Title: In re Estate of Dierkes

State: illinois

Issuer: Illinois Supreme Court

Document:

Opinion filed May 18, 2000.
JUSTICE FREEMAN delivered the opinion of the court:
Under section 5(b) of the Workers' Compensation Act, an injured employee who 
has received workers' compensation benefits must reimburse the employer for 
those benefits from any recovery the employee receives from a liable third 
party. The provision grants the employer a lien on the recovery equal to the 
amount of workers' compensation benefits paid or owed. See Ramsey v. 
Morrison, 175 Ill. 2d 218, 237 (1997). The employer must pay the employee's 
attorney "25% of the gross amount of such reimbursement." 820 ILCS 305/5(b) 
(West 1996).
In this case, the circuit court of St. Clair County reduced the employer's 
reimbursement under its workers' compensation lien by awarding two attorney fees 
to the employee's law firm: one fee based on a private fee agreement between the 
employee and the firm, and the second attorney fee pursuant to the Act. The 
appellate court affirmed. 303 Ill. App. 3d 927.
We agree with the employer that the additional reduction of the employer's 
reimbursement based on the employee's private attorney fee agreement was 
contrary to the Act. We reverse the appellate and circuit courts, and remand the 
cause to the circuit court with directions.
BACKGROUND
The appellate court detailed the undisputed facts. 303 Ill. App. 3d at 
928-30. Therefore, we will repeat only those facts necessary for our disposition 
of this appeal.
This case arises out of the administration of the estate of Herman Dierkes 
(decedent). Decedent was fatally injured by a third-party tortfeasor while 
employed by the Department of Transportation (Department).
Decedent's widow, who was the administrator of his estate, retained a law 
firm to pursue all claims against the third-party tortfeasor. Decedent's widow 
agreed to pay the law firm one-third of any amount recovered from the third 
party. The estate and the third party reached a proposed settlement; the third 
party offered the estate $100,000.
Also, the Department and the estate reached a settlement on workers' 
compensation benefits. In their settlement contract, the Department agreed to 
pay decedent's widow $2,176.11 per month for 20 years. According to the 
Department's calculation, which the estate's law firm does not dispute in its 
brief, the net present value of the compensation to decedent's widow far exceeds 
$100,000.
Decedent's widow petitioned the circuit court of St. Clair County to approve 
and distribute the proposed third-party settlement. The petition contained the 
terms of the third-party settlement and the terms of the settlement contract 
with the Department. The petition also contained the following charges against 
the proposed settlement: one-third of the proposed settlement ($33,333.33) to 
the estate's law firm for attorney fees based on its private contingency fee 
agreement with decedent's widow, 25% of the remainder of the proposed settlement 
($16,666.67) to the firm for attorney fees pursuant to the Act, and the 
remainder of the proposed settlement ($49,999.99) to the Department as 
reimbursement under its workers' compensation lien.
At the close of a hearing on the petition, the circuit court approved the 
third-party settlement and its proposed distribution. The appellate court upheld 
the distribution. 303 Ill. App. 3d 927. We allowed the Department's petition for 
leave to appeal (177 Ill. 2d R. 315(a)).
DISCUSSION
The Department does not dispute that its reimbursement under its workers' 
compensation lien should be reduced, pursuant to section 5(b) of the Act (820 
ILCS 305/5(b) (West 1996)), by an attorney fee to the estate's law firm of 25% 
of the $100,000 proposed settlement. However, the Department contends that the 
circuit court violated section 5(b) of the Act by further reducing its 
reimbursement by the additional attorney fee to the estate's law firm based on 
its private fee agreement with decedent's widow. This narrow issue is one of 
statutory interpretation, which is a question of law. Therefore, our review is 
de novo. Choi v. Industrial Comm'n, 182 Ill. 2d 387, 392 
(1998).
Section 5(b) of the Act states in pertinent part:
The cardinal rule of interpreting statutes, to which all other canons and 
rules are subordinate, is to ascertain and give effect to the intent of the 
legislature. In determining legislative intent, a court should first consider 
the statutory language. King v. Industrial Comm'n, 189 Ill. 2d 167, 171 
(2000); McNamee v. Federated Equipment & Supply Co., 181 Ill. 2d 415, 423 (1998). Specifically in construing the Act, all portions thereof must 
be read as a whole, and in such a manner as to give them the practical and 
liberal interpretation intended by the legislature. McNamee, 181 Ill. 2d  at 428; K. & R. Delivery, Inc. v. Industrial Comm'n, 11 Ill. 2d 441, 445 (1957).
