Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund , 2013 IL 113873 ( 2013 )

2013 IL 113873
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket No. 113873)
SKOKIE CASTINGS, INC., as Successor to Wells Manufacturing
Company, Appellee, v. ILLINOIS INSURANCE GUARANTY
FUND, Appellant.
Opinion filed October 18, 2013.
JUSTICE KARMEIER delivered the judgment of the court, with
opinion.
Justices Freeman, Garman, Burke, and Theis concurred in the
judgment and opinion.
Chief Justice Kilbride dissented, with opinion.
Justice Thomas dissented, with opinion.
OPINION
¶1 When an insurance company authorized to transact business in
Illinois becomes insolvent and is unable to pay claims under policies
it has issued to its insureds, the Illinois Insurance Guaranty Fund will
step in to pay those claims after an order has been entered liquidating
the company. See 215 ILCS 5/532 et seq. (West 2010). The Fund’s
obligation to pay covered claims is subject to certain qualifications
and limitations, including a cap on the amount it will pay on any
particular claim. That cap is inapplicable, however, to “any workers
compensation claims.” 215 ILCS 5/537.2 (West 2010).
¶2 There is no dispute that claims under policies purchased by
employers to provide primary coverage for awards granted to their
injured employees under the Workers’ Compensation Act (820 ILCS
305/1 et seq. (West 2010)) fall within the “workers compensation
claim” exemption from the statutory cap. The question presented by
this declaratory judgment action is whether claims under policies
providing excess coverage for workers’ compensation awards are
exempt as well.
¶3 On cross-motions for summary judgment filed by an employer
whose workers’ compensation carrier had been liquidated and the
Illinois Insurance Guaranty Fund (the Fund), the circuit court of Cook
County answered this question in the affirmative and concluded, inter
alia, that claims under the excess coverage policies purchased by the
employer in this case were not subject to the statutory cap, that the
Fund had improperly terminated payments for the injured employee’s
workers’ compensation award after the cap was reached, and that the
Fund was obligated to reimburse the employer for all workers’
compensation payments it had made to its injured employee following
liquidation of the employer’s workers’ compensation carrier. The
appellate court unanimously affirmed. 2012 IL App (1st) 111533. We
granted the Fund’s petition for leave to appeal. Ill. S. Ct. R. 315 (eff.
July 1, 2013). For the reasons that follow, we now affirm the
judgment of the appellate court.
¶4 BACKGROUND
¶5 The pertinent facts are undisputed. Wells Manufacturing
Company was a Skokie, Illinois, business which manufactured alloy
and gray alloy castings and ductile iron.1 In the course of its business,
Wells elected to bring itself within the coverage of the Workers’
Compensation Act (820 ILCS 305/1 et seq. (West 2010)). By making
that election, Wells did not relieve itself of any liability for the
injuries sustained by its employees. It merely immunized itself from
being sued in tort by its employees for recovery of damages for
accidental injuries they sustained arising from and in the course of
their employment. 820 ILCS 305/2, 5 (West 2010). Once the election
occurred, Wells’ employees were limited to their remedies under the
Workers’ Compensation Act. 820 ILCS 305/5(a), 11 (West 2010).
1
At some point, and the record does not show when or how, Skokie
Castings, Inc., became a corporate successor to Wells Manufacturing.
Skokie Castings initiated this litigation as Wells’ successor and is the
nominal plaintiff. Because the operative facts all involve Wells, however,
we shall refer to the plaintiff as Wells in order to avoid confusion.
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¶6 Employers such as Wells which elect to avail themselves of the
provisions of the Workers’ Compensation Act must make provision
for securing payment of the compensation provided for by the statute.
They may do so by purchasing insurance providing full coverage (820
ILCS 305/4(a)(3) (West 2010)), but that is not their only option. They
may also elect to demonstrate to the Illinois Workers’ Compensation
Commission that they possess the financial resources to self-insure
(820 ILCS 305/4(a)(1) (West 2010)); they may furnish “security,
indemnity or a bond” guaranteeing payment (820 ILCS 305/4(a)(2)
(West 2010)); or they make some other arrangement satisfactory to
the Commission (820 ILCS 305/4(a)(4) (West 2010)). In addition, the
law affords them the flexibility to use any of these latter three options
(self-insuring; furnishing security, etc.; or “other”) to secure payment
of part of their obligation and then to purchase an excess coverage
policy for the remainder. 820 ILCS 305/4(a)(2), (3) (West 2010). In
this case, that is the option Wells elected to take, self-insuring in part
and purchasing workers’ compensation excess coverage from Home
Insurance Company for the remainder.
¶7 The terms of the coverage which Wells purchased from Home
Insurance were set forth in two related policies which took effect on
August 1, 1984, an “Aggregate Excess Workers’ Compensation and
Employers’ Liability Policy” and a “Specific Excess Workers’
Compensation and Employers’ Liability Policy.” The “Aggregate
Excess” policy specified generally that it would indemnify Wells for
the sums Wells actually paid for either “compensation and other
benefits required of [it] by the workers’ compensation law” or “by
reason of *** Employers’ Liability, which shall mean the liability
imposed upon [Wells] by law for damages because of bodily injury
by accident or disease, [etc.].” Correspondingly, it also afforded
coverage for, among other things, “[l]egal expenses in connection
with hearings before the State Industrial Commission” or “reasonable
legal and other expenses in defense of any claim or suit against
[Wells]” alleging employer liability, as the case might be.
¶8 The second policy, titled “Specific Excess Workers’
Compensation and Employers’ Liability Policy,” specified that Home
Insurance agreed to indemnify Wells “against excess loss, subject to
the limitations, conditions and other terms of this policy, which
[Wells] may sustain on account of *** compensation and other
benefits required of [Wells] by the Workers Compensation Law.”
Under the policy, Well’s retained limit of liability, that is, the amount
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Wells had to pay out itself before Home Insurance’s obligations under
the policy were be triggered, was $200,000. The upper limit of Home
Insurance’s obligation to indemnify Wells was listed as “Statutory
Workers’ Compensation—Unlimited Employers’ Liability.”
¶9 In February of 1985, while the foregoing policies were in effect,
a Wells employee named Mona Soloky was seriously injured in the
course and scope of her employment. Soloky filed a claim for benefits
with the Illinois Industrial Commission (now the Illinois Workers’
Compensation Commission (see Pub. Act 93-721, eff. Jan. 1, 2005))
pursuant to the Workers’ Compensation Act (820 ILCS 305/1 et seq.
(West 2010)). The Commission determined that Soloky was totally
and permanently disabled and awarded her all her reasonable and
necessary medical costs plus weekly benefit payments of $394.25 for
life.
¶ 10 Wells paid the amounts awarded to Soloky by the Commission
until the $200,000 retained limit of liability set forth in its excess
coverage policies with Home Insurance was reached. Thereafter , it
looked to Home Insurance to bear the cost of Soloky’s workers’
compensation award. Home Insurance employed a third-party
administrator named the Martin Boyer Company to handle the
payments it owed under the excess coverage policies it had issued to
Wells. Through the Martin Boyer Company, Home Insurance paid
benefits to Soloky pursuant to the Commission’s award. It did so until
it became insolvent, went into receivership and was liquidated.
¶ 11 As noted at the outset of this opinion, Illinois has established the
Insurance Guaranty Fund to help protect insureds such as Wells
where, as here, their insurance carriers become insolvent and cannot
meet their policy obligations. 215 ILCS 5/532 (West 2010). All
insurance companies authorized to transact business in Illinois are
members of the Fund (215 ILCS 5/534.5 (West 2010)) and must
remain so as a condition of their doing business here (215 ILCS 5/535
(West 2010)). Home Insurance Company was such a member.
¶ 12 The Fund itself is divided into separate accounts, one for
automobile insurance and the other for all other insurance to which
provisions of the Insurance Guaranty Fund statutes apply, including
insurance covering workers’ compensation. 215 ILCS 5/535 (West
2010). Members of the Fund, i.e., all insurance companies authorized
to conduct business here, are charged an annual fee to cover the
Fund’s contingent expenses. 215 ILCS 5/537.1 (West 2010). In
addition, the Fund assesses every member of the Fund for a share of
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the total amount the Fund must pay out to cover claims when a
member becomes insolvent. For purposes of calculating the
assessments, which are made annually, the two Fund accounts, auto
and other, are treated separately, but within each account no
distinction is drawn between primary and excess policies. 215 ILCS
5/537.6 (West 2010).
¶ 13 When an order of liquidation is entered against an insolvent Fund
member, the Fund has a statutory obligation to pay “covered claims”
which existed prior to entry of the liquidation order or arising within
30 days after the entry of such order, or within other specified time
frames, and subject to various conditions and limitations. 215 ILCS
5/537.2 (West 2010). For purposes of the statute, a “covered claim”
is defined to include any “unpaid claim for a loss arising out of and
within the coverage of an insurance policy to which [the law
governing the Fund applies] and which is in force at the time of the
occurrence giving rise to the unpaid claim.” 215 ILCS 5/534.3(a)
(West 2010).
