Ill. Ins. Guaranty Fund v. Va. Sur. Co.

Decision Date12 October 2012
Docket NumberDocket No. 1–11–3758.
Citation979 N.E.2d 503
Parties ILLINOIS INSURANCE GUARANTY FUND, Plaintiff–Appellant, v. VIRGINIA SURETY COMPANY, INC., and MGM Company, Inc., Defendants–Appellee.
CourtUnited States Appellate Court of Illinois

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

Renee M. Mehl and Elizabeth Copppoletti, both of Nyhan, Bambrick, Kinzie & Lowry, P.C., of Chicago, for appellee.

Presiding Justice McBRIDE delivered the judgment of the court, with opinion.

¶ 1 Janusz Szaradzinski was injured on the job while his employer, T.T.C. Illinois (T.T.C.), was lending him to MGM Company, Inc. (MGM). When the workers' compensation insurer for T.T.C. subsequently became insolvent, the Illinois Insurance Guaranty Fund (the Fund) made timely payments to Szaradzinski and then filed this action for reimbursement from MGM's workers' compensation insurer, Virginia Surety Company, Inc. (Virginia Surety). The Fund prevailed on cross-motions for summary judgment in the circuit court. In this appeal, MGM's insurer contends its policy did not cover borrowed employees and should not have been construed pursuant to section 546 of the Illinois Insurance Code (Code) to be "other insurance" that must be exhausted before the Fund is liable. 215 ILCS 5/546 (West 2000).

¶ 2 T.T.C. was a temporary employment agency or "employee leasing company" based in Kankakee, Illinois, which loaned Szaradzinski and other workers to MGM. MGM was in the business of manufacturing, repairing, and inspecting intermodal trailers at 1800 West 43rd Street, Chicago, Illinois, 60609–3111. It is undisputed that T.T.C. was contractually responsible for paying Szaradzinski's salary and maintaining workers' compensation coverage, however, the contract between T.T.C. and MGM was not made part of the record before us.

¶ 3 Szaradzinski was a 40–year–old, married father of two minor children and resident of Stickney, Illinois, earning about $34,000 a year as a trailer mechanic when he was injured on January 13, 2000. He was at MGM's site, performing MGM's work, when a tire he was inflating exploded and its heavymetal rim flew into his face, causing nose and skull fractures which required emergency medical care, surgery, and his hospitalization for about 10 days. Szaradzinski received medical expenses and total temporary disability benefits of about $400 per week for about a year as provided by the Illinois Workers' Compensation Act (Act) ( 820 ILCS 305/1 et seq. (West 2000)). He was able to return to light duty as a trailer mechanic with physician restrictions from climbing or lifting more than 35 pounds and took medication as needed to alleviate headaches, dizziness, depression, anxiety, and insomnia. In 2002, an arbitrator found Szaradzinski sustained a depressed skull fracture, postconcussion syndrome, and post-traumatic depression; his injuries amounted to a 30% loss of the use of his whole person; and he was entitled to an additional 150 weeks of benefits at the rate of about $400 per week. After further proceedings, Szaradzinski's claim was concluded in 2008.

¶ 4 Approximately $91,000 of the benefits Szaradzinski received were from the current plaintiff, the Fund, after T.T.C.'s workers' compensation insurer, Credit General Insurance Company, was involuntarily dissolved by the Illinois Insurance Department. The Fund exists to "step into the shoes" of troubled insurers by assuming the insurer's obligations for "covered" claims, so that injured workers and policyholders are spared financial loss or excessive delay in payment. Barbee v. Illinois Insurance Guaranty Fund, 395 Ill.App.3d 211, 213, 333 Ill.Dec. 800, 915 N.E.2d 871 (2009) (insurance guaranty fund was created to maintain the status quo of a claimant in the event of an insurer liquidation); Roth v. Illinois Insurance Guaranty Fund, 366 Ill.App.3d 787, 794, 304 Ill.Dec. 39, 852 N.E.2d 289 (2006) (insurance guaranty fund protects claimants and policyholders when an insurer becomes insolvent); Illinois Insurance Guaranty Fund v. Farmland Mutual Insurance Co., 274 Ill.App.3d 671, 674, 210 Ill.Dec. 661, 653 N.E.2d 856 (1995) (insurance guaranty fund provides limited protection to the public and not to insurance companies). The costs of this protection are spread among insurers conducting business in Illinois, as these entities are required to contribute to the insurance guaranty fund in proportion to their premium income, although, practically speaking, the contributions " ‘are passed along to the insurance-buying public in the form of higher premiums.’ " Roth, 366 Ill.App.3d at 794, 304 Ill.Dec. 39, 852 N.E.2d 289 (quoting Norberg v. Centex Homes Corp., 247 Ill.App.3d 267, 274, 186 Ill.Dec. 710, 616 N.E.2d 1342 (1993) ). Disbursements of the Fund's assets are to be offset by claims brought against a solvent insurer whenever possible. Roth, 366 Ill.App.3d at 794, 304 Ill.Dec. 39, 852 N.E.2d 289. In other words, the insurance guaranty fund is to be considered "a source of last resort." Farmland Mutual Insurance, 274 Ill.App.3d at 673, 210 Ill.Dec. 661, 653 N.E.2d 856.

