No. 2--06--0404 filed: 1/11/07
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
EDWIN HARDER, ) Appeal from the Circuit Court
) of Du Page County.
Plaintiff-Appellee, )
)
v. ) No. 04--L--881
)
TIMOTHY KELLY and ILLINOIS )
CENTRAL RAILROAD COMPANY, a/k/a )
Canadian National, )
)
Defendants )
)
(Hortica Insurance Company, as Subrogee of ) Honorable
Schaeffer's Greenhouse, Inc., Intervenor- ) Stephen J. Culliton,
Appellant). ) Judge, Presiding.
______________________________________________________________________________
___
JUSTICE O'MALLEY delivered the opinion of the court:
Hortica Insurance Company (Hortica) intervened in a personal injury lawsuit filed in the
circuit court of Du Page County by plaintiff, Edwin Harder. Hortica provided workers'
compensation insurance to plaintiff's employer, Schaeffer's Greenhouse, Inc. (Schaeffer's), and
had paid worker's compensation benefits to plaintiff for the injuries forming the basis of the
personal injury lawsuit. Hortica asserted that it was subrogated to Schaeffer's right to assert a lien
under section 5(b) of the Workers' Compensation Act (Act) (820 ILCS 305/5(b) (West 2004)) on
any judgment or settlement of the lawsuit. The trial court ruled, however, that Schaeffer's had
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forfeited the lien. Hortica appeals. We reverse and remand.
Plaintiff filed the underlying lawsuit on August 17, 2004, naming Timothy Kelly and the
Canadian National Railroad Company (CNRC) as defendants. (CNRC was misnamed in the
complaint as "Illinois Central Railroad Co., *** a/k/a Canadian National.") Plaintiff sought
recovery for injuries allegedly suffered in a motor vehicle accident. Plaintiff alleged that while his
vehicle was stopped in traffic on Interstate 55, it was struck from behind by a vehicle operated by
Kelly, an employee of CNRC. Plaintiff proceeded against Kelly under a negligence theory and
proceeded against CNRC under the doctrine of respondeat superior. The record reveals that on
November 4, 2004, defendant settled a workers' compensation claim against Schaeffer's based on
the injuries sustained in the accident. On December 5, 2005, the tort claims against Kelly and
CNRC were dismissed with prejudice pursuant to a settlement agreement. On December 20,
2005, Hortica moved to intervene.
The settlement of plaintiff's workers' compensation claim is memorialized in a settlement
contract lump-sum petition and order (settlement contract) prepared on a form supplied by the
Illinois Industrial Commission (now known as the Illinois Workers' Compensation Commission).
The settlement contract provides, in pertinent part:
"[Schaeffer's] agrees to pay and [plaintiff] agrees to accept $16,634.25 in a lump
sum in full and final settlement of all claims for compensation, medical, hospital and other
expenses, past, present or future, arising out of the accident described and under the terms
of the [Act]. *** Review under Section 19(h) and all rights under Sections 4, 8, 16, and
19 of the Act are expressly waived by the parties hereto. It is the responsibility of
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[plaintiff] to satisfy the outstanding medical charges out of the proceeds of this settlement.
It is not the responsibility of [Schaeffer's] to satisfy any outstanding medical charges,
known or unknown."
The settlement contract does not specifically mention Schaeffer's lien under section 5(b).
The trial court granted Hortica's motion to intervene. However, the trial court ruled that,
pursuant to the decision of the Appellate Court, Fourth District, in Borrowman v. Prastein, 356
Ill. App. 3d 546 (2005), Schaeffer's had forfeited its lien. Although the trial court expressed
serious doubts about the soundness of Borrowman's reasoning, the trial court concluded that, in
the absence of any contrary authority, it was bound by Borrowman's holding. Accordingly, the
trial court entered an order denying Hortica's claim of a lien under section 5(b). This appeal
followed.