¶ 14 According to the record before us, an insured whose carrier has
been liquidated invokes the Fund’s protection by submitting a “proof
of claim” form to it to document the unpaid claim for which it is
seeking benefits from the Fund. There is no question that Wells
complied with the requisite procedures, nor is there any dispute that
the amounts owed by Home Insurance under the workers’
compensation excess coverage policies purchased by Wells to help
satisfy its obligations under the Workers’ Compensation Act and
which were left unpaid when Home Insurance became insolvent and
was liquidated met the requirements of a “covered claim” under
section 534.3(a) of the Insurance Code (215 ILCS 5/534.3(a) (West
2010)), triggering the Fund’s obligations under section 537.2 (215
ILCS 5/537.2 (West 2010)). The Fund therefore honored that claim
and assumed, from Home Insurance, responsibility for payment of the
sums still due Soloky under the Commission’s award.
¶ 15 After paying approximately $250,000 to Soloky, the Fund notified
Wells of its belief that Wells’ claim against the Fund was subject to
a $300,000 cap, which the Fund anticipated would soon be reached.
The Fund indicated that once the $300,000 maximum was exhausted,
it would cease making payments toward the Soloky award and that
arrangements needed to be made to transfer responsibility for the
matter to some other person or entity. Several months later, the Fund
did as it advised Wells it planned to do and stopped the payments to
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Soloky. Since that time, Wells has undertaken direct financial
responsibility for payment of Soloky’s workers’ compensation award.
Wells estimates that by 2010, when this litigation commenced, this
additional sum exceeded half a million dollars.
¶ 16 Section 537.2 of the Illinois Insurance Code (215 ILCS 5/537.2
(West 2010)) imposes certain qualifications and limitations on the
Fund’s obligations, even where, as here, a claim is covered. Among
those is that where an order of liquidation was entered on or after
January 1, 1988, and before January 1, 2011, the Fund’s obligation
shall not exceed $300,000. 215 ILCS 5/537.2 (West 2010). It is this
provision which is the basis for the Fund’s refusal to continue
payments related to Soloky’s workers’ compensation award.
¶ 17 Although Wells is once again paying the Soloky award directly,
as it did before the retention limit was reached, it has continued to
dispute the Fund’s assertion that the Fund’s financial obligations with
respect to the claims related to Soloky which were left unpaid after
Home Insurance was liquidated are subject to the foregoing statutory
$300,000 cap. Wells argues that the law contains an express
exception to the cap for “any workers compensation claims” (215
ILCS 5/537.2 (West 2010)) and asserts that the claims left unpaid
under its excess coverage workers’ compensation policies when
Home Insurance dissolved constitute such “workers compensation
claims.” In Wells’ view, the exception to the statutory cap is therefore
applicable.
¶ 18 The Fund rejected Wells’ interpretation of the law and refused to
make further payments. Wells therefore commenced this action for
declaratory judgment against the Fund in the circuit court of Cook
County pursuant to section 2-701 of the Code of Civil Procedure (735
ILCS 5/2-701 (West 2010)). Wells’ complaint requested a
determination that the $300,000 cap set forth in section 537.2 of the
Insurance Code did not and does not apply under the circumstance of
this case, that the Fund improperly terminated payments for Soloky’s
workers’ compensation award once the statutory cap was reached,
that the Fund is and remains liable for any claims left unpaid when
Home Insurance was liquidated, and that the Fund should reimburse
Wells for the sums it was required to pay toward Soloky’s workers’
compensation award after the Fund ceased payment.
¶ 19 The Fund moved to dismiss pursuant to section 2-615 of the Code
of Civil Procedure (735 ILCS 5/2-615 (West 2010)). It did not dispute
Wells’ version of the facts, nor did it challenge the legal sufficiency
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of Wells’ complaint for declaratory relief. Rather, it argued that
Wells’ construction of the Insurance Code was erroneous, that the
$300,000 cap does apply here, and that Wells’ cause of action should
therefore fail on the merits.
¶ 20 Wells responded that the Fund’s motion was procedurally
improper. The Fund, in turn, argued that a motion to dismiss under
section 2-615 is an appropriate mechanism for disposing of an action
for declaratory relief on the merits. The circuit court subsequently
decided that the Fund’s motion would be treated as a motion for
summary judgment. Wells replied to it as such and filed its own
cross-motion for summary judgment.
¶ 21 A hearing on the parties’ cross-motions was conducted by the
circuit court. Supplemental briefing followed, after which the court
entered a detailed and well-reasoned written order. After setting forth
the facts and examining the applicable law, the court concluded that
Wells’ claim under its workers’ compensation excess coverage policy
fell within the plain meaning of “any workers compensation claims”
under section 537.2 of the Insurance Code and was therefore exempt
from the $300,000 cap limiting the Fund’s obligations under other
types of policies. Accordingly, it denied the Fund’s motion for
summary judgment, granted summary judgment in favor of Wells and
concluded that the Fund had improperly terminated its payment of
benefits owed to Soloky pursuant to the award granted by the
Workers’ Compensation Commission; that the Fund is liable for all
sums Wells paid to Soloky or on her behalf pursuant to her workers’
compensation award following Home Insurance’s liquidation and
must reimburse Wells for those amounts; and that the Fund
“continues to owe benefits to Soloky pursuant to the Worker’s
Compensation Commission’s Award subject to the Guaranty Fund
Act.”
¶ 22 The Fund appealed. As in the trial court, the Fund took no issue
with the facts as asserted by Wells. Its argument was simply that the
circuit court erred in concluding that Wells’ claim for coverage under
its excess workers’ compensation policies with Home Insurance with
respect to Soloky’s workers’ compensation award qualified as “any
workers’ compensation claim” within the meaning of section 537.2
of the Insurance Code. In the Fund’s view, that term is applicable
only to claims for workers’ compensation benefits filed by an injured
employee. Because Wells’ claim here did not meet that definition, the
Fund argued that section 537.2’s exemption is inapplicable, that its
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obligation to make payments following Home Insurance’s liquidation
has now been fully exhausted, and that summary judgment should
therefore have been entered in its favor and against Wells.
¶ 23 The appellate court rejected the Fund’s interpretation of the law
and affirmed. 2012 IL App (1st) 111533. This appeal to our court
followed. Ill. S. Ct. R. 315 (eff. July 1, 2013).
¶ 24 ANALYSIS
¶ 25 In undertaking our review, we begin by noting that while the
dispute before us was triggered by the work-related injury of an
employee who worked for an employer which had elected to bring
itself within the coverage of the Workers’ Compensation Act (820
ILCS 305/1 et seq. (West 2010)), this is not a workers’ compensation
case. There is no disagreement as to the meaning of the Workers’
Compensation Act or its applicability to Soloky, the employee who
was injured. Soloky’s entitlement to benefits was decided when she
filed her claim under the Act with the Workers’ Compensation
Commission and the Commission entered an award in her favor.
¶ 26 The matter before us here involves the separate and distinct
question of how the financial burden of paying Soloky’s award will
be distributed. Because Soloky’s employer elected to purchase
insurance to help meet its obligations under the Workers’
Compensation Act, as the Act permitted, and that coverage was in
effect when Soloky was injured, resolution of this question turns on
issues of insurance law. Because the company providing coverage to
Soloky’s employer for her workers’ compensation award was a
member of the Fund and was liquidated before meeting its obligations
under the policies it had issued, the dispositive issue of insurance law
in this case is the scope of the Fund’s obligations under the Insurance
Code.
¶ 27 The case was decided by the circuit court on cross-motions for
summary judgment. Summary judgment is proper when “the
pleadings, depositions, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law.” 735 ILCS 5/2-1005(c) (West 2010). We review the
circuit court’s grant of summary judgment de novo. De novo review
is also appropriate because the case turns on the construction of
provisions of the Insurance Code, and statutory construction presents
a question of law. See Pielet v. Pielet, 2012 IL 112064, ¶ 30.
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¶ 28 When construing a statute, our primary objective is to give effect
to the legislature’s intent. The best indication of legislative intent is
the statutory language. Wilkins v. Williams, 2013 IL 114310, ¶ 14.
Legislative intent may also be ascertained by considering the reason
and necessity for the law, the evils to be remedied, and the objects
and purposes to be obtained. Carter v. SSC Odin Operating Co., 2012
IL 113204, ¶ 37.
¶ 29 Every state has established an insurance guaranty fund to protect
policyholders in the event that an insurance company becomes
insolvent. Hasemann v. White, 177 Ill. 2d 414, 417 (1997). Ours is the
Illinois Insurance Guaranty Fund (the Fund). This court has described
the Fund as “a nonprofit entity created to protect policyholders of
insolvent insurers and third parties making claims under policies
issued by insurers that become insolvent.” Id. at 415-16. Its purpose
is
“ ‘to place claimants in the same position that they would
have been in if the liability insurer had not become insolvent.’
Lucas v. Illinois Insurance Guaranty Fund, 52 Ill. App. 3d
237, 239, 367 N.E.2d 469, 471 (1977). The Fund is not a
collateral or independent source of recovery; rather, it is a
substitution when the expected coverage ceases to exist.
Lucas, 52 Ill. App. 3d at 240, 367 N.E.2d at 471.” Gines v.
Ivy, 358 Ill. App. 3d 607, 609 (2005).
