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WCLA MCLE 5-16-12 Loaning/Borrowing, ELCs & Insurance Coverage Wednesday May 16, 2012 Guest Speaker: Paul W. Pasche; Brady, Connolly & Masuda; Chicago,

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Presentation on theme: "WCLA MCLE 5-16-12 Loaning/Borrowing, ELCs & Insurance Coverage Wednesday May 16, 2012 Guest Speaker: Paul W. Pasche; Brady, Connolly & Masuda; Chicago,"— Presentation transcript:

1 WCLA MCLE Loaning/Borrowing, ELCs & Insurance Coverage Wednesday May 16, 2012 Guest Speaker: Paul W. Pasche; Brady, Connolly & Masuda; Chicago, IL 12:00 pm to 1:00 pm James R. Thompson Center Auditorium, Chicago, IL 1 Hour General MCLE Credit

2 Loaning/Borrowing Section 1(a)4 820 ILCS 305/1(a)4 4. 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 Workers Compensation Commission or in any action to secure such reimbursement. Where any benefit is provided or paid by such loaning employer the employee has the duty of rendering reasonable cooperation in any hearings, trials or proceedings in the case, including such proceedings for reimbursement

3 Loaning/Borrowing Section 1(a)4 820 ILCS 305/1(a)4 Where an employee files an Application for Adjustment of Claim with the Illinois Workers Compensation Commission alleging that his claim is covered by the provisions of the preceding paragraph, and joining both the alleged loaning and borrowing employers, they and each of them, upon written demand by the employee and within 7 days after receipt of such demand, shall have the duty of filing with the Illinois Workers Compensation Commission a written admission or denial of the allegation that the claim is covered by the provisions of the preceding paragraph and in default of such filing or if any such denial be ultimately determined not to have been bona fide then the provisions of Paragraph K of Section 19 of this Act shall apply.

4 Loaning/Borrowing Section 1(a)4 820 ILCS 305/1(a)4 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. Employee Leasing Companies and Staffing Agencies fall under this definition

5 Roman v. Jett Cutting & Staffing Resources 12 IWCC 0087; 03WC54078 Section 1(a)(4) of the Act provides that with respect to an injured employee, the liability of the loaning and borrowing employers is joint and several; as between employers, the borrowing employer is primarily liable and the loaning employer is secondarily liable, and if the loaning employer is required to pay the loss, it has the right to seek reimbursement from the borrowing employer absent an agreement to the contrary. Surestaff, Inc. v. Azteca Foods, Inc. 374 Ill.App.2d 625 (1st Dist 2007). The Arbitrator found that the brochure provided by Staffing Resources to Jett Cutting stating that Staffing Resources "would assume the burdens and responsibilities of the employer," including "providing workers' compensation insurance coverage" constituted "an agreement to the contrary" for the purpose of Section 1(a)(4). The Commission agrees with the Arbitrator's conclusion that Staffing Resources, Inc. agreed to pay workers' compensation benefits for its loaned employee. The Commission takes note of Surestaff, Inc. v. Open Kitchens, Inc., 384 Ill.App.3d 172, 892 N.E.2d 1137,…does not require a specific waiver as claimed by Staffing Resources, it requires only an agreement that the loaning employer will assume responsibility for workers' compensation losses…The Arbitrator was not in error in determining that the loaning employer agreed that it would retain responsibility to pay workers' compensation benefits.Surestaff, Inc. v. Open Kitchens, Inc., 384 Ill.App.3d 172, 892 N.E.2d 1137,

6 Insurance Coverage Section4(a)(3) 820 ILCS 305/4(a)(3) Section 4.(a) Any employer, including but not limited to general contractors and their subcontractors, who shall come within the provisions of Section 3 of this Act, and any other employer who shall elect to provide and pay the compensation provided for in this Act shall:… (3) Insure his entire liability to pay such compensation in some insurance carrier authorized, licensed, or permitted to do such insurance business in this State. Every policy of an insurance carrier, insuring the payment of compensation under this Act shall cover all the employees and the entire compensation liability of the insured:…the employer shall submit evidence satisfactorily to the Commission that his or her entire liability for the compensation provided for in this Act will be secured. Any provisions in any policy, or in any endorsement attached thereto, attempting to limit or modify in any way, the liability of the insurance carriers issuing the same except as otherwise provided herein shall be wholly void.

