Chubb Group Insurance Companies v. Carrizalez

FIRST DIVISION
JULY 30, 2007
No. 1-06-1746
CHUBB GROUP INSURANCE ) Appeal from the Circuit
COMPANIES, as Subrogee of ) Court of Cook County.
Caliber Auto Transport, )
)
Plaintiff-Appellant, )
) No. 05 M1 16931
v. )
) The Honorable
JOSE CARRIZALEZ, ) Moira S. Johnson,
) Judge Presiding.
Defendant-Appellee. )
JUSTICE GARCIA delivered the opinion of the court.
On December 5, 2003, a vehicle driven by the defendant, Jose
Carrizalez, struck a van driven by Eric Matthews. Matthews was
driving a van while in the scope of his employment that belonged
to his employer, Caliber Auto Transport. At the time of the
accident, the plaintiff, Chubb Group Insurance Companies, had a
policy of workers' compensation insurance with Caliber Auto.
Matthews allegedly suffered personal injuries in the
accident. Pursuant to the Workers' Compensation Act (Act) (820
ILCS 305/1 et seq. (West 2004)), the plaintiff paid medical bills
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of $2,406.28 and temporary total disability benefits of $666.66
to Matthews.
Within 90 days of the accident and without filing suit,
Matthews entered into a settlement agreement and executed a
general release of liability with Carrizalez's insurer, State
Farm Mutual Automobile Insurance Company. Under the terms of the
agreement, which was entered into on February 23, 2004, Matthews
was paid $3,600 in exchange for releasing and discharging the
defendant of further liability.
On July 29, 2005, the plaintiff sued Carrizalez to recover
monies that it paid to Matthews. The defendant moved to dismiss
the complaint pursuant to section 2-619 of the Code of Civil
Procedure (735 ILCS 5/2-619 (West 2002)), arguing that the
release signed by Matthews discharged the defendant from
liability because the defendant had no knowledge of any lien or
claim by the plaintiff at the time the release was signed and the
settlement amount paid. The trial court granted the motion and
dismissed the plaintiff's complaint.
The plaintiff filed a motion to vacate and reconsider the
dismissal. The court denied the motion, holding that the
defendant had no actual or constructive notice of the plaintiff's
interest. This appeal followed.
On appeal, the plaintiff argues that the trial court erred
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when it dismissed the complaint because section 5(b) of the Act
protected the plaintiff's interest. Further, the defendant had
constructive notice of the plaintiff's interest at the time the
settlement and release were executed. We agree with the
plaintiff and reverse the judgment of the trial court.
ANALYSIS
I. Standard of Review
A section 2-619 motion to dismiss admits the legal
sufficiency of a complaint, but raises defects or defenses that
defeat the claim. Krueger v. Lewis, 359 Ill. App. 3d 515, 520,
834 N.E.2d 457 (2005). Dismissal is appropriate where the record
establishes that no genuine issue of material fact exists. MC
Baldwin Financial Co. v. DiMaggio, Rosario & Veraja, LLC, 364
Ill. App. 3d 6, 22, 845 N.E.2d 22 (2006). We review the
dismissal of a complaint de novo. Krueger, 359 Ill. App. 3d at
521.
II. Section 5(b)
Section 5(b) of the Workers' Compensation Act provides
protections to employers that are compelled to pay compensation
to employees injured by third-party tortfeasors. Villapiano v.
Better Brands of Illinois, Inc., 26 Ill. App. 3d 512, 514, 325
N.E.2d 722 (1975). The Act provides in relevant part:
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"Where the injury or death for which
compensation is payable under this Act was
caused under circumstances creating a legal
liability for damages on the part of some
person other than his employer to pay
damages, then legal proceedings may be taken
against such other person to recover damages
notwithstanding such employer's payment of or
liability to pay compensation under this Act.
In such case, however, if the action against
such other person is brought by the injured
employee *** or settlement is made with such
other person, either with or without suit,
then from the amount received by such
employee *** there shall be paid to the
employer the amount of compensation paid or
to be paid by him to such employee ***.
***
If the injured employee *** agrees to
receive compensation from the employer or
accept from the employer any payment on
account of such compensation, or to institute
proceedings to recover the same, the employer
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may have or claim a lien upon any award,
judgment or fund out of which such employee
might be compensated from such third party.
