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Getting Hit Twice: Why The Exclusive Remedy Provision May Not Apply to General Contractors

The Illinois Supreme Court recently revisited the issue of who is - and perhaps more importantly, who is not - entitled to immunity from civil lawsuits brought by a construction contractor’s injured employee. The case, Munoz v. Bulley & Andrews, LLC, 2022 IL 127067, clarifies that while the injured employee’s direct employer and any participants in a joint venture are entitled to such protection, general contractors and other job-related third parties are not. Even if the general contractor owns the sub-contractor and pays for the sub-contractor’s workers compensation insurance, the general contractor is not immune from 3rd party claims if the sub- contractor’s employee is injured on the job.

Munoz Case Facts

In Munoz, the defendant, Bulley & Andrews, LLC (“B & A”) was hired as the general contractor for a commercial construction project at 222 S. Riverside Plaza in Chicago. B & A performed some aspects of the project itself, but hired sub-contractors to complete others. B & A hired its wholly-owned subsidiary, Bulley & Andrews Concrete Restoration, LLC (“BAC”), to perform concrete work on the project. B & A and BAC were operated as separate companies, with different officers, different FEIN numbers, separate tax return filings, and separate employees in different construction crafts (~ 500 carpenters & laborers for B & A vs. ~ 100 concrete masons & laborers for BAC). While B & A entered into written contracts with other sub-contractors on the project, it did not enter into a written contract with BAC for concrete work. The plaintiff, Donovan Munoz, was an employee of sub-contractor BAC. He was injured on the job and filed a workers' compensation claim against his direct employer, BAC. Mr. Munoz then filed a lawsuit claiming negligence by third parties B & A and the property owner.

Applicable Law - Illinois Workers Compensation Act & the Laffoon/Ioerger Line of Cases

The Illinois’ Workers Compensation Act is the exclusive remedy for injured employees to recover from their employers. See 820 ILCS 305/5(a). However, the Act does not limit an injured employee’s tort-based recovery from a third party. See 820 ILCS 305/5(b). A construction contractor’s injured employee “may also have a cause of action against a third party to the employment relationship, such as a general contractor, whose negligence allegedly caused or contributed to the employee’s injuries.” Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill. 2d 550, 557 (2007). The Illinois Supreme Court has long held that the exclusive remedy provision only protects the injured worker’s direct employer (a sub-contractor) - even if another party (a general contractor) provides for the employee’s workers' compensation insurance. Laffoon v. Bell & Zoller Coal Co., 65 Ill. 2d 437 (1976). However, the Supreme Court recognized a very limited exception to the exclusive remedy clause in Ioerger v. Halverson Construction, Inc., 232 Ill. 2d 196 (2008). If a joint venture is formed for the purposes of completing a project, the exclusive remedy protections of the Workers Compensation Act extend to each joint venturer and to the joint venture itself. Id. at 203. The strongest, most probative evidence of a joint venture is a written agreement between the joint venture and the injured worker’s direct employer requiring the joint venture to reimburse the employer for labor costs, including workers' compensation insurance premiums.

Munoz Case Decided Under Laffoon, Not Ioerger

In Munoz, the general contractor B & A argued that Ioerger and the exclusive remedy protection applied because it owned BAC and agreed to provide workers compensation insurance for BAC’s employees on the project. The Supreme Court unequivocally ruled that B & A’s ownership of BAC was irrelevant. B & A was not in a joint venture with BAC and had no legal obligation to provide for BAC’s workers' compensation insurance. The lack of a written joint venture agreement or even a written contract - in stark contrast to B & A’s written agreements with other sub-contractors - was the crucial factor in the Court’s decision. The relationship between B & A and BAC was found to be that of general contractor and sub- contractor, respectively, and not a joint venture. As such, the Court’s Laffoon case applied. Ioerger did not. The exclusive remedy clause did not protect B & A from Mr. Munoz’ lawsuit.


Conclusion

So what can construction contractors and their insurers learn from this matter? Even if a sub-contractor is owned by the general contractor, that relationship alone is not sufficient for the general contractor to avoid lawsuits from the sub-contractor’s injured employees. For vertically integrated construction firms, this opens the possibility of the parent/general contractor paying workers compensation benefits on the front end of a workplace injury and then paying civil damages on the back end. Such firms should strongly consider shifting that risk to the subsidiary/sub-contractor by requiring the subsidiary to obtain its own workers' compensation insurance policy - just as it likely does with sub-contractors it does not own. Another viable option could be to form project-based joint ventures with the subsidiary, rather than entering into a simple sub-contract. If the written joint venture agreement requires the joint venture to reimburse the labor costs and workers' compensation insurance premiums of the subsidiary, then the general contractor/parent firm is protected by the exclusive remedy clause. Both options carry additional costs, so vertically integrated firms will need to consider the pros and cons when starting new projects.

If you need assistance in the defense of a construction-related injury, third-party civil claim, or drafting appropriate sub-contracts or joint venture agreements, please feel free to contact us to see how we can help.

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