7 Insurance Coverage Commission Jurisdiction Employers Mutual v. Skilling,163 Ill. 2d 284; 644 N.E.2d 1163; 206 Ill. Dec. 110 (1994): Therefore, although we conclude that the Commission had concurrent jurisdiction to hear the disputed insurance coverage issue presented in this case, when the question of law was presented to the circuit court in the declaratory judgment suit, the jurisdiction of the Circuit Court became paramount. Hastings Mutual v. Ultimate Backyard, Nos , (cons.), February 9, 2012: Appeal from the denial of a motion to stay proceedings and the granting of motions to dismiss. Hastings Mutual filed a complaint for declaratory judgment seeking an order that it was not responsible for an underlying workers' compensation claim between Vasquez and his employer, Ultimate Backyard. The case ultimately turns on the issue of whether a notice of cancellation that was sent from Hastings Mutual to NCCI conformed with the statutory requirements. Hastings Mutual appeals the denial of its motion to stay as well as the order granting appellees Vasquez's and Ultimate Backyard's motions to dismiss. We reverse and remand with directions for the lower court to stay the underlying workers' compensation claim until a decision is made by the court regarding the issue of insurance coverage.

8 Employee Leasing Companies New Section 4(a-2) 820 ILCS 305/4(a-2) (a-2) Every Employee Leasing Company (ELC), as defined in Section 15 of the Employee Leasing Company Act, shall at a minimum provide the following information to the Commission or any entity designated by the Commission regarding each workers' compensation insurance policy issued to the ELC: (1) Any client company of the ELC listed as an additional named insured. (2) Any informational schedule attached to the master policy that identifies any individual client company's name, FEIN, and job location. (3) Any certificate of insurance coverage document issued to a client company specifying its rights and obligations under the master policy that establishes both the identity and status of the client, as well as the dates of inception and termination of coverage, if applicable.

9 Employee Leasing Company Act 215 ILCS 113/30 (a) When a workers' compensation policy written to cover leased employees is issued to the lessor as the named insured, the lessee shall be identified thereon by the attachment of an appropriate endorsement indicating that the policy provides coverage for leased employees. The endorsement shall, at a minimum, provide for the following: (1) Coverage under the endorsement shall be limited to the named insured's employees leased to the lessees...

10 Isak Klein v. Precision Cabinets 04WC & 08WC Paid by Employers Consortium Inc. (ECI) to work at Precision Cabinets 56 year old cabinet maker; two back injuries, DAs & (continued treating after 1 st injury, though RTW) SX by Dr. LeCompte (decompression) SSDI since 2005

11 Isak Klein v. Precision Cabinets 04WC & 08WC Arbitrators Decision, Causation to accident (1 st injury); no intervening accident on PTD since ECI & Precision Cabinets = Loaning/Borrowing Precision Cabinets = West Bend ECI = NO INSURANCE (Travelers policy cancelled for ; not reinstated until )

12 Isak Klein v. Precision Cabinets 10 IWCC 0400 Commission Decision, There is no dispute that Employer's Consortium, Inc. ("ECI") is the loaning employer and Precision Cabinets ("Precision") is the borrowing employer in this case. The Arbitrator found that ECI did not have workers' compensation coverage on January 10, In so finding, the Arbitrator opted to rely on the Commission's own records, noting that she found the Commission's records "most reliable." The Commission disagrees, and finds that ECI had workers' compensation coverage through Travelers Insurance on January 10, The one page of Petitioner's Exhibit 2 that the Arbitrator relied on to find that ECI's policy was "cancelled effective Sept. 29, 2002 and was not reinstated until Jan. 15, 2003" is the last page of this exhibit, a printout titled "Canc/Reinst/Non- Renew. … We find that the evidence shows that ECI's policy was cancelled effective January 15, 2003, and was reinstated on February 12, 2003, and that ECI was insured by Travelers on January 10, 2003.

