE PLAINTIFF? .............................................. O-3
II.
WAS THE DEFENDANT’S CONDUCT THE PROXIMATE CAUSE OF THE INJURY?................ O-5
III.
CONSTRUCTION LITIGATION − WAS THERE RETAINED CONTROL? ...................................... O-6
IV.
IS THE DEFENDANT IMMUNE FROM SUIT? ...................................................................................... O-7
V.
DID THE DEFENDANT DEFAME THE PLAINTIFF? ............................................................................ O-8
VI.
ARE THERE ANY OTHER NEW CASES I SHOULD KNOW ABOUT? ............................................ O-9
O-2
TORT LAW UPDATE
I.
DID THE DEFENDANT OWE A LEGAL DUTY TO THE PLAINTIFF?
Dorge v. Martin, 1-08-2046, 2009 WL 650848 (1st Dist. March 10, 2009) − The Plaintiff was
injured while participating in a sailboat race that was organized, in part, by the defendant as a
fund raiser. The circuit court granted the defendant’s motion for summary judgment. The
Appellate Court affirmed. The Court noted that it is true as a general proposition that a sponsor
or organizer of an event has a duty of care to participants in the event. In this case, the
defendant volunteered to coordinate the sailing portion of the fund raiser once the planning
committee decided to offer it. There were no facts to suggest that the defendant had control
over how the race was organized or how the participants raced their boats. Accordingly, the
Court concluded that the defendant did not owe a legal duty to the plaintiff.
Glickman v. Teglia, No. 1-08- 0392, 2009 WL 424756 (1st Dist. Feb. 19, 2009) − The plaintiff was
injured when she slipped and fell on ice while walking on the stairways and landing of her
condominium unit. The trial court granted the defendant’s motion to dismiss. The Appellate
Court reversed. The defendant was the head of the condominium association. The plaintiff’s
accident happened after the homeowners’ association began collecting dues, but before the
association elected its initial board of directors. The homeowners’ association claimed that it
could not have owed a duty to the plaintiff before the initial board of directors was elected. The
Appellate Court held that the homeowners’ association had taken factual responsibility for the
condominium units despite not having a board of directors in place, therefore it owed a duty of
care to the plaintiff to properly maintain the condominium units.
Johnson v. Bishop, No. 3-08-0271, 2009 WL 454611 (3d Dist. Feb. 10, 2009) − The plaintiff was
injured in a motor vehicle accident. He alleged that the defendants were negligent in failing to
prevent the driver of the other vehicle from gaining access to the keys of the vehicle. The trial
court granted the defendants’ motion to dismiss. The Appellate Court affirmed. The Court noted
that the keys were not left in the vehicle and were not left in plain sight. The keys were in a bag
with the defendant’s credit cards, cell phone and driver’s license. The bag was inside his lunch
box that was on top of the dryer on the utility porch. The Appellate Court found that the theft of
the keys was not reasonably foreseeable to the defendants and that the defendants therefore
did not owe a duty of care to the plaintiff.
Simmons v. Homatas, 386 Ill. App. 3d 998, 898 N.E.2d 1177, 325 Ill. Dec. 898 (2d Dist. 2008) −
The defendant was an adult entertainment club that did not serve alcohol and was not subject
to dram shop laws. The club made an obviously intoxicated person drive away from the
premises. The driver crashed into an oncoming vehicle resulting in multiple deaths. The circuit
court denied the club’s motion to dismiss. The Appellate Court affirmed. The Court held that the
potential of the auto accident happening was reasonably foreseeable, therefore imposing a duty
of care on the club with regard to the plaintiff. The club actively encouraged and facilitated
letting patrons consume their own alcohol at the club. In this case, the patron became
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intoxicated while consuming his own alcohol. The club’s action of requiring the patron to drive
away from the club’s premises in a clearly intoxicated state was therefore a legal cause of the
deaths in the collision.
Winters v. Wangler, 386 Ill. App. 3d 788, 898 N.E.2d 776, 325 Ill. Dec. 729 (4th Dist. 2008) − The
plaintiff was killed in a motor vehicle accident with a tractor. Among other things, the plaintiff
alleged that the lead escort driver negligently drove the escort vehicle. The circuit court
dismissed those allegations. The Appellate Court reversed. The Court noted that the lead escort
driver agreed to act as the escort for the tractor operator as the operator drove an oversized
farm tractor on the highway. The lead escort driver failed to communicate accurately
information to the tractor operator, causing a miscalculation when the operator crossed a
narrow bridge. The Court held that the pleadings sufficiently alleged a duty under an in-concert
liability theory such that the case could go forward.
