No. 84-372
I N THE SUPREME COURT O F THE STATE OF MONTANA
1985
WARREN LOU R A I S L E R ,
P l a i n t i f f and A p p e l l a n t ,
BURLINGTON NORTHERN RAILROAD C O . , a
D e l a w a r e C o r p . , a n d ROSS-KO G R A I N ,
Defendants,
and
BURLINGTON NORTHERN RAILROAD COMPANY,
Third-Party P l a i n t i f f and Petitioner,
FARMERS UNION ELEVATOR COMPANY,
Third-Party Defendant and Respondent.
ORIGINAL PROCEEDING:
COUNSEL OF RECORD:
T h o m a s W. Spence a r g u e d f o r B u r l i n g t o n N o r t h e r n ,
B i l l i n g s , Montana
F o r Defendant/Respondent:
A n d e r s o n , B r o w n , G e r b a s e , C e b u l l & Jones; S t e v e n J .
H a r m a n & C y n t h i a R. Woods a r g u e d f o r F a r m e r s U n i o n
E l e v a t o r , B i l l i n g s , Montana
H e r n d o n , H a r p e r & Munro; R o d n e y T. H a r t m a n , B i l l i n g s ,
M o n t a n a (F?.oss-KO G r a i n )
T o w e , B a l l , E n r i g h t & M a c k e y ; T h o m a s E. T o w e , B i l l i n g s ,
Montana (Raisler)
Submitted: February 21, 1985
Decided: December 31, 1985
4
*
Clerk
Mr. J u s t i c e F r e d J. Weber d e l i v e r e d t h e Opinion o f t h e C o u r t .
The United States District Court for the State of
Montana has certified two questions to this Court from a
f e d e r a l a c t i o n f o r p e r s o n a l i n j u r i e s and a d e r i v a t i v e t h i r d
p a r t y s u i t f o r c o n t r i b u t i o n o r indemnity. The q u e s t i o n s , a s
c e r t i f i e d t o u s by t h e f e d e r a l c o u r t , a r e :
I. When an injured employee sues a third party for
damages and t h e t h i r d party joins the employer as a third
party defendant seeking contribution or indemnity, is the
a s s e r t i o n of § 39-71-411, MCA, by t h e t h i r d p a r t y d e f e n d a n t
employer a s a d e f e n s e , u n c o n s t i t u t i o n a l a s it i s applied t o
the third party plaintiff? Our answer i s no.
2. When an injured employee sues a third party for
damages, and t h e t h i r d p a r t y j o i n s t h e employer a s a t h i r d
party defendant seeking contribution o r indemnity, and the
employer h a s s i g n e d a w r i t t e n a g r e e m e n t w i t h t h e p r o v i s i o n s
outlined in this certification, can the employer assert 5
39-71-411, MCA, as a complete defense to the third party
action? Our a n s w e r i s y e s .
The certification order of t h e United States D i s t r i c t
Court sets f o r t h t h e following a l l e g a t i o n s o f f a c t : Warren
R a i s l e r was employed a s a l a b o r e r by F a r m e r s Union E l e v a t o r
Company (Farmers). While loading grain cars at Farmers'
f a c i l i t y , h e f e l l from t h e t o p o f a g r a i n c a r t h a t was b e i n g
moved by a co-employee. Mr. R a i s l e r s u s t a i n e d severe i n j u -
ries, including a partial amputation of his foot. He has
received workers' c o m p e n s a t i o n b e n e f i t s from F a r m e r s f o r h i s
i njuries.
Mr. Raisler initiated a personal injury action in
Yellowstone County District Court. He named Ross-Ko Grain
(Ross-KO) and Burlington Northern Rail road Company
(Burlington Northern) as defendants. He alleged that
Ross-KO, a Minnesota corporation, owned the railroad cars
i n t o which he was l o a d i n g g r a i n a t t h e t i m e o f t h e a c c i d e n t .
Burlington Northern, a Delaware c o r p o r a t i o n , a 1 l e g e d l y owned
t h e t r a c k s and t h e l a n d where t h e a c c i d e n t o c c u r r e d . Farm-
e r s ' g r a i n h a n d l i n g f a c i l i t y i s s i t u a t e d on l a n d l e a s e d from
Burlington Northern. The s u i t was removed t o f e d e r a l c o u r t
b a s e d on t h e p a r t i e s ' d i v e r s i t y o f c i t i z e n s h i p .
Rurlington Northern joined Farmers as a third party
defendant and sought contribution and/or indemnity from
Farmers, should Burlington Northern ultimately be found
liable to Farmers ' employee, Raisler. Farmers moved for
summary judgment on t h e ground t h a t S 39-71-411, MCA, limited
its liability to the payment of workers' compensation
benefits.
