HALL v STATE COMPENSATION INS FUN

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No. 85-31 IN THE SUPREME COURT OF THE STATE OF MONTANA WAYNE S. HALL, Petitioner and Appellant, STATE COMPENSATION INSURANCE FUND, DIVISION OF WORKERS' COMPENSATION, Respondent and Respondent. APPEAL FROM: Workers' Compensation Court, The Honorable Timothy Reardon, Judge presiding. COUNSEL OF RECORD: For Appellant: Hash, Jellison, O'Brien & Bartlett; Kenneth E. O'Brien argued, Kalispell, Montana For Respondent : Garlington, Lohn & Robinson; Bradley J. Luck argued, Missoula, Montana Submitted: Decided: Clerk July 2, 1985 October 3, 1985 Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of the Court. Wayne S. Hall, appellant, requested the State Compensa. tion Insurance Fund to waive any subrogation interest it might have in a third-party claim filed by Hall and to redetermine Ha11 ' s permanent partial impairment rating. State Fund refused both requests. Hall petitioned the Divi- The sion of Workers' Compensation to review the State Fund's decision. On March 23, 1984, the Division determined that the State Fund's decision was correct. On December 24, 1984, the Workers' Compensation Court also affirmed the State Fund. Hall now appeals to this Court. We reverse. This cause was submitted to the Workers' Compensation Court and to this Court on the following agreed statement of facts: "1. Wayne S. Hall was injured within the scope and course of his employment for Karl Weissman and Sons on August 6, 1982. At the time of the Petitioner's injury, Karl Weissman and Sons was enrolled under Plan 3 of the Workers' Compensation Act, and the State Compensation Insurance Fund was its compensation carrier. "2. Respondent accepted liability for the Claimant's injury and paid medical benefits of $2,260.01 and acknowledged liability for an indemnity permanent partial disability award of $11,835.00. The 'Guide to Evaluation of Permanent Impairment' published by the American Medical Association was utilized by the Compensation Insurance Fund in computing the indemnity for permanent partial disability. Utilizing this guide, the following evaluation was made: (a) 15% upper arm impairment = 9% of the whole man; (b) 25% of lower leg impairment = 10% of the whole man; then utilizing the A M ! Guide, the combination of those two impairments would equal 18% of the whole man. This resulted in a computation of 90 weeks of compensation at $131.50 a week for a total of $11,835.00. "3. The preface of the AMA Guide published in 1971 contains the following language: 'After values of all impairments involved have been computed and transposed to a common denominator, the final impairment value, whether the result of a single or combined impairments, should be expressed in terms of the nearest 5%. ' The Claimant requested that these guidelines be followed and that his permanent partial impairment be set at 20% rather than 18%, and the State Fund declined to make the adjustment. "4. The Claimant pursued a third party claim as the result of the injury, and the State Fund declined to participate. The Claimant settled the third party claim for the sum of $25,000.00. This represented the insurance policy limits of the third party tort-feasor. The Claimant's expenses, costs and attorneys' fees for the third party action amounted The Respondent to the sum of $6,259.00. claimed a subrogation interest of $7,048.00 and subtracted that amount from the indemnity award at the time of payment. The Claimant contended that the Respondent was not entitled to subrogation. The Claimant contended that his third party claim was valued in excess of $40,000.00 but that the $25,000.00 settlement at policy limits was all that was available. On March 23, 1984, the Division of Workers1 Compensation conducted an administrative review of the matter and determined that the claimed subrogation interest of the Respondent was appropriate." Prior to oral argument, the parties settled the impairment rating issue. The remaining issue to be determined is: If the value of the claimant's total damage for the personal injuries he sustained exceeded $40,000, and the $25,000 insurance coverage constituted the only source of funds to liquidate such damage, was the respondent entitled to a subrogation interest in the $25,000 settlement proceeds of the third-party claim? In answering this question affirmatively, the Workers' Compensation judge