Aidroos v. Vance Uniformed Protection Services, Inc., 386 Ill. App. 3d 167, 897 N.E.2d 402, 325 Ill.
Dec. 154 (1st Dist. 2008) − A former employee of a building owner gained entrance to the
building and shot and killed several occupants. The occupants brought suit against the security
service hired by the building owner. The circuit court granted the defendant’s motion for
summary judgment. The Appellate Court affirmed. The security service provided unarmed
uniformed security officers. The contract specifically stated that the company did not guarantee
the personal safety of any person and had no liability for criminal acts of third parties. The
purpose of the service company was to provide unarmed security officers to deter losses from
theft and vandalism. The service was not responsible for a malfunctioning building key card
access system that allowed the perpetrator to gain access to the building. The Court found that
the service company owed no duty to protect the occupants of the building from the criminal
acts of the owner’s former employee.
Buerkett v. Illinois Power Co., 384 Ill. App. 3d 418, 893 N.E.2d 702, 323 Ill. Dec. 430 (4th Dist.
2008) − A landscaper brought suit against the power company for negligence in cutting off a
utility pole near a tree in which the landscaper was preparing to work. The circuit court granted
the defendant’s motion for summary judgment. The Appellate Court affirmed. The landscaper
admitted that he saw the pole and chose to continue with his work. The landscaper admitted
that the pole was not an impediment to the safe performance of his work. There was no
testimony that the landscaper either forgot about the pole after he saw it or that he failed to
protect himself from it because of a distraction. Requiring the power company to keep areas
surrounding its poles clear would impose a great burden on the power company. Accordingly,
the Court found that the power company did not owe a duty of care to the landscaper.
Flight v. American Community Management, Inc., 384 Ill. App. 3d 540, 893 N.E.2d 285, 323 Ill.
Dec. 271 (1st Dist. 2008) − A condominium owner brought a slip and fall action against the
condominium association, alleging negligent snow removal. The circuit court entered summary
judgment for the defendants. The Appellate Court affirmed. The condominium association had a
snow removal company on contract to remove snow at the condominiums. The evidence
showed that the contractor had removed a natural accumulation of snow five days before the
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plaintiff’s fall. There was no unnatural accumulation of snow or ice where the owner fell.
Accordingly, the condominium management and snow removal contractor did not owe a duty
under the snow and ice removal statute to the owner.
Morris v. Illinois Central Railroad Co., 382 Ill. App. 3d 884, 892 N.E.2d 36, 322 Ill. Dec. 789 (4th
Dist. 2008) − The administrator of a motorist’s estate brought an action against the railroad and
the company that owned the railroad tracks following a vehicle/train collision. The circuit court
granted the defendant’s motions to dismiss. The Appellate Court affirmed. The train was
stopped at a railroad crossing. The crossing was unlit. It was dark and the sky was heavily
overcast with fog and rain. The Court found that those facts did not constitute special
circumstances that would require the railroad and the owner of the railroad tracks to provide
more warning at the railroad crossing than the presence of the train itself. A train stopped at a
crossing is generally held to be adequate notice and warning of its presence to any traveler who
is in the exercise of ordinary care for his own safety. The weather conditions were common
occurrences during the winter and did not create a duty on the railroad to provide more
warning than the mere presence of the train at the crossing.
II.
WAS THE DEFENDANT’S CONDUCT THE PROXIMATE CAUSE OF THE INJURY?
Richardson v. Bond Drug Company of Illinois, No. 1-07-3349, 2009 WL 113449 (1st. Dist. Jan. 14,
2009) − The plaintiff brought suit against the drug store after slipping and falling in the store.
The circuit court granted the defendant’s motion for summary judgment. The Appellate Court
affirmed. The plaintiff did not know why he fell. He assumed that the floor was wet because his
clothes were wet after the fall. The store manager testified that she did not notice any liquid on
the floor before the plaintiff’s fall. Additionally, it was snowing on the day of the fall, therefore
making it likely that the customer’s shoes were wet and slippery. There was no evidence
suggesting how long any liquid might have been on the floor that might or should have been
discovered in the exercise of ordinary care. Although the issue of proximate cause was noted by
the Court to generally be an issue of material fact to be determined by the trier of fact, it was
proper to find that there was no proximate cause given the facts of the case.
