The Kotecki Exposures in Illinois


The Illinois courts have created a potentially expensive yet uninsured

exposure for Illinois employers by a series of decisions relating to what are

known as "third party over" claims involving Workers' Compensation and

General Liability insurance.


 Third party over actions involve situations where an injured employee sues a

 third party for negligence (a third party such as a work site owner,

a manufacturer of equipment, or a general contractor) and that third party

then files suit against the employer for contribution toward the

 employee's damages.

 

The original case, Kotecki v. Cyclops Welding, had the Illinois Supreme Court

 ruling that an employer's maximum liability in a third party suit for

contribution is limited to an amount no greater than its liability to its

employee under the Workers' Compensation Act.
 

But later, a series of Illinois judicial decisions held that an employer could

 waive this Kotecki cap by contract, by means of indemnity provisions

 commonly contained in contracts between contractors and their clients or

 general contractors.
 

Often, these contractual requirements are not well disclosed amongst

the fine print of the contract. In plain English, it means that the limit on

Kotecki exposures for an employer is often removed by the fine print of the
 
contract with a General Contractor, without the sub-contractor fully aware of

the risk that has been assumed.


Finally, two Illinois Appellate Court decisions held that the exposure created

by such a waiver of the Kotecki cap may be uninsured under both the

standard general liability policy and the standard employers' liability coverage

(provided by part Two of the Workers' Compensation insurance policy).


So a sub-contractor can be left with a serious uninsured exposure from an

injured worker, in spite of Workers Comp being the "exclusive remedy" for

workplace injury or illness.


To address this exposure, the Workers' Compensation policy should be

endorsed to specifically add coverage by amending the exclusions under Part

Two-Employers Liability Insurance so that Kotecki waivers are specifically not

excluded.


But many insurers have been specifically excluding such coverage, by

endorsement to the Workers Comp policy. From the point of view of a sub-

contractor, such an endorsement excluding coverage would be highly

undesirable. This is an issue that should be negotiated with your insurer
 
when coverage is being arranged, not after a claim has occurred.


For more detailed information, consider these resources: DePaul Law Review;

Illinois Association of Defense Trial Counsel (2007)




     

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