The plain language of section 5(b) shows that an employer's reimbursement of 
workers' compensation payments from an employee's third-party recovery is 
crucial to the workers' compensation scheme. The practical and liberal operation 
of the Act is quite settled. The Act is primarily meant to provide prompt and 
equitable compensation for employees who are injured while working, regardless 
of fault. J.L. Simmons Co. ex rel. Hartford Insurance Group v. Firestone 
Tire & Rubber Co., 108 Ill. 2d 106, 112 (1985); accord Kelsay v. 
Motorola, Inc., 74 Ill. 2d 172, 180-81 (1978). Thus, an employer may be 
required to pay compensation to an injured employee even though the employer was 
without fault. "Section 5(b) allows both the employer and the employee an 
opportunity to reach the true offender while preventing the employee from 
obtaining a double recovery." J.L. Simmons, 108 Ill. 2d  at 112. The Act 
accords with "the moral idea that the ultimate loss from wrongdoing should fall 
upon the wrongdoer." 6 A. Larson & L. Larson, Larson's Workers' Compensation 
Laws §110.01, at 110-2 (1999).
However:
Section 5(b) of the Act reflects this commonsense concept:
There is nothing in the statute that suggests a limitation on the employee's 
obligation of reimbursement from the third-party recovery. If an employer has 
made workers' compensation payments, the obligation of reimbursement exists 
regardless of the amount that the employee recovers. Page v. Hibbard, 
119 Ill. 2d 41, 47 (1987). Thus, if the amount of compensation paid by the 
employer exceeds the employee's third-party recovery, then the employer is 
entitled to the entire recovery, less fees and costs. See Continental 
Casualty Co. v. Sweda, 113 Ill. App. 2d 423 (1969). Clearly, "[i]t is of 
utmost importance that the trial court protect an employer's [workers' 
compensation] lien." Blagg v. Illinois F.W.D. Truck & Equipment 
Co., 143 Ill. 2d 188, 195 (1991).
Indeed, at one time an employer's reimbursement of workers' compensation 
payments could not be reduced even by a proportionate share of the employee's 
attorney fees and necessary costs in procuring the third-party recovery. Prior 
to 1957, "under the language of the statute there was no authority for such 
deduction and *** the employer was entitled to complete reimbursement." 
(Emphasis added.) Hardwick v. Munsterman, 15 Ill. 2d 564, 567 (1959); 
see Manion v. Chicago, Rock Island & Pacific R.R. Co., 2 Ill. App. 
2d 191, 204-06 (1954).
However, in 1957 the legislature added to the Act the second paragraph of 
section 5(b). "The plain purpose of this provision *** [is] to require an 
employer to contribute to the necessary costs of the employee's recovery against 
a negligent third party where the employer is to receive reimbursement from the 
recovery for workmen's compensation payments made or to be made to the 
employee." Reno v. Maryland Casualty Co., 27 Ill. 2d 245, 247 (1962). 
The provision "is premised on the assumption that an employer should share in 
the fees and costs associated with the employee's lawsuit because the litigation 
benefits the employer by providing a fund from which the employer can obtain 
reimbursement of its workers' compensation payments" (Silva v. Electrical 
Systems, Inc., 183 Ill. 2d 356, 361 (1998)), and operates "to prevent an 
unjust enrichment on the part of the employer" (Reno, 27 Ill. 2d at 
248).
"The inclusion of [the second paragraph of section 5(b)] *** is a clear 
indication that without the specific statutory enactment no such liability would 
exist against the employer in actions by an employee against a third person." 
Hardwick, 15 Ill. 2d  at 567-68. As is seen, the legislature removed 
impediments to the employer's full reimbursement, and specified setoffs thereto 
only for costs, expenses, and attorney fees. Had the legislature intended the 
employer's reimbursement to be subject to additional setoffs, the legislature 
would have supplied them. See Foster v. Devilbiss Co., 174 Ill. App. 3d 
359, 367 (1988).
Based on this understanding of section 5(b) of the Act, the appellate court 
has long rejected the use of a private fee agreement between the employee and 
the employee's attorney to reduce the employer's reimbursement of worker's 
compensation payments. In Railkar v. Boll, 125 Ill. App. 2d 203, 206-07 
(1970), the court, citing Hardwick, held that:
The appellate court has repeated this holding ever since. Kimpling v. 
Canty, 13 Ill. App. 3d 919, 922 (1973); Vandygriff v. Commonwealth 
Edison Co., 68 Ill. App. 3d 396, 397-98 (1979); Lewis v. Riverside 
Hospital, 116 Ill. App. 3d 845, 850-51 (1983); Mounce v. Tri-State 
Motor Transit Co., 150 Ill. App. 3d 806, 810-11 (1986); Swets v. 