*** No release or settlement of claim
for damages by reason of such injury or
death, and no satisfaction of judgment in
such proceedings shall be valid without the
written consent of both employer and employee
or his personal representative, except in the
case of employers, such consent is not
required where the employer has been fully
indemnified or protected by Court order."
820 ILCS 305/5(b) (West 2004).
Thus, as to the remedies provided to employers to recoup
compensation paid to employees for injuries caused by third-party
tortfeasors, section 5(b) specifically provides: (1) a lien
against any compensation the employee receives from a third party
with or without suit for any workers' compensation benefits paid
by the employer; (2) the right to intervene in any suit filed by
the employee against the tortfeasor at any stage prior to
satisfaction of judgment, so that all orders are made for the
employer's protection; (3) the invalidity of a release or
settlement of claim for damages entered between the employee and
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the tortfeasor, without written consent of the employer unless
the employer has been fully indemnified or is protected by court
order; and (4) the right to bring a suit during the three months
prior to the expiration of the statute of limitations if the
employee has not filed suit. Insurance Co. of North America v.
Andrew, 206 Ill. App. 3d 515, 518-19, 564 N.E.2d 939 (1990). "It
is clear that the statute provides numerous protections for the
interests of an employer who has made workers' compensation
payments." Andrew, 206 Ill. App. 3d at 519.
The protections afforded an employer by section 5(b) are
"crucial to the workers' compensation scheme" because often the
employer is required to pay compensation even though it was not
at fault. Gallagher v. Lenart, 367 Ill. App. 3d 293, 299, 854
N.E.2d 800 (2006). Section 5(b) provides a means for the
employer to reach the true tortfeasor. Gallagher, 367 Ill. App.
3d at 299. Further, section 5(b) ensures that the employee does
not benefit from a double recovery. Gallagher, 367 Ill. App. 3d
at 299. "'"This is fair to everyone concerned: the employer,
who, in a fault sense, is neutral, comes out even; the third
person pays exactly the damages he or she would normally pay ***;
and the employee gets a fuller reimbursement for actual damages
sustained than is possible under the compensation system alone."'
[Citations.]" Gallagher, 367 Ill. App. 3d at 300.
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III. Employer's Lien
The defendant's principal argument is that because it was
unaware of "the Plaintiff's lien for medical payments and/or TDD
benefits it paid under [the] Worker[s'] Compensation Act, the
Plaintiff's lien never came into effect; therefore, the Plaintiff
is not entitled to reimbursement for the same." For support, the
defendant points to Trimon, where the court explained that an
employer's lien comes into effect when the employer gives notice
to the third-party tortfeasor. Employers Mutual Casualty Co. v.
Trimon Elevator Co., 71 Ill. App. 2d 124, 134, 217 N.E.2d 391
(1966). In its rejoinder, the plaintiff notes that the court in
Villapiano found the statement regarding the effectiveness of the
employer's lien to be dictum. Villapiano, 26 Ill. App. 3d at
517.
We are persuaded that the statement in Trimon regarding when
an employer's lien comes into effect is dictum. More
importantly, the defendant here, as the defendants did in
Villapiano, mistakenly fastens his argument on the word "'lien,'
treating it as akin to an equitable lien and as an exclusive
remedy." Villapiano, 26 Ill. App. 3d at 517. But as the
Villapiano court made clear, a "lien" is merely one of four
remedies afforded an employer for its protection in section 5(b).
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In fact, the language cited by the defendant in Trimon was deemed
dictum by the Villapiano court because the Trimon court allowed a
remedy other than the enforcement of the lien. "[T]he amount of
the settlement in Trimon had been paid to the employee more than
a year prior to the employer's action, [and] as a practical
matter there remained no res or particular fund upon which to
impress a lien ***." Villapiano, 26 Ill. App. 3d at 517.
Instead, the Trimon court, in accordance with a separate remedy
provided in section 5(b), reversed based on "the employer's right
to sue for indemnity and to name the third-party tort-feasor as a
defendant." Villapiano, 26 Ill. App. 3d at 517. As the Trimon
court made clear, the enforcement of a lien presupposes the
intervention of the employer in a suit by the employee against
the tortfeasor. But the Act "does not provide an exclusive
remedy. To hold this as an exclusive remedy on the part of the
employer would to a great extent cut down to the very minimum the
protection which the act intended to give him." Trimon, 71 Ill.