Day v. Menard, Inc., 386 Ill. App. 3d 681, 899 N.E.2d 501, 326 Ill. Dec. 284 (3d Dist. 2008) − A
customer brought a negligence action against a home improvement store. A store employee
had promised to lower the tailgate on the customer’s truck and load landscaping materials onto
the truck. The store employee did not do what he said he would do, so the plaintiff lowered the
tailgate herself and was injured. The circuit court granted the defendant’s motion for summary
judgment. The Appellate Court affirmed. The Court found that the employee’s promise to lower
the tailgate was sufficient to create a duty of care to the plaintiff under a voluntary undertaking
theory. In order to establish proximate cause under a voluntary undertaking theory, however,
the plaintiff must show that she relied on the defendant’s conduct and that she was injured as a
result of that reliance. The Court noted that the plaintiff only waited 15 minutes before deciding
to lower the tailgate herself. She also could have asked another store employee to help her
before lowering the tailgate. Under those facts, the plaintiff did not demonstrate that she relied
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on the promise of the store employee, therefore she could not establish that her injuries were a
result of the proximate cause of the promise.
Ahmed v. Pickwick Place Owners’ Ass’n, 385 Ill. App. 3d 874, 896 N.E.2d 854, 324 Ill. Dec. 778 (1st
Dist. 2008) − A seven-year old bicyclist was riding her bicycle on a sidewalk behind an
apartment complex when she lost control of her bicycle, fell down a grassy embankment into a
retention pond and drowned. Her estate brought suit against the owners’ association and the
owner. A jury returned a verdict for $100,000.00, but answered no to a special interrogatory on
proximate cause. The circuit court found that the verdict was irreconcilable and entered a
judgment notwithstanding the verdict order in favor of the defendants. The Appellate Court
affirmed. The sidewalk was not in a dangerous or hazardous condition. The Appellate Court
found that the answer to the special interrogatory on proximate cause was controlling, and
therefore the judgment notwithstanding the verdict in favor of the defendant was upheld.
Coole v. Central Area Recycling, 384 Ill. App. 3d 390, 893 N.E.2d 303, 323 Ill. Dec. 289 (4th Dist.
2008) − A decedent’s estate brought a wrongful death action against a garbage truck driver and
the truck’s owners for failing to avoid a collision causing the motorist death. The circuit court
granted the defendant’s motion for summary judgment. The Appellate Court affirmed. The
garbage truck was on a preferential road. The garbage truck collided with the motorist, who was
entering the intersection on a secondary road controlled by a stop sign. The Court held that
even if the truck driver exceeded the speed limit, failed to keep a proper lookout and failed to
brake, the motorist pulled out in front of the truck when the truck did not have sufficient time to
avoid the accident regardless of any breach of duty, therefore there was no proximate cause.
III.
CONSTRUCTION LITIGATION − WAS THERE RETAINED CONTROL?
Grillo v. Yeager Construction, 387 Ill. App. 3d 577, 900 N.E.2d 1249, 326 Ill. Dec. 1002 (1st Dist.
2008) − A bricklayer was injured when he fell from scaffolding. He brought suit against the
construction company. A jury returned a verdict for the bricklayer. The Appellate Court affirmed.
The Appellate Court found that evidence in the case was sufficient to establish that the
construction company was the general contractor on the project and that it retained sufficient
control over the work of the bricklayer such that it owed a duty of care to the bricklayer. The
schedule and outline for the project was prepared by the owner of the construction company.
The contract between the homeowners and the company identified the company as the
contractor for the project. The homeowner also testified that the company was the general
contractor.
Gregory v. Beazer East, 384 Ill. App. 3d 178, 892 N.E.2d 563, 322 Ill. Dec. 926 (1st Dist. 2008) −
The plaintiff brought an asbestos exposure suit on behalf of her deceased husband’s estate. The
circuit court granted the defendant’s motions for summary judgment. The Appellate Court
affirmed. Among other issues, the Appellate Court held that the owner of the refinery did not
retain the degree of control over the pipefitter’s work necessary to owe a duty to warn the
pipefitter, who had been employed by independent contractors, of asbestos exposure. The
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general contractors and subcontractors supervised the pipefitter’s daily work. The general
contractors and subcontractors provided the inspectors. The pipefitter received all his tools and
instructions from the subcontractors which hired him. The owner did not provide any direction
or supervision of the pipefitter’s welding tasks. The owner also never provided the pipefitter with
asbestos blankets or gloves used by the pipefitter or directed or ordered their use.
