Background
Amanda Larsen, a Carol Stream police officer, was injured in a 2017 automobile accident caused by Vishal Vaid. She received $399,930.16 in workers’ compensation benefits from IRMA, the administrator for her employer. Larsen then sued Vaid for personal injury damages and obtained a $325,000 settlement. Because her settlement was less than the workers’ compensation benefits already paid, IRMA’s statutory lien entitled it to full reimbursement from the settlement proceeds.
Larsen sought reimbursement from IRMA for $21,344.88 in costs and expenses incurred in prosecuting her third-party claim. IRMA conceded its obligation to pay 25% of the settlement ($81,250) for attorney fees under section 5(b) of the Workers’ Compensation Act, but argued it should pay only 75% of the costs—the percentage of the settlement remaining after attorney fees. Larsen argued IRMA should pay 100% of costs because it received 100% of the settlement as reimbursement.
The Court’s Holding
The appellate court affirmed the trial court’s judgment that IRMA must pay 100% of plaintiff’s costs and expenses. The court held that section 5(b) of the Workers’ Compensation Act establishes two separate and independent employer obligations: (1) paying a pro rata share of all costs and expenses, and (2) paying 25% of the gross reimbursement for attorney fees. These obligations are not dependent on each other.
The court rejected IRMA’s argument that the phrase “gross amount” used only for attorney fees implied that costs should be calculated on the net amount remaining after attorney fees. Instead, the court found that “reimbursement received by the employer” means the amount the employer is statutorily entitled to receive based on compensation paid or to be paid, without regard to fees and costs owed. Because IRMA received the entire $325,000 settlement as reimbursement, it must bear 100% of the settlement costs.
The decision explicitly declined to follow Overlin v. Windmere Cove Partners, Inc., a Second District case adopting IRMA’s position, and instead relied on binding Supreme Court precedent in Zuber v. Illinois Power Co., which calculated costs against the full reimbursement amount.
Key Takeaways
- An employer’s obligation to pay its pro rata share of third-party litigation costs is calculated based on the gross reimbursement amount the employer receives under the Act, not reduced by attorney fees.
- The employer’s 25% attorney fee obligation and its pro rata cost obligation are independent duties, each calculated against the gross settlement amount.
- Appellate district precedent conflicts are resolved in favor of Supreme Court guidance: Zuber controls over Overlin on this issue.
- When an employer receives 100% of a third-party settlement as reimbursement for workers’ compensation benefits paid, the employer pays 100% of the employee’s litigation costs.
Why It Matters
This decision clarifies a critical ambiguity in section 5(b) of the Workers’ Compensation Act that had produced conflicting interpretations across appellate districts. For employers and their insurers managing third-party recovery claims, the ruling confirms they cannot reduce their cost-sharing obligations by reference to the mandatory attorney fee contribution. This increases the net cost to employers when their workers’ compensation liens are reimbursed from third-party settlements, but ensures injured employees are not penalized for litigation expenses when the employer benefits from recovery.
The opinion is significant for practitioners because it adopts a unified approach across Illinois appellate districts. By declining to follow the Second District’s Overlin precedent in favor of Supreme Court authority in Zuber, the First District has eliminated uncertainty about how costs should be calculated when section 5(b) reimbursements occur in Cook County and Northern Illinois federal cases.