Section 5(b) of the Act provides, in pertinent part:
"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 paid or to
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be paid by him to such employee or personal representative ***. ***
***
If the injured employee or his personal representative agrees to receive
compensation from the employer or accept from the employer any payment on account of
such compensation, or to institute proceedings to recover the same, the employer may
have or claim a lien upon any award, judgment or fund out of which such employee might
be compensated from such third party." (Emphasis added.) 820 ILCS 305/5(b) (West
2004).
Section 5(b) further provides that the employer must receive notice of such a lawsuit and that the
employer may join in the action. 820 ILCS 305/5(b) (West 2004).
In Borrowman, the employee fractured his heel in a work-related accident on April 7,
1995. After surgery to repair the fracture, the employee developed an infection. Antibiotics
prescribed to treat the infection caused the employee to suffer irreversible inner ear damage, and
he brought a medical malpractice suit against the physician who prescribed them. While the
medical malpractice lawsuit was pending, the employee settled a workers' compensation claim
against his employer. Thereafter the employee settled his medical malpractice lawsuit and filed a
petition to adjudicate the employer's lien under section 5(b) of the Act. The trial court ruled that
the employer was entitled to a lien for a portion of the workers' compensation settlement.
Presumably that portion represented the amount of compensation paid to the employee that was
attributable to the medical malpractice rather than the foot injury. On appeal, however, the
Appellate Court, Fourth District, reversed, holding that the employer was not entitled to a lien.
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The Borrowman court focused on the language of the workers' compensation settlement
agreement, which stated, in pertinent part:
" 'The above constitutes a full, final[,] and complete settlement of any and all
claims for temporary total disability, permanent partial and/or permanent total disability
incurred or to be incurred by [the employee] by reason of an industrial injury occurring on
or about April 7, 1995, or by reasons of any claim or cause of action by [the employee]
against [the employer] of any nature whatsoever.' " Borrowman, 356 Ill. App. 3d at 550.
The court noted that although the employer was aware of the pending medical malpractice
lawsuit, the agreement did not "refer to, or contain any reservation of rights (or waiver) with
regard to, [the] malpractice action." Borrowman, 356 Ill. App. 3d at 550. The court reasoned:
"Because [the employer] was aware of [the employee's] allegations against [his
physician] ***, it is reasonable to conclude, by the lack of any reference thereto, that [the
employer] forfeited its lien rights in its 'full, final[,] and complete settlement' with [the
employee]. It is also reasonable to assume, due to the fact it was not mentioned in the
agreement, [the employer's] claim of a potential lien was not an issue during the
negotiations surrounding the workers' compensation settlement. We find nothing in the
record to refute the fact that all concerned negotiated and bargained (1) in good faith and
(2) with full knowledge of the then-current circumstances and their impendent rights.
For this court to hold that [the employer] was entitled to a lien against [the
employee's] malpractice settlement proceeds when [the employer] (1) failed to reserve its
right in its workers' compensation settlement *** and (2) knew of the pending malpractice
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action at the time would completely nullify both parties' good-faith dealings. Such a
holding would have [the employee] return to [the employer] the money that [the
employer] previously agreed to give [the employee] without a change in circumstances. It
would not only belie Illinois's public policy of encouraging settlements [citation] but would
effectively serve as a repudiation of the agreement. We hold that [the employer] should be
bound by the terms of its agreement and is not entitled to a section 5(b) lien on the
malpractice case." Borrowman, 356 Ill. App. 3d at 551.
During the pendency of this appeal, in Gallagher v. Lenart, 367 Ill. App. 3d 293 (2006),
appeal allowed, No. 103522 (November 29, 2006), the Appellate Court, First District, specifically
rejected the analysis in Borrowman. The facts in Gallagher are similar to the facts in this case.
The employee settled a workers' compensation claim for injuries sustained in a work-related
motor vehicle accident. The employee then filed a personal injury lawsuit against the other driver
involved in the accident. The employee settled the personal injury claim and the employer
intervened to enforce its lien under section 5(b). Relying on Borrowman, the trial court ruled that
the employer was not entitled to claim a lien. Gallagher, 367 Ill. App. 3d at 294-96. The
appellate court reversed, concluding that the holding of Borrowman was "unsupported by case
law, contrary to several principles behind the Act, and at odds with general contract law."