Garcia v. Wooton Const., Ltd, 387 Ill. App. 3d 497, 900 N.E.2d 726, 326 Ill. Dec. 829 (1st Div.
2008) − An injured worker employed by a subcontractor on a construction project brought an
action against the general contractor for his injuries. The circuit court granted the defendant’s
motion for summary judgment. The Appellate Court reversed and remanded. The Appellate
Court held that the general contractor retained sufficient control of a crane required for the
worker to perform his work to give rise to a duty of care owed to the worker. The general
contractor took the only crane at the construction site for use at a different project. The contract
expressly provided that the general contractor would provide the crane for the subcontractor’s
use in accordance with industry practice, and the general contractor would control the crane.
With the crane not present, the general contractor directed that a basket containing multiple
kegs of bolts be manually unloaded. The plaintiff was injured while unloading the basket. The
evidence was sufficient to establish that the general contractor retained control over the
subcontractor and the subcontractor’s employees.
IV.
IS THE DEFENDANT IMMUNE FROM SUIT?
Lacey v. Village of Palatine, Nos. 106353, 106359, 2009 WL 426520 (Feb. 20, 2009) − An estate’s
representative brought an action against the Village and police officers alleging that a violation
of the Domestic Violence Act resulted in the murder of the victim and her mother by the victim’s
former boyfriend. The circuit court granted the defendant’s motion to dismiss. The Appellate
Court reversed. The Illinois Supreme Court granted the defendant’s petition for leave to appeal
and reversed the Appellate Court, holding that the officers were not “otherwise enforcing” the
Domestic Violence Act to bring their conduct within the Act’s limited immunity provision. The
victim telephoned police officers during a two-month period and asked them to reconsider the
decision not to arrest her former boyfriend. She did not report any new incidents or request any
further protection. The telephone request was not of the nature that would ordinarily require a
police response. Given that the officers were not “otherwise enforcing” the Domestic Violence
Act, they were entitled to absolute immunity of the Tort Immunity Act.
Keener v. City of Herrin, 385 Ill. App. 3d 545, 895 N.E.2d 1141, 324 Ill. Dec. 426 (5th Dist. 2008) −
The decedent’s mother brought an action against the City of Herrin. Her minor daughter was
arrested for underage consumption of alcohol and was allowed to leave the police station while
still intoxicated. The minor was then struck and killed by a vehicle. The circuit court granted the
defendant’s motion to dismiss. The Appellate Court affirmed in part and reversed in part. The
Appellate Court held that the City was entitled to tort immunity on negligence allegations,
however, it was not entitled to blanket immunity on allegations of willful and wanton
misconduct. The Tort Immunity Act provides limited immunity for willful and wanton conduct in
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the execution or enforcement of any law. The Appellate Court found that the arresting officer
was executing and enforcing a law when he made the arrest, and the department exercised
control over the arrestee after her arrest by allowing her to leave the department’s control just
before her death. Accordingly, the plaintiff could proceed with the willful and wanton
misconduct claim.
McElroy v. Forest Preserve Dist. of Lake County, 384 Ill. App. 3d 662, 894 N.E.2d 170, 323 Ill. Dec.
611 (2d Dist. 2008) − A bicyclist brought an action against the County’s forest preserve district
concerning the condition of a bridge on which the bicyclist was injured. The circuit court
dismissed the negligence claim and denied summary judgment on the willful and wanton
misconduct claim. The Appellate Court affirmed. The Court found that the wooden bridge
connecting gravel portions of a trail was part of a “hiking trail” or “riding trail” within the
meaning of the section of the Tort Immunity Act providing local public entities and employees
immunity for injury caused by a condition of a hiking or riding trail.
V.
DID THE DEFENDANT DEFAME THE PLAINTIFF?
Naleway v. Agnich, 386 Ill. App. 3d 635, 897 N.E.2d 902, 325 Ill. Dec. 363 (2d Dist. 2008) − A
father and daughter brought an action against the daughter’s aunt for defamation and false
light invasion of privacy in connection with the aunt’s accusations that the father sexually
abused the daughter. A jury returned a verdict in favor of the aunt. The Appellate Court
affirmed. Key to the case was that the aunt was a podiatrist. The aunt presented sufficient
evidence that she knew her niece in her professional capacity as a podiatrist such that she had
to be a mandatory reporter of child abuse under the Abused and Neglected Child Reporting Act,
a requirement that would entitle her to immunity under the Act in a defamation suit. Even
though there was substantial evidence that the aunt had no part in the niece’s medical
treatment, she testified that she examined her niece at the request of the niece’s mother, and a
police officer who interviewed the niece’s mother offered testimony to confirm the aunt’s
position. Accordingly, the question of whether she was entitled to the immunity was properly
before the jury, and the defense verdict was affirmed.