¶ 30 When an insurance company is liquidated, the Fund steps into its
shoes. Indeed, the Insurance Code provides that “[t]he Fund shall be
deemed the insolvent company to the extent of the Fund’s obligation
for covered claims and to such extent shall have all rights, duties, and
obligations of the insolvent company, subject to the limitations
provided in this Article, as if the company had not become insolvent.”
215 ILCS 5/537.4 (West 2010).
¶ 31 Because the Fund serves as a substitute for the defunct insurer, an
insured party can never recover more from the Fund than it would
have been entitled to receive under the policy it originally purchased
from its defunct insurer. Section 537.2 of the Insurance Code
expressly states that “[i]n no event shall the Fund be obligated *** in
an amount in excess of the face amount of the policy from which the
claim arises.” 215 ILCS 5/537.2 (West 2010). In some circumstances,
however, an insured party may be forced to accept less than would
have been due under the policy issued by defunct insurer. That is so
because, as we have already discussed, the Insurance Code caps the
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Fund’s obligation to pay a covered claim at $300,00 where the order
liquidating the insured’s carrier was entered on or after January 1,
1988, and before January 1, 2011. 215 ILCS 5/537.2 (West 2010).
¶ 32 The statutory limitation contains an important exception. It does
not apply to “any workers compensation claims.” 215 ILCS 5/537.2
(West 2010). For purposes of this provision of the Code, “any
workers compensation claims” means, of course, any covered
workers’ compensation claims. It must mean that because the
statutory obligations of the Fund as set forth in section 537.2 of the
Insurance Code (215 ILCS 5/537.2 (West 2010)) pertain only to
“covered claims” as defined by section 534.3(a) of the Code (215
ILCS 5/534.3(a) (West 2010)). If a workers’ compensation claim
failed to meet the threshold statutory definition of a “covered claim,”
the obligations of the Fund would not come into play.
¶ 33 Section 534.3(a) defines “covered claim” as “an unpaid claim for
a loss arising out of and within the coverage of an insurance policy”
to which this portion of the Insurance Code applies and which is in
force at the time of the occurrence giving rise to the unpaid claim.
215 ILCS 5/534.3(a) (West 2010). For purposes of the Fund, a
covered workers’ compensation claim is therefore an unpaid claim for
a loss “arising out of and within the coverage of” a workers’
compensation insurance policy to which this portion of the Insurance
Code applies and which is in force at the time of the occurrence
giving rise to the unpaid claim.
¶ 34 In this case, there is no question that the amounts owed by Home
Insurance under the policies purchased by Wells which were left
unpaid when Home Insurance became insolvent and was liquidated
qualified as “covered claims” within the meaning of section 534.3(a)
(215 ILCS 5/534.3(a) (West 2010)) and were therefore within the
Fund’s protection under section 537.2 of the Code (215 ILCS 5/537.2
(West 2010)). Moreover, it is indisputable that these covered claims
arose out of and were within the coverage of policies which had been
purchased to help insure Wells against liability for workers’
compensation awards granted by the Industrial Commission pursuant
to the Workers’ Compensation Act (820 ILCS 305/1 et seq. (West
2010)). The claims therefore qualified as covered workers’
compensation claims for purposes of section 537.2. Because covered
workers’ compensation claims are exempt from section 537.2’s
$300,000 cap on the Fund’s liability, the cap is inapplicable in this
case.
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¶ 35 Here, as it did below, the Fund attempts to avoid this conclusion
by arguing the statutory reference to “any workers compensation
claims” embraces only claims for workers’ compensation benefits
brought directly by injured employees. This contention is untenable
and was properly rejected by the lower courts. As we have just
discussed, the only claims protected by the Fund are “covered claims”
which, by definition, are claims arising out of insurance policies
subject to this portion of the Insurance Code. In workers’
compensation cases, claims for benefits by injured employees arise
under the Workers’ Compensation Act, not policies of insurance, and
are made to the Workers’ Compensation Commission, not the
employer or the employer’s insurer. See 26 Ill. Jur. Workers’
Compensation § 6:04 (2004). If successful, the claims result in
awards by the Commission, and it is those awards that the employer
must pay directly, through insurance, or through a combination of
those methods. An injured employee’s administrative claim for
statutory benefits from the Commission is therefore entirely separate
and distinct from the type of insurance claim to which sections
534.3(a) and 537.2 of the Code refer.
¶ 36 Although Wells’ policy from Home Insurance provided excess
rather than primary coverage for Wells’ liability under the Workers’
Compensation Act, that distinction is of no consequence for purposes
of this appeal. As discussed earlier in this opinion, the Workers’
Compensation Act recognizes that employers may secure their
obligation to pay the compensation for which the Act provides in a
variety of ways and references both excess liability insurance policies
(820 ILCS 305/4(a)(2) (West 2010)) as well as policies which provide
coverage for all of the payments for which an employer is liable under
the Act (820 ILCS 305/4(a)(3) (West 2010)). While it is true that
these two types of policies may operate differently, the record in this
case indicates that once the $200,000 retention limit was reached,
Home Insurance processed the amounts due with respect to Soloky’s
workers’ compensation award by using a third-party administrator
and making payments directly to Soloky, the same procedure
normally employed where a workers’ compensation policy provides
primary coverage.
¶ 37 Even in situations where an excess carrier reimburses the
employer for payments due an injured employer under a workers’
compensation award rather than paying the injured employee directly,
the difference is one of mechanics, not substance. Whether coverage
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is considered primary or excess and whether payment due under a
policy is made directly to the injured employee or as reimbursement
to the employer for payments it made to the injured employee, the
fact remains that it is always the employer who has purchased the
coverage. The purpose of the coverage is always the same: to help the
employer secure its obligation to pay the compensation awarded to its
injured employees by the Workers’ Compensation Commission. And
legal liability for the paying the Commission’s award is always
unchanged. It remains with the employer. Whenever and however a
workers’ compensation carrier pays benefits pursuant to an insurance
policy it has issued, it is paying those benefits on the employer’s
behalf. See Illinois Workers’ Compensation Commission, Handbook
on Workers’ Compensation and Occupational Diseases 4 (2013). By
statute, an insurance carrier can only be held primarily liable for
paying an injured employee under limited circumstances. See 820
ILCS 305/4(g) (West 2010). In setting forth those circumstances, the
law makes no reference to and does not differentiate between primary
and excess coverage policies. For purposes of the Fund, both are
therefore properly regarded as workers’ compensation insurance
polices.
¶ 38 Nothing in the terms of the Workers’ Compensation Act or the
law governing the Insurance Guaranty Fund provides any basis for
reaching a contrary conclusion, i.e., that a policy cannot be deemed
to provide workers’ compensation coverage simply because the
coverage it affords is excess rather than primary. To say that a policy
must provide full coverage in order to qualify as a workers’
compensation insurance policy would therefore require that we depart
from the plain language of the law and read into it exceptions,
limitations or conditions which the legislature did not express. That,
of course, is something we may not do. People ex rel. Madigan v.
Kinzer, 232 Ill. 2d 179, 184-85 (2009).
¶ 39 Something else we may not do is construe a statute in a way that
would yield absurd or unjust results. Township of Jubilee v. State of
Illinois, 2011 IL 111447, ¶ 36. But that is precisely what would
happen if we interpreted the law to mean that the only workers’
compensation policies exempt from the $300,000 statutory cap are
those providing primary coverage. If that were how the law worked,
an employer who elected to secure its workers’ compensation
obligations by purchasing a primary coverage policy but with a large
deductible could receive payments from the Fund without limitation
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after its insurer became insolvent, while an identical employer who
purchased an excess policy from the very same insurer with a retained
liability limit identical to the first employer’s deductible would have
to bear the full burden of workers’ compensation costs once the
$300,000 cap was reached. In other words, we would have a situation
where identical employers purchase insurance policies from the
identical insurer to help cover the same type of loss—workers’
compensation obligations—above the identical loss threshold, yet one
would enjoy the full protection of the Fund and the other would not.
¶ 40 Such an anomaly cannot be justified based on differentials
between premiums paid by employers who elect to purchase primary
workers’ compensation coverage and premiums paid by those who
elect to secure their workers’ compensation obligations through
excess coverage policies. For one thing, there is no evidence in the
record before us regarding the existence of such differentials or how
significant they may be. Many factors affect the premiums charged by
insurers, and it could be that a policy providing excess coverage will
actually be comparable in cost to a policy providing primary coverage
where the loss retention amount and the deductible amounts in the
respective policies are the same. But again, this record is silent on the
matter and we cannot found our interpretation of the law on
speculation.
¶ 41 Even if we accepted, for the sake of argument, that excess
coverage policies are normally less expensive than primary coverage
policies, that still not would alter our conclusion. For purposes of this
case, any difference in premiums paid is significant only if (1)
employers who pay lower premiums for excess coverage receive
disproportionately better treatment under the law when their
insurance carriers are liquidated than employers who pay higher
premiums for primary coverage, and (2) the Insurance Guaranty Fund
is thereby left having to pay out more than a liquidated member itself
would have had to pay under a particular policy and to make such
payments using resources for which it has not obtained and cannot
obtain funding, leaving it unable to meet its statutory obligations. But
none of these things actually happens. The Fund is structured so that
insureds purchasing coverage to meet their obligations under the
Workers’ Compensation Act receive just what they paid for, no more
and no less, and so that the Fund itself will be able to collect whatever
monies are necessary to provide that protection.
