7th Circuit Certifies Important Exemption Question to Illinois Supreme Court

May Unpaid Healthcare Providers Reach Workers’ Compensation Claim Settlement?

The U.S. Court of Appeals for the Seventh Circuit recently certified to the Illinois Supreme Court an important question regarding the extent to which, following 2005 amendments to the state’s exemption laws, the proceeds of a workers’ compensation settlement remain beyond the reach of creditors—even a creditor that treated the injured worker for his or her injuries [In re Hernandez, 2019 U.S. App. LEXIS 7912 (7th Cir. Mar. 18, 2019)].

Background

Elena Hernandez filed a Chapter 7 bankruptcy petition in December 2016, showing as her only significant asset a pending workers’ compensation claim, which she valued at $31,000. She further claimed the asset was exempt from creditors’ claims under section 21 of the Illinois Workers’ Compensation Act (“the Act”), 820 Ill. Comp. Stat. 305/21 (2011), applicable via 11 U.S.C.S. § 522(b). She settled her claim two days after filing for bankruptcy, apparently for $30,566.33, without consulting the Trustee.

At the time she filed her Chapter 7 petition, Hernandez owed significant sums to three healthcare providers who treated her work-related injuries. The providers objected to her claimed exemption, arguing that 2005 amendments to the Act enabled unpaid healthcare providers to reach workers’ compensation awards and settlements, at least in some instances. The bankruptcy court denied the exemption and Hernandez appealed. The district judge affirmed, concluding that using the workers’ compensation exemption to thwart this specific class of creditors would frustrate the Act’s purpose.

Illinois Has Long Protected Claims and Awards

The 7th Circuit acknowledged that Illinois law carves out exemptions for a broad range of personal property, but added that the state’s general exemption statute made no mention of workers’ compensation claims or awards. Hernandez relied, in relevant part, on the following language:

: No payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages [820 Ill. Comp. Stat. 305/21].

Noting that a version of section 21 had been in place since the early 20th century, the 7th Circuit pointed to a line of cases that had found workers’ compensation claims and awards to be beyond the reach of creditors [see, e.g., Lasley v. Tazewell Coal Co., 223 Ill. App. 462, 463 (Ill. App. Ct. 1921)].

Is Exemption Still Affective After 2005 Amendments?

The 7th Circuit said the crux of the dispute, however, was whether the exemption applied to the claims of healthcare providers after the 2005 amendments. In those amendments, the General Assembly created a detailed schedule limiting the fees providers may charge for their services to treat job-related injuries or illnesses.

The amendments also curtailed a billing practice known as “balance billing,” whereby providers attempted to collect from an employee the remaining balance on an undisputed bill paid only partially by an employer. Except as provided in subsections (e-5), (e-10), and (e-15), the Act now bars providers from holding an employee liable for costs related to a non-disputed procedure, treatment, or service rendered in connection with a compensable injury, or billing or otherwise attempting to recover from the employee the difference between the provider’s charge and the amount paid by the employeron a compensable injury [see § 8.2(e)].

Healthcare Providers’ Argument

The healthcare providers argues that the amendments carved out an exception to the exemption in section 21 for care providers who treat an employee’s work-related injuries or illnesses. Their argument focused squarely on statutory purpose. Leaving the exemption intact, they said, would “obviate the plain meaning” of section 8.2(e-20) by placing a workers’ compensation settlement outside the reach of a specific class of creditors that the Act had gone to extraordinary lengths to protect.

Indeed, the district court agreed, holding that section 21 continued to exempt workers’ compensation claims as against general creditors, but not as against medical providers after the debtor settles the claim with the employer.

Seventh Circuit in a Quandary

The Seventh Circuit panel saw plausible arguments on both sides. The amendments constructed a payment process designed to balance the interests of healthcare providers, employees, and employers. It stressed:

Hernandez’s interpretation incentivizes strategic behavior and unquestionably undermines healthcare providers. It places the only asset that employees necessarily possess after receiving a workers’ compensation award or settlement—the award or settlement itself—beyond the reach of providers. Moreover, ensuring that providers are paid helps guarantee that employees receive care in the first place—surely a goal of the workers’ compensation regime. Applying the exemption in section 21 to the claims of care providers creates tension with the rest of the Act. It’s at least possible that Hernandez’s interpretation generates the “absurdity, inconvenience, or injustice” that Illinois law seeks to avoid [quoting .” Sylvester v. Industrial Comm’n, 197 Ill. 2d 225, 756 N.E.2d 822, 827, 258 Ill. Dec. 548 (Ill. 2001)].

The Seventh Circuit panel added that without guidance from the Illinois Supreme Court, it declined to hold, as the district court had done, that section 21 no longer blocked this class of creditors. That was one reasonable interpretation of the amended Act, but was also possible that the General Assembly’s silence on the matter meant the workers’ compensation exemption remained intact.

Specific Question

Accordingly, the Court ask the Illinois Supreme Court, in its discretion, to answer the following certified question:

After the 2005 amendments to 820 Ill. Comp. Stat. 305/8 and the enactment of 305/8.2, does section 21 of the Illinois Workers’ Compensation Act exempt the proceeds of a workers’ compensation settlement from the claims of medical-care providers who treated the illness or injury associated with that settlement?

We all await the Supreme Court’s answer to this important question.