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                                Appellate Court                           Date: 2018.07.11
                                                                          08:16:22 -05'00'




                  In re Estate of Rexroad, 2018 IL App (5th) 170342



Appellate Court     In re ESTATE OF ARNOLD O. REXROAD SR. (Estate of Arnold O.
Caption             Rexroad Sr., Appellee, v. Mid-West Truckers Risk Management
                    Association, Intervenor-Appellant).



District & No.      Fifth District
                    Docket No. 5-17-0342



Filed               May 15, 2018



Decision Under      Appeal from the Circuit Court of Effingham County, No. 12-P-57; the
Review              Hon. Daniel E. Hartigan, Judge, presiding.



Judgment            Reversed and remanded with directions.


Counsel on          James M. Kelly and Jason W. Jording, of James Kelly Law Firm, of
Appeal              Peoria, for appellant.

                    Brian M. Wendler, Angie M. Zinzilieta, and Paul E.H. Rademacher, of
                    Wendler Law, P.C., of Edwardsville, for appellee.



Panel               JUSTICE MOORE delivered the judgment of the court, with opinion.
                    Justices Welch and Overstreet concurred in the judgment and opinion.
                                             OPINION

¶1        The intervenor, Mid-West Truckers Risk Management Association (MTRMA), appeals
     the August 4, 2017, order of the circuit court of Effingham County, which struck in its entirety
     MTRMA’s lien, pursuant to section 5(b) of the Workers’ Compensation Act (Act) (820 ILCS
     305/5(b) (West 2016)), which it claimed from the proceeds of a wrongful death settlement
     recovered by the estate of Arnold O. Rexroad Sr. (Estate). For the following reasons, we
     reverse and remand with directions that the circuit court adjudicate MTRMA’s lien pursuant to
     statute and reconsider, in light of this opinion, MTRMA’s request for sanctions pursuant to
     Illinois Supreme Court Rule 137 (eff. July 1, 2013).

¶2                                              FACTS
¶3       On August 1, 2012, the Estate filed a probate action in the circuit court of Effingham
     County, requesting letters of administration and a supervised administration of the decedent’s
     estate. On October 4, 2012, the circuit court entered an order appointing specified heirs of the
     Estate to serve as special administrators to pursue a wrongful death action arising from the
     death of the decedent (Indiana action). On December 5, 2014, MTRMA filed a petition to
     intervene in the probate action, making the following allegations.
¶4       MTRMA alleged that, at the time of his death, the decedent was employed by Hetzels
     Overland Transport, Inc. (Hetzels), and was killed in the course of his employment. At that
     time, Hetzels was a member of MTRMA, which is a self-insured pool association licensed and
     doing business in Illinois to provide workers’ compensation benefits for its members and
     employees. One of the administrators of the Estate, Cathy Rexroad as decedent’s widow, duly
     applied for, has received, and continued to receive workers’ compensation benefits for the
     death of the decedent from MTRMA. MTRMA had been made aware of a partial settlement of
     the Indiana action and requested intervention in the probate matter for the purposes of
     protecting its lien pursuant to section 5(b) of the Act. 820 ILCS 305/5(b) (West 2014).
     Furthermore, MTRMA requested that it be allowed to participate in the probate court’s
     approval of any settlement of the Indiana action.
¶5       On September 25, 2015, the Estate filed a motion for authorization to distribute statutory
     attorney fees. According to the motion, the Estate’s claim against one of the defendants in the
     Indiana action, Lindsay Measel, settled for $100,000 (Measel settlement). The Estate
     requested authorization to disburse $25,000 from the proceeds of this settlement to the attorney
     for the Estate. On October 5, 2015, MTRMA filed a response to this motion, stating that it did
     not object to the attorney fee disbursement but it did claim a lien of $72,695.73, representing
     75% of the workers’ compensation benefits it had paid up to the date of the motion, pursuant to
     section 5(b) of the Act. 820 ILCS 305/5(b) (West 2014). The motion also recognized that, in
     addition to the 25% reduction for attorney fees in procuring the settlement, this lien amount
     was subject, pursuant to the same section, to a setoff for prorated costs incurred by the Estate.
     MTRMA requested a distribution of $72,695.73 minus the costs the Estate was entitled to
     pursuant to section 5(b) of the Act, in partial satisfaction of its workers’ compensation lien.
¶6       On February 22, 2016, the Estate filed an “Unopposed Motion For Authorization To
     Distribute Statutory Attorney’s Fees, Costs, and Workers’ Compensation Lien.” Stating that
     its motion was based on an agreement between the Estate and MTRMA, the Estate requested
     an order authorizing disbursement of $25,000 for attorney fees to counsel for the Estate,