S e c t i o n 39-71-411, MCA, p r o v i d e s :
P r o v i s i o n s o f c h a p t e r e x c l u s i v e remedy -
n ~ n l i a b i l i t ~ o if s u r e d e m p l o y e r .
n For
a l l employments c o v e r e d u n d e r t h e Work-
e r s ' Compensation A c t o r f o r which an
e l e c t i o n h a s been made f o r c o v e r a g e u n d e r
t h i s chapter, t h e provisions of t h i s
chapter a r e exclusive. Except a s provid-
ed i n p a r t 5 o f t h i s c h a p t e r f o r unin-
s u r e d e m p l o y e r s and e x c e p t a s o t h e r w i s e
p r o v i d e d i n t h e Workers' Compensation
A c t , a n employer i s n o t s u b j e c t t o a n y
l i a b i l i t y whatever f o r t h e death o f o r
p e r s o n a l i n j u r y t o an employee c o v e r e d by
t h e Workers' Compensation A c t o r f o r any
claims f o r contribution or indemnity
a s s e r t e d by a t h i r d p e r s o n from whom
damages a r e s o u g h t on a c c o u n t of s u c h
i n j u r i e s o r death. ...
The federal court requests t h i s Court's interpretation
of S39-71-411, MCA, as it relates to the Montana
Constitution.
Montana e n a c t e d t h e Workmen ' s Compensation A c t i n 1915.
Sec. 1, Chap. 96, Laws 1915. Under t h e s t a t u t o r y compensa-
t i o n scheme, employees r e l i n q u i s h e d t h e i r common law r e m e d i e s
against employers in exchange for employers' guarantee to pay
compensation for work-related injuries regardless of fault.
The Act limited employers' liability to workers' compensation
benefits and provided that a claim under the Act was an
injured worker's exclusive remedy against an employer that
was covered by the Act. Section 92-204, R.C.M. (1947).
Because the common law at that time left many
work-related injuries uncompensated, Montana's transition to
a statutory remedy was advantageous to workers. However, in
light of improved prospects for recovery under modern tort
theories, workers and third parties are turning increasingly
to the courts for exemption from the exclusive remedy rule.
"Continuing challenges to the exclusive remedy rule reveal an
underlying tension between the workers' compens5tion system
and the tort system.'' Note, Exceptions - - Exclusive
to the
Remedy Requirements - Workers' Compensation
of Statutes, 96
Harv. L. Rev. 1641 (1983). The creation of common law
exceptions to the exclusive remedy rule reflects a judicial
attempt to reconcile the workers' compensation scheme with
modern tort theories, such as strict liability and
comparative negligence. Courts have sought by various means
to reconcile the relatively modest awards given to injured
workers with larger monetary recoveries allowed in modern
tort cases.
I1
Burlington Northern here asserts its right to collect
from Farmers on the grounds of contribution or, in the
alternative, on the express indemnity provisions in the lease
agreement between Burlington Northern and Farmers. With
regard to the theory of contribution, Burlington Northern
claims that it was Farmers' act of negligence that caused the
accident and affords the basis for contribution. Burlington
N o r t h e r n c o n t e n d s t h a t it was o n l y p a s s i v e l y n e g l i g e n t , i f a t
all. The indemnity allegation i s based upon the express
indemnity p r o v i s i o n s contained i n t h e l e a s e agreement.
C o n t r i b u t i o n d i s t r i b u t e s l o s s among j o i n t t o r t f e a s o r s by
r e q u i r i n g e a c h t o pay h i s p r o p o r t i o n a t e s h a r e b a s e d upon h i s
proportion of the negligence which proximately caused the
injuries. S e c t i o n 27-1-703(1), MCA, authorizes contribution
between t o r t f e a s o r s .
Indemnity, on the other hand, shifts the entire loss
from t h e o n e who h a s been r e q u i r e d t o p a y i t t o t h e o n e who
should bear t h e l o s s . W. P r o s s e r , - -f T o r t s , 5 5 1 a t 310
Law o
( 4 t h ed. 1971). "The r i g h t o f i n d e m n i t y i s b a s e d upon an
i n d e p e n d e n t d u t y o r o b l i g a t i o n owed by t h e employer t o t h e
v
third party, e i t h e r a s t h e r e s u l t of express contract o r a s
the result of an implication raised by law." 2A L a r s o n ,
Workmen's Compensation Law, 5 76.13 a t 14-571 (1983).
In 1977, S 39-71-411, MCA, provided that an insured
employer " i s n o t s u b j e c t t o any l i a b i l i t y whatever f o r t h e
d e a t h o f o r p e r s o n a l i n j u r y t o an employee" who i s c o v e r e d by
the Act. The 1977 s t a t u t e d i d n o t m e n t i o n c o n t r i b u t i o n o r
indemnity.
This Court interpreted that statute in Cordier v.
Stetson-Ross, Inc. ( 1 9 7 9 ) , 184 Mont. 502, 604 P.2d 86. We
concluded t h a t t h e s t a t u t e p r o t e c t e d e m p l o y e r s from damages
s o u g h t by t h i r d p a r t i e s u n d e r a t h e o r y o f c o n t r i b u t i o n . That
conclusion i s i n accord with t h e c u r r e n t m a j o r i t y r u l e t h a t a
third party cannot sue o r join a negligent employer as a
joint tortfeasor under contribution statutes or a t common
law. 2A Larson, Workmen's Compensation -
Law, S 76.20 at
14-597 (1983).
I n C o r d i e r . t h e Court a l s o concluded t h a t t h e e x c l u s i v e
remedy p r o v i s i o n of t h e Workers' Compensation A c t b a r r e d a
claim for noncontractual indemnity. No express indemnity
c o n t r a c t was i n v o l v e d i n C o r d i e r , and t h e C o u r t r e s e r v e d any
r u l i n g on such indemnity. Cordier, 1 8 4 Mont. a t 513, 604
P.2d a t 92.
