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Agreements to Settle Workers’ Comp Claims Must Be Approved by IWCC

By Robert H. Jennetten

When it comes to resolution of work comp claims, the old adage, “get it in writing” does not go far enough because such settlements are subject to approval by the Illinois Workers’ Compensation Commission. Section 23 of the Act provides that, with regard to the amount of compensation payable, no employee has the power to waive the provisions of the Act except after approval by the Commission. This provision has been strictly construed to deny enforcement of settlements unless they are approved by the Commission.

The recent Illinois Supreme Court decision in Maxit, Inc. v. VanCleve, 226 Ill.2d 616, 882 N.E.2d 78, 317 Ill.Dec. 504 (October 17, 2008), applied this provision in an unusual set of facts to bar an employer from claiming that an employee waived his claim for work comp benefits by signing a release to resolve an underinsured motorist claim. John VanCleve was injured in a motor vehicle accident while in the course of his employment. The at-fault driver was underinsured. VanCleve filed a workers’ compensation claim and a UIM claim. The UIM claim was settled for $800,000 using what could be described as a broad general release with indemnification language. In subsequent litigation the employer contended that the release John VanCleve signed in exchange for the $800,000 released not only his UIM claim but also his work comp claim. The Supreme Court held that since the settlement was not approved by the Commission, the release did not bar the work comp claim.

After Mr. VanCleve signed the UIM release for the $800,000, he settled his work comp claim for $200,000. That settlement was approved by the Commission. A year after that settlement, the employer filed suit against John VanCleve seeking to enforce the indemnification clause in the UIM release. The employer sought money damages equal to the $200,000 paid to settle the work comp claim. The indemnification clause required the employee to indemnify and hold harmless the employer from all injury claims arising out of the accident. The employer contended that since the work comp claim was a claim for damages for injuries from the accident and since the employer paid $200,000 to settle the work comp claim, the employee was contractually obligated to reimburse the employer for the $200,000. At the trial court level, summary judgment was entered in favor of the employer and against the employee requiring the employee to pay $200,000 to the employer! The Appellate Court reversed. The Supreme Court affirmed the Appellate Court holding that as a matter of law the UIM release did not bar the work comp claim because it was not approved by the Commission and therefore the indemnification clause was unenforceable. The Supreme Court held that the employee was entitled to summary judgment against the employer.

The Supreme Court decision noted that the language of the UIM release might be ambiguous in that the intent of the parties may have been to settle only the UIM claim but it was unnecessary to reach that issue because as a matter of law the UIM release did not bar the work comp claim because the agreement had not been approved by the Commission in violation of Section 23 of the Act.

The Maxit case involved a unique set of facts and the Supreme Court could have reached the same result for other reasons raised by the employee. If the facts set forth in the opinion are the only pertinent facts, there is no way the employer was going to get back the $200,000 paid for the work comp settlement if for no other reason, than the fact that the employer did not raise the UIM release as a defense to work comp claim, and apparently participated in seeking approval of the work comp settlement before the Commission. Although it is not stated in the opinion, it is likely that the work comp insurer settled the work comp case without obtaining approval from the employer.

Despite the unusual facts of this case there is an important lesson to be learned. Any settlement agreement which purports to release an employee’s work comp claim must be approved by the Commission or a designated Arbitrator. Global settlements of claims arising out of work accidents are a beautiful thing, often beneficial to all parties but, if the intent is to resolve a work comp claim and the settlement is not approved by the Commission, the employer or the work comp insurer is in for an unpleasant surprise. To have participated in a global settlement and then to learn that an employee can still pursue a work comp claim is a disaster. It is true that when an employee receives money from settlement of a claim against an at-fault party, the amount received is a credit toward any workers’ compensation obligation because of Section 5 which gives the employer a lien on the proceeds of such a settlement but this principle does not apply to funds received from sources such as first party insurance or a UIM claim even if the premiums for such programs are paid by the employer.

If an employer or its work comp insurer is participating in a global settlement of claims arising out of a work accident, have an experienced attorney prepare appropriate releases and have the settlement approved by the Commission. The adage should be “get it in writing and have it approved by the Commission.”

Originally published in the Spring 2009 edition of Quinn Quarterly.