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¶ 42 Starting with the last point, which pertains to burdens on the
Fund, it is important to keep in mind that it is not insureds who fund
the Insurance Guaranty Fund. As explained earlier in this separate
dissent, Fund members do. Home Insurance was, itself, a member of
the Fund. The statutory assessments it was required to make while it
was still doing business in Illinois helped pay claims which would
otherwise have gone unpaid when other members of the Fund became
insolvent. Now that Home Insurance has become insolvent, it is
entirely fair and appropriate that the other members of the Fund now
contribute toward paying the claims which Home Insurance left
unpaid, and that they do so to the full extent specified by the law.
¶ 43 There is no basis whatever for concern that this will place an
undue burden on the Fund’s resources. The assessments which each
Fund member must pay is based on the proportion that the particular
member’s net direct written premiums for the preceding year bears to
the total net direct written premiums of all the member companies for
the preceding year on the kinds of insurance in that account (auto or
other). Although the law includes a limit on the amount any given
member must pay in a particular year, if the total assessment in an
account (auto or other) together with the other assets in the particular
account are not sufficient to meet that account’s obligations for the
year in question, the obligation is not extinguished or reduced.
Payment is simply delayed until funds become available. 215 ILCS
5/537.6 (West 2010). Under this system, the Fund is assured that it
will ultimately recover any and all amounts it must pay out under the
law to meet the obligations of its insolvent members, regardless of the
type of risk or scope of coverage provided by the insolvent members’
policies.
¶ 44 There is likewise no merit to the argument that differentiating
between primary and excess coverage policies is necessary to prevent
employers from attempting to get more than they bargained for and
subverting the purposes for which the Fund was created. To the extent
an employer receives a price break from his workers’ compensation
carrier by purchasing an excess coverage policy, it is because the
employer is getting less in return. Until the loss retention level is met,
the burden of paying the workers’ compensation award will be the
employer’s alone. The insurer will owe nothing. Our construction of
the Insurance Code does not change this in any way.
¶ 45 If the insurer under an excess coverage policy becomes insolvent
before the loss retention threshold is reached and the policy
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provisions have therefore not yet been triggered, the Fund will not yet
owe anything. The employer will continue to make payments. It is
only when the coverage threshold is reached and the excess coverage
policy would otherwise have kicked in under the terms of the policy
that the Fund’s obligation would commence.
¶ 46 Moreover, this obligation is not open-ended. An insured will
never receive any more from the Fund than it bargained and paid for
through its now-liquidated insurer. It cannot receive more, for the law
expressly provides that “[i]n no event shall the Fund be obligated ***
in an amount in excess of the face amount of the policy from which
the claim arises.” 215 ILCS 5/537.2 (West 2010). As a result, the
obligations owed by the Fund under the statute as a result of the
excess carrier’s liquidation will end when the excess carrier’s
obligation would have ended under the policy it issued to its insured.
At that point, the financial burden for addressing the loss will revert
back to the insured. Windfalls to insured employers are therefore an
impossibility.
¶ 47 Had Home Insurance not become insolvent, there is no dispute
that the workers’ compensation excess coverage policy it issued to
Wells would have required it to continue making payments beyond
the $300,000 level. Requiring the Fund to continue making payments
under the circumstances present here therefore does nothing more
than place Wells in exactly the same position it would have been in
had Home Insurance not been subject to an order of liquidation,
giving it no more and no less than the benefit of its original bargain
and enabling it to avoid what would otherwise be a substantial
financial loss, namely, having to pay out of pocket for the same
workers’ compensation expenses the now worthless Home Insurance
policy should have covered. When the General Assembly described
the purpose of the law as being “to avoid financial loss to claimants
or policyholders because of the entry of an Order of Liquidation
against an insolvent company” (215 ILCS 5/532 (West 2010)), this is
surely exactly what it had in mind.
¶ 48 CONCLUSION
¶ 49 For the foregoing reasons, the circuit and appellate courts were
correct when they ruled that the Fund acted improperly when it
invoked the $300,000 cap set forth in section 537.2 of the Insurance
Code (215 ILCS 5/537.2 (West 2010)) to terminate payments to cover
Wells’ liability for the amounts still due and unpaid under Soloky’s
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workers’ compensation award following liquidation of Wells’
workers’ compensation carrier. Because the payments at issue are for
a covered workers’ compensation claim within the meaning of the
relevant statutory provisions, the $300,000 statutory cap is
inapplicable. The judgment of the appellate court, which affirmed
entry of summary judgment in favor of Wells and against the Fund,
is therefore affirmed.
¶ 50 Affirmed.
¶ 51 CHIEF JUSTICE KILBRIDE, dissenting:
¶ 52 I respectfully dissent from the majority opinion. The answer to the
critical question here, namely, whether the self-insured employer’s
claim against its insolvent excess-insurance carrier constitutes “any
workers compensation claim[ ],” lies not in the transformation of the
question or in the use of a more intuitive approach to statutory
construction. Instead, the answer is found in the measured application
of our traditional rules of statutory construction to the plain language
of the Code and the relevant insurance policies.
¶ 53 While the majority’s extended discussion of the broad nuts and
bolts of the workers’ compensation system and the facts underlying
the injured worker’s receipt of benefits is intellectually enriching, it
is not an adequate substitute for the application of our formal
approach to statutory construction. Indeed, the majority’s detailed
discussion, along with statements on the standard of review, the
objective of statutory construction, and other issues not in dispute,
constitute nearly half of its opinion. The novelty of the majority’s
approach is evident from the conspicuous absence of the usual indicia
of traditional statutory or policy construction.
¶ 54 The proper resolution of this appeal demands a straightforward
analysis of the language in the Code and the excess-insurance
policies. If Wells’ claim, as defined by the policies, falls within the
scope of the phrase “any workers compensation claims” as used in
section 537.2 of the Code (215 ILCS 5/537.2 (West 2010)), then the
Fund’s payment obligation is not capped. If it does not, then the Fund
properly capped its payments at $300,000. On its face, this court’s
mission is as simple as that. Yet, the majority opinion doubles down
on that simplicity by declining to perform any of the inherently more
complex tasks of statutory construction required.
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¶ 55 Instead, the majority quickly concludes, only a few pages into its
analysis, that the Fund’s cap is inapplicable. Its analytical basis to that
point boils down to:
(1) Wells unpaid claims against Home were “covered
claims” under the Act, a fact not disputed by either party;
(2) those claims arose out of the excess insurance policies
issued to Wells to help insure it against workers’
compensation liability, a fact the majority deems
“indisputable”; followed by
(3) its conclusion that Wells’ claims “qualified as covered
workers’ compensation claims for purposes of section 537.2,”
making the Act’s $300,000 cap inapplicable. Supra ¶ 34.
¶ 56 The majority’s conclusion is unaided by consideration of the
policy language, instead effectively relying on the summary assertion
that the policies “had been purchased to help insure Wells against
liability for workers’ compensation awards.” (Emphasis added.)
Supra ¶ 34.
¶ 57 Moreover, the majority recognizes that an insurer pays benefits on
behalf of the insured employer (supra ¶ 37), yet it fails to recognize
the reason why the insurer makes any payments at all, i.e., to fulfill
its duties under the terms of the policy. An insurer pays workers’
compensation benefits only because it is contractually liable to the
employer to make those payments. With that in mind, it is easy to
understand why the statute “does not differentiate between primary
and excess coverage policies” (supra ¶ 37): it is because the language
of each policy already dictates the insurer’s payment liability that
will be passed along to the Fund. The Code need not distinguish
between the two types of policies when each policy’s terms already
do just that.
¶ 58 Consequently, even though the majority believes it is
“indisputable” that Home undertook the contractual duty to help pay
Wells’ workers’ compensation liability (supra ¶ 34), that belief is not
based on the actual policy language agreed to by the parties. Instead,
that conclusion arises from the erroneous presumption that the excess
insurance policies were intended to fulfill Wells’ statutory obligation
to pay benefits under the Workers’ Compensation Act. Supra ¶ 34.
Here, the majority is effectively answering the ultimate question
pending without the benefit of any linguistic analysis.
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¶ 59 If the majority’s truncated approach is correct, the opinion could
simply end with its intuited statement that Wells’ policies are for
workers’ compensation liability coverage. Supra ¶ 34. While the
majority appears comfortable in relying on the simplicity of this bare
assertion to resolve the instant appeal, I respectfully reject that
approach and opt for a more reasoned, traditional one. Although the
majority’s shorthand may provide a convenient means of avoiding
this inherently more complex task, simply declaring that Wells’
claims are workers’ compensation claims does not make it so.
Nothing can replace the tried and true, albeit sometimes arduous,
application of our rules of construction. Although the majority’s
position “is alluring in its simplicity, as applied it fails to adequately
give meaning to the intent of the language of the policies at issue and
fails to take into account the relationship between a primary and an
excess carrier.” Roberts v. Northland Insurance Co., 185 Ill. 2d 262,
275 (1998) (Freeman, C.J., concurring in part and dissenting in part,
joined by Miller and McMorrow, JJ.).