13 Isak Klein v. Precision Cabinets 10 IWCC 0400 ECI and Precision are jointly and severally liable for Petitioner's work related injuries…In Travelers's brief, it argues that the applicable statute in this case is the Employee Leasing Company Act 215 ILCS 113/1. Travelers contends that "Section 30 of the ELCA expressly requires the addition of borrowing employers such as Precision 'by endorsement', prior to the borrower or lender becoming entitled to coverage. The Commission rejects Travelers's position. The purpose of the ELCA is to ensure that leasing employers provide workers' compensation insurance for all of its employees and that proper premiums are paid.215 ILCS 113/1 Under Section 4(a)(3) of the WCA, it is clear that once it has been determined that ECI had workers' compensation insurance through a policy provided by Travelers, all employees of ECI during the effective dates of the policy are covered by that policy, regardless of any provisions, endorsements, or lack thereof, attempting to limit or modify the liability of Travelers. It is also clear that the intent of the ELCA is that leased employees be covered by workers' compensation insurance, consistent with our rejection of Travelers's argument here. While ECI's failure to obtain an endorsement in a timely manner identifying Precision as a lessee may have thwarted the ELCA's intent that premium commensurate with exposure be paid, it does not result in a lack of coverage for any of ECI's employees…

14 Travelers Insurance v. IWCC 10 MR 288 Circuit Court of the 16 th Judicial District, Kane County, Travelers policy in effect on The Employer ECI failed to have an endorsement naming Precision Cabinents added to its WC policy with Travelers until 8 ½ months after the Petitioners DA. Commission decision overlooks financial reality that ECI did not pay correct premium Commission decision overturned Petitioner should look to Precision Cabinets, West Bend, and/orECI for his recovery

15 Travelers Insurance v. Precision Cabinets No WC, filed The issue before us is one of pure statutory interpretation, and our review proceeds de novo. Travelers argues that ECI's failure to secure the endorsement adding Precision to the Travelers policy until August 29, 2003, barred Precision from coverage under the Travelers policy on January 10, Travelers admits that the policy period was from September 29, 2002, to September 29, In support of its argument, Travelers relies on section 30 of the Employee Leasing Company Act. Section 30 is titled "Responsibility for policy issuance and continuance" and states that "[w]hen a workers' compensation policy written to cover leased employees is issued to the less or as the named insured, the lessee shall be identified thereon by the attachment of an appropriate endorsement indicating that the policy provides coverage for leased employees.Section 30 Following these principles, we find that Travelers' argument is refuted by the plain language of section 4(a)(3) of the Act. Section 4(a)(3) requires that "[e]very policy of an insurance carrier, insuring the payment of compensation under this Act shall cover all the employees and the entire compensation liability of the insured. Further, "[a]ny provisions in any policy, or in any endorsement attached thereto, attempting to limit or modify in any way, the liability of the insurance carriers issuing the same except as otherwise provided herein shall be wholly void.Section 4(a)(3)

16 Travelers Insurance v. Precision Cabinets No WC, filed In this workers' compensation case, by choosing to purchase workers' compensation coverage, ECI purchased it for all of its employees including the claimant. ECI's failure to secure an endorsement adding Precision to the Travelers policy until August 29, 2003, was ineffective to withdraw the claimant from the operation of the Act. The claimant was still under the protection of the Act at the time of his injury.

17 WORKERS' COMPENSATION LAWYERS ASSOCIATION Loaning/Borrowing, ELC's & Insurance Coverage Travelers Ins. v. Precision Cabinets, Inc., 2012 IL App (2d) WC Paul W. Pasche Brady, Connolly & Masuda, P.C.