                                                 -2-
       $12,053.61 for costs to counsel for the Estate, and the balance of $62,946.39 to MTRMA “as
       repayment for the workers’ compensation lien.” On March 10, 2016, the circuit court entered
       an order approving of this distribution of the proceeds of the Measel settlement.
¶7          On October 26, 2016, the Estate filed a motion to adjudicate workers’ compensation lien,
       in which it requested that the remainder of MTRMA’s workers’ compensation lien be stricken
       in its entirety. The Estate argued that MTRMA is not entitled to the remainder of its lien due to
       the following allegations of wrongdoing on the part of MTRMA: (1) direct communications
       with the family of the decedent despite knowing the Estate was represented by counsel;
       (2) obstructing the Estate’s counsel in investigating the wrongful death action by prohibiting
       the Estate from interviewing its employees, refusing to produce the truck and trailer the
       decedent was driving for inspection, and providing its inaccurate “alive and well” investigative
       reports to the defense; (3) failing to pay the decedent’s widow the full amount of workers’
       compensation benefits owed; (4) demanding a distribution toward its lien from the Measel
       settlement; (5) objecting to an unspecified amount of costs claimed by the Estate as required to
       effect a settlement of the remainder of the Indiana action; and (6) seeking to recalculate its
       pro rata share of costs in light of the settlement of the remainder of the Indiana action, which
       the Estate characterized as a “reneg” of its prior agreement to pay its share of costs at the time
       of the Measel settlement.
¶8          The Estate attached several exhibits to its motion to strike the remainder of MTRMA’s
       workers’ compensation lien as corroboration for its allegations of misconduct. Exhibit A to the
       Estate’s motion is a list of payments made by MTRMA on the decedent’s widow’s workers’
       compensation claim, including payments of $473.03 per week. Exhibit B is a letter from the
       Estate’s counsel to Hetzels, requesting that it preserve all evidence related to the decedent’s
       collision. Exhibit C is a letter from Hetzels’ attorney notifying the Estate of his representation
       of Hetzels and requesting that the Estate direct any request for communications of its
       employees to the attorney. Exhibit D is an e-mail from counsel for the Estate to Hetzels’
       counsel, opposing this request on the basis that not all of Hetzels’ employees are part of
       Hetzels’ control group.
¶9          Exhibits E through J are a series of e-mails dated May 14, 2012, through October 2, 2013,
       whereby counsel for the Estate makes repeated requests of Hetzels for inspection of the truck
       and trailer the decedent was driving, as well as records regarding same. A January 11, 2013,
       e-mail from counsel for Hetzels indicates that he had forwarded the request for inspection to
       Hetzels’ insurance carrier, expecting to speak with her that day and requesting that counsel for
       the Estate contact him to discuss the request to inspect. An October 2, 2013, e-mail from
       counsel for the Estate requests assistance in determining whether the truck the decedent was
       driving had an electrical problem that would have kept the truck’s hazard lights from operating
       and asks if they would be unwilling or unable to supply the information informally. Exhibit K
       is a letter from counsel for the Estate to MTRMA’s servicer, stating that, due to MTRMA’s
       lack of cooperation in assisting with the investigation into the wrongful death claim, the Estate
       “will be left with no choice but to resist [the assertion of a lien] owing to the complete and total
       lack of cooperation,” and concluding “[h]opefully this will change soon so that [the Estate] can
       reconsider [its] position.”
¶ 10        Exhibit L to the Estate’s motion is an e-mail exchange between counsel for the Estate and
       previous counsel for MTRMA in April 2015 on several matters, including the conduct of
       “alive and well” checks on the decedent’s widow and the agreement in relation to the Measel

