7-19-2011; Did IL WC Fraud just fall into a judicial “black hole”—the First District Appellate Court issues one of the most confusing rulings we can remember. Is the WC Commission going...

In 2005, the Illinois Workers’ Compensation Act was amended to actually give WC fraud-busting some teeth. Employers were lead to believe the creation of the new WC Fraud Investigation Unit would lead to a crackdown on perceived egregious abuses of our system. Little did we all realize investigations would bog down at the state’s attorney level. What was happening was the vast majority of complaints filed at the IDFPR investigation unit were being investigated and then stagnated with the few cases being referred out for prosecution dying a slow death waiting for prosecutors to do anything.

Fast forward six years and we see the recent state scandals down south throwing WC fraud-busting back under public scrutiny. This article is not going to address whether we believe there was fraud in those cases or not, we have previously affirmed our suspicion nothing overtly illegal was ever happening in the recent Menard correctional facility shenanigans. That said, it is clear from the further modifications to the WC fraud provisions of the IL WC Act in the recent overhaul that WC fraud was and is a consistent concern for employers. A recent decision by the First District Appellate Court throws some light and lots of confusion on how to handle an IL WC fraud complaint. We present the following to serve as a primer for handling WC fraud issues in Illinois.

Off the bat, we would like to present a distinction – hard fraud vs. soft fraud. In our parlance, ‘hard fraud’ is the kind of thing we think should be routinely actionable – the “gotcha” – for example, catching an injured worker working full time while seeking TTD, or having proof someone injured themselves on the weekend and then came in to work on  a Monday and manufactured a faked accident. This kind of behavior is exactly what our legislators were considering when they beefed up the fraud provisions of the WC Act recently to classify some instances of this behavior as Class 1 and 2 felonies. ‘Soft fraud’ on the other hand can be better described as malingering or symptom magnification. While at times just as infuriating as hard fraud, these issues are much more subjective and are the kind of thing which are far more difficult to classify as actual fraud. We think the Commission can readily deal with soft fraud and the civil and criminal courts should deal with the true scammers.

The Commission has historically not had the power to address WC fraud. Until last week, the Commission also lacked jurisdiction to determine what was WC fraud. Michelson v. Industrial Commission, Alvarado v. Industrial Commission. In the 90’s the Appellate Court confirmed the Commission was “well qualified to resolve issues involving fraud in connection with an allegedly work-related injury.” Roadside Auto Body v. Miller. While that legal posture remained the law in this state, the Commission had no legislative power to remedy WC fraud. We note this directly contradicts how the Commission viewed itself as late as December 2010 when it stated “[t]he Commission does not have jurisdiction to determine what, if any, fraud was committed; that issue is the jurisdiction of another tribunal. Charmella L. Leviege, Petitioner, 07 IL.W.C. 51713 (Ill. Indus. Com'n Dec. 28, 2010). Case law from the IWCC in 2002 clearly indicated WC fraud should be handled in the circuit courts, most easily seen by the following quote: “If, as suggested by Respondent, there is evidence of fraud, civil and criminal remedies are available to pursue a claim of fraud.” Tim Johnson, Petitioner, 02 I.I.C. 0187 (Ill. Indus. Com'n Mar. 11, 2002).

In 2005 the Illinois Workers’ Compensation Act was amended to include Sections 25.5 (a) through (g) which set forth WC fraud provisions and the criminal penalties for violating those provisions including convictions for Class 4 felonies and restitution. Please note the Commission doesn’t have the power to handle criminal issues such as convictions and restitution—such issues are clearly to be handled in the criminal courts by criminal judges and, where appropriate, juries. Once that provision went into effect, a slew of tactics went into play based on the statutory inclusion of restitution. While restitution was added to the Act, ultimately, the Commission was found to not have the power to grant restitution and this remedy was relegated to the courts only, consistent with prior case law. Based on these rulings following the 2005 amendments, many suits for common law fraud were filed in the circuit courts, alleging violations of Section 25.5 in addition to various claims for common law fraud and for statutory claims involving insurance fraud. Many of these claims were magically stayed by the courts or basically put on “hold” until the underlying workers compensation claims were resolved by the IWCC. That was where we stood until a  few weeks ago.

Can all claims for WC fraud now be in the sole hands of our IWCC? What will that mean since they can’t award damages?

In Country Insurance and Financial Services v. Timothy B. Roberts, No. 1-10-3402, decided on June 30, 2011, the First District Illinois Appellate Court ruled, in essence, when a claimant files an Application for Adjustment of Claim, no matter how fraudulent the claim might be, all cases which stem from the seeking of such benefits must be handled to ‘completion’ before the IWCC. From our review of the complaint, it appears claimant was caught working while on TTD—this is a clear instance of what we call ‘hard fraud’ above. In such a setting, if claimant clearly committed WC fraud, we feel there should be civil and/or criminal penalties.

