Illinois Court Decides Insurance Company Not Responsible for Covering Workers’ Compensation Claim

Illinois Appellate Court ruled that Illinois Insurance Guaranty Fund (IIGF) is responsible for paying Illinois workers’ compensation benefits to a worker who was injured on the job (Virginia Surety Co. v. Adjustable Forms, Inc.). This ruling came in spite of IIGF’s claims that the Chicago worker was also covered under Virginia Surety Co.’s policy and therefore it should be paying the Illinois workers’ compensation benefits.

Michael Hadrys, an Adjustable Forms employee, was injured while working on a construction project in Illinois called the River East Project. And as is typical in the construction industry, his insurance was an owner controlled insurance program (OCIP) meaning that it was covered through the owner of the job and not his direct employer. The OCIP was being covered by Reliance Insurance Co., who have since folded, and that’s when things get complicated.

Typically, when an insurance company folds all its claims are handled by the Illinois Insurance Guaranty Fund (IIGF), provided that there is no other insurance company involved to take over the claim. However, in this case because Hadrys’s employer, Adjustable Forms, actually also had its own insurance through a different provider, Virginia Surety Co. Therefore the IIGF argued that it was not responsible for paying Hadrys’s workers’ compensation claim, but that Virginia Surety Co. was. Yet the Illinois Appellate Court disagreed.

The case revolved around whether or not Virginia Surety Co. was actually responsible for insuring Hadrys at the time of his Illinois construction site injury. The IIGF said that it was because it was an alternate form of insurance for Hadrys’s employer. Virginia Surety Co. said that it was not because Adjustable Forms insurance policy stated that it would cover injured employees unless they had other insurance.

The Illinois appellate court based the majority decision on the fact that while Virginia Surety Co. had initially charged Adjustable Forms a premium for coverage for the River East Project when it determined that Adjustable Forms would already be covered by Reliance Insurance it returned its premium to it. In essence, Virginia Surety Co. had earned no money from insuring Adjustable Forms for the project Hadrys was working on when he was injured. So Virginia Surety Co. could not be held to paying out for a claim under a policy from which it had received no premium payments.

The Illinois appellate court went on to add that to expect Virginia Surety Co. to cover the claim in lieu of the IIGF went against the whole purpose of the IIGF. The fund had been set up so that when an insurer went insolvent there would be an entity to take over any remaining claims, assuming that there was no other insurer to do so. And in this case there was not. So the Illinois appellate court denied the fund’s arguments that Virginia Surety Co. should pay, stating that while they might have been involved in other dealings with the injured party’s employer it was not in this case. None of the facts support Virginia Surety Co. being involved in this claim so the Illinois appellate court released them from all responsibility for payment.

Kreisman Law Offices has been handling Illinois workers’ compensation cases for over 30 years, serving Cook County, Chicago and its surrounding counties including Buffalo Grove, Glenwood, Oak Park, and Tinley Park.