NEWSLETTER - August 2006

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August 2006

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• Firm Happenings
• Illinois Workers' Compensation Commission Update
• Circuit Court Update
• Case Law Update
  1. Supreme Court Deals Blow To Employers Regarding Commission's “Usage Tax”
  2. Worker's Injury At Company Picnic Not Compensable Where Employer Did Not Require Attendance At Picnic

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Firm Happenings

Our firm continues to grow as we will be adding Paul Tsukuno to our roster as of August 7, 2006. Paul is a veteran litigation attorney with over two decades' of experience in the State's Attorney's office, where he was the Supervisor of the Complex Litigation Division. Paul has substantial jury trial experience in numerous areas of civil practice, including property-casualty defense, third party liability and subrogation. After leaving the public sector, Paul was most recently conducting his practice in a private firm. Paul will be concentrating his efforts in our civil liability department, and we look forward to him coming on board.

Illinois Workers' Compensation Commission Update

The Illinois Division of Insurance/Department of Financial and Professional Regulation has hired a manager and one investigator for its new workers' compensation fraud unit, pursuant to the 2005 amendments to the Worker's Compensation Act calling for the creation of such a unit to investigate claims of fraudulent conduct by both employees and employers. Our office spoke with Ron Palmer, manager of the unit, regarding the procedures for filing a claim, and he provided us with the following information:

1. On the Internet go to www.idfpr.com
2. Click on “insurance,” which is under “Agency Links” on the left side of the page.
3. Click on “File a complaint with our Division.”
4. Click on “I am a Consumer and want to file a complaint.”
5. Click on “On-line Consumer Complaint Form.”
6. Click on “Click Here” in the 3rd column from the left (workers compensation)
7. Fill in the complaint form, giving as much information as possible. Mr. Palmer advised that it was important to use the “narrative box” at the bottom of the form to include enough information to explain the details of the situation.
8. Once this complaint was completed, a representative from IDFPR would contact the person that filed the complaint with further information and directions.

Mr. Palmer also indicated that a complaint can be mailed, with supporting documentation, to

Please note the following with regard to the new section 25.5 of the Act which established the fraud unit:

a) it is unlawful for any person, company, corp., insurance carrier, healthcare provider, or other entity to:

1) Intentionally present or cause to be presented any false or fraudulent claim for the payment of any workers' compensation benefit.
2) Intentionally make or cause to be made any false or fraudulent material statement or material representation for the purpose of obtaining or denying any workers' compensation benefit.

*For the purposes of paragraph (2), the term “statement” includes any writing, notice, proof of injury, bill for services, hospital, or doctor records and reports, or X-ray and test results.

b) Any person violating subsection (a) is guilty of a Class 4 felony. Any person or entity convicted of any violation of this Section shall be ordered to pay complete restitution to any person or entity so defrauded in addition to any fine or sentence imposed as a result of the conviction.

e) In order for the fraud and insurance non-compliance unit to investigate a report of fraud by an employee, (i) the employee must have filed with the Commission an Application for Adjustment of Claim and the employee must have either received or attempted to receive benefits under this Act that are related to the reported fraud or (ii) the employee must have made a written demand for the payment of benefits that are related to the reported fraud.

Upon receipt of a report of fraud, the employee or employer shall receive immediate notice of the reported conduct, including the verified name and address of the complainant if that complainant is connected to the case and the nature of the reported conduct.

The fraud and insurance non-compliance unit shall resolve all reports of fraud against employees or employers within 120 days of receipt of the report. There shall be no immunity, under this Act or otherwise, for any person who files a false report or who files a report without good and just cause. Confidentiality of medical information shall be strictly maintained.

Investigations that are not referred for prosecution shall be immediately expunged and shall not be disclosed except that the employee or employer who was the subject of the report and the person making the report shall be notified that the investigation is being closed, at which time the name of any complainant not connected to the case shall be disclosed to the employee or the employer.

It is unlawful for any employer . . . to file or threaten to file a report of fraud against an employee because of the exercise by the employee of the rights and remedies granted to the employee by the Act.

Please refer to the Act itself for the full breadth of the provisions of section 25.5, or do not hesitate to contact one of our attorneys with any questions you may have regarding the new fraud provisions.