While the appeal in Cordier was pending, the 1979
Montana L e g i s l a t u r e amended § 39-71-411, MCA. In addition to
the proviso that the employer is not liable for death or
injury to an employee covered by the Act, the amendment
provided t h a t employers s h a l l n o t be l i a b l e " f o r any claims
f o r c o n t r i b u t i o n o r indemnity a s s e r t e d by a t h i r d p e r s o n from
whom damages are sought on account of such injuries or
death . "
1 1
1
The f i r s t c e r t i f i e d q u e s t i o n i s :
Where a n i n j u r e d e m p l o y e e s u e s a t h i r d p a r t y f o r d a m a g e s
and the third party joins the employer as a third party
defendant s e e k i n g c o n t r i b u t i o n or indemnity, is t h e a s s e r t i o n
o f § 39-71-411, MCA, b y t h e t h i r d p a r t y d e f e n d a n t e m p l o y e r a s
a d e f e n s e , c o n s t i t u t i o n a l a s it i s a p p l i e d t o t h e t h i r d p a r t y
plaintiff? P h r a s e d more succinctly: Is it c o n s t i t u t i o n a l
for an employer to use $ 39-71-411, MCA, as a complete
defense t o a t h i r d p a r t y claim f o r c o n t r i b u t i o n o r indemnity?
Burlington Northern argues t h a t t h e l i m i t a t i o n contained
i n S 39-71-411, MCA, v i o l a t e s Art. 11, §§ 1 6 a n d 17 o f t h e
Montana C o n s t i t u t i o n .
Art. 11, § 1 6 , Mont. Const. 1972 p r o v i d e s i n p a r t t h a t
courts of justice shall b e open t o e v e r y p e r s o n and s p e e d y
remedy a f f o r d e d f o r e v e r y i n j u r y . Burlington Northern argues
that S 39-71-411, MCA, deprives Burlington Northern of its
constitutional right t o a remedy f o r e v e r y i n j u r y and full
legal redress.
The 1889 C o n s t i t u t i o n had a c o m p a r a b l e p r o v i s i o n . Art.
111, § 6 , Mont. Const. 1889 s t a t e s :
C o u r t s o f j u s t i c e s h a l l b e open t o e v e r y
p e r s o n , and a s p e e d y remedy a f f o r d e d f o r
every i n j u r y of person, property, o r
c h a r a c t e r ; and t h a t r i g h t and j u s t i c e
s h a 11 b e administered b~ithout sale,
denial, o r delay.
T h i s p r o v i s i o n was interpreted in Shea v . North-Butte
Mining Co. (1919), 55 Mont. 522, 179 P . 499, a personal
injury action by a miner against his employer. Shea ' s
counsel argued t h a t t h e Workmen's Compensation A c t o f 1915
was r e p u g n a n t t o t h e c o n s t i t u t i o n a l g u a r a n t e e t h a t c o u r t s o f
justice s h a l l be open t o every person and a s p e e d y remedy
afforded for every injury. Shea insisted that the
l e g i s l a t u r e could n o t a b o l i s h an i n j u r e d w o r k e r ' s right t o
sue in tort. This Court discussed the basis for the
l e g i s l a t u r e ' s adoption of t h e A c t :
[ T l h e o b j e c t s o u g h t was t o s u b s t i t u t e f o r
t h e i m p e r f e c t and e c o n o m i c a l l y w a s t e f u l
common-law s y s t e m by p r i v a t e a c t i o n by
t h e i n j u r e d employee f o r damages f o r
n e g l i g e n t f a u l t on t h e p a r t o f t h e em-
p l o y e r , which, w h i l e attended w i t h g r e a t
d e l a y a n d w a s t e , compensated t h o s e em-
p l o y e e s o n l y who w e r e a b l e t o e s t a b l i s h
t h e proximate connection between the
f a u l t and t h e i n j u r y , a s y s t e m by which
e v e r y employee i n a h a z a r d o u s i n d u s t r y
might r e c e i v e compensation f o r any i n j u r y
s u f f e r e d by him a r i s i n g o u t o f and d u r i n g
t h e c o u r s e o f t h e employment ... In
o t h e r words, t h e t h e o r y o f such l e g i s l a -
t i o n i s t h a t l o s s o c c a s i o n e d by r e a s o n o f
i n j u r y t o t h e employee s h a l l n o t b e b o r n e
by t h e employee a l o n e a s it was u n d e r t h e
common-law s y s t e m , b u t d i r e c t l y by t h e
i n d u s t r y i t s e l f , and i n d i r e c t l y by t h e
public ...
S h e a , 55 Mont. 528-29, 179 P . a t 500.
The Shea r a t i o n a l e w i t h r e g a r d t o t h e t h e o r y o f w o r k e r s '
compensation was reaffirmed a number of times after its
initial declaration in 1919. Finally, the rationale was
recognized in the 1.972 Montana Constitution. Art. 11, § 16,
tlont. Const. 1972 states:
Courts of justice shall be open to every
person, and speedy remedy afforded for
every injury of person, property, or
character. No serson shall be desrived
- this
of - - full legal redress for injury
incurred in employment for which another
serson m a r b e YiaLle excest as to fellow
L A - L - -
employees - - immediate employer who
and his
hired - - - immediate employer
him if such
srovides coveraae under - Workmen's
L -I
the
Compensation - -of this state.
