No. 14853
IN THE SUPREME COURT OF THE STATE OF MONTANA
1980
FRANCIS HAYES,
Plaintiff and Appellant,
AETNA FIRE UNDERWRITERS, a
corporation, and GEORGE WOOD,
d/b/a COMPENSATION ADJUSTERS, INC.,
Defendants and Respondents.
Appeal from: District Court of the Fourth Judicial District,
Honorable Jack L. Green, Judge presiding.
Counsel of Record:
For Appellant:
Hoyt, Trieweiler, Lewis & Regnier, Great Falls, Montana
John Hoyt argued, Great Falls, Montana
For Respondents:
Garlington, Lohn & Robinson, Missoula, Montana
Larry E. Riley argued, Missoula, Montana
Church, Harris and Johnson, Great Falls, Montana
Cresap S. McCracken argued, Great Falls, Montana
Submitted: January 15, 1980
Decided : MAR I E 1980
Filed: @AR 1? 198C
Mr. Justice Gene B. Daly delivered the Opinion of the Court.
This is an appeal from a judgment of dismissal of plain-
tiff's action from the District Court of the Fourth Judicial
District, in and for the County of Missoula.
Plaintiff was injured within the course and scope of his
employment with JMS Construction in an industrial accident that
occurred on October 23, 1975. Defendant Aetna was the Plan I1
carrier for JMS Construction. Aetna employed defendant Wood to
handle the adjusting of workers' compensation claims on its be-
half. Both defendants accepted plaintiff's workers' compensation
claim as compensable under the Workers' Compensation Act.
In January 1977, plaintiff filed a complaint against Aetna
and Wood in the District Court of the Fifteenth Judicial District,
in and for the County of Roosevelt, alleging tortious acts on the
part of Aetna and Wood with respect to the adjusting and handling
of his workers' compensation claim. Aetna and Wood appeared and
moved to dismiss. The Roosevelt County District Court granted the
motion to dismiss on May 12, 1977, determining that plaintiff first
had to establish his right to compensation before the Workers'
Compensation Court, which possessed exclusive jurisdiction.
Following the Roosevelt County District Court's dismissal,
plaintiff pursued his claim for workers' compensation benefits
before the Workers' Compensation Court, wherein he prevailed.
Aetna then appealed the Workers' Compensation decision to the
Montana Supreme Court. This Court affirmed the decision of the
Workers' Compensation Court. Hayes v. J.M.S. Const. (1978),
Mont . , 579 P.2d 1225, 35 St.Rep. 722.
Thereafter, plaintiff filed an amended complaint in Roose-
velt County District Court in July 1978, alleging that Aetna and
Wood had committed the intentional torts of fraud, conversion
and intentional infliction of emotional distress. Plaintiff also
alleged that Aetna and Wood had continuously refused to pay
compensation benefits and medical bills. Both Aetna and Wood
moved to dismiss in August 1978. On September 12, 1978, the
Roosevelt County District Court denied the motions of Aetna and
Wood to dismiss and ordered responsive pleadings.
The case was then transferred to Missoula County by
stipulation of counsel, together with a memorandum opinion issued
by the Honorable M. James Sorte, Judge of the District Court,
Fifteenth Judicial District, Roosevelt County. The pertinent
part reads:
"By reason of a stipulation filed by counsel,
this case is transferred to the jurisdiction of
Missoula County, Montana. However, there has been
filed in the case, Plaintiff's Reply to the Ob-
jections by Aetna,Fire Underwriters to Plaintiff's
Motion to Dismiss. The tenor of the reply is that
counsel for Plaintiff entered into a stipulation
that the matter could be transferred to Missoula
County but counsel for Defendants have raised
certain questions that have already been ruled
upon by this Court. It is the opinion of this Court
that the matters that have been briefed, considered
by the Court, and ruled upon, are the rule and law
of the case in this matter and that the District
Court of the Fourth Judicial District is and should
be bound by the rulings of this Court on all matters
that have been previously brought before the Court,
ruled upon, and are now final for those reasons.
