No. 83-525
IN THE SUPREMF, COURT OF THE STATE OF MONTANA
1984
JAMES G. BIRKENBUEL,
Plaintiff and Appellant,
MONTANA STATE COMPENSATION INSURANCE
FUND,
Defendant and Respondent.
APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable John M. McCarvel, Judge presiding.
COUNSEL OF ,%CORD:
For Appellant:
Hoyt & Trieweiler; Kurt M. Jackson, Great Falls,
Montana
For Respondent :
Barbara L. Bozman-Moss, Agency Legal Services Bureau,
Helena, Montana
Submitted on Briefs: May 3, 1984
Decided: August 28, 1984
AUr; d 1984
Filed:
-- --
Clerk
Mr. Chief Justice Frank I. Haswell delivered the Opinion of
the Court.
James G. Birkenbuel appeals the decision of the Cascade
County District Court granting defendant's motion for summary
judgment. Birkenbuel's tort action against the State Compen-
sation Insurance Fund (State Fund.) was dismissed pursuant to
the exclusive remedy clause of the Workers' Compensation Act,
section 39-71-411, MCA. We reverse.
Plaintiff Birkenbuel suffered a compensable injury in
1980. Birkenbuel's employer was insured by the State Fund in
accordance with compensation Plan 111. Section 39-71-2301 et
seq., MCA. The State Fund paid Birkenbuel bi-weekly tempo-
rary total disability payments during his healing period.
In early 1983, the State Fund determined that
Birkenbuel had achieved maximum healing. Settlement negotia-
tions were initiated with the plaintiff. Birkenbuel retained
John Hoyt to represent him in these proceedings.
Initially the State Fund proposed that $6,000 be paid
Birkenbuel in periodic payments. This figure was based on a
20 percent impairment rating of the knee. Birkenbuel re-
sponded through his attorney with a $35,000 lump sum propos-
al. This offer was designed to allow the claimant to start
his own business.
The $35,000 offer was deemed excessive by the State
Fund in light of the impairment rating and other considera-
tions. A counteroffer of $17,325 was made to Birkenbuel.
This counteroffer was reduced to writing, and a formal
petition for full and final compromise settlement was submit-
ted to Birkenbuel for his signature on May 19, 1983.
Birkenbuel's attorney initially rejected the counteroffer,
negotiating for a full and final settlement that could be
reopened withj-n four years. After no success, the attorney
for the claimant waived his fees, and drafted a cover letter
to the State Fund accepting the terms of the petition.
Accompanied by this letter and the petition, Birkenbuel
traveled to the Helena State Fund office to accept the
$ 1 7 , 3 2 5 offer.
The petition was not honored by the State Fund. In
rejecting its previous offer, the State Fund took exception
to the strongly worded cover letter drafted by claimant's
counsel.
Suit was filed June 7, 1983, alleging tortious acts on
the part of the State Fund. Specifically, Birkenbuel alleged
the State Fund breached both a common-law and a statutory
duty under the Unfair Trade Practices Act, section 33-18-101
et seq., MCA, to negotiate in good faith. Alternately, the
plaintiff alleged the State Fund acted fraudulently and
intentionally inflicted emotional distress. Actual and
punitive damages were requested.
The State Fund filed a motion to dismiss arguing the
District Court action was barred by the exclusive remedy
provision of the Workers' Compensation Act. It was also
argued that the State Fund was a state agency and punitive
damages were not recoverable.
The motion to dismiss was converted to a motion for
summary judgment by the District Court. Plaintiff took the
depositions of Robert F. Owens, the claims examiner for the
State Fund who handled plaintiff's workers' compensation
claim, Peter J. Strizich, supervisor of the State Fund claims
department, and A. G. Pillen, a former bureau chief of the
State Fund.
The court granted summary judgment for the State Fund
and dismissed Birkenbuel's complaint. Birkenbuel appeals
this judgment raising the following issues:
(1) Is a tort action against the State Fund for bad
faith in settling a. cornpensable claim barred by the exclusive
remedy provision of the Workers' Compensation Act?
(2) Are punitive damages recoverable against the State
Fund?
In essence, the exclusive remedy clause of the Workers'
Compensation Act, section 39-71-411, MCA, immunizes the
employer from common-law actions for work-related injuries.
Elimination of common-law actions was the quid pro quo sur-
rendered by workers in return for the benefits of a statutory
system of more certain compensation for work-related injuries
regardless of fault.
Certain exceptions have been recognized to the exclu-
sive remedy clause and a related provision in the Act, sec-
tion 39-71-2905, MCA. The latter section provides that the
penalties and assessments of Chapter 71 are the only assess-
ments that can be made against an insurer for compensation
disputes.
The District Court failed to acknowledge two prior
decisions of this Court construing exclusive remedy excep-
tions. In Hayes v. Aetna Fire Underwriters (1980), 187 Mont.
