No. 86-368
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
STATE COMPENSATION INSURANCE FUND,
as subrogee for Workers' Compensation
benefits paid or payable to or on behalf
of TOM W. PUTNAM, and LEONARD D. NEILSEN
d/b/a NEILSEN LOGGING,
Petitioners and Appellants,
-vs-
CASTLE MOUNTAIN CORPORATION,
Employer,
and
UNITED PACIFIC/RELIANCE INSURANCE COMPANIES,
Defendant and Respondent.
APPEAL FROM: The Workers' Compensation Court, The Honorable
Timothy Reardon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Hughes, Kellner, Sullivan & Alke; Mike McCarter argued
for State Comp., Helena, Montana
Kelly & Halverson, P.C.; Patrick R. Sheehy argued for
Putnam, Billings, Montana (Cross-Appellant)
For Respondent:
Neil S. Keefer argued for Castle Mountain & United
Pacific, Billings, Montana
Submitted: April 27, 1987
Decided: June 23, 1987
Clerk
Mr. Justice Fred J. Weber delivered the Opinion of the Court.
The State Compensation Fund (State Fund) appeals this
decision of the Workers' Compensation Court, and the claimant
Tom Putnam cross-appeals. The court held that claimant's
employer was Nielsen Logging and that Nielson Logging was an
employee of Castle Mountain Corporation (Castle Mountain) at
the time claimant was injured. It also held that the State
Fund, which insured Nielsen Logging, was not entitled to
indemnification from Castle Mountain's insurer for workers'
compensation payments made to Mr. Putnam. We affirm in part
and vacate in part.
One issue resolves this appeal. The issue is:
Did the Workers' Compensation Court err in its applica-
tion of § 39-71-405 ( 2 ) , MCA?
Mr. Putnam was injured in October 1981 while working on
a slash clearing project in an area known as Indian Island in
Meagher County. At the time of his injury, Mr. Putnam was
working for a partnership known as Nielsen Logging, which in
turn had contracted to do the slash clearing for Castle
Mountain. Mr. Putnam filed a workers' compensation claim
with Nielsen Logging's insurer, the State Fund. His claim
was denied on the basis that Nielsen Logging's insurance had
been cancelled as of October 1, 1981. Mr. Putnam petitioned
for an investigation of the denial, and also sought benefits
from Castle Mountain's insurer, in the event Nielsen Logging
was indeed uninsured at the time of the injury.
The State Fund determined that a mistake had been made
and that Nielsen Logging was insured at the time of the
injury. The State Fund also took the position that the
relationship between Castle Mountain and Nielsen Logging was
one of employer-employee, and that Mr. Putnam was an employee
of Castle Mountain and eligible for benefits through its
insurer. However, State Fund accepted liability while the
issues of employment and liability were straightened out
between the two employers and their insurers.
In October 1984 the State Fund filed a petition with the
Workers' Compensation Court, asserting a right to indemnity
against Castle Mountain's insurer. The matter was submitted
on extensive stipulated facts and stipulated issues to be
determined by the court. The court concluded that the rela-
tionship between Castle Mountain and Nielsen Logging at the
time of Mr. Putnam's injury was that of employer-employee,
not contractor-independent contractor. It concluded that Mr.
Putnam was an employee of Nielsen Logging. It concluded that
the State Fund was not entitled to indemnification from
Castle Mountain's insurer under 5 39-71-405 (2), MCA, for
benefits paid as a result of Mr. Putnam's injury. It rea-
soned that to require Castle Mountain's insurer to pay work-
ers' compensation benefits to Nielsen Logging's injured
employee would run contrary to the public policy of having
all subcontractors maintain their own workers' compensation
insurance coverage. Both the State Fund and Mr. Putnam
appeal.
Did the Workers' Compensation Court err in its applica-
tion of 5 39-71-405 ( 2 ) , MCA?
The Workers' Compensation Court determined that Mr.
Putnam was an employee of Nielsen Logging, which had workers'
compensation insurance coverage through the State Fund. No
one argues against that conclusion. Mr. Putnam says that
once that determination was made, the court had no jurisdic-
tion to decide whether Nielsen Logging was an employee of
Castle Mountain. He therefore urges that conclusion No. 2
and judgment paragraph No. 2 be stricken.
Castle Mountain and the State Fund both take the posi-
tion that the court properly determined that Nielsen Logging
was Castle Mountain's employee. That conclusion, if af-
firmed, may shield Castle Mountain from liability in a sepa-
rate tort action which Mr. Putnam has brought against it.
The State Fund desires the additional conclusion that it is
entitled to indemnification from Castle Mountain for benefits
paid to Mr. Putnam, under § 39-71-405(2), MCA.
Section 39-71-405, MCA, provides:
Liability of employer who contracts work out. (1)
An employer who contracts with an independent
contractor to have work performed of a kind which
is a regular or a recurrent part of the work of the
trade, business, occupation, or profession of such
employer is liable for the payment of benefits
under this chapter to the employees of the contrac-
tor if the contractor has not properly complied
with the coverage requirements of the Worker's
Compensation Act. Any insurer who becomes liable
for payment of benefits may recover the amount of
benefits paid and to be paid and necessary expenses
from the contractor primarily liable therein.