                                                    -3-
       settlement. Exhibits M and N are “alive and well check” reports on the widow for the Estate
       conducted by an investigative firm at the behest of MTRMA’s servicer. These reports are dated
       May 19, 2015, and February 9, 2016, respectively. The reports do indicate that the investigator
       inquired of the decedent’s widow as to whether she would consider a settlement of the
       workers’ compensation claim. Exhibit O is an exchange between counsel whereby it is
       memorialized that there had been an underpayment of workers’ compensation benefits by
       MTRMA. Exhibit P is the unopposed motion to distribute the Measel settlement between
       counsel for the Estate and MTRMA. Exhibits Q through V are an e-mail exchange whereby
       counsel for MTRMA insists on partial payment of the workers’ compensation lien from the
       Measel settlement, as well as a deposition transcript in which issues that were illustrated
       through the prior exhibits are also evidenced.
¶ 11       On December 8, 2016, MTRMA filed a response to the Estate’s motion to strike its
       workers’ compensation lien. In its response, MTRMA argued that none of the issues raised by
       the Estate should be considered in determining whether MTRMA is entitled to its statutory
       lien. According to MTRMA, the circuit court’s authority and obligation is to fully protect
       MTRMA’s lien and requested adjudication of its lien pursuant to section 5(b) of the Act (820
       ILCS 305/5(b) (West 2016)), which requires it be reimbursed for 75% of the benefits it had
       paid, minus its pro rata share of costs. In addition, MTRMA argued that because the workers’
       compensation claim is not settled, MTRMA is entitled to a credit for any future payments in
       the amount of a 75% reduction in the benefit rate. MTRMA requested that the circuit court
       adjudicate its workers’ compensation lien from the Estate’s final settlement of $1.38 million,1
       as provided by law. Both parties filed further briefs on these issues prior to a hearing that was
       held on January 9, 2017.
¶ 12       According to a memorandum of law filed by the Estate on February 9, 2017, the circuit
       court, at the January 9, 2017, hearing, requested that the parties “provide memorand[a]
       discussing how [MTRMA]’s lien and pro rata share of costs are calculated pursuant to Illinois
       case law and the [Illinois Supreme] Court’s recent decision in Bayer v. Panduit Corp. Area
       Erectors, 2016 IL 119553.” According to the Estate’s memorandum, because MTRMA
       refused to wait until the conclusion of the Indiana action, seeking partial reimbursement of its
       lien at the time of the Measel settlement, MTRMA was no longer entitled to any
       reimbursement for its remaining lien.
¶ 13       On March 6, 2017, MTRMA filed its supplemental memorandum, setting forth in detail its
       proposed method for calculating its lien. According to this supplemental memorandum, the
       circuit court, at the January 9, 2017, hearing, specifically requested briefing on the present
       value of MTRMA’s lien based on its obligation to make future workers’ compensation
       payments to the decedent’s widow. At the outset, MTRMA pointed out that, pursuant to
       section 5(b), the Estate’s settlement of the wrongful death action was not lawful because
       MTRMA did not consent to the settlement and the court in the Indiana action did not issue an
       order fully indemnifying or protecting MTRMA’s lien. MTRMA’s memorandum then set
       forth, in detail, its position as to the following:
                   The total value of the Estate’s workers’ compensation claim;
                   MTRMA’s maximum liability for attorney fees;

          1
           At oral argument, counsel for MTRMA represented that the balance of the settlement from all
       defendants other than Measel was $1.48 million.

