Illinois Department of Insurance Cannot Decide Owner-Operator Employment Dispute, Appeals Court Rules

The Illinois Department of Insurance cannot adjudicate employment status disputes relating to insurance premium calculations. That is the ruling from the Illinois First District Court of Appeals in a significant decision with ramifications for trucking companies utilizing owner-operator agreements.

The case, CAT Express, Inc. v. Muriel, 2019 IL App (1st) 181851, concerned whether truck drivers retained under an owner-operator agreement are employees or independent contractors for the purpose of workers’ compensation insurance. CAT Express (“CAT”), an Illinois based trucking company, applied for workers’ compensation insurance through the Illinois Assigned Risk Plan. In its application, it identified six clerical employees to be covered by the workers’ compensation insurance. Liberty Mutual was assigned as the insurance carrier and issued a policy. It later conducted a premiums audit and determined that CAT’s 40 owner-operator truck drivers, who were not identified in CAT’s application, were not independent contractors as CAT had asserted, but were instead “employees” covered by Liberty’s workers’ compensation policy. After the audit, Liberty increased the premium to account for the truck drivers. The premium, originally set at $1,200, skyrocketed to $356,000.

CAT appealed the increased premium to the Department of Insurance, which determined that Liberty correctly classified the owner-operators as employees. The Cook County Circuit Court affirmed the Department of Insurance ruling, which prompted CAT to appeal to the First District Court of Appeals. The parties briefed the court on the employee versus independent contractor issue, but the First District had a different concern. It ordered the parties to submit supplemental briefs on the issue of whether the Department of Insurance even had authority to resolve the parties’ dispute.

All parties agreed that the Department did, in fact, have such authority. They pointed primarily to Section 401(c) of the Illinois Insurance Code, which allows the Department to conduct investigations and hearings “as may be necessary and proper for the efficient administration of the insurance laws…” In quickly rejecting the parties’ position, the Court observed that none of the parties argued “how an employment status and premium dispute between an insurer and an insured involved ‘the efficient administration of the insurance laws…’” Instead, the Court held, the “Insurance Code does not vest the Director with express or implied authority to make factual determinations regarding the scope of coverage under any contract of insurance.”

The Court also rejected the parties’ argument that Section 462 of the Insurance Code authorized the Department of Insurance to adjudicate the dispute. Section 462 requires a rating agency to provide insureds with certain information about how the rating system calculated an insurance premium. If an insured disputes the application of the rating system, it may appeal to the Department of Insurance. But the Court found that CAT did not dispute the application of the rating system used to determine its premium; it disputed Liberty Mutual’s determination that its owner-operator drivers were employees and thus part of the number of employees to which the rating system applied.

The Court closed by observing that employer-employee relationships are “frequently decided in declaratory judgment actions in circuit courts.” Trucking companies utilizing owner-operator agreements may therefore soon find themselves named in declaratory judgment actions.

  • Adam S. McGonigle

    Adam S. McGonigle is an experienced trial attorney who focuses his practice on defending individuals, businesses, and insurers in cases involving automobile and truck accidents, products and premises liability, insurance ...

  • Michael  Reda

    Michael Reda has over 40 years of experience in tort litigation. He has tried scores of civil jury trials in state and federal courts in Illinois and Missouri representing insured and self-insured entities, including cases ...

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