18 Travelers Ins. v. Precision Cabinets, Inc. BACKGROUND/CASE FACTS Two workers compensation cases: 1/10/03 and 12/13/03 Petr sustained serious back injuriesmedical perm total Petr was employed by Employers Consortium (ECI), an employee leasing company and was lent to Precision Cabinets The agreement between ECI and Precision called for ECI to provide WC insurance for any leased employees Travelers had issued a policy to ECI with coverage from 9/29/02 to 9/29/03

19 Travelers Ins. v. Precision Cabinets, Inc. BACKGROUND/CASE FACTS The policy terms specifically covered the workers compensation liability of ECI. The policy terms also stated: Terms of this insurance that conflict with the workers compensation law are changed by this statement to conform to that law. An endorsement was attached to the policy in August 2003 specifically naming Precision as a client and additional insured, with the Policy Effective Date listed as 9/29/02, and the Policy Expiration Date stated as 9/29/03. In December 2002, Travelers sent ECI a cancellation notice due to unpaid premium, the notice showed a cancellation date of 1/15/03, but the premium was paid and Travelers reinstated the policy effective January 15, 2003, and there was no dispute that the policy was in existence on the first accident date. There was also no dispute Travelers had renewed the policy and covered both ECI and Precision for the December 13, 2003, accident date.

20 Travelers Ins. v. Precision Cabinets, Inc. BACKGROUND/CASE FACTS Precision had insurance through West Bend. After petrs injuries, ECI hired a TPA that paid medical benefits and TTD until When ECI and the TPA folded, the claim was submitted to Travelers and to Precisions carrier, West Bend. In 2010, West Bend retroactively updated PTD benefits and continued until the appeal was decided in $5,500 in medical bills were at issue at trial. There were no penalties issues at trial.

21 Arbitrators Decision Petr sustained a work-related accident, injuring his low back on 1/10/03. On 1/10/03 and 12/13/03, Petr was employed by ECI. ECI and Precision had a borrowing-lending contract (ECI was the lending employer and Precision was the borrowing employer) On 1/10/03, Precision had workers compensation insurance coverage through West Bend. On 1/10/03, ECI had no workers compensation coverage in effect, because the Travelers policy had lapsed. As a consequence, the arbitrator ruled that there was no insurance coverage by Travelers for the accident of 1/10/03. Petr sustained a temporary exacerbation of his low back condition on 12/13/03, but this incident did not break the chain of causation between the injury of 1/10/03, and the claimants subsequent permanent total disability that commenced 12/09/04. TTD, medical expenses, and permanent total disability benefits were awarded in the claim for 1/10/03, and no benefits were awarded for the claim for 12/13/03.

22 Commission Decision Benefits awards were not in dispute and were affirmed. The Travelers policy did provide workers compensation coverage to ECI on 1/10/03, per Section 4(a)3 of the WCA. ECI and Precision were jointly and severally liable. Petrs injuries were covered under the policy issued by Travelers to ECI. The Employee Leasing Company Act did not contain any provision that would limit the Travelers policy coverage or otherwise limit the mandatory coverage scope of the WCA. Travelers motion to take judicial notice was denied.

23 Circuit Court Decision Confirmed the Commissions decision on all issues except one. In its order, the court stated the fact that Travelers did not receive premiums for [the Petr] was simply wrong and ignore[d] the intent of [the Employee Leasing Company Act]. Accordingly, the Commissions decision is overturned…[,] Travelers owes no coverage…[, and the Petr] must look to Precision Cabinets insurer and/or to ECI for his recovery.

