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When cutbacks cause safety lapses, exclusive remedy won't apply: Court


SPRINGFIELD, Ill.—A parent company can be held liable—and workers compensation's exclusive remedy does not apply—when the parent directs budget cuts that create dangerous conditions at a subsidiary operation, the Illinois Supreme Court has ruled.

The court's Feb. 16 ruling in Marguerite Forsythe vs. Clark USA Inc. stems from the March 1995 death of two mechanics in a fire at a Blue Island, Ill., refinery owned by Clark Refining & Marketing. The mechanics' widows received workers compensation death benefits and later sued Clark and its parent company, Clark USA.

A trial court granted the employer summary judgment, but a state appeals court reversed that decision. Clark petitioned the Illinois Supreme Court and argued that a holding company parent cannot be held liable for its subsidiary's negligence even if it did set financial goals, which are part of its duties as a shareholder.

Plaintiffs argued that Clark operated its refinery under a low-cost strategy that it knew would adversely affect safety by forcing training and maintenance reductions, court records show.

The high court found that "direct participant liability" is a valid theory of recovery when "a parent company mandated an overall business and budgetary strategy and carried that strategy out by its own specific direction or authorization, surpassing the control exercised as a normal incident of ownership in disregard for the interests of the subsidiary."

The high court remanded the case back to the trial court.