Laws - Right
and justice shall be administered without
sale, denial, or delay.
(Emphasis supplied.) The underscored sentence was added to
the original provisions of Art. 111, § 6, Mont. Const. 1-889.
An explanation of the amendment is set forth in a Committee
Report to the Constitutional Convention:
The committee voted unanimously to retain
this section with one addition. The
provision as it stands in the present
Constitution guarantees justice and a
speedy remedy for a l l without sale,
denial or delay. The committee felt, in
light of a recent interpretation of the
Workmen's compensation Law, that this
remedy needed to be explicitly guaranteed
to persons who may be employed by one
covered by Workmen's Compensation to work
on the facilities of another. Under
Montana law, as announced in the recent
decision of Ashcraft v. Montana Power
- the employee has no redress against
Co.,
thir.d parties for injuries caused by them
if his immediate employer is covered
under the Workmen's Compensation Law.
The committee feels that this violates
the spirit of the quarantee of a speedy
- - -
remedy for - injuries of person,
all
property or character. It is this
specific denia 1--and this one only--that
the committee intends to alter with the
following additional wording: "no person
shall be deprived of this 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." In other words the
committee wants to insure that the
Workmen's Compensation Laws of the state
will be used for their original
purpose--to provide compensation to
i n j u r e d workmen--rather than t o deprive
a n i n j u r e d worker o f r e d r e s s a g a i n s t
negligent third parties (beyond his
e m p l o y e r and f e l l o w e m p l o y e e s ) b e c a u s e
h i s immediate employer i s c o v e r e d b y
Workmen's Compensation.
Montana C o n s t i t u t i o n a l Convention, Committee Report at 636
(1972). T h e r e i s no i n d i c a t i o n o f i n t e n t t o modify o r c h a n g e
an e m p l o y e r ' s l i a b i l i t y t o an i n j u r e d w o r k e r . The c h a n g e was
s p e c i f i c a l l y aimed a t a l l o w i n g r e c o v e r y by a w o r k e r a g a i n s t a
responsible t h i r d party.
For the first time, t h e Montana Constitution provided
that the State could deprive an employee of full legal
redress against his employer for injury incurred during
employment. That i s a express c o n s t i t u t i o n a l recognition of
t h e r a t i o n a l e o r i g i n a l l y s t a t e d i n Shea.
Burlington Northern's challenge t o § 39-71-411, MCA, is
b a s e d p r i m a r i l y on t h e f i r s t s e n t e n c e o f A r t . 11, § 1 6 , which
provides t h a t courts of justice s h a l l b e open t o a l l and a
s p e e d y remedy afforded for every injury. This contention
tends to disregard the next sentence in 5 16, which
s p e c i f i c a l l y l i m i t s recovery f o r work-related injuries. We
conclude that Art. 11, § 16 must be considered in its
entirety, including the second sentence which limits the
broad guarantees contained i n t h e f i r s t sentence.
The p e r t i n e n t p a r t o f t h e s e c o n d s e n t e n c e s t a t e s :
No p e r s o n [ R a i s l e r ] s h a l l b e d e p r i v e d o f
t h i s f u l l legal redress f o r injury in-
c u r r e d i n employment f o r which a n o t h e r
person [Burl i n g t o n Northern] may be
l i a b l e except a s t o ... h i s immediate
employer [ F a r m e r s ] ...
The s e n t e n c e makes c e r t a i n t h a t no employee i s d e p r i v e d o f
redress against a third party. However, it allows an
employee t o be deprived of full legal redress against h i s
employer.
I n s u b s t a n c e , 5 39-71-411, MCA, p r o v i d e s t h a t F a r m e r s i s
not l i a b l e f o r a claim f o r contribution o r indemnity a s s e r t e d
by B u r l i n g t o n Northern, a third party. If t h i s limitation
can b e i n t e r p r e t e d a s an e x t e n s i o n o f t h e l i m i t a t i o n on t h e
worker's right to claim against his employer, then the
l i m i t a t i o n would be expressly authorized by A r t . 11, S 1 6 ,
B'Iont. C o n s t . 1972.
Is t h e r e a r e a s o n t o d i s t i n g u i s h between a c l a i m by a
third party for contribution or indemnity and a claim
asserted directly by the employee? This question was
answered i n C o r d i e r , where t h i s C o u r t s t a t e d :
I t i s our opinion t h a t t h e broad provi-
s i o n s o f s e c t i o n 92-204.1, R.C.M. 1947,
now s e c t i o n 39-71-411, MCA, r e q u i r e u s t o
hold t h a t t h e p r o v i s i o n s o f t h e Workers'
Compensation A c t a r e e x c l u s i v e a s t o t h e
l i a b i l i t y o f t h e e m p l o y e r f o r damages
s u s t a i n e d by t h e i n j u r e d employee w h e t h e r
t h e y a r e s o u g h t by t h e employee d i r e c t l y ,
o r by a t h i r d p a r t y under c o n t r i b u t i o n .
