2021 IL App (1st) 191842-U No. 1-19-1842 Order filed March 5, 2021 Sixth Division
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1). ______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ PRATE ROOFING AND INSTALLATIONS, LLC, ) Appeal from the ) Circuit Court of Plaintiff-Appellant, ) Cook County. ) v. ) No. 18 CH 9826 ) LIBERTY MUTUAL INSURANCE CORPORATION, ) The Honorable THE ILLINOIS DEPARTMENT OF INSURANCE, ) Caroline Kate Moreland, ROBERT H. MURIEL, in His Official Capacity as ) Judge, Presiding. Director of Insurance, and PATRICK RILEY, in His ) Capacity as Hearing Officer, ) ) Defendants-Appellees. )
JUSTICE ODEN JOHNSON delivered the judgment of the court. Presiding Justice Mikva and Justice Connors concurred in the judgment.
ORDER
¶1 Held: The Department of Insurance did not have authority to determine whether Prate’s subcontractor’s employees triggered additional premiums on its workers’ compensation insurance held by Liberty Mutual. Therefore, we vacated the Department of Insurance’s final order and the circuit court’s affirmance thereof. The circuit court properly dismissed the hearing officer as an unnecessary party and No. 1-19-1842
dismissed the declaratory judgment count without prejudice for lack of subject matter jurisdiction.
¶2 Plaintiff Prate Roofing and Installations, LLC (Prate) appeals an order from the Circuit
Court of Cook County which affirmed the final decision of the Director of the Illinois Department
of Insurance (DOI) in favor of defendant, Liberty Mutual Insurance Company (Liberty Mutual),
and against plaintiff, Prate, regarding the parties’ workers’ compensation insurance dispute. The
parties disputed whether Prate owed Liberty Mutual additional workers’ compensation insurance
premiums because certain subcontractors hired by Prate did not have individual coverage. Prate
challenged that determination before the DOI, which agreed with Liberty Mutual following a
hearing before Hearing Officer Patrick Riley (Riley). Then Director of the DOI, Jennifer Hammer, 1
entered an order finding that Prate owed additional workers’ compensation premiums in the
amount of $127,305.
¶3 Prate subsequently filed suit in the circuit court of Cook County, seeking administrative
review of the Director’s final decision and an additional claim for declaratory judgment as to the
amount of the premium owed to Liberty Mutual. The circuit court affirmed the Director’s decision
and dismissed the claim for declaratory judgment.
¶4 Prate has timely appealed, contending that: (1) the DOI lacked authority to issue its final
order, which is therefore void pursuant to this court’s holding in CAT Express, Inc. v. Muriel and
Liberty Mutual Insurance Co., 2019 IL App (1st) 181851; (2) the circuit court erred in dismissing
its request for declaratory relief on an issue upon which the DOI had expressly declined and lacked
1 At the time of the Director’s final order, the Director of the Department was Jennifer Hammer, who was initially named as an appellee in this case. She has been succeeded in that position by Robert H. Muriel. We have amended the caption of this appeal to reflect the proper party pursuant to section 2- 1008(d) of the Code of Civil Procedure. 735 ILCS 5/2-1008(d) (West 2020).
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authority to rule; and (3) the DOI erred in finding that ARW LLC had its own employees who
worked on Prate jobs to justify Liberty Mutual’s charging an addition premium of $127,305. For
the reasons that follow, we vacate the DOI’s final order as it lacked authority to resolve the parties’
dispute, and further vacate the judgment of the circuit court affirming the DOI’s order as such
order was void.
¶5 BACKGROUND
¶6 A. Proceedings Before the DOI
¶7 This case came before the DOI on appeal by Prate after it initially sought administrative
relief from the Illinois Workers Compensation Appeals Board (Board). Prate filed an appeal with
the Board to contest Liberty Mutual’s determination that it owed additional workers’ compensation
premiums in the amount of $127,305. In May 2016, the Board held a hearing on Prate’s dispute
and issued its case summary and decision on June 2, 2016, which was disclosed to the parties in a
letter from the National Council on Compensation Insurance (NCCI). In its letter, the NCCI
informed the parties that the Board did not have enough information to rule on whether Liberty
Mutual improperly charged Prate for exposure to liability due to Prate’s use of a possibly uninsured
subcontractor. The letter also notified Prate of its right to appeal, and subsequently appealed the
decision to the DOI.
¶8 Hearing Officer Riley was assigned to the case. Following discovery, both parties agreed
to waive their rights to an in-person hearing before the DOI and requested that the issues be
determined by written submissions and exhibits. Upon review of the submissions and exhibits,
Hearing Officer Riley made the following written findings of fact, conclusions of law and
recommendations.
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¶9 Defendants aside, there are four entities relevant to this case: Prate, ARW Roofing, Inc.
(ARW, Inc.), Reliable Trade Services, Inc. (RTS), and ARW LLC. Prate was a roofing and
construction installations contractor and Illinois limited liability company2, owned by Cynthia
Rosetti. Michael Prate (M. Prate) was a former agent and officer of Prate, but currently serves as
an employee. ARW Inc. was an Illinois company that entered into agreements with Prate for
contracting services. ARW Inc. was involuntarily dissolved in August 2015. RTS was an Illinois
corporation which also entered into contracts with Prate. ARW LLC was a limited liability
company organized by Emmolly Corporation (Emmolly), of which M. Prate was President. ARW
LLC also entered into contracts with Prate during the policy period at issue.