Tovar, 284 Ill. App. 3d 1003, 1007-10 (1996); American States Insurance 
Co. v. Bailey, 285 Ill. App. 3d 687, 692-94 (1996). Indeed, this holding 
constitutes hornbook law. See 5 C. Nichols, Illinois Civil Practice §104.78, at 
783 (1997 rev. vol.); 37 Ill. L. & Prac. Workers' Compensation §23, 
at 248 (1987).
We likewise agree with and adopt this holding. The statutory language "in the 
absence of other agreement" refers to any agreement between the employer and the 
employee or the employee's attorney. Absent such an agreement, section 5(b) of 
the Act requires the employer to pay as the employee's attorney fees 25% of the 
gross amount of the reimbursement. "If this does not satisfy the amount owed the 
attorney under [an] attorney-client agreement, then the attorney must seek any 
additional amounts from the client. The employer can not be expected to pay more 
than the statutorily required amount." Mounce, 150 Ill. App. 3d at 
811.
However, in Chaney v. National Steel Corp., 272 Ill. App. 3d 850 
(1995), the appellate court reached a contrary conclusion. There, the court 
allowed the employer's reimbursement of workers' compensation payments to be 
reduced not only by the statutory 25% attorney fee, but also by an additional 
attorney fee based on a private fee agreement between the employee and the 
employee's attorney. The Chaney court reasoned that "each fee was for a 
separate function and authorized under a different law." Chaney, 272 
Ill. App. 3d at 860. According to that decision, the employee's attorney earned 
his fee under the private fee agreement by recovering a settlement for the 
employee. In addition, the same attorney earned the statutory 25% fee by 
procuring the proceeds out of which the employer was reimbursed. 
Chaney, 272 Ill. App. 3d at 860. 
The circuit court in this case stated that it was bound by the 
Chaney decision. In affirming the circuit court, the appellate court 
also followed the reasoning of Chaney, 303 Ill. App. 3d at 931.
This reasoning in Chaney rests on a fundamental misunderstanding of 
the attorney fee provision in section 5(b) of the Act. The Department correctly 
asserts that the 25% fee provision represents the employer's mandated 
contribution to the employee's attorney fees. It does not 
constitute a second fee. This court has described the employee's 
third-party recovery as follows:
Additionally, this court stated in Hardwick that the second 
paragraph of section 5(b) requires "a proportionate amount of the 
plaintiff-employee's costs and attorney's fees (the latter limited to 25 per 
cent of the recovery or settlement) be borne by the employer out of his 
reimbursement figure." (Emphasis added.) Hardwick, 15 Ill. 2d  at 567. 
The requirement that the employer bear "a proportionate amount" of attorney fees 
indicates that the 25% statutory fee is a contribution to the injured employee's 
attorney fees and not a separate fee. The reasoning in Chaney to the 
contrary is erroneous; Chaney is hereby overruled on this point.
Turning to this case, the estate's law firm contends that this longstanding 
interpretation of section 5(b) of the Act would "destroy" the attorney-client 
relationship between an employee and the employee's attorney. The law firm 
asserts that such a holding imposes "on the attorney a duty to represent the 
employer."
To be sure, when the second paragraph of section 5(b) was enacted, others 
shared the concerns of the estate's law firm. See 2 G. Angerstein, Illinois 
Workmen's Compensation §1040.10 (rev. ed. Supp. 1962) (criticizing provision). 
However, we agree with the appellate court in Page, which reasoned: "It 
is readily apparent that employees' attorneys will often represent interests 
which are somewhat different than the interests of employers in cases such as 
this, and we believe that the language of section 5(b) of the Act [citation] 
countenances such a situation." Page v. Hibbard, 142 Ill. App. 3d 788, 
797 (1986).
The estate's law firm also contends that our interpretation of the second 
paragraph of section 5(b) of the Act would have rendered that provision an 
unconstitutional impairment of contracts when it was enacted in 1957. However, 
the law firm does not-and could not-argue that the provision impairs 
its fee agreement with decedent's widow, made in 1997. " 'The law 
existing at the time a contract is made becomes a part of it. The constitutional 
provision denying the power to pass any law impairing the obligation of a 
contract has reference only to a statute enacted after the making of a 
contract.' " Chmelik v. Vana, 31 Ill. 2d 272, 281 (1964), quoting 
People v. Ottman, 353 Ill. 427, 430 (1933); see In re Roberts Park 
Fire Protection District, 61 Ill. 2d 429, 441 (1975).
CONCLUSION
We hold that the circuit court improperly reduced the Department's workers' 
compensation reimbursement from the proposed settlement by one-third prior to 
distributing the remainder. For the foregoing reasons, the judgment of the 
appellate court and the order of the circuit court of St. Clair County are 
reversed, and the cause is remanded to the circuit court for an order consistent 
with this opinion.
Appellate court reversed;
circuit court reversed;
cause remanded with directions.