To allow counsel to again raise the same questions as
have been ruled upon by this Court would do nothing
less than encourage counsel to shop around for a
different venue so that their position could be ruled
upon on several occasions. All of this is contrary
to the clear intent of our rules of procedure."
In disregard of Judge Sorte's Opinion, Wood and Aetna refiled
in the Missoula County District Court on February 28, 1979 and
March 13, 1979, respectively, motions which had been previously
ruled upon in Roosevelt County. Such refiling constitutes a
contempt. Sections3-1-502 and 503, MCA. On June 1, 1979, the
Missoula County District Court filed an order dismissing plaintiff's
complaint upon the grounds that the District Court lacked juris-
diction because exclusive jurisdiction rested with the Workers'
Compensation Court under section 92-204.1, R.C.M. 1947, and the
complaint failed to state a claim against the defendant upon which
relief could be granted.
Plaintiff now appeals from the judgment of the Missoula
County District Court granting the defendants' motions to dis-
miss.
The appellant in this case states the issue for review
by this Court as follows: whether a worker who sustains an in-
jury covered by the Workers' Compensation Act may assert in
District Court a separate claim for damages alleging that the
insurer and its adjustor committed intentional torts and acted
in bad faith in adjusting and processing the workers1 compensation
claim. Stated in another manner, is a complaint alleging that a
workers' compensation insurer and its adjustor committed the
intentional torts of fraud, conversation, and intentional inflic-
tion of emotional distress upon a workers' compensation claimant
within the exclusive subject matter jurisdiction of the Workers'
Compensation Court?
Respondent George Wood agrees with the issue as stated by
appellant. Respondent Aetna would like to confine the issue to
the question: can the injured workman have his cake and eat it
too?
We will accept the issues as formulated by appellant.
The dismissal by the Missoula District Court dated May 31,
1979, is with prejudice for lack of jurisdiction and exclusive
jurisdiction in the Workers' Compensation Court under section
92-204.1, R.C.M. 1947, and because the complaint fails to state a
claim against the defendant upon which relief can be granted.
It is a little difficult to agree or disagree with the
Missoula District Court because the presiding judge rendered no
opinion. We do not know if the court meant that under the exclu-
sivity provision of section 92-204.1, R.C.M. 1947, (now section
39-71-411, MCA) the Workers' Compensation Court has jurisdiction
to try willful torts not arising out of the actual employment or
that the pleading was such that it did not state a claim in any
court. In any case, the dismissal appears to be in direct con-
flict with the law of the case as established by the District
Court of the Fifteenth Judicial District, the court of original
jurisdiction.
We will not attempt to evaluate the merits of the dismissed
case by the manner in which it was pleaded, but rather try to eval-
uate it from the standpoint of the type of action at bar and its
genesis.
At the center of the dispute is the exclusivity provision
of the Montana Workers' Compensation Act, which is set forth in
section 39-71-411, MCA. That statute states:
"For all employments covered under the Workers'
Compensation Act or for which an election has
.
.
been made for coveraae under this chapter, the
provisions of this chapter are exclusive. Ex-
c e ~ t ~rovidedin part 5 of this chapter for
as
unlnsureh employers and except as othekwise
provided in the Workers' Compensation Act, -
an
employer is not subject to any liability what-
. .
ever for the death of or personal injury to an
em~loveecovered bv the Workers' Compensation
A C ~ for any claims for contribution or in-
o;
demnity asserted by a third person from whom
damages are sought on account of such injuries
or death. The Workers' Compensation Act binds
the employee himself, and in case of death binds
his personal representative and all persons hav-
ing any right or claim to compensation for his
injury or death, as well as the employer and the
servants and employees of such employer and those
conducting his business during liquidation, bank-
ruptcy, or insolvency." (Emphasis added.)
Professor Larson in his treatise on Workmen's Compensa-
tion Law has categorized exclusivity statutes in state workers'
compensation schemes into three general types. Larson, Workmen's
Compensation Law, S 66.00, at 12-20, 21. Montana's statute is a
blend of two categories. It is intended to be a broad surrender
of liability. It partakes of the California and Michigan type
statutes, which state that an employer shall have "no other lia-
bility whatsoever," and the New York type statute, which carries
the surrender of liability one step farther by specifying that
the excluded action includes those by "such employee, his per-
sonal representative, husband, parents, dependents or next of
kin, or anyone otherwise entitled to recover damages, at common
law or otherwise on account of such injury or death." The last
category is the Massachusetts type, which is the narrowest and
states that the employee, by coming within the act, only waives
his common law rights.