Anderson v. Beach, 386 Ill. App. 3d 246, 897 N.E.2d 361, 325 Ill. Dec. 113 (1st Dist. 2008) − A male
police officer brought a defamation action against a female police officer. The circuit court
dismissed the plaintiff’s complaint. The Appellate Court reversed and remanded. The female
police officer had written a letter to her superior officer accusing the male officer of violating
police procedure, creating a hostile work environment, and assaulting the female officer. She
then disclosed the contents of the letter to fellow officers. The Court held that the female
officer’s disclosure of the contents of the letter was not protected by absolute privilege. The
female officer was not acting within the scope of her official duties or authority when she
revealed the letter’s contents to officers outside her chain of command, and police department
rules did not require the officer to report the misconduct of another officer to her colleagues.
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VI.
ARE THERE ANY OTHER NEW CASES I SHOULD KNOW ABOUT?
Premises Liability: Britton v. University of Chicago Hospitals, 382 Ill. App. 3d 1009, 889 N.E.2d
706, 321 Ill. Dec. 441 (1st Dist. 2008) − A hospital visitor brought a premises liability action
against the hospital for injuries occurring while he was entering the hospital through a revolving
door, when the glass surrounding the revolving door shattered. The circuit court granted the
hospital’s motion for summary judgment. The Appellate Court affirmed. The Appellate Court
held that the visitor failed to present any evidence tending to show that a specified condition
under the hospital’s control caused the glass in the revolving door to break. There was no
evidence regarding any defect in the glass or the revolving door. There was no evidence
regarding maintenance of the revolving door. Finally, there was no evidence indicating that the
hospital had actual or constructive notice of any defect in the revolving door.
Respondeat Superior: Adames v. Sheahan, Nos. 105789, 105851, 2009 WL 711297 (March 19,
2009) − A boy accidently shot and killed his friend while playing with his father’s service
weapon. The father was employed by the Cook County Sheriff’s Department as a correctional
officer. The trial court granted summary judgment in favor of the defendant, Cook County
Sheriff’s Department. The Appellate Court affirmed in part and reversed in part, and remanded
the case. The Illinois Supreme Court granted the defendant’s petition for leave to appeal. The
Illinois Supreme Court affirmed the original judgment of the circuit court. The Illinois Supreme
Court held that the criteria necessary to show that the officer was acting within the scope of his
employment were not met. The negligent storage of guns was not the kind of conduct that the
officer was employed to perform, nor was it incidental to his employment. His negligent storage
of the gun was not within the authorized time and space limits of his employment. Finally, there
was no evidence that he was motivated, at least in part, by a desire to serve his employer when
he negligently stored his gun.
Workers’ Compensation Immunity: Ioerger v. Halverson Construction Co., Inc., 232 Ill. 2d 196,
902 N.E.2d 645, 327 Ill. Dec. 524 (2008) − Ironworkers brought personal injury actions for injuries
they received when a scaffolding collapsed at a bridge repair site, against a construction
company that was a member of a joint venture The circuit court granted the defendants’ motion
for summary judgment. The Appellate Court reversed and remanded on grounds that the
construction company and joint venture were not immune under the Workers’ Compensation
Act. The defendants sought leave to appeal to the Illinois Supreme Court. The Illinois Supreme
Court reversed and affirmed the ruling of the circuit court. Under Illinois law, joint ventures are
governed by partnership principles. A joint venture is essentially a partnership carried on for a
single enterprise. In this case, the joint venture was required to reimburse the employer for labor
costs, including workers’ compensation insurance premiums. Accordingly, the co-venturer of the
plaintiff’s employer was an agent of the employer and therefore immune from personal injury
suit under the exclusive remedy provision of the Workers’ Compensation Act.