                                                   -4-
                     MTRMA’s maximum liability for pro rata costs;
                     The value of workers’ compensation payments to date;
                     Prior reimbursement by the Estate to the employer from the Measel settlement;
                     Calculation of amount presently owed by the Estate to MTRMA;
                     Calculation of MTRMA’s setoff against future obligations.
¶ 14        Pursuant to its calculations, MTRMA argued that it was entitled to an immediate
       reimbursement of $22,187.41 through February 14, 2016. In addition, MTRMA suggested that
       due to the size of the wrongful death settlement and its maximum workers’ compensation
       liability, it should be entitled to suspend payments to the decedent’s widow, except 25% of its
       weekly payment obligation for its statutory share of attorney fees, which it represented would
       be $120.40 per week. However, MTRMA argued that, due to the Estate’s alleged malfeasance
       in distributing settlement proceeds without obtaining MTRMA’s consent or protecting its lien,
       it should be relieved of its obligations to pay its share of attorney fees in the form of reduced
       weekly payments and should be granted its fees and costs associated with recovering its lien
       pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013).
¶ 15        On March 17, 2017, the Estate filed a motion to supplement its memorandum in
       accordance with the circuit court’s January 9, 2017, order that it supply affidavits supporting
       its claim for costs associated with prosecuting the Indiana action. The Estate also filed a reply
       to MTRMA’s supplemental memorandum, attaching documentation that the Estate agreed to
       hold the contested lien amount in escrow. On June 9, 2017, the circuit court held another
       hearing on the adjudication of the workers’ compensation lien, which consisted solely of
       argument by counsel. On August 4, 2017, the circuit court entered an order striking MTRMA’s
       workers’ compensation lien in its entirety. On September 1, 2017, MTRMA filed a notice of
       appeal.

¶ 16                                            ANALYSIS
¶ 17       The threshold issue presented by this appeal is whether a workers’ compensation lien,
       pursuant to section 5(b) of the Act (820 ILCS 305/5(b) (West 2016)), can be subject to
       reduction or elimination due to conduct on the part of the insurer in its handling of the workers’
       compensation claim itself, in its cooperation with an investigation of third-party causes of the
       injury, or in its negotiations with the employee regarding the satisfaction of its lien. This
       presents a question of law for which our standard of review is de novo. Environmental Control
       Systems, Inc. v. Long, 301 Ill. App. 3d 612, 622 (1998). MTRMA’s workers’ compensation
       lien is governed by section 5(b) of the Act (820 ILCS 305/5(b) (West 2016)), which provides:
                “Where the injury or death for which compensation is payable under this Act was
                caused under circumstances creating a legal liability for damages on the part of some
                person other than his employer to pay damages, then legal proceedings may be taken
                against such other person to recover damages notwithstanding such employer’s
                payment of or liability to pay compensation under this Act. In such case, however, if
                the action against such other person is brought by the injured employee or his personal
                representative and judgment is obtained and paid, or settlement is made with such other
                person, either with or without suit, then from the amount received by such employee or
                personal representative there shall be paid to the employer the amount of compensation



                                                   -5-
                paid or to be paid by him to such employee or personal representative including
                amounts paid or to be paid pursuant to paragraph (a) of Section 8 of this Act.”2
¶ 18       According to this plain language of section 5(b), an employer’s3 right to reimbursement of
       the full amount of benefits paid or to be paid to the injured or deceased worker is absolute.4
       This is because the workers’ compensation lien is a crucial foundation of workers’
       compensation law in Illinois. See, e.g., Taylor v. Pekin Insurance Co., 231 Ill. 2d 390, 397
       (2008); Harder v. Kelly, 369 Ill. App. 3d 937, 942 (2007). This important public policy, that an
       employer, even if it is not negligent, should compensate the employee for an injury incurred on
       the job, is predicated upon there being no other recovery available. Denius v. Robertson, 98 Ill.
       App. 3d 83, 87 (1981). However, when recovery is obtained from the parties actually
       responsible for the employee’s injury, fairness and justice require that the employer be
       reimbursed for the workers’ compensation benefits he has paid or will pay. Id. There is no
       basis under Illinois law to hold that the alleged conduct on the part of MTRMA, even if true,
       outweighs the absolute right, pursuant to statute, that MTRMA has to reimbursement of its lien
       and the public policy underlying that right.5
¶ 19       The Estate did not cite, to the circuit court or on appeal, any Illinois case that suggests that
       a circuit court has the power to limit or strike an employer’s lien based on conduct on the part
       of the employer or its insurer. Every Illinois case cited by the Estate on this point either had
       nothing to do with the conduct of an employer or its insurer or did not deal with a workers’
       compensation lien. The only cases cited by the Estate in support of its position come from
       Delaware and Pennsylvania, and the Estate emphasizes the Delaware Supreme Court’s opinion
       in Baio v. Commercial Union Insurance Co., 410 A.2d 502, 506 (Del. 1979), supports the
       circuit court’s order. We find this case to be unpersuasive and distinguishable.
¶ 20       In Baio, the workers’ compensation insurer for the injured employee also was the insurer
       for one of the third-party tortfeasors. Id. at 504. Although the insurer first joined the injured
       employee as a plaintiff in the third-party action, once it discovered it was the commercial
       liability carrier for one of the defendants, the carrier “switched sides,” defending its insured
       against the injured employee’s third-party claim. Id. In so doing, the Delaware Supreme Court
       held that the carrier waived its right to recover its workers’ compensation payments from the
       employee’s recovery from the other defendants in the third-party action because it effectively