¶ 10 According to Prate, from May 1, 2013, to May 1, 2014, ARW Inc. carried workers’
compensation insurance. On August 1, 2013, RTS was formed and listed ARW Inc.’s policy as its
workers’ compensation coverage, claiming that ARW Inc.’s name was changed to RTS.
¶ 11 In 2013, Prate sought and obtained workers’ compensation coverage through the Illinois
Assigned Risk Plan. Liberty Mutual was randomly assigned as Prate’s workers’ compensation
insurance carrier, and issued an initial policy that became effective on October 18, 2013. Liberty
Mutual issued Prate a renewal policy (WC5-34S-540426), which is the policy at issue, that was
effective October 18, 2014, through June 28, 2015. Pursuant to the policy provisions, in 2015,
Prate was subject to both a self-audit and a premium audit. The premium audit would be conducted
by Liberty Mutual to determine if Prate had properly provided workers’ compensation insurance
2 Although the hearing officer’s written findings describe Prate as a “limited liability corporation,” we take judicial notice that in the State of Illinois, LLC refers to a limited liability company.
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certificates for all of its subcontractors; Lisa Murphy (Murphy) was assigned as the auditor for
Liberty Mutual’s audit.
¶ 12 As part of the self-audit, Prate disclosed that it had made payments to RTS, ARW Inc., and
ARW LLC between October 18, 2014, and June 28, 2015. Murphy testified that, while Prate
provided certificates of workers’ compensation insurance coverage for RTS, it did not present one
for ARW LLC. Based on those findings, Liberty Mutual argued before the DOI that Prate utilized
services from ARW LLC, which did not carry workers’ compensation coverage, and thus exposed
Liberty Mutual to liability, for which it assessed Prate an additional premium of $127,305.
¶ 13 Conversely, Prate argued that, because ARW LLC had no employees, that entity could not
perform work which would need to be covered under Illinois workers’ compensation law or the
NCCI Basic Manual 3, and thus Prate did not expose Liberty Mutual to liability. Prate further
argued that it would be improper to factor any payments to that entity into Liberty Mutual’s
premium calculations.
¶ 14 Riley further found that it was undisputed that Prate contracted with several subcontracting
entities: in 2013, Prate subcontracted with ARW Inc. and in August 2013, Prate subcontracted
with RTS, which listed the workers’ compensation policy used by ARW Inc. At issue was whether
Liberty Mutual justifiably assessed Prate an additional premium for its use of services by ARW
LLC, which it deemed an uninsured contractor. Riley noted that the central questions to be
considered were: (1) did ARW LLC have a workers’ compensation insurance policy during Prate’s
3 The NCCI Basic Manual for Workers Compensation and Employers Liability Insurance contains rules, classification descriptions, rates/loss costs for each classification and state-specific exceptions for writing workers compensation insurance. https://www.ncci.com/ServicesTools/Pages/BM2001.aspx
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period of coverage at issue in the hearing; (2) did ARW LLC have any employees who were
required to be covered according to Prate’s policy; (3) did the arrangements between Prate and
ARW LLC expose Liberty Mutual to workers’ compensation liability and subject Prate to an
increased premium; and (4) if Liberty Mutual was exposed to liability from ARW LLC, did Liberty
Mutual appropriately use certain payments from Prate to ARW LLC as the basis for calculating
the additional premium.
¶ 15 With respect to the first question, Riley found that it was undisputed that ARW LLC did
not have a workers’ compensation insurance policy of its own during Prate’s policy period of
October 2014 through June 2015. Riley noted that, “a common pattern in the filings offered [by
the parties] that initially complicates th[e] determination [was] the conflation of ARW LLC with
ARW Inc.” As an example, Riley noted that both parties refer to an NCCI ownership name change
ruling regarding “a subcontractor ARW.” However, the NCCI did not define which “ARW” was
the subject of its ruling. Additionally, the NCCI stated that “Board could not confirm or refute
whether the legal status issue of ARW being an ‘LLC’ or an ‘Inc.’ when work was performed had
a bearing on the dispute.” In August 2013, when RTS was formed, it obtained workers’
compensation insurance. According to M. Prate, Emmolly organized ARW LLC for the purpose
of purchasing ARW Inc., but the purchase did not occur, and he further claimed that Emmolly
signed over ownership of ARW Inc. to Michael Gurdak (M. Gurdak). M. Prate further stated that
M. Gurdak should have filed the documentation with the Secretary of State, indicating some
ambiguity as to the status of ownership, but confirmed that ARW Inc. and ARW LLC were two
separate organizations. Riley also found that M. Prate and M. Gurdak, along with Rosetti, were
knowledgeable about the status and business dealings of the two entities, as detailed in affidavits
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and answers to Liberty Mutual’s interrogatories. Riley ultimately concluded that ARW Inc. and
ARW LLC were legally independent of one another despite common ownership or management,
and further that ARW LLC did not have insurance coverage, either independently or in association
with another entity during the policy period at issue.
