N3. 92-044
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
MONTANA HEALTH CARE ASSOCIATION:
a Montana nonprofit corp.; DISCOVERY
CARE CENTRE; a Montana Corporation; AND
VALLEY NURSING, INC., d/b/a VALLEY HEALTH
CARE CENTER, a Minnesota Corporation,
>w>y
Plaintiffs and Appellants, ,.
,
F ~ r :
,~.
%'
MONTANA BOARD OF DIRECTORS OF THE STATE
COMPENSATION MUTUAL INSURANCE FUND; PATRICK
SWEENEY, Executive ~irectorof the State
-
IAN 4 1993
Compensation Mutual Insurance Fund; and
STATE COMPENSATION MUTUAL INSURANCE FUND, '
L-
-I 3Lid
LIF SIJPREME COURT
5 ATE OF MONTANA
'
Defendants and Respondents.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Thomas C. Honzel, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
G. Steven Brown argued, Attorney at Law, Helena,
Montana
For Respondents:
John T. Alke argued, Hughes, Kellner, Sullivan &
Alke, Helena, Montana
Nancy Butler, General Counsel, State Compensation
Mutual Insurance Fund, Helena, Montana
submitted: September 10, 1992
Decided: J a n u a r y 4 , 1993
Filed:
Justice John Conway Harrisondelivered the Opinion of the Court.
This is an appeal from a declaratory judgment of the First
Judicial District Court, County of Lewis and Clark, the Honorable
Thomas C. Honzel presiding. The original action was a request for
writs of mandamus and prohibition and a declaratory judgment that
the respondents (State Fund) had illegally adopted workers1
compensation rates, including a substantial increase in appellants1
premium, and had violated the Montana Open Meeting Act, the Montana
Public Participation Act, the Montana Administrative Procedure Act
(MAPA) and Article 11, sections 8 and 9 of the Montana
Constitution. We affirm in part and reverse in part.
The District Court decided that even though State Fund had
violated the notice provisions of the Public Participation Act, it
would not be appropriate to set aside the rate increases, or issue
a writ of mandamus or prohibition, I1becauseof the requirement that
the state insurance program be adequately funded." Instead, the
court issued a declaratory judgment that State Fund is not required
to release employer-specific data on payroll and claims experience;
that State Fund must comply with MAPA in amending a rule that
incorporates the Underwriting Manual; and that State Fund must make
an llassociation
plan1' available to every policy holder. The court
also ruled that State Fund is not required to follow MAPA rule-
making procedures when it changes its schedule for premium payments
or adopts portions of the Underwriting Manual, and that State Fund
is not required to mail packets of Board of Directors materials to
the public in advance of meetings, as long as the materials are
2
available for review at State Fund's office. Attorney's fees were
awarded to appellants.
The State Compensation Mutual Insurance Fund is the workers'
compensation insurer for 27,000 Montana employers. It collects
approximately 64 percent of the premiums paid for workers'
compensation insurance in Montana. Patrick Sweeney is its
executive director.
The Montana Health Care Association (MHCA) is a Montana
nonprofit corporation whose members provide long-term health care
throughout the state. Discovery Care Centre and Valley Health Care
Center are members of MHCA and hold State Fund workers'
compensation insurance policies.
DISCLOSURE OF EMPLOYER-SPECIFIC INFORK%TION
The first issue on appeal is whether State Fund must make
available to the public the employer-specific payroll and claims
information that is used to calculate workersf compensation rates.
In May 1991, State Fund notified MHCA members that the fiscal
1992 workersf compensation rate for class code 8829 (nursing homes)
would be increased from $10.67 to $13.33. Although State Fund had
already advised MHCA of the general method used to calculate these
rates, MHCA requested employer-specific information, in a letter
dated May 21, 1991. State Fund provided some but not all of the
requested information, and on June 19, 1991, State Fund informed
MHCA that it would not provide this information without a signed
release from each policy holder. MHCA filed the District Court
action on June 21, 1991.
