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: July 2, 1985
Decided: October 3, 1985
Clerk
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 rede-
termine Ha11 ' s permanent partial impairment rating. The
State Fund refused both requests. Hall petitioned the Divi-
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 pub-
lished in 1971 contains the following
language: 'After values of all impair-
ments involved have been computed and
transposed to a common denominator, the
final impairment value, whether the
result of a single or combined impair-
ments, 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
to the sum of $6,259.00. The Respondent
claimed a subrogation interest of
$7,048.00 and subtracted that amount from
the indemnity award at the time of pay-
ment. The Claimant contended that the
Respondent was not entitled to subroga-
tion. The Claimant contended that his
third party claim was valued in excess of
$40,000.00 but that the $25,000.00 set-
tlement at policy limits was all that was
available. On March 23, 1984, the Divi-
sion of Workers1 Compensation conducted
an administrative review of the matter
and determined that the claimed subroga-
tion interest of the Respondent was
appropriate."
Prior to oral argument, the parties settled the impair-
ment 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 decision in
Brandner v. Travelers Insurance Company (1978), 179 Mont.
208, 587 P.2d 933. This reliance is misplaced as Brandner is
easily distinguishable from the case at bar. In Brandner,
the claimant settled with the third party, 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. Since claimant had obtained full legal
redress, we held that claimant's employer' s 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 the third-party t o r t f e a s o r which did not afford
full legal redress. 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
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. I f claimant's
damages e x c e e d $ 4 0 , 0 0 0 , claimant's settlement, together with
t h e Workers' 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 S t a t e s Telephone and Telegraph Company
( 1 9 7 7 ) , 172 Mont. 521, 565 P.2d 628, t o b e r e l e v a n t .
In Skauge, claimants' rented home was d e s t r o y e d by an
explosion. Their personal belongings were insured for
$4,000. 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 tortfeasors , seeking the tota1
amount o f t h e i r l o s s . 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 not entitled to any subrogation interest in the
$25,000 s e t t l e m e n t proceeds as claimant has not been made
whole.
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. 507, as creating a fundamental
right to full legal redress. 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. (See
Brandner, 179 Mont. at 211-214, 587 P.2d at 936 - 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 claim-
ant, the insurer is not entitled to subrogation rights under
S 39-71-414, MCA. When claimant is made whole, subrogation
begins.
Reversed.
We concur:
Chief Justice
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 . The
majority r e l i e s upon Skauge v . Mountain S t a t e s Tel. & Tel.
Co. (1977) , 172 Kont. 521, 565 P. 2d 628, 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 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
company, 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 in-
s u r e d - p a i d - - assume."
has it t o (Emphasis
supplied.)
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. a t 528, 565 P.2d a t 632. Skauge h e l d t h a t
the loss should b e b o r n e by t h e i n s u r a n c e company b e c a u s e
that is a risk which the insured has paid the company t o
assume. That is not the factual 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, a s was the c a s e i n Skauge. Instead, it i s b a s e d
upon 5 39-71-414 (1), MCA, which in pertinent part states:
Jf a c t i o n i s prosecuted a s provided
an
. . . the i n s u r e r i s e n t i t l e d t o subroga-
t 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 .
This Court has previously pointed o u t t h a t t h e purpose o f t h e
subrogation provision i s t o compensate a n employer and h i s
insurer to some 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 of independent third parties. See Tuttle v.
Morrison-Knudsen Co., Inc. (1978), 1 7 7 Mont. 166, 5 8 0 P.2d
1379; Fisher v. Missoula White Pine Sash Co. (1974), 164
Nont. 41, 518 P.2d 795. 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.
I also disagree with the majority conclusion that
Brandner v. Travelers Ins. Co. (1978), 1 7 9 Mont. 208, 587
P.2d 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
I read t h a t opinion, 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
sustained a loss in excess o f the
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 North-
e 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 Work-
e 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
t h e A c t , and f i f t y p e r c e n t more. It
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, 587 P.2d a t 938. In essence,
Brandner h o l d s t h a t by v i r t u e o f t h e workers' compensation
payments, 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
made 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. State (Mont. J.983),
661 P.2d 1272, 40 St-Rep. 507, for the c o n c l u s i o n t h a t it
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 statute t o
allow the State Fund subrogation rights because of the
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 . 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 . The
c h a l l e n g e d s t a t u t e , S; 2-9-104, MCA (1981) , b a r r e d r e c o v e r y o f
non-economic 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 ,
I would 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
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 the constitutional guarantee of a
remedy f o r e v e r y i n j u r y . W h i t e , 661 P.2d a t 1275, 40 S t . R e p .
a t 510. 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
that all persons in all circumstances necessarily have a
fundamental r i g h t t o f u l l l e g a l r e d r e s s . A r t i c l e 11, S 16 o f
t h e Montana 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 -
sion is not appropriate. While it i s t r u e t h a t t h e i n i t i a l
portion of 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
his full 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 Work-
e 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 case. I 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 t h e Workers'
Compensation C o u r t .
concur t h e foreg