¶ 16 Regarding the second issue, Riley noted Prate’s assertion that ARW LLC had no
employees; instead, the labor was supplied by RTS. That assertion was echoed by both M. Prate
and M. Gurdak in their respective affidavits. However, based on other information supplied during
discovery, Riley concluded that ARW LLC was considered a separate entity for the purposes of
workers’ compensation coverage and that ARW LLC likely had employees to carry out contracts
on behalf of Prate and/or RTS. Most notably, Prate supplied several documents that listed RTS at
the top and appeared to be proofs of payment by RTS to ARW LLC for workers’ compensation
payroll during the policy period at issue. This was a further indication that ARW LLC had its own
employees for which RTS covered the cost of exposure. Prate had the opportunity to provide an
alternative explanation for those payments through its answers to Liberty Mutual’s interrogatories,
but did not. Thus, Hearing Officer Riley specifically found that ARW LLC had employees during
the policy period at issue.
¶ 17 With respect to the third issue, Riley noted that Prate and its subcontractors with employees
were required to carry workers’ compensation coverage under section 305/1(a)(3) of the Illinois
Workers Compensation Act (Act). 820 ILCS 305/1(a)(3) (West 2018). That section provides that,
if a subcontractor, such as ARW LLC, had employees but did not have the requisite workers’
compensation coverage, then a contractor, such as Prate, that engaged the subcontractor to do work
would be liable to pay compensation to the subcontractor’s employees. 820 ILCS 305/1(a)(3)
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(West 2018). Further, section 305/4(a)(3) of the Act provides that the general contractor and any
subcontractors who fall within the provisions of section 3 of the Act must insure the entire liability
of all employees and the entire compensation liability of the insured. 820 ILCS 305/4(a)(3) (West
2018).
¶ 18 Hearing Officer Riley found that because Prate’s policy must cover “the entire
compensation liability of the insured,” and because Prate would be liable to pay compensation to
ARW LLC’s employees if ARW LLC lacked its own coverage, Liberty Mutual would be required
by law to assume that liability under the circumstances. It followed then that Prate was required
both to secure workers’ compensation coverage for itself as principal and to ensure that ARW LLC
had coverage as a subcontractor. Based on the prior findings that ARW LLC had employees during
the policy period but lacked its own coverage, Hearing Officer Riley found that Liberty Mutual
was exposed under Prate’s policy to workers’ compensation liability from ARW LLC’s
employees.
¶ 19 With respect to the final issue, Riley noted that the contract language in the policy stated
that the premium included “payroll and other remuneration 4 paid,” which included “the insured’s
direct employees” and “all other persons engaged in work that could make [Liberty Mutual]
liable.” Under the Act, Riley found that the ARW LLC employees could have made Liberty Mutual
liable, so it was proper to assess some amount of premium for them. Prate disputed that its
insurance coverage was also bound by Rule 2-H of the NCCI Basic Manual, which states that “the
4 Remuneration is payment for work or services. https://dictionary.cambridge.org/us/dictionary/english/remuneration
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contractor must furnish satisfactory evidence that the subcontractor has workers[‘] compensation
insurance in force.” Nevertheless, Riley noted that the binder of coverage initially issued to Prate
stated that coverage was provided under the state’s workers’ compensation laws “in accordance
with the Plan rules,” and that coverage would be given “under the applicable Workers’
Compensation Insurance Plan developed or administered by NCCI.” As such, Riley found that
Prate “contractually consented to the laws of Illinois and specific rules of the NCCI,” that allowed
for the “determination of a premium based upon uninsured subcontractors with employees engaged
in work for the policyholder.”
¶ 20 According to the policy at issue’s provision regarding premiums, Liberty Mutual could
only assess a premium “determined by multiplying a rate times a premium basis,” which included
“payroll and all other remuneration paid or payable during the policy period for services of: 1) all
your officers and employees engaged in work covered by th[e] policy; and 2) all other persons
engaged in work that could make [Liberty Mutual] liable under Part One of th[e] policy.” The
policy further provided that if the insured did “not have payroll records for [those] persons, the
contract price for their services and materials may be used as the premium basis.” Accordingly,
Riley found that, under the terms of the policy, Liberty Mutual could charge a premium based on
the contract price for ARW LLC’s services and materials for Prate during the policy period at
issue, which would be reflected in Prate’s payments to ARW LLC.
¶ 21 Despite Prate’s argument that it would be improper to factor any payments to ARW LLC
into Liberty Mutual’s premium calculations, Riley found that given Prate’s “apparent inability” to
supply any payroll records for the ARW LLC employees or supply sufficient financial records
from ARW LLC showing that there were no employees, there was no other basis for estimating
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the applicable payroll and other remuneration for the employees. Further, Riley found that Liberty
Mutual had no contractual or statutory right to audit ARW LLC directly to obtain those records
based on prior DOI precedent, and as such, it was permitted to use the contract price for services
and materials as the basis for premium.
