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Scott v. Ind. Comm'n (Ill. S.Ct.)

Docket No. 84427-Agenda 18-March 1998.

EMMA SCOTT, Appellee, v. THE INDUSTRIAL COMMISSION et al. (Travelers Insurance Company, Appellant).

Opinion filed October 22, 1998.

JUSTICE MILLER delivered the opinion of the court:

Hughie Scott, Jr. (decedent), was employed as a laborer by Illinois Wrecking Company. Illinois Wrecking subcontracted to perform demolition work for Capitol Construction Group, a division of Capitol Construction Companies, Inc. (general contractor). On March 19, 1986, the building in which decedent was working collapsed. Decedent suffered severe injuries and on May 6, 1986, died as a result of those injuries.

Prior to decedent's death, Emma Scott, as wife and next friend of decedent, filed a claim under the Workers' Compensation Act (Act) (Ill. Rev. Stat. 1985, ch. 48, par. 138.1 et seq.) for medical expenses and temporary total disability benefits against Illinois Wrecking (No. 86-WC-17126). Following decedent's death, Emma Scott, as decedent's widow, filed additional claims for burial expenses and surviving spouse benefits against Illinois Wrecking (No. 86-WC-21114), Capitol Construction (No. 86-WC-21115), and Travelers Insurance Company (workers' compensation insurer for Illinois Wrecking) (No. 86-WC-39385).

In addition, Dartha Osley (decedent's sister), as administrator of decedent's estate, filed claims on behalf of the estate for workers' compensation benefits against Illinois Wrecking (No. 86-WC-39382), Capitol Construction (No. 86- WC-39383), and Travelers (No. 86-WC-39384). The arbitrator consolidated the claims filed by Emma Scott and Dartha Osley.

The arbitrator dismissed Osley as a party because no award to an estate is permissible where the surviving spouse has filed a claim. The arbitrator also dismissed Travelers as a party, finding that the workers' compensation insurance policy between Travelers and Illinois Wrecking had been canceled prior to decedent's accident.

The arbitrator then found Illinois Wrecking (the employer) liable for medical expenses, temporary total disability benefits, burial expenses, and surviving spouse benefits. See Ill. Rev. Stat. 1985, ch. 48, pars. 138.7(a), (f), 138.8(a), (b). The arbitrator also found Illinois Wrecking liable for statutory penalties and attorney fees because, the arbitrator believed, Illinois Wrecking had unreasonably failed to pay any of the expenses or benefits. See Ill. Rev. Stat. 1985, ch. 48, pars. 138.16, 138.16a, 138.19(k), (l).

Further, because Illinois Wrecking was found by the arbitrator to have been uninsured at the time of decedent's accident, the arbitrator found that Capitol Construction (the general contractor) was also liable for the expenses and benefits assessed against Illinois Wrecking. See Ill. Rev. Stat. 1985, ch. 48, par. 138.1(a)(3) (providing for the liability of a general contractor where the subcontractor is without workers' compensation insurance). The arbitrator found that Capitol Construction was additionally liable for the statutory penalties and attorney fees assessed against Illinois Wrecking.

Emma Scott (Scott) and Capitol Construction filed petitions for review with the Industrial Commission (Commission). Illinois Wrecking had declared bankruptcy and was not represented before the Commission. Scott and Capitol Construction argued that the workers' compensation insurance policy between Travelers and Illinois Wrecking was in effect at the time of decedent's accident. Further, Scott argued that statutory penalties and attorney fees should be assessed against Travelers for Travelers' failure to pay expenses and benefits under the Act. Travelers, however, argued that the arbitrator correctly found that the insurance policy was canceled and properly dismissed Travelers at the conclusion of the arbitration proceedings.

The Commission issued two decisions; each made reference to the other. One decision addressed issues arising prior to decedent's death (No. 92-IIC-0728), the other addressed issues arising after decedent's death (No. 92-IIC-0727). The Commission affirmed the arbitrator's dismissal of the administrator of decedent's estate (Osley) as a party.

