Brady, Connolly & Masuda, P.C. Prevails Before Appellate Court Regarding Erroneous Finding of Lien Waiver

Timothy Cooley v. Power Construction Company, et al. 2018 IL App (1st) 171292

On June 11, 2018, the Appellate Court of Illinois, First District reversed the trial court's ruling that a window subcontractor, Reflection Window and Wall, LLC ("Reflection"), waived its workers' compensation lien rights in its subcontract agreement. Reflection was represented by attorneys Andrew R. Makauskas and Jeffrey F. Clement in the appeal.

An employee of Reflection was injured on the project and filed suit against Elston Window and Power Construction. Reflection entered into a subcontract agreement with Elston Window & Wall ("Elston Window") for the project involving the installation of window units. The subcontract agreement stated Reflection expressly agreed that its obligation to indemnify, defend and hold harmless Elston Window and Power Construction would not be diminished by any tort or constitutional immunity or limitations of liability or recovery under workers' compensation laws. Kotecki v. Cyclops Welding Corp., 146 Ill.2d 155 (1991) held that an employer's liability for its employee's injury is capped at an amount not greater than the employer's workers' compensation liability to its employees. However, courts have held that such Kotecki protections can be waived by contract.

In the trial court, Power Construction filed a motion that Reflection had waived its Kotecki cap. The trial court found that Reflection contractually waived its limited liability protection under Kotecki based on the language of the subcontract agreement. However, in that same order, the trial court also ruled that Reflection waived its workers' compensation lien. On behalf of Reflection, Brady Connolly & Masuda, P.C. appealed the aforementioned lien waiver finding.

On appeal, the Appellate Court reversed the trial court's finding that Reflection waived its workers' compensation lien rights. First, the court noted that the workers' compensation lien, which is granted by Section 5(b) of the Workers' Compensation Act, is a separate and distinct concept from the concept of limited liability under Kotecki. Therefore, there is a distinction between a cap on liability and the right granted to an employer to be reimbursed under the Workers' Compensation Act. Second, the court held the language of the subcontract agreement between Reflection and Elston was not sufficient to constitute a lien waiver because there was no specific reference to the lien or an unmistakable reference to any intention that the lien be waived.

The aforementioned opinion is significant as it reaffirms the importance the Illinois appellate courts place on an employer's lien rights. The opinion is also significant because Kotecki waiver provisions are consistently being included in construction subcontract agreements. This opinion will forestall any future argument that a subcontractor who waives its Kotecki limited liability protections also waives its workers' compensation lien.