In three recent cases, this Court has been concerned with
the exclusivity of Montana's Workers' Compensation Act. Each
time the Court has resolved any doubt about the exclusivity of
remedies in favor of the provisions of the Act. See Jacques v.
Nelson (1979), Mont . , 591 P.2d 186, 36 St.Rep. 287;
Carlson v. Anaconda Co. (1974), 165 Mont. 413, 529 P.2d 356.
Cordier v. Stetson-Ross, Inc. (1979), Mont. , 604 P.2d 86,
Respondents urge that Carlson is on all fours with the
present cases. Carlson may be distinguished from the case at bar,
however, on the basis that the facts and circumstances in Carlson
give the case a much different character. Whereas the present
case involves intentional torts or the presence of bad faith,
Carlson involved a case of negligence or mismanagement. In Carlson,
the Court seems to have accepted Anaconda's argument that the
failure to pay resulted from a mix-up in record keeping, not from
bad faith. The Court distinguished Carlson from cases like Reed
v Hartford Accident
. & Indemnity Co. (E.D. Pa. 1973), 367 F.Supp.
134, which involved the commission of intentional torts. In Carlson-
the Court stated:
"Reed, cited by plaintiff is distinguishable on
theacts. There the action at law was against
the employer's Workmen's Compensation insurance
carrier based on independent intentional torts
and breach of an express contract to pay total
disability benefits by false, fraudulent and
perjured means. This is a far cry from the facts
here and the attempted analogy fails." 165 Mont.
at 417, 529 P.2d at 358.
Jacques involved a claimant who filed a common law tort
action in ~istrictCourt against his employer, Anaconda Company,
for injuries sustained while he was working as an employee at
the Anaconda Reduction Works. Anaconda was a Plan I self-insurer
under the Workers' Compensation Act who had failed to file an
employer's first report of injury or to give the required notice
that the claim was being denied. Anaconda moved to dismiss the
complaint on the grounds that Jacques' remedy was exclusively
within the Workers' Compensation Act. The motion was granted.
Upon appeal, Jacques contended that the Act was not his exclusive
remedy because Anaconda had elected not to comply with certain
mandatory requirements of the Act. This Court rejected Jacques'
argument by stating:
"The Act requires the employer to file a first
report of injury. .. Here, plaintiff's employer
failed to do so. The Act provides a civil penalty
of not more than $1,000 against the employer for
failure to file the first report of injury. . .
Nowhere in the Act does such failure constitute
an election by the employer not to be bound by the
Act or subject him to a common law tort action.
The mandatory coverage of all private employment
not expressly exempted under the Act would be null-
ified were we to hold that such failure removes
Workmen's Compensation coverage.
"The Act further requires the employer to give
written notice to the employee of denial of his
claim. .. Plaintiff alleges he never received such
notice. The Act provides for the imposition of a
10% penalty if compensation is awarded by the Workers'
Compensation Court. . .
Nowhere in the Act does
failure to give such notice remove the employer
from coverage under the Act or subject him to a com-
mon law tort action.
"If the law were otherwise, the purpose and intent
of the mandatory coverage of the Act would be effec-
tively subverted. The employer could eliminate the
coverage of the Act over a particular employee or a
particular accident at will simply by refusing to
file an accident report or failing to notify its
employee of a,denial of his claim. This would in-
deed be a unique and unparalleled kind of Workmen's
Compensation Act coverage." Jacques, supra, 591 P.2d
at 187, 188.
Again, respondents urge that Jacques is persuasive and
controlling. Jacques may be distinguished from the cases at bar,
however, on the basis that it involved an action in District
Court against an employer for injuries sustained by an employee
during the course of his employment, whereas the present cases
involve actions in District Court against insurers and their
adjusters for intentional torts committed after the employment
relationship had ceased. Where the exclusivity statute states
that "an employer is not subject to any liability whatever for
the death of or personal injury to an employee," Jacques clearly
fits within the exclusion. (~mphasis
added.)