1-48, 609 P.2d 257, we held an injured worker could a.ssert a
separate claim in District Court alleging a private insurer
committed intentional torts and acted in bad faith in adjust-
ing and processing a compensation claim. The defendant in
Hayes was a Plan I1 private insurer of the plaintiff's em-
ployer. Section 39-71-2201 et seq., MCA. In Vigue v. Evans
Products Co. (1980), 187 Mont. 1, 608 P.2d 488, we applied a
similar ruling to a Plan I self-insurer. Section 39-71-2101
et seq., MCA. The current case presents the third
situation--a tort action against the State Fund, the Plan I11
insurer.
The reasoning of our decisions in Hayes and Vigue is
equally applicable to the present case. The alleged tortious
conduct did not arise within the employment relationship of
Birkenbuel and his employer. The emotional injury described
in the complaint occurred subsequent in time to his employ-
ment and is not work-related.
Our statutory system of workers' compensation does not
provide workers with benefits for injury sustained from
settlement negotiations with an insurance carrier. As such,
the exclusivity provisj-ons of the Workers ' Compensation Act
do not bar independent actions for tortious conduct arising
from such interactions. Any contrary interpretation would
result in the inequity whereby workers surrendered more
protection than they received when our statutory system of
compensation was adopted.
Birkenbuel pled a breach of common-law and statutory
duties of good faith in insurance settlement negotiations.
The State Fund argued that it is not a private insurance
company and not subject to the provisions of the insurance
code.
Bad faith in claim settlement is an actionable tort
independent of the insurance code; we need not reach the
question of the applicability of the code to the State Fund.
In Lipinski v. Title Ins. Co. (Mont. 1982), 655 P.2d 970,
977, 39 St.Rep. 2283, 2291, we held ". . . insurance compa-
nies have a duty to act in good faith with their insureds,
and that this duty exists independent of the insurance
contract and independent of the statute."
The State Fund may not be a private insurance company
that actively pursues the sale of insurance policies. Howev-
er, it is a publicly administered body that indemnifies
employers for work-related injuries. Insurance contracts are
executed with employers who choose Plan I11 coverage. These
employers pay premiums for the coverage and at the end of th.e
year the State Fund returns excess funds to its insureds in
the form of dividends. The question of whether or not the
State Fund is technically an insurance company presents a
needless exercise in semantics. For all practical purposes
the State Fund is involved in the business of insurance.
What this Court said in Hayes is equally true today:
". . . No one should be allowed inten-
tionally and tortiously to cut off a
claimant unilaterally for whatever pur-
pose they choose and then hide behind
workers' compensation exclusivity in
assurance that the only retribution will
come in the form of a compensation penal-
ty paid for by society.
". . .any party involved in the business
of insurance knows its rights and respon-
sibilities as well as its obligation to
deal in good faith and with fairness
toward those who are entitled to protec-
tion of the Workers' Compensation Act."
609 P.2d at 262.
The State Fund has sought to sidestep the precedent of
Vigue and Hayes by asserting in its brief that the decisions
were ba.sed on the finding tha.t the defendant insurers
violated the policy and the spirit of the insurance code,
". . . in particular section 33-18-201, MCA."
The insurance code played no part in our decision in
Hayes or Vigue. Section 33-18-201, MCA, which relates to
unfair trade practices, is neither cited nor referred to in
either Hayes or Vigue. As discussed above, both cases were
decided upon our interpretation of the exclusivity provisions
of the Workers1 Compensation Act, sections 39-71-411 and
39-71-2905, MCA.
The District Court cited the decisions of Palmer v.
R.L. Kautz & Co. (1983), 141 Cal.App.3d 155, 190 Cal.Rptr.
139, and Gonzales v. United States Fidelity & Guar. (1983),
99 N.M. 432, 659 P.2d 318, in support of its conclusion of
law. These cases represent the law of two jurisdictions that
have adopted an interpretation of their workers1 compensation
legislation different than that we adopted in Hayes and
Vigue .
In California a worker can bring an ind-ependentaction
for intentional tortious conduct by an insurer provided the
conduct is sufficiently outrageous and reprehensible. See
Unruh v. Truck Insurance Exchange (1972), 7 Cal. 3d 616, 102
Cal.Rptr. 815, 498 P.2d 1063 (action a.llowed when insurance
agent established ostensible romantic relationship with
claimant, took her to Disneyland, secretly filmed her react-
ing to his manipulations of rope bridges and then showed the
film to a compensation court producing further emotional
trauma to claimant). Unruh was a landmark California deci-
sion which we cited with general approval in both Hayes and
Vigue .
The California Supreme Court in Unruh and subsequent
appellate court decisions in that state have focused on the
level of reprehensibility present. Mere negligent delay and
rejection of claims that an insurance company considers
exaggerated are not actionable. Palmer, supra. California
decisions interpreting the California Labor Code's
exclusivity provision have not been based on whether the
injury arose within the employment relationship. For in-
stance in Fremont Indem. Co. v. Superior Court, Etc. (1982),
133 Cal.App.3d 879, 184 Cal.Rptr. 184, the appellate court
specifically stated that the distinction of a separate injury
not arising in the course of employment does not remove the
exclusive jurisdiction of the California Workers' Compensa-
tion Appeals Board. In Hayes and Vigue, we adopted the
opposite position. For this reason California decisions on
remedy exclusivity are of limited assistance to our jurisdic-
tion. Apart from the broad proposition set forth in 1972 by
Unruh that intentional torts are actionable, our case law has
independently evolved.