           2
              Section 8(a) of the Act provides that the employer pay necessary medical expenses for an injured
       employee. 820 ILCS 305/8(a) (West 2016).
            3
              Illinois courts have consistently treated the employer and its insurance carrier as interchangeable
       for purposes of protecting a lien pursuant to section 5(b) (see, e.g., Brandt v. John S. Tilley Ladders Co.,
       145 Ill. App. 3d 304, 308 (1986)), and the Estate does not argue otherwise in this case.
            4
              Subject to the employer’s contribution to the attorney fees and costs necessary to pursue the
       third-party claim, pursuant to subsequent language in section 5(b), to be detailed below.
            5
              To recap, the alleged conduct on the part of MTRMA consists of the following: that it failed to
       cooperate in the Estate’s investigation, failed to pay the full amount of weekly benefits, engaged in
       ex parte communications with the decedent’s widow, and insisted on partial satisfaction of its lien from
       the Measel settlement. As to MTRMA’s insistence on partial satisfaction of its lien from the Measel
       settlement, as explained in this opinion, MTRMA was within its rights. With regard to the other
       allegations of misconduct on the part of MTRMA, we note that the law provided the Estate with a
       method of addressing each of these issues as they presented themselves throughout the course of the
       workers’ compensation proceedings and the Indiana action.

                                                        -6-
       blocked the employee from recovering against its insured. Id. at 507-08. Two justices
       dissented, finding that workers’ compensation is an exclusive statutory remedy dependent for
       its proper functioning on a fixed system of statutory rights, remedies, and liabilities and
       disagreeing with the majority’s application of “ ‘equitable principles’ ” in such a context. Id. at
       508 (Quillen, J., dissenting, joined by McNeilly, J.).
¶ 21        In the case at bar, the conduct on the part of MTRMA that the Estate claims entitles it to an
       equitable extinguishment of MTRMA’s statutory lien falls far short of the conflict of interest
       situation addressed by a split decision of the Delaware court in Baio, which that court found
       amounted to a waiver of the lien. In addition, Delaware’s statute does not go as far as the
       Illinois statute in requiring the circuit court to protect the employer’s lien in a third-party action
       or providing that a settlement that does not have the employer’s consent is invalid. See Del.
       Code Ann. tit. 19, § 2363 (West 2016); cf. 820 ILCS 305/5(b) (West 2016).6 We agree with
       MTRMA’s position on appeal that the differences in the character of the alleged conduct at
       issue on the part of MTRMA, as well as differences in the language of the statutes in Delaware
       and Illinois, provide solid reasons for this court to decline to rely upon Baio to uphold an
       unprecedented extinguishment of the workers’ compensation lien to which MTRMA is
       entitled as per the directive of section 5(b) of the Act. 820 ILCS 305/5(b) (West 2016).
       Accordingly, we must reverse the circuit court’s order extinguishing MTRMA’s lien.
¶ 22        Our decision follows well-established precedent interpreting the plain meaning of section
       5(b) of the Act, which imposes upon the circuit court a duty of protecting the employer’s lien.
       See, e.g., Freer v. Hysan Corp., 108 Ill. 2d 421, 426 (1985); Silva v. Electrical Systems, Inc.,
       183 Ill. 2d 356, 364 (1998) (“we have no authority to depart from the plain language of [section
       5(b) of the Act] by reading into it exceptions, limitations, or conditions that the legislature did
       not express”); In re Estate of Dierkes, 191 Ill. 2d 326, 332 (2000) (an employee is entitled to
       retain only that portion of a recovery from the third-party tortfeasor that exceeds the workers’
       compensation benefits he received). We turn, then, to directions on remand.
¶ 23        After providing for a lien on behalf of the employer on any recovery an injured employee
       receives from a third-party tortfeasor, section 5(b) provides as follows:
                    “Out of any reimbursement received by the employer pursuant to this Section the
                employer shall pay his pro rata share of all costs and reasonably necessary expenses in
                connection with such third-party claim, action or suit and where the services of an
                attorney at law of the employee or dependents have resulted in or substantially
                contributed to the procurement by suit, settlement or otherwise of the proceeds out of
                which the employer is reimbursed, then, in the absence of other agreement, the