¶ 22 In her affidavit, Murphy averred that during her audit of Prate, she found that the total
payments made by Prate to ARW LLC was $300,673.46.5 After excluding 10% for materials, a
total of $270,606.20 was added to Prate’s audited payroll exposure. In a letter sent to the NCCI by
Liberty Mutual, Murphy stated that the additional premium was calculated according to Tables 1
and 2 of Rule 2-H of the Basic Manual. Rule 2-H provided for the additional premium to be
calculated based on “not less than 90% of the subcontract price” for labor only. Hearing Officer
Riley found that Liberty Mutual permissibly used an estimated payroll amount of $270,606.20,
which was 90% of the total subcontract price between ARW LLC and Prate, as the basis for
calculating the additional premium owed by Prate.
¶ 23 Hearing Officer Riley concluded, “based upon a preponderance of the evidence and upon
consideration of the Record as a whole or such portion thereof as may be supported by competent
material and substantial evidence,” Liberty Mutual’s calculation of the additional premium due to
the policy at issue should be upheld. Therefore, Riley recommended to the Director of the DOI
that: Liberty Mutual was entitled to the premium charges assessed to Prate regarding workers’
compensation policy number WC5-34S-540426-024, and that the costs of the proceeding be
waived.
5 This figure was based on Prate’s profit and loss statement for the period between October 18, 2014 and June 28, 2015 that was sent to Liberty Mutual as part of its self-audit.
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¶ 24 On May 7, 2018, the Director of the DOI adopted the hearing officer’s findings of fact,
conclusions of law, and recommendations, and ordered that Liberty Mutual was entitled to the
disputed premium charges.
¶ 25 B. Prate’s Motion for Rehearing
¶ 26 Prate subsequently filed a motion for rehearing on May 15, 2018. The DOI found that:
Prate failed to demonstrate good cause or legally sufficient grounds to reopen the matter; did not
offer satisfactory explanations to counter the DOI’s conclusion that ARW LLC possessed
employees, and was thus liable to Liberty Mutual for additional workers’ compensation coverage;
Prate offered no evidence that Liberty Mutual incorrectly calculated the additional premium; and
Prate asserted conclusory statements on the weight of the evidence and application of law, but did
not provide evidence that would alter the analysis upon which the final order rested. However, the
DOI stated that “it [was] not for the Department to determine the specific amount of the premium
charge, but that the parties under the contract conduct themselves within the statutory and
regulatory bounds of Illinois law.” The DOI denied Prate’s motion for rehearing on July 10, 2018.
¶ 27 C. Circuit Court Proceedings
¶ 28 Prate then filed its complaint for administrative review and additionally sought a
declaratory judgment concerning the correct amount of the additional premium owed to Liberty
Mutual in the circuit court of Cook County on August 1, 2018.
¶ 29 The DOI filed a section 2-615 (735 ILCS 5/2-615 (West 2018)) motion to dismiss Hearing
Officer Riley as an unnecessary party and to dismiss Prate’s request for declaratory relief, arguing
that its sole remedy was administrative review. Prate responded that it was entitled to declaratory
relief since the DOI indicated that it was not its job to determine the specific amount of premium
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due. On December 12, 2018, the circuit court dismissed Riley as a defendant and dismissed the
declaratory judgment count of Prate’s complaint as procedurally improper, both without prejudice.
The court’s order did not contain Rule 304(a) (Ill. S. Ct. R. 304(a) (eff. Mar. 8, 2016)) language.
The circuit court affirmed the Director’s final order on August 14, 2019. This timely appeal
followed.
¶ 30 ANALYSIS
¶ 31 On appeal, Prate contends that: (1) the DOI lacked authority to issue its final order, which
is therefore void pursuant to this court’s holding in CAT Express, Inc. v. Muriel and Liberty Mutual
Insurance Co., 2019 IL App (1st) 181851; (2) the circuit court erred in dismissing its request for
declaratory relief on an issue upon which the DOI had expressly declined and lacked authority to
rule; and (3) the DOI erred in finding that ARW LLC had its own employees who worked on Prate
jobs to justify Liberty Mutual’s charging an addition premium of $127,305.
¶ 32 A. Jurisdiction
¶ 33 As a preliminary matter, we address the issue of jurisdiction, as raised by the DOI in its
brief. The DOI contends that a potential jurisdiction question arises because the circuit court’s
dismissal, of Riley as a defendant and the declaratory judgment count of Prate’s complaint without
prejudice, was not a final judgment. Additionally, the order entered on August 14, 2019, did not
contain Rule 304(a) (eff. Mar. 8, 2016) language. Further, the DOI asserts that the circuit court
“seemed to intend the words ‘without prejudice’ to convey that it would entertain further argument
while the administrative review action (count I) was pending, and not that it wished to preserve
the claims (the count II declaratory action and the claims as against Riley) for refiling in the
future.”
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¶ 34 While Liberty Mutual’s brief does not contain any statement related to this court’s
jurisdiction to hear the appeal, Prate, on the other hand, contends that its appeal is from a final
judgment under Rule 301 (Ill. S. Ct. R. 301 (eff. Feb. 1, 1994). The appeal challenges both the
circuit court’s December 12, 2018 order, which dismissed its declaratory judgment count, and the
final order of August 14, 2019, which affirmed the DOI’s final order. Based thereon, Prate
contends that this court has jurisdiction to hear its appeal.
