The New Rules for Civil Settlement in Illinois: What Defendants and Insurers Need to Know

On August 26, 2013, Governor Quinn signed into law Public Act 098-0548, which amends the Illinois Code of Civil Procedure, and creates a new statutory section addressing settlements and liens in civil cases. The new statute, 735 ILCS 5/2-2301 (“Section 2301”), provides deadlines for exchanging settlement documents and payment after a civil matter is settled. Notably, the section imposes penalties upon defendants, including the entry of judgment and costs, if the defendant does not provide the settlement draft within 30 days of receipt of certain settlement documents. Defendants and insurance carriers should be aware of the new law, its potential effects and how to protect themselves moving forward. The statute goes into effect on January 1, 2014.

Section 2301 applies to settlements reached in cases involving personal injury, property damage, wrongful death, or tort actions involving claims for money damages. The statute does not apply to certain entities, such as the State of Illinois, state agencies, state employees, municipalities and local governments. Additionally, the statute does not apply to class action lawsuits.

Section 2301 requires a settling defendant to tender a release to the plaintiff within 14 days of written confirmation of the settlement. Written confirmation includes all communication by written means (presumably including email). “Tender” is defined as “personal delivery or delivery by a means providing a return receipt.” The section further provides that in any such action where “the law requires court approval of a settlement, the plaintiff shall tender to the defendant a copy of the court order approving the settlement.”

Significantly, a defendant is now required to pay all sums due to the plaintiff within 30 days after plaintiff tenders certain settlement documents. These include the executed release, copy of the order approving settlement (if applicable), as well as signed releases of liens or other writings addressing the handling of liens. The rule provides that if – after a hearing – a court finds that timely payment has not been made by a defendant, “judgment shall be entered against that defendant for the amount set forth in the executed release, plus costs incurred in obtaining the judgment,” plus interest, calculated from the date of the tender. In theory, under this provision, if a defendant provided the settlement draft one day after the 30 day deadline, 31 days’ interest is added to the settlement amount.

Interestingly, while the statute imposes deadlines upon the defendants, no deadlines for the execution of signed releases and other documents are imposed upon the plaintiff. This allows the plaintiff a large degree of control as to the timing of steps necessary to conclude a settlement. For example, if a settlement requires court approval, or if a lien-adjudication hearing is necessary, the plaintiff has no deadline to schedule these hearings. If additional time is necessary to negotiate with a lien holder, the plaintiff has no deadline to complete these negotiations.

The statute also addresses liens and other third-party rights of recovery or subrogation interests. Section 2301 defines these type of third-party interests to include attorney’s liens, healthcare provider liens, or rights of recovery claimed by Medicare, the Centers for Medicare and Medicaid Services. While the statute is clear that an executed release and executed release of attorney’s lien are documents that must be tendered to the defendant, Section 2301 presents several options for the protection of a lien-holder’s interests, providing that a plaintiff may provide the defendants with (i) a signed release of healthcare provider lien; (ii) a letter from plaintiff’s counsel agreeing to hold the full amount claimed in lien until final resolution of lien amount; (iii) an offer that the defendant hold the full amount of the right of recovery; or (iv) documentation of other methods to resolve the lien as agreed by the parties. It appears based on the language of the statute that plaintiff may elect which of the foregoing avenues to pursue. Similarly, Section 2301 addresses CMS regulations, Medicare Set-Asides (MSAs) and Medicare’s interests, allowing the plaintiff the option of tendering the following documentation to a defendant: (i) an agreement between plaintiff and Medicare as to how the lien is handled; (ii) a letter from plaintiff’s counsel agreeing to hold the full amount claimed in lien until final resolution of lien amount; (iii) an offer that the defendant hold the full amount of the right of recovery; or (iv) documentation of other methods to resolve the lien as agreed by the parties.