The Commission found that the policy between Travelers and Illinois Wrecking was in effect at the time of decedent's accident. The Commission found that even had the policy been canceled, Travelers waived any purported cancellation by issuing a new premium notice to Illinois Wrecking for the next installment period. Thus, the Commission found Travelers a proper party to the proceedings and jointly liable with Illinois Wrecking for Scott's award of expenses and benefits under section 4(g) of the Act. See Ill. Rev. Stat. 1985, ch. 48, par. 138.4(g) (where an employer does not pay compensation, the employer's insurer may be made a party to the proceedings and an award may be entered jointly against the employer and the insurer). The Commission found that no expenses or benefits had yet been paid on account of decedent's accident or death.

In addition, the Commission found that the conduct of Illinois Wrecking and Capitol Construction did not justify the arbitrator's imposition of statutory penalties and attorney fees. Instead, the Commission found that only Travelers had acted unreasonably and vexatiously in refusing to pay compensation. The Commission also found that only Travelers had filed numerous frivolous motions that did not present real controversies. Thus, in each of its decisions, the Commission assessed statutory penalties and attorney fees only against Travelers.

While Scott's case was before the arbitrator, and later the Commission, a third-party wrongful death action filed by the administrator of decedent's estate was proceeding in the circuit court of Cook County. Travelers filed a petition to intervene in the third-party action in order to protect its rights under section 5(b) of the Act (Ill. Rev. Stat. 1985, ch. 48, par. 138.5(b)).

Approximately one month after having been granted leave to intervene, however, Travelers filed a motion to withdraw as an intervenor. According to Travelers, it did not want to concede insurance coverage for Illinois Wrecking by asserting a lien in the circuit court while Travelers was contesting that coverage before the arbitrator. The trial judge allowed Travelers to withdraw. The third-party action settled approximately six months after the Commission issued its decisions and while those decisions were pending on review in the circuit court. In settlement of the third-party action, the third-party tortfeasors paid a total of $438,557.05 to decedent's estate. Of that amount, $139,797.50 was subject to liens held by health care providers.

On review of the workers' compensation case, the circuit court of Kane County confirmed the Commission's decisions. Both Travelers and Scott appealed to the appellate court, Industrial Commission division. Travelers argued that the Commission erred in finding the insurance policy in effect at the time of decedent's accident. In addition, Travelers argued that the Commission's decision to impose statutory penalties and attorney fees was against the manifest weight of the evidence. Finally, Travelers requested that the appellate court address the effects of the third-party settlement payment on the respective rights of the parties.

Scott, however, argued that the Commission erred by failing to impose multiple statutory penalties against Travelers for Travelers' multiple violations of the Act. Scott also argued that the Commission erred by excluding medical and burial expenses in the amounts on which penalties and attorney fees were calculated.

The appellate court, Industrial Commission division, affirmed. Scott v. Industrial Comm'n, Nos. 2-93-1110WC, 2-93-1171WC, 2-93-1172WC cons. (August 9, 1994) (unpublished order under Supreme Court Rule 23) (Scott I). The court found no error in the Commission's determination that: (1) the insurance policy was in effect at the time of decedent's accident; (2) Travelers was a party to the proceedings and liable for Scott's award of expenses and benefits; and (3) Travelers was liable for statutory penalties and attorney fees in the amounts determined by the Commission. The appellate court declined to consider the effects of the third-party settlement payment. The court found that the issue was "wholly collateral to the proceedings before the Commission and outside the record before us."

The appellate court rejected Scott's argument that the Commission should have imposed multiple statutory penalties on Travelers. The court also found that the Commission correctly excluded medical and burial expenses in calculating statutory penalties and attorney fees. The court noted that medical and burial expenses are not lost-wage compensation subject to penalties under the Act.

There was no appeal from the appellate court's decision in Scott I, and the mandate issued on November 18, 1994.

THE PRESENT CASE

Approximately one month after the appellate court's mandate issued in Scott I, Travelers sent three checks to Scott totaling $281,259.34. The checks were accompanied by a letter and calculation statement which explained how Travelers arrived at its figures. Instead of paying Scott the entire amount due under the final award affirmed by the appellate court in Scott I, Travelers unilaterally withheld an amount equal to the medical expenses ($139,797.50) already paid through the third-party settlement to lien-holding health care providers. In its letter to Scott, Travelers claimed that it was entitled to a credit for this amount.

In addition, Travelers unilaterally withheld portions of the statutory penalties, statutory interest, and attorney fees awarded to Scott in Scott I. Travelers argued that while it was before the arbitrator, the arbitrator had determined that Travelers was not a party when these particular amounts were awarded. We note that Travelers' argument claiming that it was not a party was previously rejected by both the Commission and the appellate court in Scott I. Finally, Travelers claimed the right to a credit for any third-party settlement amounts that represented surviving spouse benefits. Travelers, however, made no withholding on this basis.

