In Illinois Ins. Guaranty Fund v. Liberty Mutual Ins. Co., 2013 IL App (1st) 123345 (Nov. 12, 2013) the Illinois First District appellate court held that a borrowing employer’s workers’ compensation carrier is not required to reimburse the Illinois Insurance Guaranty Fund (“IIGF”) for benefits due to a borrowed employee. The ruling is in line with last year’s decision in Illinois Ins. Guaranty Fund v. Virginia Surety Co., Inc., et al., 2012 IL App (1st) 113758 (Oct. 12, 2012), and represents another win for borrowing employer’s workers’ compensation carriers.
TGI Group employee, John Earley, was injured while performing work as a borrowed employee for Interlake Material Handling. A workers’ compensation claim followed. TGI Group’s workers’ compensation carrier, Legion Insurance Company, made workers’ compensation payments to Earley until it was liquidated in July 2003. At that point, IIGF, which provides protection for insolvent members, stepped in and paid Earley’s benefits.
About five years later, in July 2008, IIGF filed suit seeking reimbursement for the benefits it paid Earley, naming Zurich American Insurance Company, Interlake’s workers’ compensation carrier, as a defendant in February 2009. IIGF did not expressly frame its claim as one for “subrogation”, although this was at the heart of it. IIGF also argued that Zurich’s policy constituted “other insurance” that had to be exhausted before IIGF’s obligations were triggered.
The appellate court upheld the trial court’s decision to grant Zurich’s motion to dismiss for failing to state a subrogation claim. For IIGF to have a valid subrogation claim, Zurich (not Legion) had to be primarily liable for the loss, which wasn’t alleged. Further, Legion would have known that failing to reserve rights on this issue could result in a waiver. However, there was no evidence that Legion contested or otherwise believed Zurich was responsible for the loss.
The court rejected IIGF’s argument that the Zurich policy constituted “other insurance” under the relevant statute, as Legion’s policy and Zurich’s policy covered two different Insureds, thereby affirming last year’s holding in Virginia Surety. It also found that the action was barred by the statute of limitations.