¶ 5 The Fund filed suit against the borrowing employer/MGM and its insurer/Virginia Surety, seeking reimbursement based on a combination of the Act and the Code. Section 1(a)(4) of the Act indicates the rights and remedies of the workers' compensation system are available to borrowed employees, the borrower is primarily liable for compensable injuries, the lender has a right of action against the borrower to recover any compensation it is required to pay to discharge this liability, and the employers are authorized to reverse this payment priority. Evans v. Abbott Products, Inc., 150 Ill.App.3d 845, 847–48, 104 Ill.Dec. 78, 502 N.E.2d 341 (1986) (discussing the terms of section 1(a)(4)); 820 ILCS 305/1(a)(4) (West 2000). More specifically, section 1(a)(4) of the Act states:

"Where an employer operating under and subject to the provisions of this Act loans an employee to another such employer and such loaned employee sustains a compensable accidental injury in the employment of such borrowing employer and where such borrowing employer does not provide or pay the benefits or payments due such injured employee, such loaning employer is liable to provide or pay all benefits or payments due such employee under this Act and as to such employee the liability of such loaning and borrowing employers is joint and several, provided that such loaning employer is in the absence of agreement to the contrary entitled to receive from such borrowing employer full reimbursement for all sums paid or incurred pursuant to this paragraph together with reasonable attorneys' fees and expenses in any hearings before the [Illinois] Industrial Commission or in any action to secure such reimbursement. * * *
* * *
An employer whose business or enterprise or a substantial part thereof consists of hiring, procuring or furnishing employees to or for other employers operating under and subject to the provisions of this Act for the performance of the work of such other employers and who pays such employees their salary or wages notwithstanding that they are doing the work of such other employers shall be deemed a loaning employer within the meaning and provisions of this Section." 820 ILCS 305/1(a)(4) (West 2000).

The Fund's reimbursement claim also relied on section 546(a) of the Code, which sets out the Fund's obligation when two or more insurance policies are available:

"An insured or claimant shall be required first to exhaust all coverage provided by any other insurance policy, regardless of whether or not such other insurance policy was written by a member company, if the claim under such other policy arises from the same facts, injury, or loss that gave rise to the covered claim against the Fund. The Fund's obligation * * * shall be reduced by the amount recovered or recoverable, whichever is greater, under such other insurance policy." 215 ILCS 5/546(a) (West 2000).

The Fund cited these two statutes in its complaint and motion for summary judgment against Virginia Surety. The Fund pursued the borrowing employer/MGM as a nominal defendant only; MGM was never served and it has not participated in these proceedings.

¶ 6 Virginia Surety cross-motioned on grounds that it did not agree to cover and did not collect a premium to cover borrowed employees at the MGM jobsite.

Virginia Surety contended the law and facts disclosed by the record indicated its client, MGM, was free to agree with T.T.C. that T.T.C. would maintain workers' compensation coverage for T.T.C. employees, that MGM was not required by law or by contract to duplicate T.T.C.'s coverage, and that MGM's workers' compensation coverage and premium was limited to MGM employees. Virginia Surety contended the most analogous case is a previous instance in which it refuted the Fund's "other insurance" argument: Virginia Surety Co. v. Adjustable Forms, Inc., 382 Ill.App.3d 663, 321 Ill.Dec. 214, 888 N.E.2d 733 (2008).

¶ 7 In Adjustable Forms, the owner/general contractor of a large construction project known as River East obtained a "wrap up" policy for public liability and workers' compensation coverage for the entire project and its subcontractors which included its concrete subcontractor Adjustable Forms. Adjustable Forms, 382 Ill.App.3d at 664, 321 Ill.Dec. 214, 888 N.E.2d 733. Since the subcontractor was included on the owner's policy, it agreed to notify its insurer (Virginia Surety) to exclude the River East project from its 2000 coverage and it reduced its construction bid by the amount it did not have to pay to its own insurer. Adjustable Forms, 382 Ill.App.3d at 665, 321 Ill.Dec. 214, 888 N.E.2d 733. This arrangement reduced the subcontractor's bid on the multiyear project in Chicago by $526,793. Adjustable Forms, 382 Ill.App.3d at 665, 321 Ill.Dec. 214, 888 N.E.2d 733.

¶ 8 A subcontractor employee was injured in 2000 while operating a tower crane at the Chicago...

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