Trial News

The Illinois Supreme Court has ruled that a workers’ compensation settlement is exempt from claims for payment from medical providers who treated the illness or injury associated with the settlement regardless of 2005 amendments to the state’s workers’ comp law that allows providers to seek payment for unpaid treatment and services. The amendments do not affect a provision in the statute that protects these settlements from being sources of payment to the providers, including in bankruptcy proceedings. (In re Elena Hernandez, 2020 WL 398783 (Ill. Jan. 24, 2020).)

Elena Hernandez was injured at work and received medical care from three different health care providers. Several years later, she filed for Chapter 7 bankruptcy in Illinois federal court, and among her listed debts was more than $100,000 owed to the providers who treated her. Her minimal assets included a pending workers’ comp claim for approximately $31,000. When the settlement was finalized, Hernandez did not report it to the bankruptcy trustee because she believed the settlement was exempt under §21 of the Illinois Workers’ Compensation Act. Section 21 states that “no payment, claim, award or decision under this Act shall be assignable or subject to any lien, debt, penalty or damages.”

The health care providers, however, argued to the bankruptcy court that the settlement was not exempt after amendments to the statute in 2005. The bankruptcy court agreed, but it did so for procedural reasons related to notice rather than a substantive ruling on what the exemption encompasses. The plaintiff appealed to the Northern District of Illinois, which held that the 2005 amendments “significantly altered” the statute regarding health care providers because it limited what providers could charge for treatment in exchange for allowing them to seek payment from a plaintiff.

The plaintiff appealed to the Seventh Circuit, which certified to the Illinois Supreme Court the question of whether the 2005 amendments changed the statute to allow health care providers to access workers’ comp settlements in bankruptcy. In its analysis, the state supreme court explained that §552(b) of the federal bankruptcy code allows debtors to exempt certain property from their bankruptcy estate and that the code establishes what property falls within this exemption.

However, the code also allows states to opt out of the federal exemption guidelines and create their own—which Illinois has done. In Illinois, “any property that the legislature has identified and declared to be free from liability to processes such as seizure and sale, or attachment, to satisfy debts” may be exempt. And this is not limited to property outlined in the state’s Code of Civil Procedure—it can be property that satisfies this definition in any state law, such as the workers’ comp statute. The court noted that “the critical inquiry is simply whether the provision unequivocally protects the identified property against all forms of collection.” In Hernandez’s case, the court reasoned, §21 of the workers’ comp statute is unambiguous and protects a settlement from collection.

Turning next to the 2005 amendments, the court focused on the plain language of the statute and whether the amendments altered the exemption. The Illinois legislature has enacted only two specific exemptions—one related to pensions and the other to child support—to §21 that allow a workers’ comp settlement to be assigned or garnished. In contrast, the 2005 amendments were made to a different section of the statute that deals with the amount of compensation owed to employees. The amendments set forth fee schedules limiting what health care providers can charge and what employers would owe for and employee’s treatment.

The court rejected the health care providers’ argument that the exemption is implicit in these amendments because otherwise they could not reasonably collect payments for treatment if workers’ comp settlements were inaccessible. The amendments do not directly exempt workers’ comp settlements from protection in bankruptcy, and if the legislature intended for such an exemption to alter the longstanding protections in §21, it could have expressly provided for such in the amendments.

The only relevant portion of the amendments, the court noted, is one that allows health care providers to resume seeking payment of debts once an employer and employee have reached a final settlement. But this does not extend to the workers’ comp settlement as the source of that payment. Instead, the health care providers must seek payment from other assets that a plaintiff may have.

On Feb. 11, the Seventh Circuit reversed its earlier decision in light of the Illinois Supreme Court’s “dispositive” ruling and held that the plaintiff’s workers’ comp settlement is exempt from the health care providers’ claims.

Chicago attorney Richard Grossman, who represents the plaintiff, said, “§21 has functioned as an exemption for the proceeds of workers’ compensation claims under Illinois law for over 100 years. Every court to encounter the issue has treated §21 as such. There is nothing in the legislative history of the act that militates in favor of implying an exception to the clear command of §21. The 2005 amendments are not rendered meaningless if there is no exception for medical providers under §21. The amendments can coexist with §21. The providers can get judgments against defaulting employees—they just can’t collect from the proceeds of workers’ compensation claims. What the text of the 2005 amendments and the legislative history reveal is that the amendments represented a 20-year-long effort to balance the interests of employers, employees, insurance companies, and medical providers with a view toward making the whole compensation system more efficient and less expensive.”

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