4418145006_75edbc7617According to Section 2 of the Contribution Act, when a party settles a claim in good faith against one tortfeasor, the finding of good faith automatically discharges that tortfeasor from any liability for contribution to another tortfeasor. (740 ILCS 100/2.) On the final day of its November term, the Illinois Supreme Court allowed a petition for leave to appeal in Bayer v. Panduit Corporation, a decision from Division 1 of the First District which poses a number of interesting questions about the interaction of the Workers Compensation Act and the Contribution Act.

The defendant is an electrical components manufacturer in De Kalb. In 2007, the defendant entered into a contract with an iron works company to fabricate structural steel for the expansion of the defendant’s warehouse. The iron works company then subcontracted with the plaintiff’s employer to upload and erect the structural steel at the site.

In June 2007, the plaintiff was seriously injured when he fell at the site. His injuries rendered him a quadriplegic. The plaintiff filed a workers compensation claim against his employer, and subsequently sued the defendant and the iron works company for negligence. The defendant then filed a third-party claim against the plaintiff’s employer, alleging that it was negligent in failing to ensure the safety of its employee, and seeking judgment in contribution commensurate with its relative fault.

Three years after the lawsuit began, the plaintiff and his former employer filed a motion for finding of good faith settlement. Following a hearing, the motion was granted. Less than two weeks later, the plaintiff settled with the iron works company, leaving the defendant to go to trial. Judgment was ultimately entered following trial for the plaintiff in the amount of $64 million.

The defendant filed a posttrial motion alleging that the court had erred in dismissing the contribution claim against the plaintiff’s employer because the settlement was not in good faith. Following a hearing, the trial court denied the defendant’s motion. Concurrently, the plaintiff filed a motion for attorneys’ fees and costs against his employer pursuant to the Workers Compensation Act. That motion was granted as to fees relating to future workers’ compensation payments, but denied as to costs. Both the defendant and the plaintiff’s employer filed notices of appeal.

The Appellate Court began its analysis with the good-faith settlement issue. On appeal, the defendant challenged the settlement because (1) no consideration was given for the release, since the employer had paid the plaintiff nothing further, nor had it waived its workers’ compensation lien; and (2) because of the sizable judgment against the defendant and the employer’s failure to waive its lien in the settlement, the employer stood to recover everything it had paid the employer from the defendant, effectively shifting its entire liability to the defendant.

The Court noted that the settlement agreement provided that the plaintiff’s employer: (1) agreed to waive its entire workers compensation lien with respect to any pre-verdict settlements; and (2) agreed to continue making workers compensation payments to the plaintiff until the matter was resolved against all defendants (Illinois law provides that an employer may terminate ongoing workers compensation payments when an employee receives any amount for the same injury from a third-party tortfeasor). The parties’ agreement also provided for partial waivers of the lien depending on exactly how much the plaintiff recovered from a verdict.

The Appellate Court affirmed the trial court’s finding that the settlement was supported by good faith. The Act itself gave employers the right to lien an employee’s recovery from third-party tortfeasors to recover some portion of their payments, the Court noted. Although the plaintiff’s employer ultimately stood to recover all of its workers compensation payments, that was only because of the size of the verdict – and Illinois courts have consistently rejected the notion that a large verdict after-the-fact is relevant to a good faith finding before or during trial. Further, the Court found that the employer’s agreement to continue workers’ compensation payments throughout the case – including, if necessary, any appeals – was sufficient consideration for the settlement by itself.

The Appellate Court then turned to the question of the attorneys’ fees order. On appeal, the employer did not dispute its liability under Section 5(b) of the Workers Compensation Act (820 ILCS 305/5(b)) for attorneys fees in the amount of 25% of the plaintiff’s permanent total disability benefits, but did dispute the payment of attorney fees for benefits suspended by statute as a result of the tort settlements. The Appellate Court held, based on the plain language of Section 5(b), that the employer was not required to pay attorney fees for suspended future medical payments under the Act.

We expect Bayer to be decided in eight to ten months.

Image courtesy of Flickr by Elliott Brown (no changes).