The law is very clear and Montana follows it with regards
to Workers1 Compensation exclusivity and the exclusive jurisdic-
tion of the Workers' Compensation Court to settle disputes of all
kinds that arise in good faith and legitimately out of workers'
claims. Yet, the respondents fail to follow the argument through
the problems we face in the case at bar. What happens to an in-
tentional or bad faith tort that arises, not out of the workers'
employment, but after his employment has ceased? Although it is
not new in the law, Montana has not reached that situation until
now. Other jurisdictions have been confronted with the precise
issue presented in this case, Gibson v. Nat. Ben ~ranklinIns. Co.
(1978)I Me. , 387 A.2d 220; Martin v. Travelers Insurance
Company (1st Cir. 1974), 497 F.2d 329; Stafford v. Westchester
Fire Ins. Co. of N.Y., Inc. (Alaska 1974), 526 P.2d 37; Unruh v.
Truck Insurance Exchange (1972), 102 Cal.Rptr. 815, 498 P.2d 1063;
Coleman v. American Universal Ins. Co. (1970), 86 Wis.2d 615, 273
N.W.2d 220. See also Reed, supra. These cases have upheld the
right of a claimant to bring an action in District Court against
an insurer and its adjuster for independent intentional torts
committed in the processing of a workers' compensation claim.
The right has been upheld on several different grounds.
First, and most frequently, the courts have upheld the right to
bring an action for independent intentional torts because the
tortious conduct, which gives rise to the action, does not arise
out of the original employment relationship. It occurs after
employment and arises out of the employee's relationship with the
insurance carrier after the employment relationship has been ter-
minated. It is preuicated on an act after the injury and during
the settlement of the claim. The insurance carrier is no longer
the "alter ego" of the employer, but rather is involved in an
independent relationship to the employee when committing such tor-
tious acts. Gibson, 387 A.2d at 222-223; Reed, 367 F.Supp. at
Martin, Stafford, Unruh ,
4 9 8 P.2d at 1073; Coleman, 273 N.W.2d at 223. Perhaps the best
statement of the concept is found in Coleman, which stated:
"The injury for which remedy is sought in the
instant case is the emotional distress and other
harm caused by the defendants' intentional acts
during the investigation and during the course of
payment of the claim. This claimed injury was
distinct in time and place from the original on-
the-job physical injury which was subject to the
Compensation Act. The injury for which recovery
is sought in the present actions did not occur
while the plaintiff was employed or while he was
performing services growing out of and incidental
to his employment. As the plaintiff repeatedly
and correctly stresses in his brief, this action
is based not on the original work-related injury
but on a second and separate injury resulting from
the intentional acts of the insurer and its agents
while investigating and paying the claim. The Act
does not cover the alleged injury, and the exclus-
ivity provision does not bar the claim." 273 N.W.2d
at 223.
The second basis upon which courts have upheld the right
to bring an action for independent intentional torts concerns the
penalty provisions of the state workers' compensation acts.
Many state acts like Montana's contain provisions which create
penalties where employers fail to pay benefits or exercise unreason-
able delay in paying such benefits. Several courts have deter-
mined that these provisions are not exclusive with respect to a
claimant's remedies because legislatures did not contemplate them
as being remedies for intentional wrongdoings. Where the wrong is
intentional, malicious and calculated to cause intimidation,
courts have held that a claimant is entitled to another remedy.
Gibson, 387 A.2d at 223; Martin, 497 F.2d at 331; Stafford,
526 P.2d at 43; Coleman, 273 N.W.2d at 224.
One court has determined that the character of the penalty
provisions within the workers' compensation schemes is such that
they are especially applicable to kinds of conduct which are not
intentional. Though they may be triggered by intentional wrong-
doings or the presence of bad faith, they apply to conduct which
falls short of bad faith, such as cases of mismanagement or de-
ficient administrative practices. Where intentional wrongdoing
is involved, one court has stated that the conduct cannot merely
be expiated by penalty payments augmented in the amount of 10%.