¶ 35 We begin by noting that a reviewing court has a duty to sua sponte consider whether or not
it has jurisdiction. In re Estate of Young, 2020 IL App (2d) 190392, ¶ 16. A challenge to our
jurisdiction is a question of law. JP Morgan Chase Bank, N.A. v. East-West Logistics, L.L.C.,
2014 IL App (1st) 121111, ¶ 21. Questions of law are subject to de novo review. Id.
¶ 36 While Prate asserts that this court has jurisdiction based on entry of a final judgment in the
circuit court, we find that such conclusion is not immediately clear on the face of the record. In
this case, the circuit court previously granted the DOI’s section 2-615 (735 ILCS 5/2-615 (West
2018)) motion to dismiss both a defendant and count II of the complaint without prejudice. Thus,
we must consider the effect of the circuit court’s December 12, 2018, dismissal order on the
jurisdiction of this court.
¶ 37 We begin by noting that the DOI filed a section 2-615 motion to dismiss Hearing Officer
Riley as an unnecessary party and Prate’s declaratory judgment count (count II) for lack of subject
matter jurisdiction. However, the DOI should have filed a section 2-619 (735 ILCS 5/2-619 (West
2018)) motion to dismiss. A section 2-615 motion allows for the dismissal of the complaint (or
portion thereof) where the pleading is legally insufficient based on defects apparent on its face.
735 ILCS 5/2-615 (West 2018). Conversely, a section 2-619 motion to dismiss admits the
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sufficiency of the complaint but asserts an affirmative matter acts to defeat the claim. 735 ILCS
5/2-619 (West 2018).
¶ 38 In this case, there were affirmative matters raised by the DOI that defeated portions of
plaintiff’s claims. With respect to count I, the DOI sought dismissal of Riley because he was not a
necessary party to the administrative review action. With respect to count II, the DOI sought
dismissal because the circuit court lacked subject matter jurisdiction to review a claim for
declaratory judgment in an administrative review case. These matters should have been raised in
a section 2-619 motion and were improperly raised in a 2-615 motion.
¶ 39 Ordinarily, the failure to properly designate a motion to dismiss would result in reversal if
prejudicial to the nonmovant. Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 484 (1994).
However, in this case, because we find that the parties were not prejudiced by the mislabeling as
will be further detailed below, in the interest of judicial economy, we will treat the improperly
designated motion to dismiss as if it were properly designated when filed. Talbert v. Home Savings
of America, F.A., 265 Ill. App. 3d 376, 379 (1994).
¶ 40 Turning our attention to the jurisdiction question, the Illinois Constitution provides for
appellate jurisdiction to hear appeals from all final judgments entered in the circuit court. Ill. Const.
1970, art. VI, § 6. The Constitution also grants our supreme court the authority to provide by rule
for appeals from less than final judgments. Id. Absent an applicable supreme court rule, this court
may not exercise appellate jurisdiction over a judgment, order or decree which is not final. Flores
v. Dugan, 91 Ill. 2d 108, 112 (1982). Supreme Court Rules 301 and 304 provide the jurisdictional
basis for appealing final judgments. Lewis v. Family Planning Management, Inc., 306 Ill. App.
3d 918, 921 (1999).
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¶ 41 Generally, an order of dismissal entered “without prejudice” is a nonfinal order and is not
appealable. Ally Financial Inc. v. Pira, 2017 IL App (2d) 170213, ¶ 28. However, motions to
dismiss that were granted without prejudice become part of the final ruling on the case when no
interlocutory appeal is taken or where the order contains no Rule 304(a) (eff. Mar. 8, 2016)
language. Thus, the circuit court’s rulings on the DOI’s motion to dismiss, even though granted
without prejudice in the December 12, 2018, order, are final orders and are properly part of our
jurisdiction over the final ruling in the case. See Reed v. Retirement Board of the Fireman’s
Annuity and Benefit Fund of Chicago, 376 Ill. App. 3d 259, 267 (2007) (once a final order has
been entered in a case, all nonfinal orders previously entered may be reviewed by the appellate
court).
¶ 42 Therefore, once the entire action terminated on August 14, 2019, Prate could file its notice
of appeal for all orders entered by the circuit court. Accordingly, we find that we have jurisdiction
over this appeal pursuant to Rule 301 (eff. Feb. 1, 1994), and turn to the merits of the appeal.
¶ 43 B. The DOI’s Authority to Issue Its Order
¶ 44 Prate first contends that the DOI acted without authority when it issued its final order and
therefore, the order is void. Prate argues that this court’s decision in CAT Express, which was
issued after Prate filed its notice of appeal, is dispositive. According to Prate, we held in CAT
Express that the DOI did not have express or implied statutory authority to resolve a private dispute
between an insurer and its insured, thereby making the DOI’s final order void. CAT Express, 2019
IL App (1st) 181851, ¶ 35.
