Illinois: Excess Coverage Policies Enjoy Same Exclusion From Guaranty Fund “Cap” on Payment as Primary Coverage Policies

Like every other state, Illinois has established an insolvent insurance fund–the Illinois Insurance Guaranty Fund–that steps in, under appropriate circumstances, to pay claims when an insurance company authorized to transact business in state becomes insolvent and is unable to pay claims under policies it has issued to its insureds. The Illinois Fund’s obligation to pay covered claims is subject to certain qualifications and limitations, including a cap on the amount it is allowed to pay on any particular claim ($300,000). The cap is inapplicable, however, to “any workers compensation claims” [215 ILCS 5/537.2 (West 2010)]. The Supreme Court of Illinois, in a split decision, recently held that the exclusion to the cap applies not only to claims filed under policies providing primary workers’ compensation coverage, but that the exclusion also applies to those claims that are related to policies providing excess coverage [Skokie Castings, Inc. v. Illinois Ins. Guar. Fund, 2013 Ill. LEXIS 1355 (Oct. 18, 2013)].  

The majority of the high court said it recognized that employers could secure their obligation to pay workers’ compensation claims in a variety of ways and references both excess liability insurance policies under 820 ILCS 305/4(a)(2) (2010), as well as policies which provide coverage for all of the payments for which an employer is liable under the Act pursuant to 820 ILCS 305/4(a)(3) (2010). The majority added:

Whether coverage is considered primary or excess and whether payment due under a policy is made directly to the injured employee or as reimbursement to the employer for payments it made to the injured employee, the fact remains that it is always the employer who has purchased the coverage. The purpose of the coverage is always the same: to help the employer secure its obligation to pay the compensation awarded to its injured employees by the Workers’ Compensation Commission. Legal liability for the paying the Commission’s award is always unchanged. It remains with the employer. Whenever and however a workers’ compensation carrier pays benefits pursuant to an insurance policy it has issued, it is paying those benefits on the employer’s behalf.

The majority concluded that the law made no reference to and did not differentiate between primary and excess coverage policies. For purposes of the Fund, both were, therefore, properly regarded as workers’ compensation insurance polices.

Chief Justice Kilbride dissented, as did Justice Thomas.

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