Coleman, supra, 273 N.W.2d at 224.
Other bases have been offered by courts to substantiate
the right as well. One court has relied upon a state constitu-
tional provision, such as Article 11, section 16, 1972 Montana
Constitution, which provides that every person shall have a remedy
by due course of law for an injury done to him. Gibson, supra,
387 A.2d at 223.
The weight of authority has resolved this issue in favor
of an independent action in the District Court for an intentional
tort, as it does not arise out of an employment relationship. The
penalty provisions of state schemes are not intended as remedies
for intentional wrongdoings. The Compensation Act should not be
a "shield" which will insulate those who would engage in intention-
al wrongdoing in the settlement and investigation of workers' claims.
No one should be allowed intentionally and tortiously to cut off
a claimant unilaterally for whatever purpose they choose and then
hide behind workers' compensation exclusivity in assurance that the
only retribution will come in the form of a compensation penalty
paid for by society.
Insofar as the plea made by the respondents in their
limited defense of the carrier, we can only add that any
party involved in the business of insurance knows its
rights and responsibilities as well as its obligation
to deal in good faith and with fairness toward those who
are entitled to the protection of the Workers' Compensa-
tion Act.
The order and judgment dismissing plaintiff's com-
plaint is hereby vacated and set aside and the cause re-
manded to the District Court for further proceedings.
We concur:
%AQ0&4da&
Chief Justice
c16.IyLBJ2!dL/
Justices
Mr. Justice John Conway Harrison specially concurring:
In signing this opinion, I must express a real concern--
one perhaps that needs the attention of the legislature if
our workers' compensation system is to properly care for the
needs of our citizens. I recognize the right of a claimant
to bring an action for the commission of an intentional tort
in the settling of a workers' compensation claim. I am con-
cerned, however, with the effect of these cases on the prac-
tical workings and operation of the workers' compensation
system. Today we possibly open the door to abuse in the
settling of workers' compensation claims. A claimant who
disagrees with a settlement offer made to him by an insur-
ance adjuster may escape the provisions of the Workers'
Compensation Act by merely alleging the commission of an
intentional tort. This may prove to be a tactic that places
insurance adjusters at a severe disadvantage in settling
claims. I have no special affinity for insurance adjusters.
However, this is not the fashion in which the legislature
envisioned the settlement process to operate.
The safeguards against this type of abuse lie in the
procedures established for dismissing actions that lack
merit at the District Court level. The safeguards include
motions for summary judgment and motions for directed ver-
dicts. Prompt impositions of these safeguards will protect
against abuse of the workers' compensation settlement pro-
cess by lessening the possibility that an insurance ad-
juster will be forced to defend against a claim that lacks
merit. The case here is before the Court on a motion to
dismiss. At this stage of the proceedings, the allegations
of the complaints must be taken as true and do state a
cause of action for intentional tort. I, therefore, agree
procedurely with t h e r e s u l t reached i n t h e case. I cannot
s a y , however, t h a t I would a g r e e w i t h t h e r e s u l t s i f t h e c a s e
came t o u s a f t e r summary judgment. The c l a i m a n t would have
t o produce much more e v i d e n c e t h a n t h e r e c o r d now i n d i c a t e s
e x i s t s b e f o r e t h e f a c t s would show i n t e n t i o n a l wrongdoing
by t h e i n s u r a n c e a d j u s t e r i n t h i s c a s e . This i s e s p e c i a l l y
t r u e g i v e n t h e r e a l p r a c t i c a l problems o f a b u s e of t h e
w o r k e r s ' compensation system t h a t may o c c u r i f t h i s C o u r t
and t h e D i s t r i c t C o u r t s do n o t c a r e f u l l y e n f o r c e t h e s a f e -
g u a r d s p r o v i d e d by t h e j u d i c i a l p r o c e s s . I therefore join
i n t h e o p i n i o n of t h e C o u r t i n t h i s c a s e , b u t w i t h t h e
above-noted r e s e r v a t i o n s .