¶ 45 The DOI agrees with Prate’s contention that under the authority of this court’s decision in
CAT Express, the DOI and ultimately the Director lacked general authority to resolve the parties’
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dispute. Rather, the DOI’s specific statutory authority is found in section 462 of the Act (215
ILCS 5/462 (West 2018)), and it applies only to disputes about the “ ‘application’ of the NCCI’s
experience rating plan, classification system, and manual rules.” Additionally, the DOI maintains
that this court characterized the DOI’s authority under the Act as specific and limited, which is not
implicated just because the matter in dispute had some relevance to the rules. Thus, the DOI
concludes that the decision cannot stand.
¶ 46 Liberty Mutual, however, disagrees with the conclusion that CAT Express is dispositive of
this appeal. Instead, Liberty Mutual contends that CAT Express is distinguishable from the present
case because here the DOI’s authority comes from section 462 of the Code (215 ILCS 5/462 (West
2018)), and not section 401 (215 ILCS 5/401 (West 2018)) as in the CAT Express case.
¶ 47 We disagree. Our review of CAT Express establishes that it is dispositive of the merits of
this appeal. In CAT Express, the parties had an employment status dispute; we note that Liberty
Mutual was also a defendant in that case. Similar to Prate, CAT Express applied to the Illinois
Assigned Risk Plan for workers’ compensation insurance coverage, and coverage was assigned to
Liberty Mutual. CAT Express, 2019 IL App (1st) 181851, ¶ 1. CAT Express disclosed six clerical
workers subject to workers’ compensation coverage. Id. After a premiums audit, Liberty Mutual
determined that CAT Express employed a substantial number of owner-operators that were not
disclosed as employees. Liberty Mutual consequently determined that CAT Express owed
$356,592 in additional premiums to cover the exposure related to the owner-operators. Id. CAT
Express disagreed, arguing that its contracts with the owner-operators established an independent
contractor relationship and not an employer-employee relationship. Id. CAT Express sought
resolution of the issue from the NCCI, who determined that it had no jurisdiction over the dispute
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and advised CAT Express to appeal to the DOI. Id. After a hearing at the DOI, the Director
adopted the hearing officer’s findings of fact, conclusions, and recommendations as follows: 1)
Liberty Mutual correctly determined that CAT Express’ owner-operators were employees rather
than independent contractors, and 2) CAT Express was liable for the additional premiums. Id.
The DOI denied CAT Express’ motion for reconsideration, and the circuit court affirmed the DOI’s
order. Id.
¶ 48 CAT Express appealed, and this court subsequently ordered supplemental briefs from the
parties on the issue of whether the DOI and the Director had authority to resolve the parties’ dispute
and to specifically address the applicability of section 462 of the Code (215 ILCS 5/462 (West
2018)). Id. at ¶¶ 2, 9. This court concluded that the DOI did not have express or implied authority
to resolve the employment status dispute as it did not directly or indirectly involve the DOI’s or
the Director’s authority to administer the insurance laws of this state. Id. We found that the DOI
acted beyond its authority in conducting the hearing and issuing the final order. Id.
¶ 49 In reaching that conclusion, we noted that the parties, the DOI and the Director all
acknowledged that the DOI did not have express authority to adjudicate employment status
disputes under the Code. Id. at ¶ 10. The DOI and the Director, however, asserted that implied
authority existed to adjudicate employment status disputes under sections 401, 402, 403 and 462
of the Code (215 ILCS 5/401, 5/402, 5/403, 5/462 (West 2018)), which was derived from section
401(c), which expressly allowed the Director to conduct hearings as may be “necessary and proper
for the efficient administration of the insurance laws of this State,” (Id. at §401(c)) and section
462, which provides for an appeal to the DOI from a decision by a rating organization rejecting a
request for relief from “any person aggrieved by the application of its rating system (Id. at § 462).
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CAT Express, 2019 IL App (1st) 181851, ¶ 10. Liberty Mutual agreed that the DOI’s and the
Director’s authority was derived from section 401(c) of the Code as is noted in the Director’s
notice of hearing, and that section 462 was inapplicable to the outcome of the case. Id. at ¶ 11.
¶ 50 CAT Express argued that the DOI had concurrent jurisdiction with the Illinois Workers’
Compensation Commission (Commission) over its dispute with Liberty Mutual and that under
section 462, the NCCI was required to provide an opportunity to be heard. Id. at ¶ 12. However,
Once - - - the NCCI refused to provide assistance, and informed CAT Express that its recourse was to
appeal to the DOI under section 462, which it did. Id. Further, CAT Express noted a conflict in
the law, to wit: section 462 required that questions regarding the application of workers’
compensation rates should be appealed to the DOI, while the NCCI’s denial letter stated that the
Commission determines whether an individual is an employee for workers’ compensation. Id.
¶ 51 We disagreed with the parties’ consensus that there was implied authority for the DOI to
hear the dispute and found that neither section 401(c) nor section 462 applied. Id. at ¶13. We
found that the DOI and the Director lacked express or implied authority to decide an employment
status dispute or to issue a final order on the issue. Id.
