Workers’ comp lawsuit complicated by trucking company merger

An Illinois appellate court determined that a company is obligated to give a trucker a workers’ comp payout after it merged with another company.

On Sept. 5, a state appellate court in the First District of Illinois upheld a lower court’s decision that determined Tim Witte, a trucker, was covered through Ace Insurance Co.’s workers’ compensation insurance policy. The complicated case stems from an injury that occurred shortly after a merger, leaving the question of who is responsible for the payout. The new policy or the existing policy from the acquired company?

Illinois Insurance Guaranty Fund v. Priority Transportation

Witte was a trucker for Fox Midwest Transport, which had a workers’ comp policy though Fremont Casualty Insurance Co.  from March 1999 to March 2000. Fox Midwest eventually merged into 1999 TFT Merger Sub, a subsidiary of Transit Group, in December 1999. Transit Group, which would later become Priority Transportation, had its workers’ comp policy through Ace Insurance Co. from January 2000 to January 2001.

Witte was injured on the job in January 2000 after slipping on ice. Subsequently, he filed for workers’ comp. Fremont paid Witte those benefits until July 2003. After that, the company was involuntarily liquidated by the state, according to court documents. Illinois Insurance Guaranty Fund stepped up to the plate after Fremont and paid Witte’s benefits since then.

According to its website, Illinois Insurance Guaranty Fund provides protection to the policyholders and claimants of insolvent insurance companies. It is a nonprofit organization created by statute in 1971. Essentially, it is a source of last resort that workers can turn to after exhausting all possible solutions.

Illinois Insurance eventually sued Priority Transportation, Transit Group, Witte and Ace. The state fund argued that the merger made Transit Group entities Witte’s employer. Consequently, Priority Transport should be responsible for his workers’ comp benefits through Ace.

In its counterargument, Transit Group argued that the circuit court had no jurisdiction in the matter. Its argument was not based on the merits of Illinois Insurance’s claim. Rather, the company tried to get the case dismissed on a jurisdiction technicality.

Who covers worker’s comp after a merger?

That question was the crux of the case and could not be easily answered.

Paul Kostelac, former vice president of risk management at Transit Group, attempted to explain what happened in his deposition.

“If we had a situation – and I’m not saying this was the case in Fox Midwest, but it might have been – if we had a situation where we acquired a company and within a relatively short time the policy was expiring anyway, why not just let it run its term and be done with it,” Kostelac said. “The premiums have already been paid and so on. So I suspect that’s what we did with Fox Midwest. I don’t know that, but it kind of seems like that’s what we did.”

Fred Angley, an account executive with Energy Insurance Brokers, helped with the transition. According to court documents, Angley would add the acquisition as an additional insured to the existing policy. However, he stated that this would not necessarily occur on the same date of the acquisition.

Explaining why that was the case for Fox Midwest, Angley speculated it could have been because of the Fremont workers’ comp policy that existed at the time. Angley pointed out that if a new acquisition was automatically covered by a policy, the insurance provider would be disadvantaged by having liability exposure to an entity it knew nothing about.

After reviewing documents, Angley agreed that he did not add Fox Midwest to the Ace policy before March 2000.

Two other insurance brokers involved confirmed that they would not have added an acquired company to an existing workers’ comp policy right away to avoid duplicate coverage.

With that established, the argument then became a question of who Witte worked for at the time of the injury. Although Transit Group acquired Fox Midwest in December 1999, Fox Midwest employees continued to receive pay stubs and tax forms under Fox Midwest. Therefore, Transit Group argued, Witte was an employee of Fox Midwest and not Transit Group.

On the other hand, Illinois Insurance argued that once Fox Midwest was acquired, it ceased to exist. Thus, Witte could not legally be an employee of a company that no longer exists. Despite Fremont’s workers’ comp policy still active at the time, Fox Midwest could not have been insured since that name had been dissolved.

At the very least, Illinois Insurance argued, Witte could be considered to have had dual coverage. In that case, responsibilities should be split evenly between Fremont and Ace.

The circuit court determined that on the date of Witte’s injury, Fox Midwest “no longer existed” as it had “been entirely subsumed into Transit Group,” who inherited “all rights, responsibilities, and liabilities of Fox Midwest,” including the employment of Witte.

Furthermore, the court observed that Transit Group was the named insured on the Ace policy. Therefore, the Ace policy covered Witte’s workplace accident. The appellate court affirmed.