¶ 60 In my view, the key to the resolution of this appeal is the nature
of Wells’ “covered claim” because section 537.2 limits the Fund’s
payment obligation to $300,000 “except that this limitation shall not
apply to any workers compensation claims.” (Emphasis added.) 215
ILCS 5/537.2 (West 2010). To determine whether the cap applies, the
court must carefully examine two critical components, the statutory
language adopted by the legislature and the policy language agreed to
by the parties. That crucial language, however, makes only incidental
appearances in the majority’s discussion. That same language
provides the focus for my dissent.
¶ 61 As the majority correctly notes, it is undisputed that Wells’ claim
is a “covered claim.” Supra ¶ 34. The plain language of the Code
bears out that conclusion. A “covered claim” is defined in relevant
part as:
“an unpaid claim for a loss arising out of and within the
coverage of an insurance policy to which this Article applies
and which is in force at the time of the occurrence giving rise
to the unpaid claim, *** made by a person insured under such
policy ***[.]” (Emphases added.) 215 ILCS 5/534.3 (West
2010).
Here, Wells has presented a “covered claim” because it is “an unpaid
claim” filed by Wells, an Illinois resident and “insured person” under
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its policies with Home, an insurance company that became insolvent.
See 215 ILCS 5/534.3 (West 2010).
¶ 62 In turn, the determination of whether Wells’ covered claim is also
a workers’ compensation claim within the meaning of the statutory
exception to the Fund’s $300,000 payment cap relies on the
interaction between Code sections 537.2 and 534.3. In relevant part,
section 537.2 states:
“The Fund shall be obligated to the extent of the covered
claims existing prior to the entry of an Order of Liquidation
against an insolvent company *** and if the entry of an Order
of Liquidation occurs on or after January 1, 1988 and before
January 1, 2011, such obligations shall not: (i) exceed
$300,000, except that this limitation shall not apply to any
workers compensation claims ***.” (Emphases added.) 215
ILCS 5/537.2 (West 2010).
¶ 63 Despite the focus of this case necessarily being the nature of
Wells’ “claim,” the majority chooses instead to shift its focus to the
“coverage” Wells allegedly purchased and away from the actual
“claim” it is making. Supra ¶¶ 36-43. By straying from the precise
language in the statute and declining to review the policy terms, the
majority inadvertently distorts the question before this court and
ignores the significance of the legislature’s key word: “claim.”
¶ 64 Looked at as a whole, this case loosely involves two distinct
“claims.” The first is the injured worker’s claim for compensation
awarded against Wells, her former employer. That claim is based
strictly on Wells’ statutory liability under the Act. The second is
Wells’ claim under its insurance policies with Home; that claim is
premised solely on Home’s breach of its duty under those policies
after its insolvency.
¶ 65 By definition, the injured worker’s original claim against Wells
is a workers’ compensation claim. That, however, is clearly not the
claim at issue in this case. To constitute a “covered claim,” Wells’
“loss” must be “arising out of and within the coverage of an insurance
policy to which this Article applies.” Here, the injured worker’s claim
against Wells is purely statutory and does not arise out of any
insurance policy. The only “unpaid claim” raised must be “for a loss
arising out of and within” the excess-insurance policies issued to
Wells, “a person insured under such polic[ies],” by Home. See 215
ILCS 5/534.3 (West 2010) (defining a “covered claim”). Thus, the
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only possible “covered claim” is Wells’ contractual insurance claim
against Home.
¶ 66 Once Home became insolvent, section 537.4 of the Code defined
the Fund’s obligation to undertake its responsibilities, stating that the
Fund “shall be deemed the insolvent company *** and *** shall have
all rights, duties, and obligations of the insolvent company *** as if
the company had not become insolvent.” (Emphasis added.) 215
ILCS 5/537.4 (West 2010). Thus, that section limits the Fund’s duties
to the contractual responsibilities Homes bore under its policies,
making Wells’ “claims” against the Fund the same contractual
“claims” it possessed against Home.
¶ 67 The next step is to identify the fundamental nature of Wells’
“claims.” That step necessitates a close examination of the policy
language that created Home’s payment obligations. If that language
shows the policies were intended to satisfy Wells’ statutory liability
for its injured employee’s award, then Wells’ claims would be
“workers compensation claims,” as the majority concluded. If it does
not reveal that intent, the majority’s conclusion necessarily fails.
¶ 68 Courts must construe language in an insurance policy de novo and
apply that language as written unless it contravenes public policy.
Roberts, 185 Ill. 2d at 266. The majority’s approach bypasses any
review of the relevant policy language and simply concludes that
Wells’ claim is a workers’ compensation claim because its excess
insurance policies were essentially liability policies, with any
differences arising merely in their “mechanics.” Supra ¶¶ 34, 37.
¶ 69 I roundly disagree with the majority’s decision to equate Wells’
excess-insurance policies with a workers’ compensation claim. The
excess-insurance policies, however, do not affect Wells’ “liability”
for workers’ compensation benefits; that liability is set by the Act and
cannot be the basis for Wells’ covered claim unless Home
contractually assumed that duty under a bono fide liability coverage
policy. See supra ¶ 37 (recognizing that the legal liability for paying
benefits here remains unchanged). Thus, unlike the majority, I believe
a review of the policy language is critical here. Before my analysis of
Home’s duties under the policy language, however, a review of the
intrinsic differences between claims brought pursuant to primary
liability and excess insurance policies is useful.
¶ 70 Primary insurance “is insurance coverage in which, under the
terms of the policy, liability attaches immediately upon the happening
of the occurrence that gives rise to liability.” 44A Am. Jur. 2d
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Insurance § 1755 (2003). In contrast, “[e]xcess or secondary coverage
*** is coverage in which, under the terms of the policy, liability
attaches only after a predetermined amount of primary coverage has
been exhausted.” 44A Am. Jur. 2d Insurance § 1755 (2003). Excess
insurance provides protection against catastrophic loss and is
intended to apply only when high levels of liability are present,
greatly reducing the excess insurer’s risk.
¶ 71 This court has previously stated that primary liability insurance,
or self-insurance, is inherently different from the excess-insurance
coverage bargained for by the parties here. Kajima Construction
Services, Inc. v. St. Paul Fire & Marine Insurance Co., 227 Ill. 2d
102, 116 (2007) (relying on “the clear distinctions between primary
and excess insurance coverage”). In Roberts, Justice Freeman
explained that excess insurance offers a secondary level of protection
that “attaches only after a predetermined amount of primary insurance
or self-insured retention has been exhausted.” (Emphasis added.)
(Internal quotation marks omitted.) Kajima, 227 Ill. 2d at 114-15
(quoting Roberts, 185 Ill. 2d at 277 (Freeman, C.J., concurring in part
and dissenting in part, joined by Miller and McMorrow, JJ.), quoting
Scott M. Seaman & Charlene Kittredge, Excess Liability Insurance:
Law and Litigation, 32 Tort & Ins. L.J. 653, 656 (Spring 1997)).
Subsequently, in Kajima, this court unanimously found “Justice
Freeman’s separate writing in Roberts *** to be particularly
instructive.” Kajima, 227 Ill. 2d at 114.
¶ 72 Accordingly, if Wells had purchased workers’ compensation
liability coverage from Home, as the majority asserts (supra ¶ 34),
Home would have been contractually responsible for making benefit
payments to satisfy Wells’ statutory liability under the Act. See 44A
Am. Jur. 2d Insurance § 1755 (2003) (explaining that primary
insurance “is insurance coverage in which, under the terms of the
policy, liability attaches immediately upon the happening of the
occurrence that gives rise to liability”). See also In re Claim of
National Union Fire Insurance Co. of Pittsburgh, PA for Benefits
from the New Jersey Worker’s Compensation Security Fund, 2008
WL 516290, at *4 (N.J. Super. Ct. App. Div. Feb. 29, 2008) (per
curiam) (concluding that an excess-insurance policy is “not a primary
workers’ compensation insurance policy, designed for payment to
injured employees”); Oneida Ltd. v. Utica Mutual Insurance Co., 694
N.Y.S.2d 221, 224 (N.Y. App. Div. 1999) (recognizing that an
excess-insurance policy “ ‘is not considered to be workers’
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compensation insurance since *** no statutory workers’
compensation benefits are paid directly to an injured employee under
the excess policy’ ”). Under that scenario, once Home was liquidated,
the Fund would have taken over Home’s payment duties, in essence
becoming an alternate payor for Home’s contractual obligation to
satisfy Well’s statutory liability. See 215 ILCS 5/537.4 (West 2010)
(imposing on the Fund “all rights, duties, and obligations of the
insolvent company *** as if the company had not become
insolvent”). Consequently, Home’s contractual payment
responsibility would have brought Wells’ claim against the Fund
within the scope of the phrase “any workers compensation claims” in
section 537.2, and the Fund’s $300,000 payment cap would not apply.
¶ 73 The language in both Wells’ insurance policies, however,
definitively establishes that they were not intended to provide either
primary or workers’ compensation liability coverage. Both policies
contain provisions making them inapplicable to payments “arising out
of the operations *** as respects which the Insured carries a full
coverage Workers’ Compensation *** policy.” Thus, the policies
would not apply if Wells had insurance for its workers’ compensation
liability, establishing that the two policies were intended to serve as
“excess-only.” Tellingly, both policies are also conditioned on Wells
being “qualified” or “authorized” as a self-insurer and its continuation
of that status. Obviously, it would be antithetical for a qualified self-
insurer to have primary liability insurance coverage. Therefore, the
policy language rebuts the majority’s “indisputable” conclusion that
the policies were intended to provide Wells with workers’
compensation liability coverage (supra ¶ 34). To the contrary, by
making the business decision to self-insure, Wells voluntarily
assumed the role of providing its own equivalent first-line workers’
compensation liability coverage.