Our s t a t u t e r u l e s o u t " a n y l i a b i l i t y
w h a t e v e r " e v e n b e f o r e it g o e s on t o s t a t e
t h a t t h e e m p l o y e e and t h o s e u n d e r him a r e
l i m i t e d t o such recovery a s t h e A c t
a l l o w s a g a i n s t t h e employer. The l a n -
g u a g e " a n y l i a b i l i t y w h a t e v e r " would b e
s u r p l u s a g e u n l e s s it i s r e a d t o mean
l i a b i l i t y n o t o n l y t o t h e e m p l o y e e and
t h o s e c l a i m i n g u n d e r him, b u t a l s o any
o t h e r p a r t y attempting t o claim l i a b i l i t y
against the employer for the same
incident.
Cordier, 184 Mont. a t 508-09, 604 P.2d a t 89-90. Under t h e
Cordier holding, t h e e m p l o y e r was l i a b l e t o t h e e m p l c y e e f o r
workers' c o m p e n s a t i o n b e n e f i t s , b u t t h e e m p l o y e r was f o u n d t o
he free of any o t h e r liability to the employee o r t o a n y
other party attempting to claim liability against the
e m p l o y e r a s a r e s u l t o f t h e same i n j u r y . I n Montana, t h e r e
is no distinction between a third party claim for
c o n t r i b u t i o n o r i n d e m n i t y a g a i n s t a n e m p l o y e r and a c l a i m b y
a n employee a s s e r t e d d i r e c t l y a g a i n s t t h e employer.
In White v. State (Mont. 1983), 661 P.2d 1272, 40
St.Rep. 507 and in Pfost v. State of Montana, Supreme Court
Cause No. 85-007, decided December 31, 1985, this Court
struck down two Montana statutes as unconstitutional, on the
grounds that the right to bring an action for personal
injuries was a fundamental right and that any statutory
abridgment of that fundamental right must pass the test of
strict scrutiny. Those holdings are not applicable in the
present case. Because an employer's immunity from tort
liability in a workers' compensation case is constitutionally
recognized in Art. 11, (5 16, Mont . Const. , we conclude no
analysis of § 39-71-411, MCA, on a strict scrutiny theory is
required.
In a similar manner, in Hall v. State Comp. Ins. Fund
(Mont. 1985), 708 P.2d 234, 42 St.Rep. 1502, the Court
disallowed subrogation by an insurance company against an
employee. The Court concluded that it would be an
unconstitutional application of an otherwise constitutions-l
statute if the State Fund were granted suhrogation against a
claimant employee who had not achieved full legal redress.
Here we are not concerned with an employee as in Hall,
but rather the third party who has been sued by the employee.
The third party claims that its constitutional right of full
legal redress against the employer has been eliminated. We
have already concluded that an employee, may be
constitutionally deprived of full legal redress against his
employer, both directly and indirectly. We conclude that
there is no distinction between a direct claim by Raisler,
the employee, against Farmers, the employer, or an indirect
claim by Burlington Northern, third party, against Farmers,
the employer. Hall does not conflict with our holding here.
In our analysis of Art. 11, S 16, Mont. Const., we
conclude that, in workers' compensation cases, the second
sentence affords a limitation upon the broad provisions in
the first sentence. We conclude that where an employer has
provided workers' compensation coverage, an employee
constitutionally may be deprived of full legal redress for
injury against his employer, both directly and indirectly.
We hold that in denying liability for any claims for
contribution or indemnity by a third party, S 39-71-411, MCA,
does not violate Art. 11, § 16, Mont. Const.
Burlington Northern also argues that $ 39-71-411, MCA,
violates Art. 11, 1 7 Mont. Const. which provides that:
"No person shall be deprived of life, libertv, or property
without due process of law." Burlington Northern argues that
the statute deprives a third party plaintiff of its
substantive right to contribution. Because no reasonable
substitute has been provided, Burlington Northern contends it
has been unlawfullv deprived of a due process right. We
disagree.
Substantive due process analysis requires a test of the
reasonableness of a statute in relation to the State's power
to enact such legislation. "The essence of substantive due
process is that the State cannot use its police power to take
unreasonable, arbitrary or capricious action against an
individual." Matter of C.H. (Mont. 1984), 683 P.2d 931, 936,
41 St.Rep. 997, 1002. In order to satisfy substantive due
process guarantees, a statute enacted under a state's police
power must he reasonably related to a permissible legislative
objective. State v. Turk (1982), 197 Mont. 311, 314-15, 643
P.2d 224, 226.
The 1979 legislature amended § 39-71-411, MCA, specifi-
cally to preclude liability on the part of an insured
employer for contribution or indemnity to third parties. The
legislative objective was to protect employers from "the
great potential liability" that could result if employers
were required to pay the amount collected by an employee in
his action against a third party in addition to payment of
the compensation benefits. Memorandum, Senate Judiciary
Committee, February 7, 1979. Section 39-71-411, MCA, was
amended to ensure that the scope of liability of employers
would continue to be limited by the Workers' Compensation Act
in spite of developing tort theories.
The effect of the amendment to S 39-71-411, MCA, was to
promote the continued economic welfare of employers who pay
into the State Fund and the welfare of employees who receive
compensation benefits. We therefore conclude that the
limitations contained in S 39-71-411, MCA, are reasonably
related to the permissible legislative objective of protect-
ing the public welfare.
We hold that assertion of S 39-71-411, MCA, as a defense
to liability of an employer covered by the Act, does not
violate Art. 11, S 17, Mont. Const. 1972.
