Waive Contribution Liability Cap

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Illinois Supreme Court Holds Employers May
Contractually Waive Contribution Liability Cap

By: PETER MCWEENY, associate at Much Shelist Freed Denenberg Ament Bell & Rubenstein, P. C., Chicago

Under the no-fault system created by the Illinois Workers' Compensation Act, negligence is irrelevant in determining whether an injured employee is entitled to workers' compensation benefits. Furthermore, Illinois employers who provide such benefits are exempt from suits by their employees for on-the-job injuries. But the Act does not completely immunize employers from lawsuits arising out of employees' injuries. Employers are still subject to third-party actions for contribution.

In the typical contribution case, an injured employee files a negligence suit against a general contractor or property owner for his or her injuries. The defendant in turn sues the plaintiffs employer (as a third-party defendant) based upon a contract or agreement between the two. The third-party action alleges that the employer's negligence contributed to cause the plaintiffs injury and seeks to compel the employer to bear its proportional share of any damages awarded.

Under prior law, first announced by the Illinois Supreme Court in Kotecki v. Cyclops Welding Corp., an employer's contribution liability could not exceed the amount of its workers' compensation liability. A recent Supreme Court case, however, changes this and dramatically increases all Illinois employers' potential liability for contribution.

The Illinois Supreme Court in Braye v. Archer-Daniels-Midland Co. held that an employer can, by contract, waive the limitation on liability for contribution available to it under Kotecki. The injured construction worker in Braye filed a workers' compensation claim against his employer, All Tri-R, which settled for $172,000. The employee also sued the general contractor, ADM, alleging statutory violations and negligence. ADM filed a third-party complaint against All Tri-R, seeking contribution for more than the amount allowed under the Kotecki limitation, i.e., more than the amount of workers' compensation All Tri-R had paid in connection with the plaintiff s injuries. ADM based its request for unlimited contribution on the terms of a purchase order governing the work, which stated: "Except to the extent that any such injury or damage is due solely and directly to ADM's or its customer's negligence, All Tri-R shall pay ADM for all loss which may result in any way from any act or omission of All Tri-R, its agents, employees or subcontractors." The Braye Court agreed with ADM that this language amounted to a valid and enforceable contractual agreement to waive the Kotecki limitation on All Tri-R's contribution liability.

In the Braye Court's view, neither the law nor Illinois public policy prohibits the enforcement of a contract in which an employer agrees to remain liable for the full amount of damages attributable to its own negligence, notwithstanding the Kotecki cap, Accordingly, although the employer in Braye settled its employee's workers' compensation claim for $172,000, it must now defend a third-party suit seeking significant additional damages.

The decision in Braye will have an immediate and potentially significant impact on all Illinois employers. Employers can no longer assume that their potential contribution liability is automatically restricted by the workers' compensation liability cap. indeed, Braye instructs that broad contractual language can be construed to relinquish an employer's Kotecki liability limits-even if the word "contribution" never appears in the contract. Accordingly, all contracts and agreements, from complex documents to simple purchase orders, must be carefully reviewed to be sure that they will not be construed to waive the Kotecki limit and increase an employer's potential contribution liability and costs. In addition, employers must consider whether they have adequate liability insurance to cover their new potential contribution and indemnity exposure.

PETER MCWEENY is an associate at Much Shelist Freed Denenberg Ament Bell & Rubenstein, P. C. with offices at 200 N. LaSalle St. in Chicago. He may be reached at 312-346-3100 or by e-mail at pmcweeny@muchlaw.com

The information offered here is not intended as legal advice or opinion applicable in specific circumstances. You are urged to consult an attorney concerning your particular situation. Under professional rules, this article may be regarded as advertising material.

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