Identifying the Kotecki Curveball
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Kotecki Waiver is named after an Illinois Supreme Court ruling, Kotecki v. Cyclops Welding Corp., 146 Ill. 2d 155, 166 Ill. Dec. 1, 585 N.E.2d 1023 (1991), where the Supreme Court ruled that an employers maximum liability in a third party suit is limited to an amount no greater than its liability to the employee under the Workers' Compensation Act.
In the eyes of the court, this ruling mean that if an employee files a workers' compensation claim and is paid out statutory workers' compensation benefits under his employer's policy, the employer's liability has been met and no additional contributions will be made to a third party claim.
Dont Strike Out LookingAlthough the courts have ruled an employers liability has been met by the Workers' Compensation Act, many contracts still require the employer to indemnify a third party for these action over claims. If you indemnify a negligent third party whos caused injury to your employee, that agreement may be viewed as a waiver of the Kotecki cap. This is often done unknowingly and leaves you exposed to potential gaps in coverage.
The exposure created by waiving your Kotecki rights is uninsured under both the standard General Liability and Workers' Compensation Insurance policies. The most common way to address this exposure is to endorse the Workers' Compensation policy to specifically amend the exclusion (under Part Two-Employers Liability) to include contractual liability specific to Kotecki waivers.
Some carriers have embraced this exposure and will offer the Kotecki extension under the Workers' Compensation policy, however many will not provide it. Its very important you understand your contractual exposures and work closely with your insurance professional to ensure these are covered.
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