At the same time, Travelers filed with the Industrial Commission a petition for leave to file a special and limited appearance for the purpose of presenting two motions. In the motions, Travelers sought: (1) a determination of credits for amounts received by Scott in the third-party settlement; and (2) a determination that Travelers was not liable for the amounts it withheld from Scott's award of statutory penalties, statutory interest, and attorney fees previously affirmed in Scott I.

Scott responded by filing a motion to strike Travelers' petition for leave to file a special and limited appearance. Scott argued that Travelers' motions raised issues already decided by the Commission and affirmed by the appellate court in Scott I. Although the credit issue was not previously decided by the Commission, Scott claimed that Travelers could have raised the issue before the Commission in the proceedings that culminated in Scott I, but failed to do so. Scott contended that Travelers' petition and motions were frivolous and that Travelers intentionally underpaid her award. Scott requested a second set of statutory penalties and attorney fees in addition to those assessed against Travelers in Scott I.

The Commission denied Travelers' petition for leave to file a special and limited appearance. In Scott I, Travelers was adjudicated a party under section 4(g) of the Act. The Commission found that Travelers remained a party in this subsequent proceeding and thus could not appear on a special and limited basis.

The Commission then addressed the merits of Travelers' motions. The Commission found that its previous decisions were clear regarding Travelers' liability for Scott's award. Travelers and Illinois Wrecking were jointly liable for medical expenses, temporary total disability benefits, burial expenses, and weekly surviving spouse benefits. Travelers alone was liable for all of the statutory penalties and attorney fees previously assessed. These determinations were affirmed by the appellate court in Scott I. Thus, Travelers was liable for all of the previously assessed statutory penalties, interest, and attorney fees and any withholding was improper.

In addition, the Commission found that the circuit court and not the Commission was the proper forum to determine credits for amounts received in a third-party settlement. The Commission further found that Travelers had ample time (approximately six months) to return to the circuit court following the Commission's original decisions and reassert a lien under section 5(b) prior to the settlement of the third-party action. Accordingly, the Commission denied Travelers' motions without determining whether Travelers was entitled to credits.

Because the Commission believed that the petition and motions filed by Travelers were frivolous, the Commission awarded Scott additional compensation (section 19(k)) and attorney fees (sections 16, 16a) under the Act. See 820 ILCS 305/16, 16a, 19(k) (West 1994). The Commission determined the amounts of the additional compensation and attorney fees by setting a base figure from which a percentage could be calculated. See 820 ILCS 305/16a(B) (20% for attorney fees); 19(k) (50% for additional compensation) (West 1994).

The base figure consisted of Scott's temporary total disability award ($1,790.42) and her accrued surviving spouse benefits ($121,563.38) calculated as of the Commission's final hearing on review (February 7, 1995). The Commission also included old penalties from Scott I in the base figure: $13,501.12 in section 16 attorney fees; $33,752.82 in section 19(k) additional compensation; and $2,500 in section 19(l) additional compensation.

The Commission calculated the total ($173,107.74) and awarded Scott $86,553.87 in section 19(k) additional compensation (50% of $173,107.74) and $17,310.77 in section 16 attorney fees (20% of $86,553.87). Thus, a portion of Scott's award included "penalties on penalties." The Commission did not include medical and burial expenses in its calculations.

Both Travelers and Scott appealed to the circuit court of Du Page County. Travelers argued that the Commission is the proper forum for determining third-party settlement credits. In addition, Travelers claimed that the Commission's finding that Travelers waived its rights under section 5(b) was against the manifest weight of the evidence. Travelers next argued that the Commission erred in finding that Travelers was liable for the amounts it withheld from Scott's previous award of statutory penalties, interest, and attorney fees affirmed in Scott I.

Travelers further argued that the Commission erred in finding its petition and two motions frivolous, thus subjecting Travelers to a second set of penalties and attorney fees in addition to those awarded in Scott I. Finally, Travelers claimed that it should not be subjected to a second set of penalties and attorney fees on amounts it had already paid or for which it was entitled to credits. Even assuming that a penalty and attorney fees were appropriate, Travelers argued that the Commission erred by including statutory penalties and attorney fees from Scott I in its new calculations of section 19(k) additional compensation and section 16 attorney fees.