Gallagher, 367 Ill. App. 3d at 298.
The Gallagher court initially noted that Borrowman provided no support for its analysis.
Gallagher, 367 Ill. App. 3d at 298. Examining the policy considerations behind the Act, the court
stated that "[a]n employer's reimbursement of workers' compensation payments from an
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employee's third-party recovery is crucial to the workers' compensation scheme." Gallagher, 367
Ill. App. 3d at 299, citing In re Estate of Dierkes, 191 Ill. 2d 326, 331 (2000). The court
observed that reimbursing an employer (who is subject to no-fault liability under the Act)
"accords with ' "the moral idea that the ultimate loss from wrongdoing should fall upon the
wrongdoer." ' " Gallagher, 367 Ill. App. 3d at 299, quoting Dierkes, 191 Ill. 2d at 332, quoting 6
A. Larson & L. Larson, Larson's Workers' Compensation Laws §110.01, at 110--2 (1999). The
court also pointed out that section 5(b) advances the Act's policy of preventing an injured worker
from receiving a double recovery (Gallagher, 367 Ill. App. 3d at 299) and that our supreme court
has emphasized that " ' "[i]t is of the utmost importance that the trial court protect an employer's
[workers' compensation] lien." ' " Gallagher, 367 Ill. App. 3d at 301, quoting Dierkes, 191 Ill. 2d
at 333, quoting Blagg v. Illinois F.W.D. Truck & Equipment Co.,143 Ill. 2d 188, 195 (1991).
Thus, the court concluded that "Borrowman's holding that an employer waives or forfeits its
workers' compensation lien by not specifically reserving it in a settlement of the employee's
workers' compensation claim when the employer knew of a pending claim against a third-party
tortfeasor contravenes the Act's purposes." Gallagher, 367 Ill. App. 3d at 301.
The Gallagher court also noted that under general contract law principles (1) a court
ordinarily cannot modify the existing terms of a contract or add new terms to which the parties do
not appear to have assented and (2) where a contract purports on its face to be a complete
expression of the parties' agreement, a court will not add a term about which the agreement is
silent. Gallagher, 367 Ill. App. 3d at 301-02. The court reasoned:
"With its holding, Borrowman contradicts these principles. The settlement
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agreement in Borrowman, like the agreement in the present case, does not contain any
reference to the employer's workers' compensation lien and, specifically, does not include
a waiver of that lien. Based on the general contract principles cited above, the court
should presume that if the employer meant to waive its statutorily created lien as part of
the settlement of the employee's workers' compensation claim, it would have specifically
included such a waiver in the settlement agreement. Borrowman's holding instead rewrites
the contract, which was negotiated by lawyers representing both parties, and adds a
provision which the parties did not include. The plain language of the settlement
agreement indicates that the parties did not intend to resolve the issue of the employer's
workers' compensation lien within that settlement. The Borrowman court assumed,
without any basis, that the agreement's silence on the issue of the workers' compensation
lien meant that the employer chose to waive that lien and its right to recover hundreds of
thousands of dollars from any future third-party recovery by the employee. Such an
assumption contravenes well-established contract law in Illinois.
Further, waiver is the voluntary and intentional relinquishment of a known right by
conduct inconsistent with an intent to enforce that right. [Citation.] The absence of any
reference to an employer's lien in a settlement agreement, without more, cannot constitute
such a voluntary and intentional relinquishment of that right." Gallagher, 367 Ill. App. 3d
at 302.
We find the reasoning in Gallagher persuasive and we choose to follow that decision
rather than Borrowman. Like the court in Gallagher, we see no reason under the Act or general
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contract principles why an employer should be required to include an affirmative reservation of
rights in a settlement agreement when there is nothing in the agreement otherwise suggestive of
an intent to waive the right to a lien under section 5(b).
For the foregoing reasons, the judgment of the circuit court of Du Page County is
reversed and the cause is remanded for further proceedings.
Reversed and remanded.
HUTCHINSON and KAPALA, JJ., concur.
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