App. 2d at 136.
IV. Invalidity of Release
Thus, the defendant's argument as to when the lien came into
effect misses the point. The plaintiff here does not seek to
enforce a "lien," but relies instead on its statutory right to
hold the release between the employee, Matthews, and the
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defendant tortfeasor, invalid as against the plaintiff because
the employer did not give its written consent and was not fully
indemnified or fully protected by court order. Andrew, 206 Ill.
App. 3d at 518-19.
This liberal interpretation of alternative remedies
available to employers in section 5(b) given by the Trimon court
and recognized by the court in Villapiano is reinforced by the
decision in Andrew, 206 Ill. App. 3d 515, a case procedurally
similar to the case here. In Andrew, an employee of Lewis Truck
Lines, Inc., that was acting within the scope of his employment
was injured when he was struck by a vehicle driven by the
defendant, an employee of Rely Maintenance Seal Coating &
Stripping Company (Rely). The plaintiff filed a negligence
action against the defendant and Rely, seeking, in part,
reimbursement of workers' compensation benefits that it paid the
employee on behalf of Lewis. Andrew, 206 Ill. App. 3d at 517.
The accident giving rise to the workers' compensation payments
occurred on October 6, 1987; the release signed by the employee
was dated September 26, 1989; he did not file suit. The workers'
compensation insurance carrier filed a subrogation claim against
Rely on September 29, 1989.
The defendant moved to dismiss the complaint, arguing that a
release and settlement agreement, signed by the employee, barred
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the action, and that the defendants had no notice of the
plaintiff's interest. Andrew, 206 Ill. App. 3d at 517. The
plaintiff argued that the release was invalid because neither
Lewis nor the plaintiff agreed to the settlement as required by
the Act. The trial court granted the defendant's motion to
dismiss. Andrew, 206 Ill. App. 3d at 517-18.
The Andrew court addressed the plaintiff's contention that
"the Workers' Compensation Act imposes a duty upon the trial
court to protect the employer's right to reimbursement for
workers' compensation benefits paid, and a release, signed by the
injured employee who has accepted workers' compensation benefits,
does not bar the employer's right to reimbursement." (Emphasis
added.) Andrew, 206 Ill. App. 3d at 518. The Andrew court
agreed with Villapiano that an employee's release and settlement
do not vanquish an employer's cause of action. The Andrew court
noted, because the employee did not sue the tortfeasor, the
plaintiff did not have the opportunity to intervene prior to the
settlement. Andrew, 206 Ill. App. 3d at 520.
Much as in the instant case, the parties in Andrew disputed
whether there was any basis in the record to support a finding of
constructive notice of the employer's interest prior to the
execution of the release; the record was unclear when the
employer discovered the settlement between the employee and the
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defendant; and the record was unclear as to any actual notice of
the employer's interest to the defendant prior to the settlement.
Despite the gaps in the record, the court found "[t]he plain,
unambiguous statutory language provides that a release or
settlement entered into without the employer's consent or without
an order of the court protecting the employer is not valid."
Andrew, 206 Ill. App. 3d at 521. Because the release contained
only the employee's signature and did not indicate that the
plaintiff or the employer consented to the agreement, the release
did not bar the plaintiff's action. Andrew, 206 Ill. App. 3d at
521.
We adopt and follow the analysis in Andrew. In this case,
there is no evidence in the record that the plaintiff or Caliber
Auto consented to the release or settlement. Nor is there
evidence that the plaintiff was indemnified or protected by a
court order. Because the plain language of section 5(b) provides
that a release or settlement entered into without an employer's
(or its subrogee's) consent is not valid, the settlement and
release do not bar the plaintiff's timely cause of action against
the defendant. See Andrew, 206 Ill. App. 3d at 521. "[T]he
right granted employers by that section [5(b)] is paramount to
the alternative remedies available for enforcement. *** [T]he
right to an adjudication on issues of liability and damages
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passed to [Matthew's] employer and its insurance carrier, ***
much as if [Matthews] had allowed the statute of limitations to
run within 90 days of expiration." Villapiano, 26 Ill. App. 3d
at 517-18. Accordingly, the plaintiff's cause of action based on
the invalidity of the release survives.