Circuit Court Update

The Black Line Pool of cases awaiting trial assignment is apparently doing its job as cases are being put into the pool much more closely in line with the 18-month or 28-month discovery schedule that the parties are asked to declare at the first case management conference, and the pool is moving about 40 cases per day, which is up form the 20 to 25 cases per day that moved at this time last year. The court will now try to assign a case on which both parties answer “ready” within 30 days of the first appearance above the Black Line, taking some of the mystery out of when you would receive a trial date (ranging from “tomorrow” to six months from now) that previously existed. A case can still be continued, placed at the bottom of the pool again or re-sequenced in the pool under appropriate circumstances, but the judges do not prefer this.

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Case Law Update

Supreme Court Deals Blow To Employers Regarding Commission's “Usage Tax”

The Budget proposed by the Governor and passed by the General Assembly in 2003 called for a usage fee for State regulatory services. This included a usage fee on employers to be paid to the Illinois Worker's Compensation Commission. All employers in the State were charged this fee, whose purpose was to bring “user fees for state regulatory services and licenses in line with other states in order to recover actual program costs”, generating new revenue to the state in fiscal year 2004, according to the terms of the Budget. A formula was devised whereby insurance companies were to pay to the State a surcharge based on the annual direct written premium of the insurance company, to be deposited in the Operations Fund. The rate was set at 1.5% of direct written premium and was to be collected from employers by their insurance companies as a separately stated surcharge. Consequently, employers with higher premiums – i.e. those who used the Commission more than others – paid a higher usage fee.

The Illinois Chamber of Commerce challenged several aspects of these provisions in the Budget, based on a number of grounds, but for present purposes the basic challenge was that the funds received by the Commission from this provision were more than double what had been budgeted by the State in the prior fiscal year for Commission operations. The Chamber argued that these provisions constituted an unfair tax on employers, and that the money collected should not be allocated to other State funds, as the Budget also called for.

The Circuit Court Judge granted summary judgment in the Chamber's favor, ordering that the fees collected be placed in escrow, not disbursed and not re-allocated to the State, pending further order of the Circuit Court. A direct appeal was then taken by the State to the Supreme Court.

The Supreme Court reversed the Circuit Court, finding that the budgetary provisions were not unconstitutional, nor did they violate State tax laws. The Court found that there was a rational relationship between the purpose of the budgetary provisions and the fees imposed as well as a rational basis upon which to charge employers with this fee but not employees. The Court further found that the Circuit Court record was not sufficiently developed to determine whether the formula for the fee should be struck down or modified if the actual amount of fees collected exceeded the purpose of these provisions. The Court noted that following the Chamber's filing of the suit, the State reduced the 1.5% surcharge to 1.01%, and remanded the case to the Circuit Court for further proceedings on this and several other issues. State Chamber of Commerce v. Filan.

It therefore appears that the usage fee on employers is here to stay, though perhaps the amount of the surcharge will be reduced to come more in line with the actual budgetary needs of the Commission. We will report on further developments in this interesting case as they occur.

Worker's Injury At Company Picnic Not Compensable Where Employer Did Not Require Attendance At Picnic.

A frequent source of litigation at the Commission concerns injuries sustained during company-sponsored outings. In the recent matter of Gooden v. Industrial Commission, the Appellate Court further clarified when such injuries are not compensable.

The claimant injured himself while playing volleyball at a company picnic, and brought a claim for benefits under the Worker's Compensation Act. The Court upheld the Commission's determination that the injuries were not compensable. Crucial to the Court's ruling were the facts that the claimant had a choice to attend the picnic, and that employees who did not attend the half-day picnic could work a full day at their regular job. All employees were paid for a full day of work regardless of whether they were at the picnic or at their job.

The petitioner had chosen for each of the previous 10 years to attend the picnic, and the Court noted that this was a voluntary undertaking on his part, meaning that the resulting injuries at the picnic did not arise out of his employment. The Court distinguished this case from Woodrum v. Industrial Commission, because in that case the claimant was compelled to use a vacation or personal day if he did not attend the company outing. Here, the employees received a full day's pay but could decide on their own to attend the picnic or do their regular job.

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