re1 ied on this Court ' s Brandner v. Travelers Insurance Company 208, 587 P.2d 933. claimant in (1978), 179 Mont. This reliance is misplaced as Brandner is easily distinguishable from the case at bar. the decision settled with the third party, In Brandner, Burlington- Northern, for $70,000, an amount not dictated by the upper l i m i t s o f any i n s u r a n c e p o l i c y . W e found t h a t c l a i m a n t was made whole by a v o l u n t a r y s e t t l e m e n t i n s a t i s f a c t i o n o f a l l . claims. The d e f e n d a n t , B u r l i n g t o n N o r t h e r n R a i l r o a d , had no limited liability. we redress, Since held that claimant had obtained employer' s claimant's full legal insurer was e n t i t l e d t o subrogation. I n t h e c a s e a t b a r , however, c l a i m a n t r e a c h e d a s e t t l e ment w i t h full the third-party t o r t f e a s o r which did afford The s e t t l e m e n t was f o r t h e u p p e r l i m i t legal redress. o f t h e t o r t f e a s o r ' s i n s u r a n c e p o l i c y , $25,000. damages e x c e e d $ 4 0 , 0 0 0 , t h e Workers' not I f claimant's claimant's settlement, together with Compensation award, does n o t f u l l y compensate claimant. Under t h e s e c i r c u m s t a n c e s , w e f i n d o u r d e c i s i o n i n Skauge v . Mountain ( 1 9 7 7 ) , 172 Mont. In Skauge, explosion. $4,000. S t a t e s Telephone and Telegraph Company 521, 565 P.2d 628, t o b e r e l e v a n t . claimants' Their rented personal home was d e s t r o y e d by an were belongings insured for The a c t u a l v a l u e o f t h e p r o p e r t y was o v e r $ 1 1 , 0 0 0 . Claimants recovered t h e upper l i m i t o f t h e i r i n s u r a n c e p o l i cy, then sued third-party amount o f t h e i r l o s s . tortfeasors , seeking the tota1 I n a d d r e s s i n g an i s s u e r e g a r d i n g t h e subrogation r i g h t s of t h e insurer, we s t a t e d t h a t : ". . . when t h e i n s u r e d h a s s u s t a i n e d a l o s s i n e x c e s s o f t h e r e i m b u r s e m e n t by t h e insurer, t h e insured i s e n t i t l e d t o b e made whole f o r h i s e n t i r e l o s s and any c o s t s of recovery, including a t t o r n e y ' s f e e s , b e f o r e t h e i n s u r e r can a s s e r t i t s r i g h t of lega 1 subrogation a g a i n s t t h e insured o r t h e tort-feasor." Skauge, 172 Mont. a t 528, 565 P.2d a t 632. A p p l y i n g t h i s p r i n c i p l e t o t h e f a c t s now b e f o r e u s , t h e S t a t e Fund is $25,000 whole. not entitled to any s e t t l e m e n t proceeds as subrogation claimant interest has not in been the made Furthermore, 1972 Mont. Const., art. 11, S 16, provides in pertinent part: "No person shall be deprived ofkhis full legal redress for injury incurred in employment for which another person may be liable except as to fellow employees and his immediate employer who hired him if such immediate employer provides coverage under the Workmen's Compensation Laws of this state . . ." This section was interpreted in White v. State (Mont. 1983) , 661 P.2d 1272, 40 St.Rep. right to full legal redress. 507, as creating a fundamental Thus, to interpret the Workers' Compensation Act's subrogation statute, § 39-71-414, MCA, to allow the State Fund subrogation rights when the claimant has not achieved full legal redress would be an unconstitutional application of an otherwise constitutional statute. Brandner, 179 Mont. at 211-214, 587 P.2d at 936 - (See 937, for a discussion of the constitutionality of S 39-71-414, MCA.) We hold that, in a case of reasonably clear liability, where a claimant is forced to settle for the limits of an insurance policy which, together with claimant's workers' compensation award, do not grant full legal redress to claimant, the insurer is not entitled to subrogation rights under S 39-71-414, MCA. begins. Reversed. We concur: Chief Justice When claimant is made whole, subrogation Justices Mr. J u s t i c e Fred J. Weber d i s s e n t s a s f o l l o w s : I r e s p e c t f u l l y d i s s e n t from t h e m a j o r i t y o p i n i o n . r e l i e s upon Skauge v . majority Co. (1977) , 172 Kont. Mountain S t a t e s Tel. 521, 565 P. 2d 628, & The Tel. f o r i t s conclusion t h a t t h e S t a t e Fund i s n o t e n t i t l e d t o a n y s u b r o q a t i o n i n t e r e s t i n t h e $25,000 s e t t l e m e n t p r o c e e d s u n t i l