IV
The second certified question is:
Where an injured employee sues a third party for
damages, and the third party joins the employer as a third
party defendant seeking contribution or indemnity, and the
employer has signed a written agreement with the provisions
outlined in this certification, can the employer assert
S 39-71-411, MCA, as a complete defense to the third party
action?
As previously discussed, indemnity is an all or nothing
proposition. It shifts the entire loss from the one who has
been required to pay it to the one who should bear it. In
C o r d i e r , t h i s C o u r t h e l d t h a t a n e m p l o y e r who h a s p a i d work-
e r s ' c o m p e n s a t i o n b e n e f i t s t o an employee i s n o t s u b j e c t t o
i n d e m n i t y b a s e d on a n o n c o n t r a c t u a l c l a i m b y a t h i r d p a r t y .
The Cordier Court did not rule on contractual indemnity.
C o n t r a c t u a l i n d e m n i t y was c o n s i d e r e d i n Howard S. W r i g h t
Const. v. F.E. DeBeer Mech. ( 1 9 7 9 ) , 1 8 5 Mont. 47, 604 ~ . 2 d
323. W r i g h t C o n s t . a l l o w e d r e c o v e r y by t h e p l a i n t i f f u n d e r a
contractual indemnification provision e x e c u t e d by D e B e e r , a
subcontractor to Wright, the primary contractor. We
distinguish that case from t h e p r e s e n t case, where Farmers
a s s e r t s immunity u n d e r 5 39-71-411, MCA. I n Wright Const.,
t h e subcontractor did not a s s e r t a defense against l i a b i l i t y
nor c l a i m immunity a s an i n s u r e d e m p l o y e r u n d e r S 39-71-411,
MCA . As a result, the holding in Wright Const. is not
controlling i n t h e present case.
In t h i s case, Farmers, a s lessee, a g r e e d i n w r i t i n g t o
i n d e m n i f y and h o l d B u r l i n g t o n N o r t h e r n h a r m l e s s f o r a n y l o s s ,
damage, i n j u r y o r d e a t h from a n y a c t o r o m i s s i o n o f F a r m e r s ,
i t s employees o r a g e n t , to the person or property of the
parties to the lease and their employees. In form, the
i n d e m n i t y p r o v i s i o n i n t h e l e a s e a g r e e m e n t i s b r o a d enough t o
allow recovery a s a matter of c o n t r a c t i n t e r p r e t a t i o n . Our
q u e s t i o n i s w h e t h e r F a r m e r s c a n now a s s e r t 5 39-71-411, MCA,
as a complete defense to the action for contractual
indemnity.
A majority of c o u r t s has recognized express c o n t r a c t u a l
i n d e m n i t y a s a n e x c e p t i o n t o t h e e x c l u s i v e remedy r u l e . See,
Annot., 100 A.L.R.3d 5 8[b] at 380 (1980). The
frequently-stated r a t i o n a l e i s t h a t t h e indemnity c l a i m i s by
definition a separate legal c a u s e b a s e d upon a contractual
relationship and a contractual obligation. 2A Larson,
Workmen's Compensation Law, 5 76.42 at 14-630 (1983). The
increased exposure of the employer is bargained for and
serves as consideration or at least partial consideration for
whatever is received from the third party. Robinson,
Workmen's Compensation: The Third Party Dilemma, 19 Idaho L.
Rev. 259, 268 (1983) .
Courts in three jurisdictions have concluded that their
statutory language specifically precludes third party suits
for contractual indemnity, and such contractual obligations
are therefore void. Roberts v. Gray's Crane & Rigging
(0r.Ct.App. 1985), 697 P.2d 985; Paul Krebs & Assoc. TT.
Fritts Const. (Ala. 1978), 356 So.2d 638; Gulf Oil Corp. v.
Rota-Cone Field Operating Co. (N.M.Ct.App. 1972), 505 P.2d
78. The stated rationale in these cases is that if the
employee is allowed to recover from a third party and then
the third party is allowed to recover from the employer, the
employer is subjected to double liability.
In view of these contradictions in legal theories, we
find it important to review our Montana cases and
Constitution. Shea construed Montana's Act in relation to
the 1889 Constitution and set forth reasons why the
legislature adopted the workers' compensation system as a
substitute for common law tort suits by an employee against
his employer. We concluded in Shea that the Act was a per-
missible exercise of legislative power, based on sound social
policy of protecting injured workers.
The Constitutional Convention Committee which considered
Art. 11, § 16, Mont. Const. 1972, was keenly aware of a need
to protect the interests of injured employees. As previously
discussed, it was that awareness that resulted in the
addition of the second sentence in Art. 11, § 16.
Indemnification of third parties was a commonly recog-
nized theory of recovery at the time of the 1972
C o n s t i t u t i o n a l Convention. The above-quoted Committee R e p o r t
indicates that the Convention had in mind the 1889
Constitution and a t l e a s t one judicial interpretation that
1-imited a n e m p l o y e e ' s r i g h t t o s u e t h i r d p a r t i e s . Had t h e
Convention chosen t o do s o , it c o u l d h a v e amended A r t . 111,
fj 6, 1889 Mont. Const. t o diminsh t h e p r o t e c t i o n granted t o
employers. The Convention concluded instead that the
continued protection of employers covered by workers'
c o m p e n s a t i o n was p r o p e r .
