Hepler Broom, LLC

JAWS: Crucial Kotecki Ramifications Continue to Lurk Beneath the Surface in Construction Site Cases

December 17, 2019

In Woods v. Amazon.com LLC and Johnson v. Amazon.com LLC, 2019 WL 2504093 (2019) & 2019 WL 2509122 (2019), respectively, two individuals, Andrew Woods and Michael Johnson (“Plaintiffs”) brought separate, but related personal injury actions against Amazon.com, LLC (“Amazon”), Duke Realty, LP (“Duke”) and Steel King Industries, Inc. (“Steel King”) (collectively, the “Defendants”). Defendants brought third-party contribution claims against Plaintiffs’ employer, Lakeside Rack Installer, Inc. (“Lakeside”).

Both Plaintiffs suffered serious injuries when a forklift driver, employed by Lakeside, caused a steel shelving rack to collapse on them within a newly-constructed Amazon warehouse. Each Plaintiff alleged the structure collapse stemmed from the failure to bolt several racks to the cement floor of the warehouse immediately after installation, as required by project safety standards. Unfortunately, the facts suggest the crew tasked with bolting the racks missed (or skipped) an important step once pressed to step up work load to meet project deadlines.

Lakeside subcontracted installation work on the racks from their manufacturer, Steel King. Amazon hired Steel King to supply and install the racks at the warehouse, which was owned and developed by Duke. The third-party complaint (filed by Steel King against Lakeside) alleged that, by the terms of the purchase order applicable to Lakeside’s work, Lakeside waived the work comp system damages limitation it may have otherwise been entitled to under Illinois law. In support, Steel King attached the purchase order that contained an indemnity provision in which Lakeside agreed to “indemnify, defend, and hold harmless,” Steel King “from and against any claim, liability, loss, damage, lien, judgment…and cost, including attorneys’ fees and litigation expenses, arising out of…[Lakeside’s] failure to comply with any of its obligations under [the purchase order.]”

Lakeside moved to dismiss Steel King’s claims, arguing, in part, that the purchase order language did not explicitly waive Lakeside’s rights under Illinois law to limit its contribution liability for workplace injuries to the amount Lakeside is liable for workers’ compensation.

The Northern District, applying Illinois law, explained an “employer’s contribution liability is generally limited to the employer’s liability under the Illinois Workers’ Compensation Act. Kotecki v. Cyclops Welding Corp., 585 N.E.2d 1023, 1028 (Ill. 1991). In other words, an employer’s liability is generally capped by its liability for workers’ compensation benefits – known commonly as the “Kotecki cap.” With certain language, however, Illinois courts have (since 1997) concluded that indemnification provisions can result in a waiver of that “cap.” Braye v. Acher-Daniels-Midland Co., 175 Ill.2d 201 (1997).

But what language suffices for a Kotecki waiver is not entirely defined, and has been the subject of much case-by-case analysis over the years – and in Johnson/Woods, the Northern District of Illinois did not seek to break any ties in that regard.

In Braye v. Acher-Daniels-Midland Co., supra, the court concluded that a waiver was feasible and not against public policy, but did not have before it the question of whether the language at issue constituted such a waiver. Eight years following the Braye decision, in 2005, an indemnification provision resulted in a waiver of the right to limit contribution liability where an employer agreed to indemnify a potential joint tortfeasor for injuries “caused in whole or in part by the employer without regard to workers’ compensation acts.” Estate of Willis v. Kiferbaum Constr. Corp., 830 N.E.2d 636, 641 (Ill. App. 2005). Other cases have not required such a specific reference to workers’ compensation law in the parties’ indemnification agreement for waiver to result if the indemnification provision was otherwise deemed “sufficiently broad.”

One must still take care not to be too broad, of course, lest the indemnity provision risk violating the Illinois Anti-Indemnity Act – thereby becoming unenforceable and ineffective either to waive Illinois’ limit on contribution liability, or to otherwise secure indemnity in construction. Burke v. John Maneely Co., 2016 WL 454330, at 4-6* (N.D. Ill. 2016) (citing the Illinois Construction Contract Indemnification for Negligence Act, evaluating whether indemnity provision language required an employer to indemnify another for the other’s own negligence, thereby violating the Act.)

In the instant Johnson/Woods matters, the Court denied Lakeside’s motion to dismiss, holding that it was premature to determine whether the alleged indemnification provision applied in this case or resulted in a waiver of limits on contribution liability without knowing whether Plaintiffs’ injuries arose out of Lakeside’s failure to comply with the Steel King purchase order or some other cause, unrelated to the purchase order (i.e., Amazon’s unsafe scheduling directives and or the work crews’ subsequent negligence in not bolting down the shelving structure, etc.).

No other dispositive motions were filed by any party and the case ultimately proceeded to a jury trial. Shortly before voir dire, Plaintiffs and Lakeside settled for $861,000. Five days after the commencement of the trial, Amazon, Duke, and Steel King agreed to pay an additional $19.1 million to settle the lawsuits.

Without a published opinion or further detail, it is unclear what evidence was uncovered through discovery. If the evidence demonstrated Lakeside’s compliance with the purchase order, Kotecki and its progeny would have likely shielded Lakeside from paying any more than what it owed in workers’ compensation benefits to Plaintiffs. If, however, a breach of the purchase order was found, Lakeside’s exposure would have opened up to sharing, potentially jointly and severally, in the nearly $20 million settlement, or an even higher verdict award. Considering Lakeside was the first to settle – and settled for the amount it did, it is more likely than not that there was evidence that Lakeside had, in some fashion, violated the purchase order. As such, Lakeside made the calculated determination to mitigate risk and settle before trial; and the plaintiffs made the calculated decisions that pressured the direct defendants.

These considerations, along with corresponding insurance coverage ramifications, are the underlying leverage that ultimately determine the outcomes of construction site negligence cases. Nearly 30 years since the doctrine was established, these cases, and the especially polarizing potential outcomes, demonstrate the continued impact of Kotecki caps and consequent waivers. The current case precedent illustrates the case-specific inquiries with which Illinois courts have evaluated Kotecki issues. Some courts find the broad indemnity provisions to clearly waive the cap protections, while other courts believe there must be explicit specificity in regard to a workers’ compensation waiver. The swing of the pendulum does not favor one side over the other. Accordingly, from contract drafting and negotiation, through project oversight and completion of work, it is imperative that all entities involved in the construction industry remain cognizant of the magnitude of Kotecki ramifications.

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