24 Precisions Appeal Commission correct: Travelers policy covered petrs injuries pursuant to WCA Commission correct: ELCA did not eliminate coverage of Travelers policy Commission did not abuse its discretion in denying motion to take notice of documents

25 Any W.C. policy covers entire liability 820 ILCS 305/4(a)(3)(West 1992): Section 4. (a) Any employer * * * shall: * * * (3) Insure his entire liability to pay such compensation in some insurance carrier authorized, licensed, or permitted to do such insurance business in this State. Every policy of an insurance carrier, insuring the payment of compensation under this Act shall cover all the employees and the entire compensation liability of the insured: Provided, however, that any employer may insure his or her compensation liability with 2 or more insurance carriers or may insure a part and qualify under subsection 1, 2, or 4 for the remainder of his or her liability to pay such compensation, subject to the following two provisions: Firstly, the entire compensation liability of the employer to employees working at or from one location shall be insured in one such insurance carrier or shall be self-insured, and secondly, the employer shall submit evidence satisfactorily to the Commission that his or her entire liability for the compensation provided for in this Act will be secured. Any provisions in any policy, or in any endorsement attached thereto, attempting to limit or modify in any way, the liability of the insurance carriers issuing the same except as otherwise provided herein shall be wholly void.

26 Non-impact of premium payments Petr was at all times an employee of ECI, on ECIs payroll. Travelers had a duty under the Insurance Code, §§462b and 467 to diligently investigate ECI to determine the correct premium. Travelers failed to investigate ECIs payroll, etc. Textile Maintenance v. Industrial Commn, 263 Ill.App.3d 866, 636 N.E.2d 748 (1994): the mandatory coverage provisions of Section 4 of the WCA extends coverage under a policy, notwithstanding that the employer had not paid premiums.

27 Liability amongst respondents/insurers Between loaning and borrowing employers: joint and several liability. 820 ILCS 305/1(a)(4) In the absence of agreement, borrowing employer is primarily responsible. Id. Here, the agreement between ECI and Precision named ECI as responsible. Between employer and insurer, insurer becomes primarily responsible. 820 ILCS 305/4(g)

28 Employee Leasing Company Act 215 ILCS 113/30 (West 1998): (a) When a workers' compensation policy written to cover leased employees is issued to the lessor as the named insured, the lessee shall be identified thereon by the attachment of an appropriate endorsement indicating that the policy provides coverage for leased employees. The endorsement shall, at a minimum, provide for the following: (1) Coverage under the endorsement shall be limited to the named insured's employees leased to the lessees. (2) The experience of the employees leased to the particular lessee shall be separately maintained by the lessor as provided in Section 25. (b) (Blank.) (c) The lessor shall notify the insurer or a licensed rating organization 30 days prior to the effective date of termination or immediately upon notification of cancellation by the lessor of an employee leasing arrangement with the lessee in order to allow sufficient time to calculate an experience modification factor for the lessee. (d) The insurer shall provide proof of workers' compensation insurance to the lessor and to each applicable lessee within 30 days of the coverage being effected or changed. (e) Calculation of a lessor's or lessee's premium shall be done in accordance with the insurer's rating manual filed with the Department.

29 Appellate Court Decision DE NOVO review: The circuit court erred in overturning the decision of the commission, because the commissions finding that the Travelers insurance policy covered the liability of ECI for the claimants work-related injury was not contrary to the law. Per Section 4(a)3 of the WCA, Travelers policy covered all the employees and the entire compensation liability of ECI. Coverage of ECI by the Travelers policy was not negated by the provisions of the Employee Leasing Company Act. Section 4(a)3 specifically negates any endorsements that would otherwise limit coverage of a policy ELCAs stated purpose supported the Commissions decision Mandatory coverage language in 4(a)3 was there to protect the claimant, not the insurer The law is settled that the insurer is primarily liable to pay for the liability of the employer. §4(g). See also, Corrugated Metals, Inc. v. Industrial Commn, 184 Ill.App.3d 549, 540 N.E.2d 479 (1989)

30 Practical Application Statutory Language of §4(a)3 is paramount Petitioners: Can bring all respondents and insurers to arbitration to resolve coverage Respondents: – Be prepared to make record at arbitration – Terms of leasing agreement between loaning and borrowing employers – Arrange for payment of disputed benefits until coverage issue resolved


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