V. Notice of Employer's Interest
The defendant's related argument that "[b]ecause Defendant
did not have constructive notice of the Plaintiff's lien, the
Plaintiff is not entitled to reimbursement" falls with his "lien"
argument. We are aware of no authority that requires an employer
to provide notice of its interest to a third-party tortfeasor
before the employer may invoke its protection under section 5(b)
that a release entered into without its knowledge and written
consent is invalid. This, the Villapiano court made clear:
"[E]ven if we did agree that the defendants could not be charged
with notice of the employer's interest when they obtained the
release, the outcome would not be different. Neither [the
employer] nor [the insurance carrier] by act or omission waived
its statutory right to indemnity." Villapiano, 26 Ill. App. 3d
at 516.
Even if a defense of lack of notice were available to the
defendant, we would reject its application here.
Constructive notice need not be founded exclusively on
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notice, constructive or actual, arising from the circumstances
that created a legal liability for damages on the part of the
tortfeasor. Constructive notice of an employer's interest may
also arise "from a presumption of awareness of the statute's
protective provisions." Villapiano, 26 Ill. App. 3d at 516,
citing Woodward v. E.W. Conklin & Son, Inc., 171 A.D. 736,
739, 157 N.Y.S. 948, 950 (1916) (third party takes release with
full knowledge that without written approval of such release, it
may not be asserted against the person whose approval is
statutorily required); see also Braye v. Archer-Daniels-Midland
Co., 175 Ill. 2d 201, 217, 676 N.E.2d 1295 (1997) (parties are
presumed to contract with knowledge of existing law). Based on
the protections afforded the employer in the statutory provision
of section 5(b), the Villapiano court noted that the defendants
had, at a minimum, constructive notice of the employer's
interest.
The Villapiano court found more, as we do here. In
Villapiano, the defendants, in their answer, admitted that they
knew the vehicle operated by Villapiano was the property of
Reefer. It was that knowledge that put the defendants on inquiry
as to the employer's interest: "If it appears a party having
knowledge or information of facts sufficient to put a prudent man
upon inquiry wholly neglects to make any inquiry, the inference
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of actual notice is necessary and absolute." Villapiano, 26 Ill.
App. 3d at 516. "The fact that Villapiano was driving the truck
of his employer when the accident occurred should have alerted
[the defendants and their agent] to the potential interest of
Reefer." Villapiano, 26 Ill. App. 3d at 516.
In this case, the record contains a copy of the accident
report, clearly identifying Caliber Auto Transport as the owner
of the van Matthews was driving at the time of the accident. As
such, the defendant had sufficient information to put him on
inquiry as to Matthews' status as an employee. Villapiano, 26
Ill. App. 3d at 516. The court in Andrew followed this
reasoning. "[W]hile we express no opinion as to whether notice
of the employer's reimbursement interest is necessary under these
circumstances, plaintiff did allege *** that [the defendant]
struck a vehicle owned by [the employer]. Under the reasoning of
Villapiano, this would be enough to establish constructive notice
of the employer's interest." Andrew, 206 Ill. App. 3d at 521.
Finally, as to the defendant's claim of laches, we find no
merit in the unsupported argument that the plaintiff's "long
delay" in filing suit constituted laches. While there may be
many reasons to explain the speedy settlement in this case in
relation to when the instant suit was filed, there is no reason
that a speedy settlement should inure to the benefit of the
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tortfeasor in light of the clear and unambiguous language in
section 5(b) of the Act affording protections to employers. As
the Villapiano court noted: "To hold otherwise, would convert
post-accident negotiations into an unseemly race, the only result
of which, if not the goal, would be inequity." Villiapano, 26
Ill. App. 3d at 517.
CONCLUSION
The trial court erred in granting the defendant's motion to
dismiss. As provided by section 5(b), without the employer's
consent or without an order of court protecting the employer, the
release signed by Matthew is not valid against the employer. If
the employer was required to provide notice of its interest to
the tortfeasor, at a minimum, the defendant had such constructive
notice prior to the execution of the release. We reverse the
judgment of the trial court and remand for further proceedings
consistent with this opinion.
Reversed and remanded.
McBRIDE, P.J., and R.GORDON, J., concur.
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