Illinois Supreme Court Agrees with Reed Armstrong’s Argument on Behalf of Pekin Insurance Company

On November 20, 2008, Pekin Insurance Company, represented by Reed Armstrong partner Stephen C. Mudge, was victorious in the Illinois Supreme Court, which reversed the Fifth District Appellate Court of Illinois and affirmed the Madison County Circuit Court’s dismissal of a declaratory judgment action brought against it by Billy Taylor in Taylor v. Pekin Insurance Company, 2008 WL 4943700 (Ill. 2008). In this case, the plaintiff was injured when he was involved in a car accident with an uninsured motorist. After receiving $162,588.33 from Pekin Insurance Company pursuant to a workers’ compensation policy, the plaintiff was awarded $250,000.00 in benefits under its uninsured motorist coverage. Pursuant to the provisions of the Pekin automobile policy, Pekin delivered a check to the plaintiff in the amount of $87,412.00, the difference between the arbitrators’ award and the amount plaintiff had previously been paid in workers’ compensation benefits.

The plaintiff filed a declaratory judgment action seeking a declaration that the amount of the setoff for worker’s compensation benefits received should be reduced by the amount of attorney’s fees the plaintiff incurred in obtaining the worker’s compensation benefits. The trial court dismissed the declaratory judgment action but the Appellate Court, 5th District reversed, ruling that the setoff for worker’s compensation payments should be reduced by $40,467.00, reflecting the 25% fee plaintiff’s attorney could have received under Section 5(b) of the Illinois Worker’s Compensation Act had he had recovered a lien from a third-party tortfeasor.

The Workers’ Compensation Act grants a lien to an employer for the amount of workers’ compensation benefits paid on an employee’s recovery against a third-party tortfeasor and requires the employer to pay the employee’s attorney a fee in the amount of 25% of the amount recovered by the employer. 820 ILCS 305/5(b) (West 2006). The issue before the Supreme Court was “whether section 5(b) requires Pekin to pay the 25% fee where plaintiff has been compensated for his injuries through his employer’s uninsured-motorist insurance rather than through a claim against a liable third party.” Applying the plain language of the statute, the Court agreed with Pekin’s contention that “section 5(b) by its terms does not apply because there was no recovery from a third-party tortfeasor.” Further the Court agreed with the Appellate Court’s dissenting Justice Donovan who asserted that since the workers’ compensation carrier recovered no funds, there was no recovery triggering a 25% attorney fee pursuant to section 5(b).