Court Denies Claim Made by Guarantee Fund Against Borrowing Employer’s Insurer
Court Denies Claim Made by Illinois Insurance Guarantee Fund Against Borrowing Employer’s Insurer – Court Dismisses Action Filed by The Guarantee Fund.
Illinois Insurance Guarantee Fund v. Zurich American Insurance Company and Interlake Material Handling, 2013 Ill. App. (1st) 123345 (Filed November 12, 2013).
Petitioner, John Earley was hired by TGI Group December 2, 2000. TGI Group had workers’ compensation insurance through Legion Insurance Company. TGI lent Earley to another company, Interlake Material Handling, to perform work duties for Interlake. Interlake was insured by Zurich American Insurance Company.
On December 19, 2000, Earley was injured and Legion Insurance Company began making benefit payments to petitioner. Several years later, Legion became insolvent and was liquidated. The Guarantee Fund took over the case and began making payments to Earley.
On July 17, 2008, almost five years after the Guarantee Fund started making payments to Earley, the Guarantee Fund filed a complaint against Zurich demanding reimbursement for the benefits paid. The complaint alleged that Interlake was a borrowing employer. The complaint alleged that Zurich was responsible for all payments made to Earley as Zurich was the insurer for the borrowing employer. The Guarantee Fund alleged that in a lending/borrowing situation, both employers are jointly and severally liable for workers’ compensation benefits. The Guarantee Fund alleged that the Zurich policy constituted “other insurance” as defined by the Illinois Insurance Code and therefore Zurich should be primarily responsible to petitioner before the Guarantee Fund would be responsible for payments.
Zurich filed a motion to dismiss claiming that the complaint failed to state a cause of action. The Circuit Court agreed and dismissed the complaint filed by the Guarantee Fund. The Guarantee Fund appealed to the Appellate Court and the Appellate Court affirmed the dismissal. The court stated that in order for the Guarantee Fund to establish a valid cause of action for equitable subrogation, they had to show that Zurich was primarily liable to the insured, that the Guarantee Fund was secondarily liable and that the Guarantee Fund discharged its liability to the insured and in doing so extinguished the liability of Zurich.
The court noted that the Supreme Court has already held that an insurer such as Legion can waive its rights against another insurer such as Zurich. In this case, there was no evidence that Legion ever attempted to shift liability to Zurich during the course of Legion’s handling of this claim. Legion felt that it had total liability to petitioner and did not feel that Zurich had any liability. The Guarantee Fund became obligated to pay petitioner once Legion went insolvent. Although the Guarantee Fund claimed that both Legion and Zurich were jointly and severely liable, no facts supported that conclusion. In order for there to be subrogation for the Guarantee Fund, there had to be subrogation for Legion against Zurich. The fact alone that Legion insured a lending employer and Zurich insured a borrowing employer was insufficient on its own to justify a conclusion that Legion had a subrogation against Zurich.
The court stated “In presenting this argument in its opening brief, IIGF ignores this court’s ruling in Illinois Insurance Guarantee Fund v. Virginia Surety Co., 2012 Ill. App. (1st) 113758, which held that when a lending employer maintains workers’ compensation insurance for its employees and the workers’ compensation carrier insolvent, IIGF cannot compel the borrowing employer’s insurance carrier to pay the lending employee’s benefits.”
Comment: The Illinois Guarantee Fund has certainly been aggressive in the last several years seeking to subrogate against other carriers where it has seen an opportunity to claim a subrogation right. However, the courts have not favored these types of claims. The courts have been reluctant to rule in favor of the Guarantee Fund.
Moreover, many of the Guarantee Fund claims appear to be untimely as the Guarantee Fund has been trying to shift liability in cases that they have been accepting and paying for a long time. It does appear unfair that that the Guarantee Fund suddenly feels that they can pursue other carriers who have no obvious liability so many years after accepting and paying claims.