¶ 74 In an attempt to reduce its out-of-pocket expenses, however,
Wells contracted with Home to provide excess-insurance coverage.
Wells’ only “covered claim” is based exclusively on those excess-
insurance policies. See 215 ILCS 5/534.3 (West 2010) (requiring a
“covered claim” to be for “a loss arising out of and within the
coverage” of the policies issued by a defunct insurer). Under its
excess-only policies, Home’s contractual duty to Wells was
considerably different than it would have been under a liability
insurance policy. Contrary to the majority’s assertion (supra ¶ 37),
however, this court has expressly recognized that the difference in
-22-
those contractual duties is one of substance, not mere mechanics. In
Kajima, 227 Ill. 2d at 116, we found a “clear distinctions between
primary and excess insurance coverage,” contradicting the majority’s
position in this case. While “the primary policy provides ‘first dollar’
liability coverage up to the limits of the policy,” giving the primary
insurer contractual first-line responsibility for making benefit
payments, excess insurance “ ‘attaches only after a predetermined
amount of primary insurance or self-insured retention has been
exhausted.’ ” Roberts, 185 Ill. 2d at 276-77 (Freeman, C.J.,
concurring in part and dissenting in part, joined by Miller and
McMorrow, JJ.) (quoting Scott M. Seaman & Charlene Kittredge,
Excess Liability Insurance: Law and Litigation, 32 Tort & Ins. L.J.
653, 656 (Spring 1997)); see Kajima, 227 Ill. 2d at 114-15.
¶ 75 Turning back to the language in Well’ excess-insurance policies,
I note that although the exact language differs somewhat, the effect
is the same. The parties’ “Aggregate Excess Workers’ Compensation
and Employers’ Liability Policy” was designed “[t]o indemnify the
Insured [Wells] for payment, as hereinafter defined, in excess of the
‘Insured’s Retention.’ ” (Emphasis added.) The policy defines
“payment” as “the amount the insured shall have actually paid: ***
for compensation and other benefits required of the Insured by the
workers’ compensation law.” (Emphases added.) Thus, in the
aggregate excess-insurance policy, the parties agreed that Home
would only “indemnify” Wells for amounts over its retention limit
that it “actually paid” as “required of [it as] the Insured” by the Act.
¶ 76 Similarly, in Wells’ “Specific Excess Workers’ Compensation
and Employers’ Liability Policy,” Home “agree[d] to indemnify the
Insured [Wells] against excess loss, *** which the Insured may
sustain on account of: (a) compensation and other benefits required
of the Insured by the Workers’ Compensation Law.” (Emphases
added.) Home’s “Limit of Liability” for indemnification is “only for
the ultimate net loss in excess of *** the ‘retained limit(s)’ ” of
$200,000. (Emphasis added.) The term “ultimate net loss” is defined
in the policy as “the sum actually paid in cash in the settlement or
satisfaction of losses for which the Insured is liable.” (Emphasis
added.) Summarizing the parties’ expressed intentions in the specific
excess-insurance policy, Home was only obliged to “indemnify”
Wells for amounts over its retention limit that Wells “actually paid”
“on account of: (a) compensation and other benefits required of the
Insured by the Workers’ Compensation Law.” (Emphasis added.)
-23-
¶ 77 According to the parties’ contractual agreement, Wells had to
submit a periodic “statement from or on behalf of the Insured
showing each payment made by the Insured during such period in
excess of the Insured’s Retention,” before Home would “promptly
reimburse the insured for such indemnification as the company is
obligated to pay under the terms of this policy.” The fact that Home
previously used the services of a third-party administrator as a matter
of convenience to make the required payments does not change the
nature of its underlying contractual duty. See supra ¶ 10.
¶ 78 In summary, the policy language makes it indisputably clear that
Home never agreed to assume responsibility for paying the workers’
compensation benefits owed by Wells. In turn, section 537.4 compels
the Fund to undertake only Home’s contractual duties and obligations
under its excess-insurance policies. Thus, the Fund’s duty is limited
to the contractual indemnification obligation Home undertook in
providing the excess insurance. Simply put, the Fund’s duty is not to
pay Wells’ workers’ compensation liability for it because Home never
undertook that obligation. Instead, the policies limited Home’s
responsibility to indemnifying Wells for benefits it has already paid
out-of-pocket. The contractual duty that was passed to the Fund was
necessarily defined solely by those same policy terms. A limited
contractual duty to make reimbursement for payments actually made
by an insured cannot transform Wells’ “covered claim” into a
“workers’ compensation claim.” The majority’s contrary conclusion
is simply not supported by any language in the insurance policies.
¶ 79 Furthermore, the critical connection between the Fund’s duties
and the type of insurance purchased by Wells is underscored by the
role available to the injured worker in the instant litigation, a factor
not addressed by the majority. If Wells’ covered claim were in fact a
workers’ compensation liability claim, the worker would have had a
vital interest in the outcome of the case because her continued receipt
of benefits would be implicated. Accordingly, she would have
standing to participate in this case. The injured worker here, however,
indisputably will continue to receive her workers’ compensation
benefits regardless of that party that prevails, demonstrating that she
has no interest in the outcome in this matter and lacks standing to
participate. Indeed, no party has even suggested that the injured
worker could ever seek recovery from the Fund, and she has never
been involved in this litigation. The injured worker’s clear inability
to participate in this case or to demand payment from the Fund at any
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point further proves that Wells’ “covered claim” is not based on
workers’ compensation “liability” coverage it acquired from Home,
as the majority posits.
¶ 80 The majority’s view of section 537.2 would effectively allow
Wells to shift its exclusive statutory burden of paying benefits to the
Fund by relying on its indemnity policies with Home. But, the policy
language shows the parties never intended Home to assume Wells’
payment obligation, as it would have done under a true workers’
compensation liability policy. Moreover, if the majority’s assertion
that the difference between undertaking the burden of paying an
employer’s workers’ compensation liability and reimbursing an
employer who has already fulfilled that statutory duty “is one of
mechanics, not substance” is accurate, a serious question is raised
about why the insurance industry found it necessary to create two
types of insurance. See supra ¶ 37. Logically, if the two types of
policies differed only in their “mechanics,” insurers would have had
no incentive to go to the expense of creating, marketing, and
administering excess-insurance policies. They simply could have sold
liability policies. Moreover, if the two types of policies are essentially
the same, as the majority claims, this court’s contrary statement in
Kajima must be incorrect. Kajima, 227 Ill. 2d at 116 (explaining “the
clear distinctions between primary and excess insurance coverage”).
In an attempt to add support to its conclusion, the majority also
correctly notes that “it is always the employer who has purchased the
coverage” (supra ¶ 37), but this truism is a merely red herring. The
identity of the policies’ purchaser is irrelevant to our analysis; the
nature of the insured’s claim is the critical factor.
¶ 81 Here, after considering the available alternatives, Wells
vouluntarily chose not to purchase workers’ compensation liability
coverage that would have obliged the Fund to act as a substitute payor
for the unpaid workers’ compensation claims remaining after Home
was liquidated. Consequently, neither Home nor the Fund become an
alternate payor for Wells’ statutory liability under the terms of the
policies it purchased. Because Wells’ original claim against Home
was for indemnification, not workers’ compensation, the claim it now
has against the Fund is also only for indemnification and is not “any
workers compensation claim[],” capping the Fund’s payment
obligation at $300,000. See 215 ILCS 5/537.2 (West 2010).
¶ 82 The majority’s holding that Wells’ policy claim constitutes a
workers’ compensation claim for purposes of section 537.2 blurs the
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clear distinction this court previously recognized between self-insured
employers that obtain excess coverage and employers that specifically
seek out primary workers’ compensation liability coverage. Kajima,
227 Ill. 2d at 116 (refusing to “eviscerate” the “clear distinctions
between primary and excess insurance coverage”). By opting for
primary liability coverage, employers choose to eliminate their
obligation to pay any workers’ compensation awards out-of-pocket
after satisfying their deductible. In exchange for that enhanced
benefit, they agree to pay substantially higher insurance premiums.
Primary liability carriers charge higher premiums than excess-
insurance carriers because the former accept greater risk. Roberts, 185
Ill. 2d at 271. “ ‘[E]xcess premiums are lower because excess
coverage is, by its very nature, not supposed to be triggered until the
underlying policy has been exhausted up to its limits.’ ” Kajima, 227
Ill. 2d at 116 (quoting Roberts, 185 Ill. 2d at 281 (Freeman, C.J.,
concurring in part and dissenting in part, joined by Miller and
McMorrow, JJ.)).
¶ 83 On the other hand, employers may make the business decision
either to go without any insurance coverage, thus bearing the full
burden of paying all workers’ compensation claims out-of-pocket, or,
like Wells, to pay all benefits out-of-pocket up to their high retention
limit and purchase far cheaper excess-insurance with indemnity-only
coverage to address their potential catastrophic liability. Scott M.