The insurance carrier filed a four-count complaint against Defendant Roberts alleging various of fraud including

·         Fraudulent misrepresentation;

·         Insurance fraud which is based on a statute other than the WC Act;

·         WC fraud pursuant to the Workers’ Compensation Act; and

·         Fraudulent concealment.

Country Insurance, as Plaintiff, sought to recoup its costs including the TTD benefits it had paid to Roberts as well as the medical benefits Roberts received, and the attorney’s fees and costs of bringing the suit.

The Circuit Court dismissed the claim on motion—their analysis technically assumes Defendant committed the fraudulent acts. The insurance carrier appealed. In its decision, the Appellate Court stated since Petitioner’s “application for adjustment of claim remains pending before the Commission, the Commission has not yet made any findings or rulings as to whether Roberts was entitled to receive any benefits under the Act. The complaint, premised on various theories of fraud, presents questions of fact … which the Commission can draw on their special expertise to answer.”

There are so many problems with this concept, it is hard to tell where to start. When we teach law students, we always tell them rights, duties and benefits considered by the IWCC are workers’ comp benefits for injured workers only. Numerous rulings so hold. We point out the landmark ruling in Kelsay v. Motorola involved a claim for retaliatory discharge allegedly due to the filing of a WC application—instead of leaving that issue to the circuit courts, the Supreme Court could have left the claim in the IWCC. In the recent ruling in Grabs v. Safeway, the Circuit and Appellate Courts were dealing with issues relating to IME’s and termination that are clearly WC issues—no one at the appellate level felt that issue couldn’t result in civil damages. No one in our state questions such claims are to be heard in the circuit courts. All of such claims involve preliminary facts that could be first determined by the Commission.

Please note all WC claims do not include attorneys and they are not all filed at the IWCC—it is just as possible a non-litigated WC claim could involve fraud. Therefore, we also point out this ruling creates the incongruous situation in which an employer could sue a claimant with clear evidence of WC fraud prior to an Application for Adjustment of Claim being filed. Solely to seek dismissal of the fraud complaint, claimant could simply file an Application and then move to dismiss the claim, asserting the IWCC now had sole jurisdiction of the matter.

Whatever happens, this ruling puts ‘control’ of the disposition of the WC fraud claim in the sole hands of the bad guy/gal because it is so hard to get some Arbitrators to hear and dispose of claims if claimant’s attorney doesn’t want to do anything.

We feel this ruling is going to put even more pressure on our beleaguered Arbitrators who do not have the security of the civil courts to protect them from scam-artists. Most Arbitrators who get wind of a WC fraud situation are not going to want to jump into the fray to decide a nasty claim and counterclaim. Please note it is also a possibility the IWCC will not hear a WC fraud claim and rely on lots of precedent to “Ping-Pong” the issue back to the civil courts or appellate court.

Understanding how this is going to move WC fraud into a “black hole.”

We also point out WC fraud complaints can be structured around the Insurance Fraud Act or common law fraud. All of them seek damages. The Arbitrators and Commissioners are not trained to nor does the WC Act confer them with the power to assess common law damages. Please also note decisions of the Commission are not collectible as circuit court judgments. The judicial “black hole” will be caused when and if a decision finds a claimant committed WC fraud and the employer can’t collect a dime based on the decision of the Commission.

On a similar note, should the Arbitrators and Commissioners hear criminal complaints involving WC fraud also? This ruling says they have “exclusive jurisdiction” of all issues arising from a workers’ compensation claim.

Please also understand any ruling by the IWCC for WC fraud may then move to the five-member Workers’ Compensation Division of the Appellate Court who could completely contradict the ruling of the First District Appellate Court. All of this will clearly take years for the courts to figure out. In the meantime, the con artists and scammers in this state can continue to steal and defraud in our workers’ compensation system without fear of retribution.

The way we see it currently, in the First Appellate District which is Cook County, only employers may be able to pursue any civil claim for workers’ comp fraud only where an Application for Adjustment of Claim has not been filed or when the IWCC award or settlement has become final. What this means is when an Application has been filed, the WC fraud complaint has to be filed at the IWCC and the Commission will have to award damages.

This article was researched and written by Arik D. Hetue, J.D and Eugene F. Keefe, J.D. If you have thoughts and comments, please send a reply to ahetue@keefe-law.com, or post them later today on the blog at www.keefe-law.com/blog.