Certain information is often required by defendants/insurers prior to issuing payment to plaintiff. For example, an executed release of all claims, a tax identification number and/or a W9, a signed release of any liens, and proper documentation from Medicare regarding any MSA or satisfaction of Medicare’s lien are often requested by the defense when a settlement is reached in a civil case. In light of Section 2301’s provisions that a plaintiff may provide certain documents to a defendant, it is critical that the defense in a civil settlement make clear what documents it requires to execute payment. A prudent defendant will request – in writing – those documents it needs early on in the process, and preferably before a settlement is reached. If, while wrapping up a settlement, a defendant does not believe that a plaintiff has submitted all of the necessary documentation or that the documentation is insufficient, plaintiff’s counsel should be advised in writing what documents or information is still required prior to making payment. That writing should also advise that the plaintiff has not complied with the statute, and that the 30 -day deadline has not began to run. Several scenarios may arise where a plaintiff’s attorney and defense attorney disagree on the sufficiency of the documentation tendered to defendants, and thus, when the 30-day deadline to provide the settlement payment has been triggered.

Additionally, where disagreements arise, defendants should immediately file a Motion to Enforce Settlement or a Motion to Compel production of the settlement documents. If the court denies the motion, the Order should recite the judge’s specific findings so that a defendant can tender the settlement check to avoid any further penalties under Section 2301 while also protecting itself from lien holders. If a settlement has been reached, and Medicare has not provided its lien amount or MSA, judicial intervention may also be necessary. Contacting Medicare early in a case will certainly become a larger priority than it already is. Other issues may arise if the settlement is structured or if the settlement must be allocated to multiple plaintiffs or amongst various types of damages. Because the statute is silent as to these specific issues, the settling defendant should include all such conditions and terms in the release. Thus, the statutory 30 days to provide the final settlement draft will not begin to run until the release is signed, and this will prevent defendants from missing the 30-day deadline due to disagreements over details in the settlement.

Ostensibly, one purpose behind the passage of Section 2301 was to speed along the conclusion of settlements in a civil case. Ironically however, the statute may lead to an increase in motion practice relating to settlements. Defense counsel should be prepared to file the necessary motions when applicable to protect their clients’ interests and to ensure that their clients are not penalized with judgment against them, interest and costs. If substantial interest and costs are added to a settlement by a trial judge, despite a defendant having good cause for withholding the settlement draft, the statute also may lead to post-settlement appeals.

Defendants, their insurers and their attorneys must now pay extremely close attention to the deadlines surrounding a settlement’s completion. If payment is being issued by multiple payors, or through a transfer of funds, there may be a delay in securing the settlement funds. Any delay, such as a delay in requesting the check, or a delay in obtaining the necessary information to request the check, has the potential to put a defendant up against the 30-day deadline. In litigation “hot-bed” jurisdictions, plaintiffs’ attorneys will be aware of this new statute and some attorneys will not hesitate to seek costs and request that a judgment be entered against the defendant. Obviously, having a judgment entered against the insured based upon a failure to timely pay a settlement would be very problematic for a variety of reasons. Additionally, defendants may consider contracting around the statute, if an agreement can be reached during settlement negotiations to go outside the deadlines in Section 2301.

The hope is that judges will be rational and reasonable in applying this statute, and that if good cause is shown by the defendant, or if a defendant has not timely received all necessary documents to effectuate settlement, that the 30 days will not be used as a trap for defendants. Regardless, defendants, insurers and attorneys need to be well-aware of the potential consequences of a delayed settlement check and have a plan in advance for timely tendering the settlement draft.

James Craney, partner, Lewis Brisbois Bisgaard & Smith, in Edwardsville, Ill. His practice focuses upon general liability trial work, employment law and insurance coverage litigation. During his career, he has defended and tried numerous cases, both in federal and state court. He has tried multiple cases to verdict, In Illinois, Missouri and federal court.”

Michael Haggerty, partner, Lewis Brisbois Bisgaard & Smith, in Chicago, Ill., is an experienced trial attorney focusing his practice in transportation, general tort and medical malpractice liability. He has defended transportation companies, constructions companies, hospitals, doctors, pharmacists, and various business owners. He has tried multiple cases to verdict, and has represented his clients at arbitration, mediation and various hearings within state and federal court.