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Avoid Falling Victim to Kotecki

Thursday, January 9, 2020

By: Kevin Palmer / Corporate Attorney

Kotecki is an Illinois appellate court decision that caps employers’ liability in third-party actions filed by its employees (i.e., injured employee sues General Contractor, then the General Contractor sues the employer for indemnification and/or contribution). 

Under Illinois Workers’ Compensation laws and the Illinois Kotecki appellate court decision, the employer’s contribution in such third-party actions is capped at the amount the employer paid to the employee in workers’ comp benefits.  Also, the workers’ comp carrier retained a lien for the amounts paid to the employee in workers’ comp benefits against any judgment the employee might receive in such a third-party suit. However, the Kotecki cap has been successfully circumvented in recent years by way of language in the Indemnification and/or Hold Harmless Provisions of contracts, wherein the employer agrees that there will be no limitation on amounts for which the employer will be responsible in the event of an employee’s third-party lawsuit.  

 Agreeing to waive your Kotecki cap can leave you in a vulnerable and precarious position, especially when different carriers issue the General Liability and Workers’ Compensation coverages.  BEWARE, however, the words “Kotecki Waiver” need not appear in the contract for you to waive your Kotecki cap.  Look for other language such as: “this indemnification shall not be limited in any way by an amount or type of damage, compensation, or benefits payable under any applicable workers compensation, disability benefits or other similar employees benefit acts.” 

 The Kotecki exposure exists when the employee’s third-party judgment against the employer exceeds the amounts paid in workers’ comp benefits.  That excess amount may not be an insured exposure and may be determined to be paid by the Insured personally (either individually or the corporation, as the case may be).  Some carriers take the position that this type of claim is covered under the employer liability portion of the workers’ comp policy.  Other carriers deny coverage for this type of claim or hide their heads in the sand, waiting for other litigation to end and the courts to make a final determination on coverage for this risk.  

 Review your indemnification provisions carefully for Kotecki waivers, since your carrier may not be one currently offering coverage. If you have questions on Kotecki and how it may affect your business, please contact us or reach out to your Horton team representative.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.