A s previously discussed, the legislature's 1979 amend-
ment o f § 39-71-411, MCA, expressed l e g i s l a t i v e i n t e n t t h a t
t h e l i a b i l i t y o f an employer should n o t be broadened i n such
a manner as to allow a third party to recover from an
employer. As t h e b i l l ' s sponsor explained:
With d e v e l o p m e n t s i n t h e p r o d u c t l i a b i l i -
t y law, a r e l a t i v e l y n e w problem f o r
employers has emerged. The i n j u r e d
employee c o l l e c t s c o m p e n s a t i o n . H e then
sues t h e manufacturer o r seller of t h e
e q u i p m e n t which may h a v e c o n t r i b u t e d t o
h i s injury. The m a n u f a c t u r e r o r s e l l e r
o f t h e equipment then s u e s t h e employer
f o r t h e amount s o u g h t by t h e employee on
t h e t h e o r y o f i m p l i e d o r e x p r e s s indemni-
ty Thus, t h e employer i s c o n f r o n t e d
with t h e p o s s i b i l i t y of n o t only paying
workers' compensation b e n e f i t s , b u t a l s o
t h e amount c o l l e c t e d by t h e employee i n
h i s action against a third party.
Oregon was c o n f r o n t e d w i t h t h i s same
problem and t o p r o t e c t t h e e m p l o y e r s i n
that state from t h e g r e a t p o t e n t i a l
l i a b i l i t y , it e n a c t e d an amendment t o i t s
law t o p r o t e c t i t s e m p l o y e r s and i n s u r e r s
from s u c h c l a i m s by t h e m a n u f a c t u r e r s o r
sellers.
Senate B i l l 322 i s designed t o accomplish
t h e same r e s u l t i n Montana.
Memorandum, S e n a t o r John E . Healy, S e n a t e J u d i c i a r y Commit-
t e e , F e b r u a r y 7 , 1979. L e g i s l a t i v e i n t e n t t o p r o t e c t employ-
ers from l i a b i l i t y t o t h i r d p a r t i e s i s c l e a r . No d i s t i n c t i o n
i s made between c o n t r a c t u a l and e q u i t a b l e i n d e m n i t y i n t h e
statute itself or in the legislative history of the
amendment.
The Montana Legislature chose - to grant a third party
not
the right to recover on a contractual indemnity theory from
an employer carrying workers' compensation insurance. That
choice was consistent with the opinion of the people as
expressed by their adoption of Art. 11, 1.6, Mont. Const.
1972. We conclude that neither the Convention nor the
legislature desired to make a change which would grant a
third party the right to recover from an employer on a
contractual indemnity theory.
Burlington Northern argues that a failure to allow
recovery against Farmers impairs the obligation of its
indemnification contract. This subject was discussed at
length in Neel v. First Federal Sav. and Loan Assoc. (Mont.
19841, 675 P.2d 96, 41 St.Rep. 18. Both Art. 11, § 31, Mont.
Const. and Art. 1, § 10, U. S. Const. prohibit the impairment
of contracts. This Court pointed out in Neel that the two
contract clauses have been construed interchangeably and set
forth the test to be applied:
The Supreme Court in Energy Reserves,
noted that an examination of the
legislation for validity under the
contract clause requires a three step
analysis. The threshold inquiry is
"whether the state law has, in fact,
operated as a substantial impairment of
the contractual relationship." If there
is no substantial impairment of the
contractual relationship, the inquiry is
ended. Second, if the legislation
substantially impairs the contractual
rights, " [t]he state, in justification,
must have a significant and legitimate
public purpose behind the regulation."
Third, the adjustment of rights and
responsibilities of contracting parties
must be based " [ulpon reasonable
conditions'' and be " [o]f a character
appropriate to the public purpose
justifying the legislation's adoption."
As the opinion notes, unless the State is
a party to the contract, courts will
p r o p e r l y d e f e r t o 3 e g i s l a t i v e judgment on
t h i s t h i r d step.
Neel, 675 P.2d at 104-05, 41 St.Rep. 27-28 (citations
omitted).
We find that the statutory prohibition against
enforcement of an indemnity contract is a substantial
impairment of the contractua 1 relationship that exists
between B u r l i n g t o n N o r t h e r n and F a r m e r s . Thus, t h e t h r e s h o l d
i n q u i r y i s met.
The second question is whether the State had a
significant and legitimate public purpose in enacting the
statute. A s p r e v i o u s l y p o i n t e d o u t i n S h e a , t h e aim o f the
Workers' Compensation A c t was t o c o m p e n s a t e e v e r y employee
for any injury suffered during the course of employment,
whether the employer was at fault or not. Employers who
participated in the compensation system were guaranteed
limited liability. The s y s t e m was d e s i g n e d f o r t h e common
good s o t h a t i n j u r e d w o r k e r s would n o t become p u b l i c w a r d s .
This purpose is both significant and legitimate. The
l e g i s l a t i v e purpose behind $ 39-71-411, MCA, is t o continue
t o guarantee limited l i a b i l i t y t o e m p l o y e r s c o v e r e d by t h e
Act. The statutory prohibition against t h i r d party claims
f o r c o n t r i b u t i o n o r i n d e m n i t y was e n a c t e d w i t h t h e p u r p o s e o f
p e r p e t u a t i n g Montana's workers' compensation system i n l i g h t
of recent tort law development. We find this to be a
significant and l e g i t i m a t e public purpose, which meets t h e
second p a r t o f t h e t e s t .
