Illinois Workers' Comp Lien and Employer's Uninsured Motorist Coverage

The Illinois Supreme Court recently decided that a workers’ comp lien does not apply to a recovery on an employer’s uninsured motorist policy under the plain meaning of Illinois workers’ compensation lien statute since there was no recovery from a 3rd party. Taylor v. Pekin Ins. Co., 2008 Ill. LEXIS 1431 (2008).

The Illinois workers’ compensation lien statute clearly creates an employer’s right of reimbursement for any workers compensation benefits paid from any 3rd party recovery. By statute, the workers’ compensation lien applies to any award, judgment, or fund received by an injured employee from a 3rd party. 820 ILCS 305/5(b).

It was decided earlier that a workers comp lien does not attach to an employee’s uninsured motorist coverage (Terry v. State Farm Insurance, 287 Ill. App. 3d 8 (1997)) as the uninsured motorist recovery is a contract recovery by the claimant against his or her own insurer and not a recovery against a responsible 3rd party.

By way of background in this case, Taylor filed a workers’ compensation claim for a car accident with an uninsured driver. Plaintiff received $162,588.33 in workers’ compensation benefits. Plaintiff then filed a claim for injuries under the employer’s uninsured motorist policy for the employer’s auto policy issued by Pekin Insurance.

At arbitration on the uninsured motorist claim, Taylor was awarded $250,000. The uninsured motorist policy contained a setoff clause for all sums paid under workers’ compensation so Pekin delivered a check to the plaintiff for $87,411.67 representing the $250,000 arbitration award less the setoff for workers comp benefits paid of $162,588.33.

Taylor filed suit claiming he should get 25% attorney’s fees on the $162,588,33 setoff. The Supreme Court said that Taylor’s claim for attorney’s fees misses the point.

The Supreme Court said the plain language of 5(b) clearly states the workers’ comp lien applies where proceedings are instituted against a person, other than the employer, who is liable for damages. Here the claim was not against a 3rd party so the workers comp lien doesn’t apply. If a workers’ comp lien had applied, the employer would have paid 25% attorney’s fees on any lien reimbursement in order to prevent an unjust enrichment to the employer. (Reno v. Maryland Casualty, 27 Ill. 2d 245 (1962)). Here, there was no workers’ comp lien to apply and there was no reimbursement of lien but rather a setoff in the auto policy.

The Court said that if Taylor had recovered $250,000 from an actual insured 3rd party, he would have received the same net recovery of $87,411.67 after deducting out the employer’s workers’ compensation lien reimbursement. Plaintiff was left in no better or no worse shape than he would have been in if he had recovered from an insured 3rd party.

Workers’ compensation lien questions should be addressed to Illinois workers’ compensation attorneys knowledgeable in workers’ compensation lien reimbursement.

 © Copyright 2009 by Brad Bleakney. All rights reserved. Reprinted by permission. This blog originally appeared on Illinois Workers Compensation Blog, published by Brad Bleakney, Bleakney & Troiani, Work Comp Chicago, LLC.