Seaman & Charlene Kittredge, Excess Liability Insurance: Law and
Litigation, 32 Tort & Ins. L.J. 653, 656-57 (Spring 1997). The lower
risk undertaken by the insurer’s risk is similarly reflected in its lower
excess-insurance premiums. 44A Am. Jur. 2d Insurance § 1755
(2003). Even though the sparse record on summary judgment in this
case does not contain a cost comparison, the parties confirmed during
oral arguments before this court that excess insurance premiums paid
by self-insured parties are generally substantially lower than primary
insurance policy premiums, a fact ignored by the majority.
¶ 84 Under the majority’s construction of the Code, self-insured
employers purchasing excess insurance providing only
indemnification would receive benefits identical to those received by
employers paying much higher premiums for expensive primary
liability coverage that contractually off-loads their ultimate out-of-
pocket payment responsibility. That benefit, of course, is on top of the
significant financial advantage self-insured employers initially receive
from paying far lower insurance premiums. Such an outcome would
-26-
create a perverse incentive by encouraging employers to eschew
primary liability coverage whenever possible, while obtaining the
same limits on its out-of-pocket payments by buying far cheaper
excess-only policies.
¶ 85 By effectively acting as their own primary insurers, however, self-
insurers such as Wells voluntarily choose to undertake a far greater
risk of out-of-pocket loss than do employers that rely on primary
liability coverage from an outside source. If Wells could limit its total
out-of-pocket exposure by obtaining far less expensive indemnity-
only insurance and then relying on the Fund for reimbursement
beyond the applicable cap, the greater risk it assumed as a self-insurer
would be untethered from the premiums it paid.
¶ 86 Curiously, Justice Freeman has chosen to depart in this case from
his strong advocacy in Roberts for basing parties’ ultimate workers’
compensation liability on the differential degree of risk intentionally
undertaken by the first-line and excess insurers. Roberts, 185 Ill. 2dat 279 (Freeman, C.J., concurring in part and dissenting in part,
joined by Miller and McMorrow, JJ.). In Roberts, Justice Freeman
correctly recognized that policy interpretations should “give[ ] full
effect to the level of risk each carrier intended to expose itself to” and
noted that placing a heavier payment burden on the excess insurer, or
the Fund as Home’s surrogate, rather than on the first-line insurer
“turns the concept of excess coverage on its head.” Roberts, 185 Ill.
2d at 280, 282 (Freeman, C.J., concurring in part and dissenting in
part, joined by Miller and McMorrow, JJ.). See also Kajima, 227 Ill.
2d at 114 (finding “Justice Freeman’s separate writing in Roberts” to
be “particularly instructive”).
¶ 87 Despite this court’s prior approval of allocating employers’
liability for benefit payments according to the differing degrees of
risk undertaken by first-line insurers, such as Wells, and excess
insurers, the majority suggests that the Fund’s proposed construction
of section 537.2 yields absurd or unjust results. Supra ¶ 39. For
example, the majority believes it is absurd for the Act to provide
differing coverage for “identical employers [that] purchase insurance
policies from the identical insurer to help cover the same type of
loss—workers’ compensation obligations—above the identical loss
threshold.” Supra ¶ 39. If the two employers and policies were truly
identical, I would agree. But, if one employer has chosen to protect
against out-of-pocket losses by buying a true workers’ compensation
liability policy while another has chosen to become self-insured,
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effectively becoming its own first-line liability insurer, and
purchasing only excess coverage to reimburse it for payments it has
made, as here, then the two scenarios are simply not identical. The
employers have each made the rational business decision that best fits
their company’s individual circumstances after taking into account
the relevant variables, such as the differences in coverage.
¶ 88 The majority’s error derives from its decision to ignore inherent
differences in the actual terms of the insurance policies obtained by
its two hypothetically “identical employers.” If Employer 1 obtained
a primary liability policy, then it contractually transferred the
responsibility for making direct payments to its injured workers to its
liability insurer. If, however, as here, Employer 2 chose to be self-
insured and purchased an excess-only policy, then its insurer merely
agreed to reimburse its for payments it had already made. In
Employer 2’s case, the excess insurer does not contractually
undertake the primary payment responsibility for an injured worker’s
benefits.
¶ 89 It cannot be overstated that the Fund assumes only those duties
and obligations owed by the insolvent insurer under the specific
policy purchased. 215 ILCS 5/537.4 (West 2010). If the insurer did
not bear the responsibility for paying workers’ compensation benefits,
the Fund does not either. The protection the legislature afforded to
each employer is dependent not on the majority’s generalized concept
of “fairness” but on the specific coverage provided by the particular
policy. See 215 ILCS 5/534.3 (West 2010) (defining a “covered
claim” as one “arising out of and within the coverage of an insurance
policy”).
¶ 90 The conclusion reached by the majority would also likely create
more demand for cheaper excess-only coverage, placing a greater
potential burden on the Fund’s resources. To pay out more, the Fund
would have to increase the annual assessments paid by insurance
companies that finance it. See 215 ILCS 5/537.6 (West 2010)
(explaining the Fund’s assessment and funding processes). Increases
in those assessments would, in turn, be passed along to insureds as
higher premiums, raising the cost of excess insurance.
¶ 91 In addition, the majority erroneously asserts that “[t]here is no
basis whatever for concern that [relying on members’ assessments to
finance unlimited payments to the insureds of insolvent companies]
will place an undue burden on the Fund’s resources.” Supra ¶ 43. But,
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in a point quickly glossed over by the majority (supra ¶ 43), the
maximum amount of each assessment is statutorily limited to
“2% of [each] member company’s net direct written premium
*** for the calendar year preceding the assessment. *** If the
maximum assessment, together with the [Fund’s] other assets
***, does not provide, in any one year, *** an amount
sufficient to make all necessary payments ***[,] the unpaid
portion shall be paid as soon thereafter as funds become
available.” (Emphasis added.) 215 ILCS 5/537.6 (West
2010).
¶ 92 The 2% limit on assessments provides all the “basis” needed to
support my conclusion. As the number of self-insured employers
relying on excess-only insurance policies who seek payments from
the Fund beyond the applicable caps expands, the Fund’s long-term
payment obligations could readily outstrip its ability to replenish its
resources under the 2% assessment limit. Indeed, even the majority
admits that the assessment limit may create significant delays in the
Fund’s distribution of payments. While the majority attempts to
minimize this consequence with the assurance that the Fund “will
ultimately recover any and all amounts it must pay out *** to meet
the obligations of its insolvent members” (emphasis added) (supra ¶
43), its explanation ignores the very real impact payment delays
would have on injured workers’ receipt of what it deems to be
workers’ compensation liability payments.
¶ 93 If the Fund’s payments are indeed for Wells’ workers’
compensation liability, as the majority claims, delays in those
payments are contrary to the legislative purposes of both the Fund and
the Illinois Workers’ Compensation Act. “[T]he fundamental purpose
of the Act *** was to afford protection to employees by providing
them with prompt and equitable compensation for their injuries.”
(Emphasis added.) (Internal quotation marks omitted.) McNamee v.
Federated Equipment & Supply Co., 181 Ill. 2d 415, 421 (1998)
(quoting Mitsuuchi v. City of Chicago, 125 Ill. 2d 489, 494 (1988),
quoting Kelsay v. Motorola, Inc., 74 Ill. 2d 172, 180-81 (1978)).
Moreover, the legislative impetus behind the Fund was “to avoid
excessive delay in payment” of covered claims. 215 ILCS 5/532
(West 2010). The view adopted by Wells and the majority
contravenes the stated purposes of both the Code section creating the
Fund and the Workers’ Compensation Act. Accordingly, the
majority’s construction of section 537.2 violates the fundamental
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principle that courts must construe statutes to give effect to the stated
intent of the legislature, not to contradict it. Exelon Corp. v.
Department of Revenue, 234 Ill. 2d 266, 275 (2009).
¶ 94 Nonetheless, the majority maintains that its disposition is surely
“exactly what [the legislature] had in mind” when it expressed the
Guaranty Fund Act’s stated purpose as “to avoid financial loss to
claimants or policyholders” when an insurer becomes insolvent (215
ILCS 5/532 (West 2010)). Supra ¶ 47. The statutory language also
shows, however, that the Act’s protection was never designed to be
all-inclusive. See Exelon, 234 Ill. 2d at 275 (explaining that
construction of statutes should be consistent with their stated
legislative purpose). The plain language of section 537.2 shows that
in the vast majority of circumstances the Fund is obliged to protect
claimants and policyholders only up to the payment cap created by the
state legislature, here $300,000. Claimants and policyholders still
incur all additional losses. Moreover, section 537.4 specifically
obliges the Fund only to fulfill the insolvent insurer’s duties “subject
to the limitations provided in this Article.” (Emphasis added.) 215
ILCS 5/537.4 (West 2010). This phrase expressly caps the Fund’s
obligations at the amounts adopted by the legislature in section 537.2,
here $300,000. The majority states that “[r]equiring the Fund to
continue making payments *** here therefore does nothing more than
place Wells in exactly the same position it would have been in ***
and enabling it to avoid what would otherwise be a substantial
financial loss, namely, having to pay out of pocket for the same
workers’ compensation expenses the now worthless Home Insurance
policy should have covered” was the legislature’s intent. Supra ¶ 47.
