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Employers Liability Insurance: The Kotecki Coverage Exclusion And The Importance Of A Reservation Of Rights Letter

June 2014

By W. Scott Trench

In Illinois, an employer's contribution liability cannot exceed the amount of workers' compensation payments in accordance with the Illinois Supreme Court decision Kotecki v. Cyclops Welding Corp., 146 Ill.2d 155, 166 Ill.Dec. 1, 585 N.E.2d 1023 (1991). This well-known rule of law in Illinois is commonly referred to as the "Kotecki" capon damages. Subsequent to the Kotecki decision, Illinois courts held that an employer may waive its Kotecki protection by contract and thereby become potentially liable for its full pro rata See Liccardi v. Stolt Terminals, Inc.share of contribution liability., 178 Ill.2d 540, 227 Ill.Dec. 486, 687 N.E.2d 968 (1997); Braye v. Archer Daniels-Midland, Co., 175 Ill.2d 201, 222 Ill.Dec. 91, 676 N.E.2d 1295 (1997). A Kotecki waiver is typically found in a contractual indemnity provision, where a party agrees to indemnify and hold harmless another party.

The issue of coverage under an employers liability policy for liability above the Kotecki cap was addressed in Christy-Foltz, Inc., v. Safety Mutual Casualty Corporation, 309 Ill.App.3d 686, 722 N.E.2d 1206, 243 Ill.Dec. 137 (4th Dist. 2000). In Christy-Foltz, the plaintiff insured filed a declaratory judgment action seeking a determination that its employers liability policy covered all contribution liability, including any liability above the Kotecki cap. The defendant insurer, Safety National, conceded that it owed coverage for any judgment up to the Kotecki cap, but denied any duty to cover damages above the Kotecki cap. Safety National relied on a policy provision which excluded coverage for "any loss or claim expenses voluntarily assumed by the employer under any contract or agreement, express or implied." The Appellate Court held the plaintiff's contractual Kotecki waiver constituted a voluntary agreement to assume liability beyond the Kotecki limit on damages and, therefore, the policy did not provide coverage for any liability above the Kotecki cap.

Legislation Expanding Employees Right to Sue Safety Consultants Awaits Vote in Springfield

May 2014

By Francis M. Brady

In 2012, the Illinois Appellate Court ruled that a worker cannot sue a consultant (styled "service organizations" by the Court to conform with language of the Illinois Workers' Compensation Act) based on negligent safety advice or service the consultant provides to the worker's employer. Mockbee v. Humphrey Manlift Co., Inc., et al., 973 N.E. 2d 376, 362 Ill. Dec. 276 (May 18, 2012).

Now, in a vote of 35-19, the Illinois Senate has passed a measure aimed at overruling the Appellate Court. Senate Bill 3287 seeks to amend the Illinois Workers' Compensation Act so that only service organizations "wholly owned" by the employer, its insurer or broker, are, like the employer itself, immunized from civil suit under the exclusive remedy provisions of the Illinois Workers' Compensation Act.

Opponents of Senate Bill 3287, including numerous business and insurance associations, argue that "erosion of the exclusive remedy provision will create more litigation and higher costs for employers, both public and private." The economic impact will be most keenly felt by small employers that typically cannot afford to employ full-time safety professionals and must hire outside consultants. Obviously, these outside consultants will have to pay more for insurance costs which will be passed along to small employers. There may be fewer inspections done and the end result will be that the workplace will be "exposing more workers to injury."

Ramirez v. FCL Builders, Inc., 2013 IL App (1st) 123663

March 2014

By Andrew R. Makauskas and Molly P. Connors

The plaintiff, an employee of Sullivan Roofing, Inc., ("Sullivan"), was hurt pushing heavy material across the roof of a warehouse. Sullivan was a subcontractor of FCL Builders, Inc., ("FCL"), the general contractor for the warehouse project. The roofers had been using all-terrain vehicles, ("ATVs"), to move the material, but were told to stop after the practice was determined to be damaging to the roof. The plaintiff brought a negligence claim against FCL. Sullivan was not a party to the litigation.

At the conclusion of the trial, the jury found in favor of the plaintiff and found he suffered $1.985 million in damages. On the jury verdict form, the jury allocated fault as follows:

  • Plaintiff: (20%)
  • FCL: (40%)
  • Sullivan: (40%)

The verdict was $1.58 million after reduction for plaintiff's share of fault.

  • Chicago Bar Association
  • Workers' Compensation Lawyers Association
  • IRTB
  • DRI - The Voice of the Defense Bar
  • The Illinois Association of Defense Trial Counsel
  • Illinois Self-Insurers' Association
  • Chicago Bar Association
  • Workers' Compensation Lawyers Association
  • IRTB
  • DRI - The Voice of the Defense Bar
  • The Illinois Association of Defense Trial Counsel
  • Illinois Self-Insurers' Association
10 South LaSalle Street, Suite 900
Chicago, IL 60603
Phone: 312-425-3131
211 Landmark Drive, Suite C2
Normal, IL 61761
Phone: 309-862-4914
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St. Louis, MO 63102
Phone: 314-300-0527
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