LM Insurance Corp. v. B&R Insurance Partners, LLC
68 N.E.3d 499
| Ill. App. Ct. | 2016Background
- B&R Insurance Partners (B&R), a licensed employee-leasing/PEO, entered co‑employment agreements with Southern Illinois Workers, Inc. (SIW) and Speed SEJA School District 802 under which B&R agreed to obtain workers’ compensation insurance and perform certain employer functions, while the clients retained day‑to‑day operational control and payroll.
- B&R applied to the Illinois Workers’ Compensation Insurance Plan; LM Insurance (a servicing carrier) issued a policy (Oct 3, 2013–Oct 3, 2014) naming B&R as insured and attaching employee‑leasing endorsements listing clients (School District listed; SIW omitted).
- Several client employees suffered workplace injuries in October 2013 and filed claims with the Illinois Workers’ Compensation Commission; B&R tendered defense to LM.
- After audit, LM concluded B&R had no payroll for client employees, cancelled the policy (effective Dec 13, 2013), refunded premium, and retroactively removed client endorsements; LM then filed a declaratory judgment action seeking (1) no duty to defend/indemnify and (2) rescission for misrepresentation.
- The trial court held B&R met the Employee Leasing Company Act definition and ordered LM to defend and indemnify; LM appealed. The appellate court affirmed duty to defend, reversed the indemnity and rescission rulings, and remanded for further proceedings.
Issues
| Issue | LM's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Duty to defend tendered workers’ compensation claims | No coverage because B&R had no employees/lessor relationship; endorsements properly removed | Endorsements follow Employee Leasing Company Act language; B&R’s co‑employment arrangements suffice | Affirmed: LM has a duty to defend before the Commission (claims potentially within policy) |
| Duty to indemnify if claimants found liable | No indemnity because B&R was not employer/lessor; genuine fact issues about whether B&R leased employees | Co‑employer status and employee‑leasing endorsement create coverage; indemnity follows if Commission assigns liability | Reversed: indemnity determination premature — must await Commission’s final determination of employer liability |
| Validity of LM’s retroactive endorsement removals and rescission claim | Policy rescission appropriate for material misrepresentation; audit shows no leased employees, so endorsements rightly removed | B&R’s licensing and contractual co‑employment establish employee‑leasing status; no misrepresentation | Reversed: summary judgment for defendants on rescission improper; factual issues remain whether B&R misrepresented leasing status |
| Interpretation of “employee leasing arrangement”/who is an employer | Term requires that lessee obtain workers from lessor; LM reads “obtain” narrowly and stresses payroll/possession | Defendants read statutory definitions and co‑employment duties to satisfy endorsement language | Court: questions of facts and Commission expertise control employer status; endorsement interpretation not resolved for rescission/indemnity on summary judgment |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (policy duty to defend where claim potentially within coverage)
- Roberson v. Industrial Comm’n, 225 Ill. 2d 159 (Workers’ Compensation Commission as primary decisionmaker on employment‑related questions)
- Keating v. 68th & Paxton, L.L.C., 401 Ill. App. 3d 456 (Commission’s exclusive expertise over existence of employment relationship)
- Corrugated Metals, Inc. v. Industrial Comm’n, 184 Ill. App. 3d 549 (Commission decides primary/secondary employer liability)