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Loyola University of Chicago
Illinois Workers' Compensation Commission

By: Cody D. Hartman - Associate - Nyhan, Bambrick, Kinzie & Lowry 


Case Synopsis:
The Appellate Court held the Commission is authorized to assess penalties and attorney’s fees following approval of a settlement contract because a settlement contract has the same legal effect as an award. The Court also noted parties are precluded from drafting settlement contracts that would divest the Commission of jurisdiction to address penalties and attorney’s fees.

Case Facts:
Claimant sustained injuries to her back and left lower extremity in December 2003 and December 2005. Respondent did not pay any temporary total disability benefits and Claimant applied for both long term disability benefits and social security disability benefits. As part of Claimant’s application for long term disability benefits, Claimant signed a “Reimbursement Agreement” which noted Claimants benefits would be reduced by any other benefits that she would receive, such as social security disability. Claimant was approved for long term disability benefits September 2005.

Claimant’s workers’ compensation case proceeded to arbitration. The arbitrator awarded temporary total disability benefits and medical expenses. The Commission affirmed, and while the matter was pending before the circuit court, the parties proceeded to settle the matter. The lump-sum petition contained a provision holding Claimant harmless from any claim for reimbursement from the settlement by any entity that provided long term or short term disability payments. The contract also noted Claimant waived benefits under “Section 8(a) and 19(h), except as to enforcement of the terms of this [settlement contract].”

In February 2009, Claimant was notified of an overpayment of long-term disability benefits which occurred as a result of her social security disability award. Claimant thereafter demanded Respondent tender a check in the amount of the overpayment. Respondent refused and Claimant filed a petitioner for penalties pursuant to Section 19(k) and 19(l). The petition alleged Respondent breached the lump-sum petition settlement contract.

The Commission held Respondent liable for the overpayment. The Commission however, did not award penalties and fees because they found the Commission lacked jurisdiction to consider penalties and fees because Claimant had explicitly waived them by executing the lump-sum settlement contract and that respondent’s failure to pay was neither unreasonable nor vexatious. The circuit court reversed finding the Commission lacked jurisdiction to consider the issue of liability.

Before the Appellate Court, Claimant argued the Commission had jurisdiction to entertain her petition and determine whether the express terms of the approved settlement contract had been satisfied. Respondent argued they had fully performed its obligations under the settlement contract and that the Commission lacked jurisdiction to consider Claimant’s petition. Respondent argued that pursuant Section 19(g) of the Act, the circuit court was the appropriate venue to address an allegation of failure to comply with the provisions of the settlement contract.

Claimant relied on Flynn v. Industrial Commission, where Respondent refused to tender payment following the execution of a lump-sum settlement contract. Claimant filed a 19(k) petition and the Commission assessed penalties. Respondent persisted in its refusal to make payment. Claimant filed a 19(g) petition with the circuit court. The circuit court held that neither the Commission nor circuit court had jurisdiction to award or enforce the penalty provisions of the Act following the Commission’s approval of a lump-sum settlement contract.

The Appellate Court reversed the circuit court finding that pursuant to 19(k) of the Act, the Commission is authorized to assess penalties following approval of a settlement contract because a settlement contract has the same legal effect as an award. The Court also noted that prior to making a determination as to liability for the overpayment, the court needed to determine whether there had been a breach of contract. The Court noted that by interpreting the settlement contract, it was neither reopening, modifying, nor expanding the scope of the settlement contract.

The issue then before the Court was a matter of contract interpretation. The Court held that the contract language was clear and unambiguous. The Court held that the request for reimbursement was considered by the contract and therefore found Respondent liable for the reimbursement of overpayment. Lastly, the Court commented that the Act does not permit parties to draft a settlement contract divesting the Commission of its ability to assess penalties. Therefore the Commission would have jurisdiction to consider penalties and fees following an award. This holding precludes defendants from entering into settlement contracts which they could later vexatiously refuse to pay without fear of penalties.     

Impact on Illinois Employers:
In the above case, Respondent drafted the settlement contract. It is imperative the parties understand the obligations and ramifications of hold harmless language. Specifically where no temporary total disability payments have been made and claimant has filed for short or long term disability payments.

Though Claimant in this matter received simultaneous payments for both long term disability as well as social security, the parties failed to entertain the possibility of simultaneous payment. Although the court noted the language of contract was on-point and found Respondent liable, this decision gives Illinois employers the advantage of including language in future settlement contracts that may either mitigate or preclude such situations.  

The Claimant had previously worked for the employer full time from 1998 until 2008. He began working as a seasonal employee on July 28, 2010, cleaning grain bins, flats, and elevators. The work produced a lot of airborne dust, requiring the claimant to wear a dust mask. He testified that he went through three to five dust masks per day. The Claimant began suffering from respiratory problems in August 2010. His treating physician, Dr. Stephen Norris, initially thought that he might be suffering from cancer and ordered a biopsy. However, the claimant was diagnosed with histoplasmosis on October 22, 2010. The Claimant’s last day of work was on September 1, 2010. There was a dispute as to what was said.