The New Mexico decision of Gonzales is more readily
distinguished. Gonzales is a recitation of the general rule
followed by New Mexico that if the Workers' Compensation Act
provides a remedy for t.he alleged wrong, the remedy is exclu-
sive. In both Gonzales and the earlier New Mexico decision
of Dickson v. Mountain States Mut. Cas. Co. (1982), 98 N.M.
479, 650 P.2d 1, independent tort actions were held. to be
barred. In deciding Hayes and Vigue, we rejected the reason-
ing of jurisdictions like New Mexico that have generally held
independent actions barred by their workers' compensation
acts. See for example Hixon v. State Compensation Fund
(1977), 115 Ariz. 392, 565 P.2d 898; Massey v. Armco Steel
Co. (Tex.Civ.App. 1982), 635 S.W.2d 596; see generally
Annot., 8 A.L.R.4th 902 (1981).
We reaffirm our approval of those decisions upholding
the right of a worker to assert a separate claim for tortious
conduct occurring outside the employment relationship and
during the processing and settlement of a workers' compensa-
tion claim. Stafford v. Westchester Fire Ins. Co. of N.Y.,
Inc. (Alaska 1974), 526 P.2d 37; Gibson v. Nat. Ben Franklin
Ins. Co. (Me. 1978), 387 A.2d 220; Hollman v. Liberty Mut.
Ins. Co. (8th Cir. 1983), 712 F.2d 1259 (interpreting South
Dakota law) ; Coleman v. A-merican Universal Ins. Co. (1970),
86 Wis.2d 615, 273 PJ.W.2d 220; Martin v. Travelers Insurance
Company (1st Cir. 1974), 497 F.2d 329.
Our decisions in Hayes, Vigue and Lipinski apply just
as vigorously to the State Fund as they do Plan I self-insur-
ers and Plan I1 private insurers.
Holding that Birkenbuel is entitled to pursue his cause
of actions based in tort we must decide whether punitive
damages are recoverable against the State Fund.
The State Compensation Insurance Fund is a separate
bureau within the Division of Workers' Compensation of the
Department of Labor and Industry. The lower court concluded
as a matter of law: "The State Fund (Plan 111) is a state
agency subject to the Montana Torts Claims Act and punitive
damages are not recoverable." Our decision in White v. State
(Mont. 1983), 661 P.2d 1272, 40 St.Rep. 507, was cited in
support of the trial court's decision.
In White this Court upheld th.e constitutionality of
section 2-9-105, MCA, which immunizes the State from punitive
damage assessments. We noted in White that the primary
purpose of assessing punitive damages is to deter future
unlawful conduct of the tort-feasor. The problem with as-
sessing punitive damages against the government is that the
deterrent effect is very remote; blameless taxpayers are the
ones punished while the blameworthy agency is often not
motivated to change its actions in conformance. White,
supra.
This question applied to the State Fund is a close one.
The Fund is imbued with many of the administrative indicia of
a state agency. However, it is not directly funded by tax-
payers. The State Fund is supported by premiums collected
from its subscribing insureds.
A substantial punitive award, such as the $250,000
requested in the present case, would ultimately be charged to
these subscribing employers. Annual dividends woul-d be
proportionately reduced to compensate for the punitive
assessment.
Consequently, the purpose of assessing punitive damages
would not be furthered by a recovery against the State Fund.
Blameless employers would bear the brunt of the assessment.
Accordingly, we hold punitive damages are not recoverable
against the State Fund.
The summary judgment of the District Court is reversed.
The case is remanded for further proceedings in accordance
with this opinion.
3il&,WW&
Chief Ju'stice
We concur:
y
L 42-
Justices
Mr. Justice Frank B. Morrison, Jr. specially concurs as
follows:
I concur in the result. However, with respect to the
punitive damage issue I cannot subscribe to the rationa.le.
In First Bank Billings v. Transamerica Insurance Co.
(Mont. 1984), 679 P.2d 1217, 41 St.Rep. 573, we held that it
did not violate public policy to provide insurance coverage
for punitive damages although such insurance coverage removed
the punitive burd.en from defendant and had the potential for
shifting it to the insurance carrier and its policyholders.
Furthermore, the argument made by the majority could as well
be applied to any insurance carrier against whom an award of
punitive dama.ges has been made. In all cases the insurance
carrier would pass the loss back to its policyholders. This
ha.s never provided the courts with reason to insulate such
carriers from liability for punitive assessments.
I would simply hold that the State Insurance Fund is
part of state government and immune from punitive damages
under the applicable statute. White v. State (Mont. 1983),