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Settlement Reached in Surcharge Litigation

We have some good news to report on the worker’s compensation front. As many of you may recall, with the “changing of the guard” in Springfield in 2003 came the initiation of many changes to the Illinois Industrial Commission and the handling of workers’ compensation claims in Illinois. The most obvious one was a name change to what is now called the Illinois Workers’ Compensation Commission. The most significant change, however, was the hiring of more arbitrators, a new panel of Commissioners, a funding plan to pay for the new personnel, and upgrades to computer systems and IWCC facilities.

In order to pay for these changes, the Illinois legislature enacted a new law that imposed a fee on self-insured employers and insurance carriers to fund the administration of the Illinois Workers’ Compensation Commission. The fee, a 1.5% surcharge on workers’ compensation insurance premiums and a similar “payroll tax” on self-insured employers, would generate an estimated $30 million per year to fund a system that for several years had an average estimated operation cost of $12 million. Although the fee appeared to exceed the need, the State administration had a plan for the excess – push it into the “General Revenue Fund.” In other words, the money not used by the IWCC could then be tapped by the State for other programs wholly unrelated to the Illinois Workers’ Compensation system.

The Illinois Chamber of Commerce filed suit (with several other plaintiffs joining in) in Cook County in April 2004 (Illinois Chamber of Commerce v. Filan) on the basis that the surcharge constituted an unauthorized tax on Illinois employers and insurers. The suit sought to reduce the level of the fees assessed against employers and insurance carriers and to strike the provisions allowing for use of any of the collected monies by the General Revenue Fund. Six years of litigation has now resulted in a tentative $44 million settlement that in summary includes the following: (2) re-payment of IWCC loans (approximately $13 million) it had taken in the past from the General Revenue Fund to balance the Rate Adjustment Fund; (3) payment of $5 million past due and owing claims against the Rate Adjustment Fund; and (4) the balance of that settlement to fund capital improvements in the operations of the IWCC, all of which are subject to approval by the Cook County Circuit Court before the funds are used. (1) $3 million to serve as partial refunds to employers on a pro rata basis for the surcharges the employers paid.

The refund is not the true benefit to employers and insurance carriers from the lawsuit. Shortly after the lawsuit was filed, the Illinois legislature amended the revenue act by decreasing the surcharge percentages to 1.01% of workers’ compensation insurance premiums collected by insurance carriers and 0.0075% of payroll for self-insured employers, which should bring the collected surcharges more in line with the operating costs for the IWCC. We commend the Illinois Chamber of Commerce for taking on and maintaining this challenge for the past several years. If you would like to read more about the lawsuit and the settlement, and learn how you can apply for a possible refund of the tax, please visit the Illinois Chamber of Commerce website, which you can link from our website, or go to the Illinois Workers’ Compensation Commission website and click on the link about the lawsuit to read a copy of the settlement documents.

The Court has set June 1, 2010 as a deadline for employers seeking to claim reimbursement for the excess funds they paid to the State pursuant to the Operations Surcharge Fund. Per the Court’s order, you can find out how to apply and obtain an application form on the Commission website. A copy of the Consent Decree can also be viewed at the Commission website, under a heading of “Settlement of Surcharge Litigation” in blue under the listing of the Commission panel members. The Claim form and information on submission of a claim starts at page 43 of the document. Objections to the Plan, or a desire to opt out of the class, must also be filed with the Circuit Court of Cook County by June 1, 2010, and the procedure is described in the Consent Decree.

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