t h e c l a i m a n t h a s been made whole f o r h i s e n t i r e l o s s i n c l u d i n g a t t o r n e y s fees. While it i s t r u e t h a t such. a t h e o r y was found t o a p p l y i n Skauge, a company, case i n v o l v i n g an insured and h i s own i n s u r a n c e t h e r a t i o n a l e does n o t apply t o t h e p r e s e n t case. A s w e s t a t e d i n Skauqe: The b a s i c r a t i o n a l e f o r t h i s r u l e , i n e i t h e r o f t h e two c a t e g o r i e s , i s b e s t s t a t e d i n ---- u l F i r e & Marine -S t . Pa I n s . Co. v . W. P. Rose Supply Co., s u p r a , 198 S.E.T~ 8 4 : a t 4 " * * * When t h e sum r e c o v e r e d by t h e I n s u r e d from t h e T o r t - f e a s o r i s less t h a n t h e t o t a l l o s s and t h u s e i t h e r t h e I n s u r e d o r t h e I n s u r e r must t o some e x t e n t go u n p a i d , - - s h o u l d b e b o r n e by the loss t h e i n s u r e r -o- - h a t -s- a r z k t h e f r t - - i s u r e d - p a i d - - assume." has it t o (Emphasis supplied.) in- Again we n o t e , t h e d o c t r i n e o f l e g a l subrogation i s applied t o subserve t h e e n d s o f j u s t i c e and t o d o e q u i t y i n t h e particular case under consideration. Skauge, 172 Mont. the that loss is a assume. should risk That a t 528, 565 P.2d b e b o r n e by t h e which the a t 632. i n s u r a n c e company b e c a u s e insured has paid is not the factual Skauge h e l d t h a t the company t o situation i n the present c a s e where it i s t h e employer who h a s p a i d t h e premium f o r w o r k e r s ' compensation c o v e r a g e . In addition, the doctrine of l e g a l s u b r o g a t i o n i s shown i n Skauge t o h a v e a r i s e n i n e q u i t y and i s a p p l i e d i n o r d e r t o d o e q u i t y between t h e i n s u r e d and h i s own i n s u r a n c e company. Again, t h a t legal theory is not a p p l i c a b l e i n t h e p r e s e n t c a s e where t h e i n s u r e d w o r k e r h a s p a i d n o t h i n g t o t h e i n s u r a n c e company. I n t h i s c a s e , t h e r i g h t o f s u b r o g a t i o n i s n o t b a s e d upon an insurance contract between the parties o r upon a legal t h e o r y o f s u b r o g a t i o n i n v o l v i n g a n i n s u r a n c e company a n d i t s insured, upon a s was the c a s e i n Skauge. 5 39-71-414 (1), MCA, which in Instead, pertinent it i s b a s e d part states: a c t i o n i s prosecuted a s provided i n s u r e r i s e n t i t l e d t o subrogat i o n f o r a l l compensation and b e n e f i t s p a i d or t o b e p a i d under t h e Workers' Compensation Act. The i n s u r e r ' s r i g h t o f subrogation is a f i r s t l i e n on t h e claim, judgment, o r r e c o v e r y . an Jf . . . the This Court has previously pointed o u t t h a t t h e purpose o f t h e subrogation provision insurer to some i s t o compensate a n employer and h i s extent for the additional l i a b i l i t y which t h e y assume u n d e r t h e Workers' Compensation A c t f o r wrongful acts parties. of independent Morrison-Knudsen 1379; Fisher Nont. 41, v. Co., third Inc. Missoula 518 P.2d 795. (1978), White See 1 7 7 Mont. Pine Sash Tuttle 166, Co. v. 5 8 0 P.2d (1974), 164 1 t h e r e f o r e c o n c l u d e t h a t Skauge i s not authority f o r limiting the subrogation r i g h t granted t o t h e S t a t e Fund. also I v. Travelers with the majority conclusion that 208, 587 933, i s e a s i l y d i s t i n g u i s h a b l e from t h e c a s e a t b a r . As Brandner P.2d disagree I read t h a t opinion, Ins. Co. (1978), 1 7 9 Mont. I conclude t h a t t h e Workers' Compensa- t i o n C o u r t was c o r r e c t i n h o l d i n g t h a t R r a n d n e r r e q u i r e d t h e d e c i s i o n which it r e a c h e d . The m a j o r i t y o p i n i o n concludes t h a t i n B r a n d n e r w e f o u n d t h a t c l a i m a n t w a s made w h o l e b y a v o l u n t a r y s e t t l e m e n t i n s a t i s f a c t i o n o f a l l c l a i m s , and t h a t s i n c e c l a i m a n t h a d o b t a i n e d f u l l l e g a l r e d r e s s , it w a s a p p r o p r i a t e t o allow subrogation. With r e g a r d t o whether o r n o t c l a i m a n t i n B r a n d n e r w a s made w h o l e , t h i s C o u r t s t a t e d : ... I n t h i s c a s e , it c a n n o t now b e determined whether the claimant has excess o f the sustained a loss in r e c