Jury Has Discretion with Damages: Poliszczuk v. Winkler, 387 Ill. App. 3d 474, 899 N.E.2d 1115,
326 Ill. Dec. 464 (1st Dist. 2008) − A driver and passenger of a motor vehicle brought personal
injury actions against a driver who rear ended their vehicle at a stop light. The circuit court
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entered judgment on a jury verdict for the plaintiffs that did not award the plaintiffs any
damages for disability or loss of a normal life. The Appellate Court affirmed. Whether the
plaintiff suffered a disability or loss of a normal life was a question for the jury. An orthopedic
surgeon had testified for the defendant that the plaintiff had a pre-existing congenital condition
in the spine and that nothing about the appearance of the spine indicated that the
abnormalities were the result of trauma. The plaintiff’s father was not able to testify about the
plaintiff’s current condition, because the plaintiff had been away at college in the four years
since the accident. No current medical examinations were presented for the jury to consider. The
orthopedic surgeon who testified for the plaintiff had not examined the plaintiff and based his
opinion on his review of the plaintiff’s medical records that were at least four years old.
False Imprisonment: Mercado v. Village of Addison, 385 Ill. App. 3d 1006, 898 N.E.2d 1089, 325
Ill. Dec. 810 (2d Dist. 2008) − The plaintiff was arrested by police officers of the Village. He
brought an action against the Village for false arrest and false imprisonment, alleging that the
arresting police officers had a duty to investigate his claim of mistaken identity. The circuit court
granted the Village’s motion for summary judgment. The Appellate Court affirmed. The police
officers did not act unreasonably in arresting the plaintiff based on a warrant for failure to
appear in court. Although it later turned out that the plaintiff was not the person for whom the
police were looking, the information on the plaintiff’s driver’s license matched information on
the warrant. It did not become known to the officers until later that the person wanted on the
warrant had stolen the plaintiff’s identity. Additionally, the arrest occurred in the middle of the
night. Under those facts, the Court found that no claim for willful and wanton misconduct by the
officers could stand.
Conflicts: Palmer v. Freightliner, LLC, 383 Ill. App. 3d 57, 889 N.E.2d 1204, 321 Ill. Dec. 644 (1st
Dist. 2008) − An employee of a security company who was injured while installing a security
system at the corporation’s premises brought an action against the corporation. The corporation
then brought a third-party action, seeking contribution from the security company. The circuit
court dismissed the third-party contribution action pursuant to Ohio law. The Appellate Court
reversed. Employers can be brought into civil actions in Illinois for contribution as third-party
defendants; however, employers are absolutely immune from civil suit in Ohio. The Appellate
Court held that Illinois law applied rather than Ohio law on the issue of whether the corporation
can seek contribution from the employer. Even though the employee’s workers’ compensation
claim was settled in Ohio, that did not bar the contribution claim in Illinois. The premises where
the employee was injured was in Illinois, the employee was working out of the security
company’s Illinois office at the time of the injury, and Illinois had a strong interest in ensuring
the right to seek contribution from an employer who may have contributed to an employee’s
injury. Illinois law applied even though the employee lived in Ohio, was trained in Ohio, and
usually worked in Ohio.
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Daniel R. Simmons
- Partner
Professional Recognition
• Martindale-Hubbell AV Rated
Dan concentrates his practice in the areas of workers'
compensation and general insurance defense,
including auto liability, premises liability and third
party defense of employers. Since graduation from
law school in 1984, he has spent his entire legal career
at Heyl Royster in the Springfield office. He became a
partner in 1996.
Professional Associations
• Lincoln-Douglas American Inn of Court (past
president and program director)
• American Bar Association
• Illinois State Bar Association
• Sangamon County Bar Association
• Central Illinois Claims Adjusters' Association
Dan has extensive litigation experience. He has taken
numerous cases to jury verdict both in state and
federal courts. Additionally, he has arbitrated
hundreds of workers' compensation claims before the
Illinois Workers' Compensation Commission. Dan
appreciates that his clients' goal is to conclude claims
in the most efficient, economical means possible and
strives to achieve that goal through motion practice,
settlement or trial.
Court Admissions
• State Courts of Illinois
• United States District Court, Central District of
Illinois
• United States Court of Appeals, Seventh Circuit
Education
• Juris Doctor, University of Iowa, 1984
• Bachelor of Arts (Magna Cum Laude) - Political
Science, Speech and Humanities, Augustana
College, 1981
Dan is a frequent author and lecturer on civil liability
and workers' compensation issues. His speaking is
both to clients and to Illinois attorneys for continuing
legal education. Dan continues to provide writing and
speaking services to the Property Loss Research
Bureau/Liability Insurance Research Bureau's annual
conference that is routinely attended by over 2,500
senior claims professionals from around the United
States.
Dan is a past president and program director of the
Lincoln-Douglas American Inn of Court. The Inn is
designed to promote legal education, civility and
collegiality among members of the bar.
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Learn more about our speakers at www.heylroyster.com