Appellants rely on Article 11, section 9 of the Montana
Constitution, which provides that no one may be deprived of the
right to examine documents or observe the deliberations of public
bodies except when the demand of individual privacy "clearly
exceeds the merits of public disclosure." State Fund relies on
Article 11, section 10 of the Montana Constitution, which provides
that the right of individual privacy shall not be infringed without
the showing of a compelling state interest, and on 5 39-71-224,
MCA, which exempts from disclosure public records of the Department
of Labor that contain information of a personal nature.
This Court has held that the only limit on the public's right
to receive information is the constitutional right to privacy.
Allstate Insurance Co. v. City of Billings (1989), 239 Mont. 321,
325, 780 P.2d 186, 188. We have adopted the following two-tier
test for determining whether a person has a constitutionally
protected privacy interest:
(a) Whether the person has a subjective or actual expectation
of privacy; and
(b) whether society recognizes that expectation as reasonable.
Great Falls Tribune Co. v. Cascade County Sheriff (1989), 238 Mont.
103, 105, 775 P.2d 1267, 1268, citing Montana Human Rights Div. v.
City of Billings (1982), 199 Mont. 434, 441, 649 P.2d 1283, 1287.
If we determine that a constitutionally protected privacy right
exists, we then balance it against the constitutional right to
know.
Most of the cases in which we have balanced the public's right
to know against the right to privacy concerned the privacy of
individuals. In Great Falls Tribune, for example, we held that
when law enforcement officers have engaged in conduct that subjects
them to disciplinary action, the public's right to know outweighs
law enforcement officers' privacy interests. Similarly, we held in
Montana Human Riahts Division that the State's interest in
prohibiting employment discrimination outweighs the privacy
interest of city employees who had not complained of
discrimination, but whose employment records were critical to the
Human Rights Division investigation of a complaint. In Engrav v.
Cragun (1989), 236 Mont. 260, 769 P.2d 1224, on the other hand, we
found that the public's right to know about county law enforcement
operations does not outweigh the privacy interest of people whose
names appeared in telephone logs and case files. Here, we must
balance the public's right to know against the privacy interest of
employees and employers insured by State Fund.
Appellants concede that employer-specific payroll information
meets our criteria for a right to privacy, but they contend that
the merits of public disclosure are more important, and that the
District Court wrongly held that the insured employees' and
employers' right to privacy outweighs appellants1 right to know.
To support this contention, appellants assert that MHCA cannot
assess the accuracy of State Fund classifications without access to
employer-specific data. This assessment is critical, they argue,
because a State Fund error regarding one employer in a class
affects the workers' compensation rate for every member of that
class.
State Fund argues that appellants can detect errors and
illegal actions on the part of State Fund by reviewing published
aggregate data: therefore, no compelling state interest justifies
an invasion of the insured employees1 and employers' privacy. In
other words, State Fund asserts, employer-specific information
should not be released merely to allow MHCA to check State Fund's
arithmetic.
Our cases establish that corporations have a right to privacy
and that a state agency may assert the privacy interest of others,
including corporations. Belth v. Bennett (1987), 227 Mont. 341,
345, 740 P.2d 638, 641; Mountain States Telephone and Telegraph Co.
v. Dept. of Pub. Sen. Reg. (1981), 194 Mont. 277, 634 P.2d 181.
The question here is whether the privacy interests of State Fund's
insured employees and employers outweigh the right of the public,
as represented by appellants, to inspect aggregate payroll data and
claims experience for individual employers.
State Fund points to our decision, in Belth, that public
access to insurance companies1 financial statements should be
denied because the demands of privacy outweighed the merits of
public disclosure. In Belth, however, we found that the insurance
companies had provided the information with the understanding that
it was confidential and that comparable information was available
to the public elsewhere. Here, it has not been argued that the
insured employees and employers were assured of confidentiality,
and comparable information is not available elsewhere. Employer-
specific claims data are not available from any source, though some
of the payroll data sought by appellants have been reported to the
Department of Health and Environmental Sciences for health planning
purposes.
The District Court found that appellantst purpose in
requesting employer-specific claims and payroll information is
essentially an "audit fun~tion,'~
because an employer has no right
to a contested case hearing when its premium rate is changed. The
court concluded, therefore, that the insured employees' and
employers' right to privacy outweighs appellantst right to know and
that State Fund therefore is not required to release employer-
specific claims or payroll information.