That statement is true, however, only if the excess coverage policy
that Wells actually purchased is transformed into a primary workers
compensation liability policy that it already declined to buy. The
majority’s justification fails to support its interpretation of the Act; in
fact, its interpretation has to be assumed to support its justification.
Contrary to its declaration that this court cannot “depart from the
plain language of the law and read into it exceptions, limitations or
conditions which the legislature did not express” (supra ¶ 38), that is
exactly what the majority is doing. The majority’s approach ignores
the language specifically chosen by the legislature for the payment
cap exception (“any workers compensation claims” (emphasis
added)) that would require this court to look to the policy language to
determine the true nature of Wells’ claim.
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¶ 95 The legislature’s rationale for creating a single exception to the
payment caps for workers’ compensation claims is readily apparent.
215 ILCS 5/537.2 (West 2010). As previously noted, the Workers’
Compensation Act’s purpose is to protect workers injured in the
workplace “by providing them with prompt and equitable
compensation for their injuries.” (Internal quotation marks omitted.)
McNamee, 181 Ill. 2d at 421 (quoting Mitsuuchi v. City of Chicago,
125 Ill. 2d 489, 494 (1988), quoting Kelsay v. Motorola, Inc., 74 Ill.
2d 172, 180-81 (1978)). Once the policy language is actually
examined, it is apparent that Wells’ covered claim is not a workers’
compensation claim. Accordingly, my proposed outcome is consistent
with the legislature’s intent to cap the Fund’s other payment
obligations, as well as with the overall purpose of the Guaranty Fund
and the plain language of sections 537.2 and 537.4. Under this
construction, Wells’ injured worker will continue to be afforded full
protection and will receive her payments in a timely manner. Any
delays in receiving money from the Fund will be limited to Wells’
reimbursement payments, not the workers’ compensation benefits
being paid to Wells’ seriously injured worker. 215 ILCS 5/537.6
(West 2010) (stating “If the maximum assessment, together with the
[Fund’s] other assets ***, does not provide, in any one year, *** an
amount sufficient to make all necessary payments ***[,] the unpaid
portion shall be paid as soon thereafter as funds become available”
(emphasis added)). Under the majority’s rationale, the burden of the
delay would be imposed solely on the injured benefit recipient,
contrary to the legislature’s stated intent.
¶ 96 The legislature did not, however, express a similar intent to
provide comprehensive protection to self-insured employers such as
Wells. Employers alone can control their potential out-of-pocket risks
based on the reasonable consequences of their rational business
decisions about the type of insurance coverage necessary to meet their
needs and goals. Accordingly, my construction is completely
consistent with the legislative purpose of section 537.2. See Exelon,
234 Ill. 2d at 275 (requiring courts to effectuate the legislature’s
intent by examining the plain, ordinary, and unambiguous language
of the statutes, taken as a whole).
¶ 97 Although the majority also suggests that employers who purchase
primary coverage are not treated unfairly by its interpretation of
section 537.2, its supporting assertion that “[i]t is only when the
coverage threshold is reached *** that the Fund’s obligation would
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commence ” (emphasis added) (supra ¶ 45) misses the point. This
case is not about employers who buy indemnification-only coverage
obtaining an unfair benefit by receiving earlier payments from the
Fund. It is about the legislature’s statutory restriction on the total
amount employers may receive from the Fund, regardless of when
those payments begin. It is the end of the Fund’s obligation, not its
beginning, that is at issue.
¶ 98 The majority also maintains that “[w]indfalls to insured
employers are *** an impossibility” because the Fund’s payment
obligation is coextensive with that of the policy. Supra ¶ 46.
Obviously, the Fund would never pay more than the policy requires.
The legislature, however, specifically drafted section 537.2 to require
the Fund to pay the lesser of the sums due under the policy or the cap,
except when the claim is for a workers’ compensation claim. 215
ILCS 5/537.2 (West 2010). If the legislature had intended the Fund
to pay the full benefits due under the every type of policy, it would
not have included any payment caps in section 537.2 (215 ILCS
5/537.2 (West 2010)). The policy limits themselves would have
provided all the caps needed. Once again, the majority’s point is only
appropo if Wells’ covered claim is presumed to be a workers’
compensation claim. Making that presumption, however, overlooks
the actual language used in the applicable statutes and the underlying
excess-insurance policies.
¶ 99 After carefully reviewing the relevant statutory provisions, the
intent of the legislature, and the applicable policy language under this
court’s traditional rules of statutory construction, I am compelled to
conclude that legislative exception to the Fund’s payment cap for
workers’ compensation claims does not apply to Wells’
indemnification claim against its defunct insurer. Accordingly, the
Fund was obliged to make payments only up to its $300,000 statutory
cap. It has fulfilled that obligation, leaving Wells responsible for
making its injured employee’s remaining workers’ compensation
benefits without reimbursement.
¶ 100 If Wells should become insolvent, or is otherwise unable to
continue those payments, Wells’ injured worker is still assured of
receiving her full workers’ compensation award. The Self-Insurers
Advisory Board (SIAB), created in the Workers’ Compensation Act
to administer and pay claims against insolvent self-insured employers,
would become responsible for the continuation of her benefit
payments. 820 ILCS 305/4a-1, 4a-6 (West 2010) (creating the SIAB
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and obliging it to “assume *** the outstanding workers’
compensation *** obligations of the insolvent self-insured”). Because
I would reverse the appellate court’s judgment and remand the cause
to the circuit court for entry of summary judgment in favor of the
Fund, I must respectfully dissent from the majority opinion.
¶ 101 JUSTICE THOMAS, dissenting:
¶ 102 Like Chief Justice Kilbride, I am convinced that the claims at
issue in this case are not “workers compensation claims,” as that term
is used in section 537.2 of the Code (215 ILCS 5/537.2 (West 2010)).
Accordingly, I respectfully dissent.
¶ 103 Clearly, the public policy purpose of the “workers compensation
claims” exception to the $300,000 statutory cap is to ensure that an
injured worker receives all of the benefits to which he or she is
entitled in the event that the employer’s workers’ compensation
insurer becomes insolvent. Yet I simply cannot see how that public
policy purpose is implicated in this case.
¶ 104 In the typical case of workers’ compensation liability coverage,
the insurer agrees to pay when due the benefits required of the
employer by the workers’ compensation law. In other words, with
liability coverage, the insurer legally assumes the employer’s
obligation to pay the injured employee’s benefits. Indeed, the
Workers’ Compensation Act contemplates this very arrangement
when it specifically authorizes an employer to “[i]nsure his entire
liability to pay such compensation.” 820 ILCS 305/4(a)(3) (West
2010). Under these circumstances, if the insurer becomes insolvent,
the employee’s benefits will not be paid, as the insolvent insurer has
assumed the legal obligation to pay them directly. This is the situation
for which the exception to the statutory cap exists.
¶ 105 In our case, by contrast, the policy involved is not one of liability
in which Home legally assumed Wells’ obligation to pay its
employees’ workers’ compensation benefits. Rather, the policy
involved is one for indemnification, in which Home agreed only to
reimburse Wells for workers’ compensation benefits it “actually
paid,” once those benefits reached a certain amount. In other words,
Wells, as the employer, has legally retained sole responsibility for
paying its injured employee’s claims. And this distinction is crucial
because, unlike a case involving workers’ compensation liability
coverage, Home’s insolvency in our case would have no bearing on
whether the injured employee is in fact paid. Again, Wells contracted
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only for reimbursement of payments actually made. This means that,
to the extent that Wells is seeking indemnification from Home, the
injured employee’s benefits have to have already been paid.
Conversely, if at any point Wells stops paying its injured employee’s
benefits, for whatever reason, Wells would have no claim against
Home because, again, that policy only provides reimbursement for
payments that have already been made. No payment, no
reimbursement. Either way, whatever arrangement Wells has with
Home is completely divorced from and therefore has no bearing on
whether the injured employee is actually paid.
¶ 106 In other words, the crucial distinction in this case is not between
primary and excess coverage but between liability and
indemnification coverage. This is because under any liability policy,
be it primary or excess, the insurer legally assumes the employer’s
obligation to pay the injured employee’s benefits. A primary liability
policy simply means that the insurer assumes that legal obligation
earlier than under an excess liability policy. Consequently, if a
liability carrier becomes insolvent, be it a primary or an excess, the
workers’ compensation claims that the carrier has assumed legal
responsibility for paying will not be paid. By contrast, the insolvency
of an indemnification carrier will never affect whether an injured
employee's benefits are in fact paid because an indemnification carrier
only reimburses a responsible employer for claims that the employer
has already paid.
¶ 107 And again, this case involves an indemnification policy, not a
liability policy. Consequently, the public policy that I am convinced
informs the “workers compensation claims” exception to the
$300,000 statutory cap—to ensure that injured employees continue to
be paid despite a workers’ compensation insurer’s
insolvency—simply is not present in this case. Consequently, I am
hard-pressed to characterize the claims at issue as “workers
compensation claims” rather than as what they patently are—claims
for reimbursement of workers’ compensation claims that have already
been paid.
¶ 108 Accordingly, I respectfully dissent.
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