(2) Where an employer contracts to have any
work to be done by a contractor other than an
independent contractor, and the work so contracted
to be done is a part or process in the trade or
business of the employer, then the employer is
liable to pay all benefits under this chapter to
the same extent as if the work were done without
the intervention of the contractor, and the work so
contracted to be done shall not be construed to be
casual employment. Where an employer contracts
work to be done as specified in this subsection,
the contractor and the contractor's employees shall
come under that plan of compensation adopted by the
employer.
(3) Where an employer contracts any work to be
done, wholly or in part for the employer, by an
independent contractor, where the work so
contracted to be done is casual employment as to
such employer, then the contractor shall become the
employer for the purposes of this chapter.
The Workers ' Compensation Court applied § 39-71-405 (2), MCA.
The State Fund cites Carlson v. Cain (Mont. 1983), 664
P.2d 913, 40 St.Rep. 865, as support for requiring Castle
Mountain to indemnify it for Mr. Putnam's workers' compensa-
tion benefits. In Carlson, the claimant ran a newspaper
delivery route for Jerry Cain, who had contracted with the
Billings Gazette to deliver newspapers to drop-off points in
eastern Montana. Mr. Cain was ostensibly an independent
contractor. However, when the claimant was injured on the
delivery route and Mr. Cain had no workers' compensation
coverage, this Court determined that the claimant was an
employee of Mr. Cain and Mr. Cain was an employee of the
Billings Gazette. The Court held that claimant was entitled
to benefits under the Gazette's workers' compensation cover-
age, under § 39-71-405(2), MCA. The State Fund argues that
under the same type of factual analysis as was used in
Carlson, Nielsen Logging is an employee of Castle Mountain
and Castle Mountain must indemnify it. The critical fact
distinguishing Carlson from the present case is that Jerry
Cain was uninsured. In contrast, Nielsen Logging had work-
ers' compensation insurance. The State Fund cites other
cases on this issue. They are distinguishable on the same
basis.
1C Larson, Workmen's Compensation Law, § 49.11 at 9-21
and 9-22, states:
The purpose of this ["contractor-under" statutes
like $ 39-71-405, MCA] legislation was to protect
employees of irresponsible and uninsured subcon-
tractors by imposing ultimate liability on the
presumably responsible principal contractor, who
has it within his power, in choosing subcontrac-
tors, to pass upon their responsibility and insist
upon appropriate compensation protection for their
workers. This being the rationale of the rule, in
the increasingly common situation displaying a
hierarchy of principal contractors upon subcontrac-
tors upon sub-subcontractors, if an employee of the
lowest subcontractor on the totem pole is injured,
there is no practical reason for reaching up the
hierarchy any further than the first insured
contractor.
The above statement by Larson expresses a rule which reflects
the general purpose of Montana's workers' compensation laws,
to provide for the protection of workers. We interpret the
three subsections of S 39-71-405, MCA, with that general
purpose in mind.
Subsection (1) applies to the employer of an independent
contractor performing work which is a regular or recurring
part of the employer's trade or business. It holds that
employer liable for workers' compensation benefits paid to
the contractor's employees, if the contractor is uninsured.
Subsection (3) states that the employer of an independent
contractor hired for "casual employment" is not liable for
benefits. Subsection (2) holds liable for benefits the
employer of a non-independent contractor engaged in work
which is a part or process in the business of the employer.
It is unclear how this is different from a general statement
of the obligation of any employer to pay benefits. Subsec-
tion (2) does not refer to whether the contractor carries
insurance. This was a critical factor in subsection (1).
Section 39-71-405, MCA, was drafted over 70 years ago,
near the beginning of the workers' compensation system in
Montana. At that time, the law and practice of
contractor-subcontractor relationships was much less complex
than it is today. Nothing in the statute suggests an intent
to shift responsibility from one insured employer to another.
We conclude that subsection (2) was intended to grant work-
ers' compensation coverage to each non-independent contractor
employee, when the work was in the regular course of busi-
ness. It essentially grants workers' compensation insurance
coverage to a non-independent contractor employee in the same
manner as if there were no intervening non-independent con-
tractor. While we recognize that subsection (2) could be
read to require Castle Mountain to provide benefits for Mr.
Putnam if Nielsen Logging was a non-independent contractor,
we conclude that the subsection was not intended to address
situations where the contractor is sufficiently independent
to carry its own workers' compensation insurance.
We hold that § 39-71-405(2), MCA, does not cover a claim
for indemnity by one insurance carrier against another.
Since Mr. Putnam's injury is covered by Nielsen Logging's
workers1 compensation insurance, § 39-71-405, MCA, does not
apply. It is not necessary to determine whether Nielsen
Logging was an independent contractor or not, for purposes of
Mr. Putnam's workers' compensation benefits. This is consis-
tent with the rule expressed in Larson, and in harmony with
the general purpose of Montana's workers' compensation law.
In so holding, we emphasize that we do not rule upon the
issue of whether Mr. Putnam may bring a separate suit against
Castle Mountain.
We are reluctant to find fault with the failure of
§ 39-71-405, MCA, to address concerns which have arisen over
70 years later. However, we suggest that the legislature may
wish to modify or replace the statute with a clearer
provision.
We affirm the Workers' Compensation Court's conclusion
that Mr. Putnam was an employee of Nielsen Logging. We also
affirm conclusion No. 4 that Mr. Putnam is entitled to work-
ers' compensation benefits through Nielsen Logging's insurer,
the State Fund. We vacate the lower court's conclusion No. 2
and judgment paragraph No. 2 that Nielsen Logging was an
We Concur: /7