Change in Illinois Code of Civil Procedure Results in Strict Payment Deadlines for Settling Defendants

by Wilson Elser

On August 26, 2013, Illinois Governor Pat Quinn approved a legislative measure designed to hold settling defendants’ feet to the fire in making timely settlement payments in those cases alleging personal injury, property damage, wrongful death or tortious conduct involving a claim for money damages.

The new law, which takes effect on January 1, 2014, requires the settling defendant to tender a release to the plaintiff within 14 days of written confirmation of the settlement. Written confirmation includes all communication by written means, including email and fax. Additionally, the law defines “tender” as “personal delivery or delivery by a means providing a return receipt.”

The defendant then has 30 days from the date of tender of the signed release and lien protection letters to pay the agreed-upon sum in full. In cases where court approval of the settlement is required (such as in a minor’s case), the plaintiff must timely obtain the court order and tender it to the defendant before the clock starts to tick on the defendant’s payment obligation.

Third-party Right of Recovery
Furthermore, the law provides for added protection in cases where there is a known third-party right of recovery or subrogation interest, including attorney’s liens, health-care provider liens, or Medicaid or Medicare liens. Under the new statute, the plaintiff can protect the third party’s rights by tendering to the defendant the following:

  1. A signed release of the attorney’s lien
  2. One of the following: (i) a signed release of the health-care provider lien; (ii) a letter from plaintiff’s attorney agreeing to hold the full amount of the claimed lien in the plaintiff’s attorney’s client fund account pending final resolution of the lien; (iii) an offer that the defendant hold the full amount of the claimed right of recovery pending final resolution of the amount of recovery; (iv) documentation of any other method of resolution of the liens as agreed to by the parties
  3. One of the following: (i) documentation of the agreement between the plaintiff and Medicare, the Centers for Medicare and Medicaid Services, the Illinois Department of Healthcare and Family Services, or the private health insurance company as to the amount of the settlement that will be accepted in satisfaction of its right of recovery; (ii) a letter from plaintiff’s attorney agreeing to hold the full amount of the claimed right to recovery in the plaintiff’s attorney’s client fund account pending final resolution of the amount of the right to recovery; (iii) an offer that the defendant hold the full amount of the claimed right to recovery pending final resolution of the amount of the right of recovery; (iv) documentation of any other method of resolution of the liens as agreed by the parties.

While the statute provides for protection of the third-party lienholder's rights to reimbursement, it does not specifically address the situation where the plaintiff's counsel fails to preserve the settlement funds in a trust account as represented. The statute, therefore, should not alter in any way the standard “hold harmless” and “indemnity” provisions inserted in releases to protect against such an occurrence. Ultimately, the safest way for a carrier to protect the lienholder (and defendant/defense counsel) is for the defense counsel to hold the full amount in trust or for the carrier to cut a separate check to the lienholder, assuming the amount of the lien is certain.

Deadlines and Exemptions
A defendant faces strict consequences if it fails to abide by the deadlines set forth in the new law. Failure to pay a plaintiff within the mandated 30-day time frame will result in a judgment against the defendant for the amount set forth in the executed release plus costs incurred in obtaining the judgment and interest calculated from the date of tender of the signed release. The current statutory interest rate is 9 percent.

The new law does not apply to the State of Illinois; any state agencies, boards or commissions; any state officer sued in his of her official capacity; any person or entity represented by the Attorney General; or any municipality or unit of local government. Class action lawsuits are also exempt.

Opt-out Provisions and Releases
Parties to a lawsuit may choose to opt out of the new law by agreement. As a matter of practice, defendants would be expected to seek such an accord early on in the settlement negotiations but also anticipate resistance from plaintiffs eager to receive their money and reticent to give up the leverage provided by this new provision.

Indeed, the plaintiffs’ bar likely views this new legislation as a victory of sorts for their injured clients who often perceive an undue delay in obtaining their funds. However, while this new law may provide plaintiffs with more certainty as to when they will receive their money, once the settlement agreement is inked, the statute does not account for the frequently arduous and lengthy negotiations that can occur between the parties over release language, especially with structured settlements and those involving multi-party, high-stakes and/or complex litigation.

Unlike the 30-day payment provision of the new code section, there is no similar penalty provision for violation of the 14-day time limit placed on defendant to tender a draft release. In those situations where the parties contemplate multiple issues with or extensive dickering over the provisions of the release, it may be prudent for them to seek court intervention to expand the statutory 14-day time frame.

Nor does the statute address the situation where a plaintiff, eager to receive his or her settlement check, tenders his or her own signed release to the defendant well within the defendant’s 14-day deadline to do so. Presumably, the defendant would have a strong argument that the terms of the agreement were not negotiated and therefore the clock had not started to tick on defendant’s payment obligation.

It is likely this new legislation will spawn a rise in motion practice under the often-used Code Section 2-1007 and Supreme Court Rule 183 that allow a party to obtain an extension of time for the doing of any act prior to judgment for good cause shown and in the discretion of the court.

In sum, defense counsel and their clients/carriers must keep in mind the provisions of this new statute and the deadlines it imposes throughout the settlement process and seek court intervention in a timely fashion to avoid possible penalty for late payment.

The new law can be found in the Illinois Code of Civil Procedure at 735 ILCS 5/2-2301.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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