Merged Entity Employee Qualifies For New Company’s Workers’ Comp

December 11, 2019 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin December 2, 2019

The 1st District Appellate Court recently held that the workers’ compensation carrier for the surviving corporation following a merger was responsible for payment of workers’ compensation benefits to an injured employee formerly on the payroll of the corporation that no longer exists. Hence, that carrier’s coverage had to be exhausted before benefits could be claimed from the Illinois Insurance Guaranty Fund.

The case is Illinois Insurance Guaranty Fund v. Priority Transportation Inc., 2019 IL App (1st) 181454 (Oct. 24, 2019). The surviving corporation, referred to in the opinion as Transit Group Inc. and related entities, and its insurance carrier, Ace Insurance Co., were represented by Lorenz & Bergin P.C. Stone & Johnson Chtd. represented the fund.

The injured employee, Tim Witte, had been employed as a truck driver by Fox Midwest Transport Inc. Fremont Casualty Insurance Co. served as Fox Midwest’s workers’ compensation carrier.

Effective Jan. 1, 2000, Fox Midwest merged into a subsidiary of Transit Group, TGT Merger, with TGT Merger being designated the surviving corporation. Transit Group, however, acknowledged that TGT Merger had been established only to complete the merger, such that its operations were rapidly rolled into Transit Group. Thus, the court treated Transit Group itself as having been the surviving entity.

On Jan. 17, 2000, Witte was injured on the job and filed for workers’ compensation benefits. Fremont, Fox Midwest’s carrier, thereupon began paying benefits, since Fox Midwest was not added to the Transit Group’s workers’ compensation policy until March 2000. In July 2003, however, Fremont was involuntarily liquidated by the state of Illinois. Thereafter, the Guaranty Fund began providing Witte benefits.

Under the Illinois Insurance Code, the fund is a nonprofit entity that protects beneficiaries of policies issued by insurers that become insolvent. See 215 ILCS 5/532 to 553. To obtain benefits from the Guaranty Fund, however, the claimant must exhaust all rights he or she has under any other insurance policy applicable to the claim or loss.

The Guaranty Fund thus brought this suit claiming that the Transit Group entities were Witte’s employer at the time of his injury and that he had workers’ compensation benefits through Ace, Transit Group’s workers’ compensation carrier at that time.

On cross-motions for summary judgment, the trial court agreed with the fund, and the Transit Group entities and Ace brought this appeal.

Jurisdiction

In an opinion by Justice Eileen M. O’Neill Burke, the 1st District affirmed. She initially addressed the argument by Transit Group and Ace that the Workers’ Compensation Commission has exclusive jurisdiction over workers’ compensation matters and that the circuit court therefore lacked jurisdiction. See 820 ILCS 305/18.

Burke agreed that the circuit court lacks original jurisdiction over workers’ compensation proceedings with respect to a determination of benefits under the Workers’ Compensation Act. In this case, however, she said the issue was not whether Witte is entitled to benefits, for everyone agreed that he is.

Rather, she said, the issue was the effect of the merger on the payment of those benefits and who must bear the financial burden. That issue presented questions of corporate and contract law and did not require a detailed examination of the act or other matters requiring specialized and technical workers’ compensation expertise.

Thus, the circuit court had jurisdiction.

Effect of merger

With respect to the effect of the merger, which was statutory in nature, Burke observed that, by the time of Witte’s injury on Jan. 17, 2000, Fox Midwest had been rolled into Transit Group, and the merger entity TGT Merger likewise had been merged into Transit Group. That meant that Witte was an employee of Transit Group.

Transit Group and Ace argued, however, that Witte’s pay stubs and W-2 form continued to show Fox Midwest as his employer, and Witte himself thought that he was still employeed by Fox Midwest. Burke responded that those factors could not override the legal effect of the merger and otherwise were meaningless as to who was Witte’s actual employer.

They further contended that, as of the time of the injury, no evidence existed that any premium had been collected by Ace to cover Fox Midwest employees.

Burke agreed that a premium is an indispensable part of an insurance policy and the risk the insurer undertakes. However, she said, under the Ace policy, any new hire of Transit Group was automatically covered, and since Fox Midwest no longer existed, Witte was covered by the policy.

Moreover, the fact that the Ace policy provided coverage did not preclude coverage by the Fremont policy, because it is quite possible for two policies to provide overlapping coverage. So, the fact that Fremont paid out benefits prior to its involuntary liquidation was not an issue on appeal. But from that point forward, the Ace policy was obligated.

The court, therefore, affirmed summary judgment for the fund.

Key points

  • The Guaranty Fund is not a collateral source of insurance benefits, but rather is a source of last resort for claimants of liquidated insurers, thus requiring that claimants first exhaust all rights under other policies applicable to the claim.
  • Upon a statutory merger, an employee of the merging entity may become an employee of the surviving entity, and if that occurs, the employee may also be entitled to workers’ compensation benefits from the surviving entity’s workers’ compensation carrier.
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