o v e r y made a g a i n s t B u r l i n g t o n Northe r n , Inc. That w i l l only be determined i n the future. I n t h e meantime, t o t h e e x t e n t t h a t it h a s made p a y m e n t s , o r w i l l make payments i n t h e f u t u r e , T r a v e l e r s ' subrogation r i g h t s a r e reduced t o f i f t y p e r c e n t under t h e s t a t u t e . Travelers ' r e c o v e r y may n e v e r e x c e e d f i f t y p e r c e n t o f t h e amount f o r which it i s l i a b l e u n d e r t h e Workers' Compensation Act. The t r u t h o f t h e m a t t e r , a s f a r a s Worke r s ' Compensation payments a r e c o n c e r n e d , i s t h a t c l a i m a n t h a s been made whole t o d a t e and t h e c o n t i n u i n u l i a b i l i t y f o r payments u n d e r t h e a c t a s a g a i n s t T r a v e l ers h a s a s s u r e d t h a t c l a i m a n t w i l l c o n t i n u e t o b e made whole. He w i l l not lose a n y b e n e f i t s u n d e r Workers' Compensation A c t by v i r t u e o f t h e r e c o v e r y , b u t i n essence w i l l recover h i s b e n e f i t s under It t h e A c t , and f i f t y p e r c e n t more. cannot l o g i c a l l y be contended t h e r e f o r e , t h a t c l a i m a n t h a s n o t been made whole f o r h i s Workers ' Compensation i n j u r y , when h e , by h i s own v o l u n t a r y a c t i o n , h a s f i n a l l y compromised h i s c l a i m i n f u l l against the third-party tortfeasor. Rrandner, 179 Mont. a t 215-16, Brandner h o l d s payments, made 587 P.2d t h a t by v i r t u e o f a t 938. In essence, t h e workers' compensation c l a i m a n t was made whole and would c o n t i n u e t o b e whole because he received his full benefits plus 50 p e r c e n t of t h e amount r e c o v e r e d from t h e t h i r d - p a r t y . The m a j o r i t y r e l i e s upon White v. 1272, would b e an u n c o n s t i t u t i o n a l a p p l i c a t i o n o f the State St-Rep. Fund 507, for the subrogation (Mont. J.983), c o n c l u s i o n t h a t it 661 P.2d allow 40 State rights the statute t o because claimed fundamental r i g h t o f f u l l l e g a l r e d r e s s . of the Our o p i n i o n i n White d i d n o t h o l d t h a t t h e r i g h t t o f u l l legal r e d r e s s i s an i n d e p e n d e n t , f u n d a m e n t a l r i g h t e n t i t l e d t o s t r i c t s c r u t i n y in every instance, including workers' compensation cases. The i s s u e b e f o r e t h e C o u r t i n White was s o v e r e i g n irnrnunj-ty from s u i t f o r non-economic damages o f a t o r t c l a i m a n t . c h a l l e n g e d s t a t u t e , S; 2-9-104, non-economic The MCA (1981) , b a r r e d r e c o v e r y o f damages from t h e S t a t e and l i m i t e d r e c o v e r y o f economic damages t o $ 3 0 0 , 0 0 0 f o r e a c h c l a i m a n t and $ 1 , 0 0 0 , 0 0 0 f o r each occurrence. While t h e r e i s b r o a d l a n g u a g e i n White which d o e s i n d i c a t e t h a t a l l p e r s o n s h a v e a s p e e d y remedy f o r e v e r y i n j u r y , l i m i t t h e holding of t h a t case t o t h e i s s u e before I would t h e Court. The h o l d i n g by t h e m a j o r i t y o f t h e C o u r t was t h a t 5 2-9-104, MCA, violated remedy f o r e v e r y i n j u r y . constitutional W h i t e , 661 P.2d all persons in all circumstances fundamental r i g h t t o f u l l l e g a l r e d r e s s . t h e Montana a t 1275, of a 40 S t . R e p . portion of full necessarily have a A r t i c l e 11, S 16 o f C o n s t i t u t i o n i l l u s t r a t e s why t h a t b r o a d c o n c l u While it i s t r u e t h a t t h e i n i t i a l sion is not appropriate. his guarantee That holding a l o n e i s n o t a u t h o r i t y f o r a conclusion a t 510. that the S 16 s t a t e s t h a t no p e r s o n s h a l l b e d e p r i v e d o f legal redress, it is immediately followed by an e x c e p t i o n f o r e m p l o y e r s who p r o v i d e c o v e r a g e u n d e r t h e Worke r s ' Compensation A c t . That exception i s d i r e c t l y a p p l i c a b l e t o the present I case. disagree with t h e conclusion that a l l o w i n g S t a t e Fund s u b r o g a t i o n r i g h t s would b e a n u n c o n s t i tutiona 1 application of the statute. I would a f f i r m t h e O r d e r and Judgment o f Compensation C o u r t . concur t h e foreg t h e Workers'

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