We reverse, holding that in this case employees' and
employerst right to privacy does not clearly exceed the merits of
public disclosure, and that the public's right to know therefore
outweighs the privacy interest. We believe, as we suggested in
Mountain States Telephone and Teleqraph, 634 P.2d at 187, that
an order can be fashioned in such manner that the state
public agencies can perform their duties with the fullest
available information and at the same time disclose to
the public all information required to enable citizens to
determine the propriety of governmental actions affecting
them.
We remand this case to the District Court for an order that meets
this standard.
RULEMAKING
The second issue on appeal is whether State Fund must adopt
the following as rules under MAPA: provisions of State Compensation
Mutual Insurance Fund Policy Service Underwriting Manual
7
(Underwriting Manual); criteria for "association plans;" and
policies regarding the payment of premiums. Since different
considerations govern each of these areas, we address them
separately.
First, however, we emphasize that the State Compensation
Mutual Insurance Fund (the state fund) is subject, as the District
Court recognized, to laws that apply generally to state agencies,
including MAPA and the Montana Public Participation and Open
Meetings Acts. Section 39-71-2314(2), MCA. In particular, the
state fund must follow MAPA rulemaking procedures when it adopts "a
process, a procedure, formulas, and factors" for setting or
changing premium rates, under 5 39-71-2316(6), MCA, though it is
exempt from MAPA rulemaking procedures when it chanaes
classifications and premium rates. In other words, once the state
fund has promulgated rules for establishing premium rates, it need
not go through MAPA rulemaking procedures to change those rates.
The Underwritinq Manual
On May 6, 1991, State Fund published a Notice of Proposed
Amendment of ARM 2.55.301, which prescribes the method of
classifying occupations for the purpose of assessing workers'
compensation rates. The proposed amendment incorporated by
reference the lgClassifications't
section ofthe Underwriting Manual,
effective July 1, 1991. This section is the only portion of the
Underwriting Manual that State Fund has adopted formally as a rule.
Patrick Sweeney adopted the amendment for the state fund on June
17, 1991.'
MHCA requested a copy of the July 1991 Underwriting Manual in
June but was told that it had not been prepared or printed and
probably would not be available until September 1991. On July 8,
MHCA was given a draft version of the revised classification
section. This draft was not available to Patrick Sweeney when he
adopted the amended rule on June 17. Comment on the proposed
amendment was invited on May 6, but as the District Court pointed
out, it was not possible at that time for an employer to know
whether it was affected by the changes.
As the District Court said, "for an agency to adopt as a rule
something which is not available for review and comment is directly
contrary to the requirements of MAPA." We agree. Since State Fund
adopted the classification section of the Underwriting Manual as a
rule, it may amend that section only through the process described
in Title 2, chapter 4, MCA.
Appellants contend that the District Court should have
required State Fund to adopt the "General Rules" section of the
Underwriting Manual, which is incorporated in its insurance
contracts, as a formal rule under MAPA, because this section
implements and prescribes law and policy in ways that affect
employerst substantive rights. State Fund argues that its
' The District Court found that the state fund's rulemaking
power must be exercised by the State Fund Board of Directors, not
by the state fund's executive director. State Fund has not
appealed this decision, and the Board of Directors has adopted
rules that are identical in effect to those previously adopted by
the executive director.
insurance policy is a contract and that the "General RulesM section
of the Underwriting Manual merely states some of the contract terms
and does not implement, interpret, or prescribe law or policy.
The District Court found that State Fund's failure to adopt
the "General Rules" section of the Underwriting Manual in
accordance with MAPA was not critical to this lawsuit, and that in
any case State Fund is not required to adopt this section of the
Underwriting Manual as a formal rule. Finding that the District
Court interpreted MAPA correctly, we affirm.
Association Plans
State Fund has agreements with three trade associations
(loggers, food distributors, and motor carriers) under which it
reimburses the association for providing safety inspectors in lieu
of State Fund safety inspectors. These agreements are called
"association plans."
Appellants complain that State Fund has no policies or
criteria regarding the creation or administration of association
plans, and that State Fund has never met with MHCA, as it promised
it would in March 1990, to determine whether MHCA is eligible for
an association plan. Appellants assert that association plans
provide substantial benefits to the employers that have them, and
that all State Fund policy holders pay indirectly for the safety
inspectors hired under these plans. Therefore, appellants argue,
State Fund should be ordered to adopt as formal rules its criteria
and standards for awarding and administering the plans.