¶ 52 As we noted in CAT Express, because administrative agencies are creatures of statute, they
have no general or common law powers. Goral v. Dart, 2020 IL 125085, ¶ 33. The DOI, as an
administrative agency, is limited to the powers granted to it by the legislature, and any actions
taken must be authorized by its enabling statute. Id.; Crittenden v. Cook County Comm’n on
Human Rights, 2013 IL 114876, ¶ 14. The agency is limited to those powers granted to it by the
legislature in its enabling statute. Julie Q. v. Department of Children and Family Services, 2013
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IL 113783, ¶ 24. The scope of powers conferred on an administrative agency by its enabling
authority is a question of statutory authority which we review de novo. Id. at ¶ 20.
¶ 53 We found that the dispute between CAT Express and Liberty Mutual was essentially an
employment status dispute: whether owner-operators used by CAT Express were independent
contractors or employees for the purposes of coverage under Liberty Mutual’s workers’
compensation policy. CAT Express, 2019 IL App (1st) 181851, ¶ 16. We concluded that nothing
in the Code conferred express authority on the DOI to resolve such disputes and looked to the
express provisions of the Code to decide if such authority was implied. Id.
¶ 54 We determined that the DOI lacked authority under section 401(c) of the Code and
examined its provisions. Section 401 charges the Director with the rights, powers, and duties
pertaining to the enforcement and execution of all the insurance laws of the state. 215 ILCS 5/401
(West 2018). Specifically, the Director has the power to: (a) make reasonable rules and regulations
as may be necessary for making effective such laws; (b) conduct such investigations as may be
necessary to determine whether any person has violated any provision of such insurance laws; (c)
to conduct such examinations, investigations and hearings in addition to those specifically
provided for, as may be necessary to administer the insurance laws; and (d) institute such actions
or other lawful proceedings as may be necessary to enforce the Code or any order or action taken
by him under the Code. 215 ILCS 5/401(a)-(d) (West 2018).
¶ 55 We made specific note that the parties “made no effort to describe, and [did] not explain
how an employment status and premium dispute between an insurer and an insured involved ‘the
efficient administration of the insurance laws of this State’ or whether the determination that
someone is an employee for the purposes of workers’ compensation insurance coverage is
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regulated by the Insurance Code or by any regulation promulgated by the Director.” CAT Express,
2019 IL App (1st) 181851, ¶ 20. We concluded that the language of section 401(c), although
broad, did not vest the Director with express or implied authority to make factual determinations
regarding the scope of coverage under any contract of insurance. Id. at ¶ 23. The DOI and the
Director administer the insurance laws of this state and not individual insurance contracts between
an insurer and an insured. Id.
¶ 56 We also concluded that section 462 was inapplicable as it did not provide implied authority
for the DOI to hear an employment dispute between Liberty Mutual and CAT Express because the
dispute did not involve the application of the NCCI’s rating system. Id. at ¶ 25. In examining
section 462, we determined that it required a rating agency, like the NCCI, to provide insureds,
such as CAT Express, with information regarding any NCCI rate affecting an insured. Id. at ¶ 27.
We found that section 462 limits the DOI’s review to the final decision of the NCCI involving the
interpretation or application of its experience rating plans, its classification system, or its manual
rules, and noted that the NCCI expressly stated that it lacked jurisdiction because it does not act to
decide employment status disputes. Id. at ¶ 31.
¶ 57 In finding that the DOI lacked implied authority, we noted that the parties were not left
without a remedy, stating that employer-employee relationships are frequently decided in
declaratory judgment actions filed in the circuit court, as well as scope of coverage actions Id. at
¶ 34. We concluded that the DOI acted without authority when it issued its final order and
therefore, the final order was void. Id. ¶ 35. We vacated the DOI’s final order and the circuit
court’s order that affirmed said order. Id.
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¶ 58 The same result is warranted here. Despite Liberty Mutual’s attempt to distinguish this case
from CAT Express, we find that case to be dispositive of the present case. Here, the underlying
dispute between Prate and Liberty Mutual was an employment status dispute: namely, whether
Prate’s subcontractor ARW LLC, who had no workers’ compensation coverage, had employees
that would trigger additional premiums under Prate’s policy. We specifically reject Liberty
Mutual’s characterization of the issue in this case as simply an analysis of the NCCI’s Basic
Manual Rule 2-H, i.e., whether Prate furnished satisfactory evidence that the subcontractor had
workers’ compensation insurance in force. While it may be true that the final determination of
how much additional premium is due would be calculated according to that rule, in order to reach
that determination, there must be findings of fact and conclusions of law made to establish ARW
LLC’s status as an employer and if so, whether any of its employees completed work on Prate’s
projects. As we concluded in CAT Express, such determinations require the DOI and the Director
to make factual findings regarding the parties’ private interests in the scope of their insurance
contract. No public interest or administration of any insurance law or regulation is implicated by
the dispute at bar. As such, pursuant to sections 5/401(a)-(d) of the Act (215 ILCS 5/401(a)-(d)
West 2018)), we conclude that the DOI and the Director were without express or implied authority
to issue the final order, and that such order is void. Hence, we hereby vacate the DOI’s final order
and vacate the circuit court’s order affirming the DOI’s final order.