Scott claimed that Travelers was attempting to collaterally attack the Commission's final decisions affirmed in Scott I. Scott argued that no provision in the Workers' Compensation Act and no Commission rule allowed Travelers to file a petition and motions with the Commission following a final affirmed award. In addition, Scott argued that res judicata prohibited Travelers from claiming that it was not liable for the withheld penalties, interest, and attorney fees previously awarded in Scott I.

Further, Scott argued that Travelers waived its claim for third-party settlement credits by failing to raise this issue before the arbitrator or the Commission during the proceedings that culminated in Scott I. Scott believed the Commission properly assessed a second set of statutory penalties and attorney fees against Travelers. Scott argued, however, that the Commission erred by excluding medical and burial expenses in its calculations of section 19(k) additional compensation and section 16 attorney fees.

The circuit court confirmed the Commission's decision. The court found that the Commission does not have the authority to consider the third-party settlement credits claimed by Travelers. The court also found that the Commission's determination that Travelers' petition and motions were frivolous was not against the manifest weight of the evidence.

In addition, the court found that penalties and attorney fees from Scott I were properly included in the basis for the Commission's award of section 19(k) additional compensation and section 16 attorney fees. The court confirmed the Commission's award of penalties, an award that did not account for amounts already paid by Travelers to Scott or amounts for which Travelers claimed credits. The court rejected Scott's contention that the Commission erred by failing to include medical and burial expenses in calculating her award of additional compensation and attorney fees. Because of its holding on the merits, the court did not address whether Travelers' claims were barred by either res judicata or waiver.

Travelers and Scott again appealed to the appellate court, Industrial Commission division. The parties presented their respective arguments regarding the determination of third-party settlement credits and Travelers' liability for the withheld penalties, interest, and attorney fees. The parties also presented their respective arguments regarding the assessment and calculation of section 19(k) additional compensation and section 16 attorney fees. The appellate court affirmed. 292 Ill. App. 3d 290.

The appellate court, relying on Freer v. Hysan Corp., 108 Ill. 2d 421 (1985), believed that the Commission correctly determined that the Commission does not have the authority to enforce a lien and the court refused to grant Travelers credits for the amount paid to Scott by the third-party tortfeasors. See 292 Ill. App. 3d at 298. The court also affirmed the Commission's determination that Travelers was liable for the statutory penalties, interest, and attorney fees assessed in Scott I and that Travelers' withholding of any portion of these amounts was improper.

The appellate court next determined it was not against the manifest weight of the evidence for the Commission to find that Travelers' petition and motions were frivolous and that the award was therefore subject to additional statutory penalties and an award of attorney fees. The court found that the old penalties and attorney fees from Scott I were properly included in calculating the new award of section 19(k) additional compensation and section 16 attorney fees. The court did not discuss whether Travelers was liable for section 19(k) additional compensation and section 16 attorney fees on amounts already paid by Travelers to Scott or on amounts for which Travelers claimed credits for payments to Scott by the third-party tortfeasors.

The appellate court further rejected Scott's argument that she was entitled to multiple penalties because she had established more than one statutory factor under section 19(k). The court reasoned that Scott's injury-the withholding of due compensation-is a single injury regardless of the fact that the injury may have been caused by several factors.

The court also rejected Scott's argument that the Commission should have included medical and burial expenses in its calculations. Relying on Childress v. Industrial Comm'n, 93 Ill. 2d 144, 148-51 (1982), the court found that medical and burial expenses are not "compensation" as the term is used in the Act for the purpose of awarding penalties.

Travelers filed in the appellate court a petition for rehearing or, in the alternative, a motion for a statement by one of the five Industrial Commission appellate judges "that the case in question involves a substantial question which warrants consideration by the Supreme Court." 166 Ill. 2d R. 315(a). Pursuant to Travelers' request, one judge filed a "substantial question" statement.

The "substantial question" statement filed by one judge under Rule 315(a) became moot, however, when the five-judge panel, sua sponte, issued a certificate of importance under Supreme Court Rule 316 (155 Ill. 2d R. 316). Thus, the case is before us on a certificate of importance from the appellate court. See Ill. Const. 1970, art. VI,