The t h i r d r e q u i r e m e n t i s t h a t t h e s t a t u t o r y a d j u s t m e n t
o f t h e r i g h t s and r e s p o n s i b i l i t i e s o f t h e c o n t r a c t i n g p a r t i e s
must be based upon reasonable conditions and be of a
character appropriate to the purpose of the statute. In
Neel, this Court concluded t h a t where a State is a not a
party t o the contract i n question, courts w i l l properly defer
t o l e g i s l a t i v e judgment. N e e l , 6 7 5 P.2d a t 1 0 5 , 28 S t . R e p . at
27-28. We conclude that it is proper to defer to the
l e g i s l a t i v e judgment on t h i s t h i r d p o i n t . W e recognize t h a t
many c o u r t s h a v e h e l d t h a t an a c t i o n t o e n f o r c e a n i n d e m n i t y
c o n t r a c t i s an a c t i o n s e p a r a t e from t h e o r i g i n a l c l a i m f o r
the injury of t h e employee, and recovery can therefore be
allowed against the employer. That i s n o t an a p p r o p r i a t e
d i s t i n c t i o n u n d e r o u r Workers' Compensation A c t . A s pointed
out in Cordier, a n employer should n o t be held liable for
damages sustained by an injured employee, whether such
damages are s o u g h t by the employee d i r e c t l y or indirectly
t h r o u g h r e c o v e r y from a t h i r d p a r t y .
In the present case, i t i s p o s s i b l e t h a t Rais'l.er c o u l d
r e c o v e r a l l o f h i s damages i n t o r t from B u r l i n g t o n N o r t h e r n
i f he could prove t h a t t h e negligence o f Burlivgton Northern
was a c a u s e o f h i s i n j u r i e s , e v e n t h o u g h t h e p r i n c i p a l c a u s e
of such injuries might have been the neg3igence of his
employer. I n t h e e v e n t o f s u c h a r e c o v e r y by t h e employee,
Burlington Northern then could claim its right to recover
from Farmers on a contractual indemnity basis. The end
r e s u l t would b e t h a t t h e employee would r e c o v e r indirectly
from h i s employer a l l o f h i s t o r t damages f o r t h e i n j u r y f o r
which h e a l s o r e c e i v e d c o m p e n s a t i o n b e n e f i t s . That i n d i r e c t
recovery is inappropriate. I t would contradict the basic
foundation of t h e workers' compensation law i n t h i s s t a t e ,
which imposes a b s o l u t e l i a b i l i t y upon an employer f o r i n j u r y
t o employees and e l i m i n a t e s a l l o t h e r l i a b i l i t y on t h e p a r t
of t h e employer.
W e conclude t h a t t h e t h r e e - p a r t t e s t i n N e e l h a s been
met. We hold that § 39-71-411, MCA, does not v i o l a t e t h e
c o n s t i t u t i o n a l p r o h i b i t i o n s a g a i n s t impairment o f o b l i g a t i o n
of contracts, and that Farmers can assert 5 39-71-All, MCA,
as a complete defense to the third party action by Burlington
Northern.
Shea, Cordier, and the Judiciary Committee Minutes on
th.e amendment to 5 39-71-411, MCA, set forth sound reasons
for limiting employers' liability in order to protect the
workers' compensation system in Montana.
We find the l~gislature'
s 1imit.ation on employers'
liability to be constitutional. We conclude that an insured
employer can properly assert 5 39-71-411, MCA, as a complete
defense to a third party action for express indemnity.
Justices
Mr. Justice L. C. Gulbrandson dissenting.
I concur with the response to certified question no. 1,
but would respond "no" to certified question no. 2.
The majority opinion states:
The legislative purpose
- -
behind
S 39-71-411, MCA, is to continue to
guarantee limited liability to employers
covered by the Act. The statutory
prohibition against third party claims
for constitution or indemnitv was enacted
.
L
with the purpose of perpetuatiny
Montana's workers' compensation system in
light of recent tort law development.
(Emphasis added.)
In my view, the majority has done more than "continue"
or "perpetuate" what was present at the time the legislature
acted. This Court's previous pronouncements in DeShaw v.
Johnson (1970), 155 Mont. 355, 472 P.2d 298 and Howard S.
Wright Const. v. F. E. DeBeer Mech. (1979), 604 P.2d 323, 185
Mont. 47, were in line with the majority of the states in
approving contractual indemnity.
I would allow contractual indemnity, where the parties
have had the opportunity to negotiate, prior to any claim,
the distribution of the loss, as long as the injured
employee's right to bring an action against the third party
is not prejudiced. Under current law, where an employee
recovers from a third party, the employer's insurer can share
in the recovery through subrogation. Section 39-71-414, MCA.
Where an employee recovers from a passively negligent third
party, it may now be possible for the employer's insurer to
share under subrogation, no matter how careless the employer
has been in preparing the work place, and even though the
employer has specifically contra.cted, through liability
insurance, or otherwise, to be personally liable to the third
party. In my opinion, the legislature never intended, nor
considered, such a result.
r