Using the Workers’ Compensation Settlement Agreement to Frustrate Third-Party Recovery: An Analysis of Armstead v. National Freight, Inc.

4.22.2021 Blog

A decision currently on appeal before the Illinois Supreme Court addresses a novel issue that may impact civil cases that also involve a workers’ compensation injury.  In Armstead v. National Freight, Inc., 2020 IL App (3d) 170777 (3rd Dist. 2020), plaintiff Clifton Armstead worked as a semi-truck driver for a Pennsylvania employer, Manfredi Mushroom Company.  While driving his work truck in Illinois, Armstead sustained injuries after a truck driven by an employee of National Freight struck his truck, allegedly while in the scope of his employment.

Armstead filed a workers’ compensation claim against his employer under the Pennsylvania Workers’ Compensation Act.  In order to defend his claim, Armstead’s employer obtained an IME opinion that found Armstead did not sustain any back injuries as a result of the truck accident.  Armstead’s employer then resolved the workers’ compensation claim with Armstead by settlement agreement.  The settlement agreement included a section where the parties were obligated to “state the precise nature of the injury.”  In response, the parties included language stating:

“Right knee strain. The parties agree that Claimant did not sustain any other injury or medical condition as a result of his 3/06/2015 work injury.”

Armstead certified the workers’ compensation settlement agreement by signature.

Armstead subsequently filed a civil action against National Freight in Illinois circuit court based on the same incident which led to his workers’ compensation claim.  In the civil claim, Armstead claimed injuries to his back, shoulder and knee as a result of the accident.

National Freight eventually filed a motion for partial summary judgment arguing the Pennsylvania workers’ compensation settlement agreement barred Armstead from recovering damages related to anything other than the right knee strain identified in that agreement.  National Freight advanced three grounds in support of this argument: 1) collateral estoppel; 2) res judicata; and (3) judicial admission. The circuit court granted the motion and found that Armstead’s statement in the workers’ compensation settlement agreement amounted to a judicial admission that bound him in the subsequent civil action.  As a result, this limited his damages associated with the potential civil recovery to his right knee strain only.  The circuit court rejected the argument based on collateral estoppel.

Armstead appealed the decision to the Illinois Appellate Court.  The Appellate Court first reversed the partial grant of summary judgment, finding the circuit court’s decision erroneous.  In response, National Freight filed a motion to reconsider.  The motion to reconsider included the argument that the Appellate Court failed to address National Freight’s argument based on collateral estoppel.

On reconsideration, while the Appellate Court did not change its position on the absence of a judicial admission, it did find collateral estoppel, barring Armstead from seeking recovery for any injury not identified in the Pennsylvania workers’ compensation settlement agreement.  In support of this decision, the Appellate Court discussed collateral estoppel in Illinois, stating:

Collateral estoppel is an equitable doctrine. Application of the doctrine precludes a party from relitigating an issue decided in a prior proceeding. Herzog v. Lexington Township, 167 Ill. 2d 288, 294 (1995). The minimum threshold requirements for the application of collateral estoppel are: (1) the issue decided in the prior adjudication is identical with the one presented in the suit in question, (2) there was a final judgment on the merits in the prior adjudication, and (3) the party against whom estoppel is asserted was a party or in privity with a party to the prior adjudication. Illinois State Chamber of Commerce v. Pollution Control Board, 78 Ill. 2d 1, 7 (1979).

Armstead v. National Freight, Inc. 2020 IL App (3d) 170777 at ¶ 23 (3rd Dist. 2020).  The Court found the first element present because it was undisputed the Pennsylvania workers’ compensation case dealt with the exact accident at issue in the civil suit and the extent of Armstead’s injuries following the motor vehicle accident.  Id. at ¶ 24.

The second element, whether the settlement agreement amounted to a final judgment on the merits in a prior adjudication, was strenuously disputed by Armstead. Armstead argued that the settlement agreement could not be considered a final judgment because it included language that “[t]his Decision is entered into without adoption or litigated determination on the merits of the matters agreed upon, and is not to alter the rights or obligations of any third party not a signatory to the Agreement (emphasis added).”  He also argued that National Freight was not permitted to use the agreement as a “sword” since the settlement agreement specifically included language stating it is “appropriately approved as binding only on the signing Parties, and limited to their respective rights and obligations under the [Pennsylvania Workers’ Compensation Act].”

The Appellate Court disagreed, noting that in Illinois, a workers’ compensation settlement contract entered by an Arbitrator equates to a final adjudication of all disputed matters.  The Court stated Armstead had every right to litigate his workers’ compensation case to the fullest extent possible but chose not to do so. The Court also reasoned Armstead conceded he suffered no other injuries in the settlement agreement besides a knee strain, and perhaps the IME doctor’s opinion he only sustained that injury led to the settlement. Id. at ¶¶ 26-30.

As for the third and final element, neither party disputed Armstead was the claimant in both the workers’ compensation and civil matters.  Consequently, the requirement of identity of party was also satisfied.  Since all three requirements of collateral estoppel were met, and the Court was unmoved by Armstead’s argument that estopping him was not equitable, the Court affirmed the circuit court’s grant of partial summary judgment on other grounds.  The Appellate Court’s November 20, 2020 Order may be accessed in full here.

On January 8, 2021, Armstead filed a Petition for Leave to Appeal with the Illinois Supreme Court.  On March 24, 2021, the Court issued an order allowing the Petition.  As such, the Illinois Supreme Court will weigh in on these issues.

Considerations Post-Armstead

In the meantime, the Armstead decision raises significant issues for both the injured worker and the employer in a workers’ compensation claim when there is a third-party recovery available. Notably, the Court’s language that Armstead had the ability to fully litigate his workers’ compensation claim, and instead opted to resolve it by settlement, may make injured workers reluctant to settle disputed cases which also involve a viable third-party claim. The IME doctor’s opinions were significantly relied upon by the Illinois Appellate Court in Armstead, raising questions as to how to address those reports and opinions with settlement contracts where there is a related civil action.

In terms of the settlement language itself, while the parties may be adversarial in the workers’ compensation action, their interests dovetail in the third-party case.  Indeed, maximizing the third-party recovery benefits both the injured worker and the workers’ compensation lien holder.  Given this alignment, when settling a workers’ compensation claim, both parties may want to consider:

  • That the settlement contract may serve as a final judgment on the merits in any subsequent civil claim sufficient to support a claim of collateral estoppel;
  • Because of that, the parties may want to exercise caution in limiting any certification by the injured worker to his or her specific injuries, erring on the side of including all areas of the body the injured worker may claim as part of the civil suit; and
  • The employer should exercise similar caution in connection with any language related to preservation of its Section 5(b) recovery, understanding that a defendant may make a similar argument vis-à-vis the employer if it is included as a party to the civil suit.

We will follow this matter as it is considered by the Illinois Supreme Court and provide updates as additional information becomes available. Until that occurs, Respondents should ensure all disputed body parts are listed on the settlement contract.

The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.