           6
             While the Delaware statute simply provides that an injured employee who recovers from a third
       party must reimburse the employer or its workers’ compensation carrier for any amounts paid for
       workers’ compensation, section 5(b) of the Act provides that if an injured employee brings a third-party
       action, the employer has the following rights: “The employer may, at any time thereafter join in the
       action upon his motion so that all orders of court after hearing and judgment shall be made for his
       protection. No release or settlement of claim for damages by reason of such injury or death, and no
       satisfaction of judgment in such proceedings shall be valid without the written consent of both
       employer and employee or his personal representative, except in the case of employers, such consent is
       not required where the employer has been fully indemnified or protected by Court order.” 820 ILCS
       305/5(b) (West 2016).

                                                      -7-
                employer shall pay such attorney 25% of the gross amount of such reimbursement.”
                820 ILCS 305/5(b) (West 2016).
¶ 24       Here, MTRMA’s lien was partially satisfied by the earlier $100,000 Measel settlement,
       and MTRMA paid its 25% of attorney fees as well as its pro rata share of costs on that amount.
       Accordingly, in adjudicating MTRMA’s lien on remand, this must be taken into account. In
       addition, MTRMA’s future liability to the decedent’s widow is required to be considered in
       adjudicating the lien, and MTRMA’s suggestion that this take the form of deductions from
       future payments, except 25% for attorney fees, has a basis in Illinois law in that it may be
       considered as a method for adjudicating the lien as to future workers’ compensation payments
       for which MTRMA is liable. See Bayer v. Panduit Corp., 2016 IL 119553, ¶ 10 (citing Zuber
       v. Illinois Power Co., 135 Ill. 2d 407, 418 (1990)). Of course, if MTRMA has paid further
       benefits to the decedent’s widow since the circuit court erroneously extinguished the lien,
       those should be taken into account as well. Accordingly, on remand, the circuit court will need
       the benefit of updated briefing from the parties on the proper calculation of the lien, including
       future payments, as well as a new hearing.7 Finally, we note that MTRMA requested sanctions
       against the Estate, pursuant to Illinois Supreme Court Rule 137 (eff. July 1, 2013). On remand,
       the circuit court should reconsider MTRMA’s request in light of this opinion and the language
       and spirit of Rule 137.

¶ 25                                          CONCLUSION
¶ 26       For the foregoing reasons, the August 4, 2017, order of the circuit court of Effingham
       County, which struck, in its entirety, MTRMA’s workers’ compensation lien, is reversed, and
       this cause is remanded with directions that the circuit court, after the benefit of further briefing
       and a new hearing, adjudicate MTRMA’s lien in its entirety in accordance with Illinois law and
       reconsider MTRMA’s motion for Rule 137 sanctions in light of this opinion.

¶ 27       Reversed and remanded with directions.




           7
            We note that after the circuit court requested briefing on the calculations required to adjudicate
       MTRMA’s lien, the Estate simply filed another brief requesting the lien be extinguished. On remand, if
       the Estate chooses to submit a brief to the circuit court, the brief should contain a good-faith argument
       regarding the proper calculations for the reimbursement of the lien, according to Illinois law.

                                                       -8-