¶ 59 As noted by this court in CAT Express, Prate is not without remedy to have its issue
addressed. A declaratory judgment action is the proper vehicle for resolution of the factual
question raised, namely whether Prate’s subcontractor, ARW LLC, which did not have workers’
compensation insurance, had employees that worked on Prate’s projects that trigged additional
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premiums due under the Prate’s policy with Liberty Mutual. CAT Express, 2019 IL App (1st)
181851, ¶ 34. See also Brandt Construction Co. v. Ludwig, 376 Ill. App. 3d 94, 104 (2007)
(declaratory judgment action proper where an aggrieved party seeks judicial review of an
administrative decision without complying with the exhaustion of remedies doctrine where the
agency cannot provide an adequate remedy).
¶ 60 C. The Circuit Court’s Dismissal Order of August 12, 2018
¶ 61 Additionally, Prate seeks review of the circuit court’s dismissal order entered on August
12, 2018. As noted earlier, the DOI sought, and the circuit court granted, dismissal of Hearing
Officer Riley as an unnecessary party to the action and dismissal of the declaratory judgment count
for lack of subject matter jurisdiction.
¶ 62 As discussed earlier, we will treat the DOI’s motion to dismiss as a properly labeled section
2-619 (735 ILCS 5/2-619 (West 2018)) motion to dismiss. A section 2-619 motion to dismiss
admits the sufficiency of the complaint but asserts an affirmative matter to defeat the claim. 735
ILCS 5/2-619 (West 2018). Our review of the grant of a motion to dismiss under section 2-619 is
de novo. Krilich v. American National Bank and Trust Co. of Chicago, 334 Ill. App. 3d 563, 570
(2002). The question on appeal is whether the existence of a genuine issue of material fact that
should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper
as a matter of law. Id.
¶ 63 Upon review of the record, we find no genuine issue of material fact that should have
precluded the dismissal of Hearing Officer Riley as an unnecessary party in the administrative
review action (count I). An employee, agent, or member of an administrative entity is not a party
of record if he does not have statutory authority to make a decision adverse to the plaintiff. Fayhee
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v. State Board of Elections, 295 Ill. App. 3d 392, 403 (1998). In this case, Hearing Office Riley
made a recommendation but did not have authority to issue the order. We thus conclude that the
circuit court properly granted the dismissal of Hearing Officer Riley as a party.
¶ 64 The circuit court also granted the DOI’s motion to dismiss Prate’s declaratory judgment
action (count II) for lack of subject matter jurisdiction. As a general rule, arguments, issues, and
defenses not presented in an administrative hearing are procedurally defaulted and may not be
raised for the first time before the circuit court on administrative review. Cinkus v. Village of
Stickney Municipal Officers Electoral Board, 228 Ill. 2d 200, 212 (2008). That is not the case here
as Prate did raise the issue of Liberty Mutual’s calculation of the specific premium due before the
DOI.
¶ 65 However, the DOI concluded that it was unable to determine the specific amount of
premium due. Such conclusion was correct as the Code does not grant the DOI specific or implied
powers to resolve insurance contract fee disputes. See CAT Express, 2019 IL App (1st) 181851, ¶
34. The authority of an administrative agency must derive either from the express language of the
enabling act or by fair implication and intention from the express provisions of the act as an
incident to achieving the objectives for which the agency was created. My Baps Construction
Corp. v. City of Chicago, 2017 IL App (1st) 161020, ¶ 67.
¶ 66 Where the DOI lacked subject matter authority over Prate’s issue related to the specific
amount of premium due, it follows that the circuit court lacked authority to hear such matter as
part of administrative review. See Board of Education, Joliet Township High School District No.
204 v. Board of Education, Lincoln Way Community High School District No. 210, 231 Ill. 2d 184,
206 (2008) (claims that are beyond the scope of the hearing officer and beyond the scope of the
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administrative agency are therefore beyond the scope of the administrative review law). When an
administrative agency is unable to provide a remedy, a party can seek judicial review of such issue
in a separate declaratory judgment action. See Brandt Construction, 376 Ill. App. 3d at 104.
¶ 67 In this case, however, Prate did not file a separate declaratory judgment action, but instead
included this issue as count II of its administrative review complaint. This was improper as such
count was beyond the scope of the administrative review law. Accordingly, Prate must file such
claim in a separate judicial proceeding. The motion to dismiss was properly granted for lack of
subject matter jurisdiction by the circuit court.
¶ 68 CONCLUSION
¶ 69 In conclusion, we find that: (1) we have jurisdiction to hear this appeal as the nonfinal
dismissal order became final and appealable once the final order was entered by the circuit court;
(2) the DOI lacked statutory authority, to determine factual issues regarding additional premiums
due under a workers’ compensation policy, pursuant to our decision in CAT Express, 2019 IL App
(1st) 181851; and (3) the circuit court properly granted the DOI’s motion to dismiss based on
affirmative matters that defeated Prate’s claims.
¶ 70 For the foregoing reasons, we vacate the final order of the DOI in favor of Liberty Mutual,
as it lacked authority to resolve the parties’ dispute. We further vacate the circuit court of Cook
County’s order affirming the DOI’s final order, as such order was void.
¶ 71 Circuit court judgment vacated.
¶ 72 Department order vacated.
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