State Fund asserts that it has no policy of general
application with respect to association plans and that formal rule-
making is not appropriate because each t~planl~ a unique contract,
is
with provisions that depend on the nature of the trade association
involved. State Fund also implies, though it does not state
directly, that it intends to make association plans available to
all trade associations, including MHCA if it is "willing and able
to enter into the contract."
The District Court held that State Fund must make association
plans available to all associations and must let associations and
employers know that such plans are available, but it was ltnot
convinced'l that State Fund must adopt rules setting forth uniform
standards for such plans. We agree. The intent of the 1989 act
that created the state fund was that the state fund must, as the
Itprimary means" of insuring its solvency, Iginstitute safety
programs and set rates in a manner that rewards employers who
provide a safe working environment and penalizes those who do not.
Statement of Intent, 1989 Mont. Laws, Ch. 613. So long as State
Fund administers its association plans consistently with this
intent, formal rulemaking is not required. Indeed, State Fund
probably can fulfill the intent of the Act only by entering into
contracts tailored to the needs and circumstances of each trade
association or class of employers.
Premium Payment Schedule
Until early 1991, State Fund's practice was to require
employers to submit payroll information at the end of each quarter
and then to pay the premium due for that quarter thirty days later.
In mid-1991 State Fund combined payroll reporting and premium
payment on a single form, which in effect accelerated the premium
payment by thirty days. This change in procedure was initiated by
staff and apparently accepted by the Board at its meeting of May
24, 1991. No notice of this change was sent to MHCA or to policy
holders.
Appellants argue that MAPA applies because State Fund's
decision to change the premium date affects parties' rights and
obligations, and that State Fund's decision therefore should be
subject to public notice and comment. The District Court held that
the obligation to pay a premium arises when the coverage is
provided, and tbat the timing of billing for that coverage is not
a matter that requires a rule. We affirm. State Fund's billing
schedule does not alter the obligation incurred by employers who
enroll with State Fund.
PUBLIC PARTICIPATION AND THE BOARD PACKET ISSUE
The third issue on appeal is whether State Fund should be
required to mail a copy of the agenda and the meeting materials or
"Board packet" to anyone who requests it, prior to a meeting of the
State Fund Board of Directors (Board).
Board agendas and packets of materials are generally mailed to
Board members a week to ten days in advance of meetings. On June
3, 1991, MHCA requested advance notice of Board meetings and
advance copies of the agenda and other materials sent to Board
members. Patrick Sweeney promised to ask his receptionist to call
MHCA two or three days before each Board meeting, but he declined
to provide packets on the grounds that the materials would be
available at the State Fund office to anyone who wished to inspect
them.
Appellants contend that agenda materials sent to members of
the Board must be mailed to interested members of the public in
advance of Board meetings. They argue that Article 11, section 8
of the Montana Constitution, which establishes a right to "such
reasonable opportunity for citizen participationv1 the operation
in
of governmental agencies Itas may be provided by law," and the
Public Participation Act that implements it, require State Fund to
provide any interested person with advance notice of the agenda and
copies of materials distributed to Board members. See 5 5 2-3-101
through -114, MCA. In short, appellants assert that by refusing to
mail Board packets to members of the public who request them, State
Fund denies the public a reasonable opportunity for meaningful
public participation before final decisions are made.
State Fund contends that MHCAVsright to public participation
is not impaired by State Fund's refusal to mail advance Board
packets on request because the material is available at State
Fund's office, which is across the street from MHCA's office. No
one else has requested an advance Board packet. The District Court
agreed, holding that State Fund is not required to mail Board
packets. We affirm.
As we held in Kadillak v. Anaconda Co. (1979), 184 Mont. 127,
141, 602 P.2d 147, 155, "the right to participate is limited to
those instances where that right is provided by law." Neither the
Public Participation Act nor the Open Meetings Act requires advance
mailings. Making Board agenda materials available to the public at
State Fundls office, in our view, provides a "reasonable
opportunity" for participation.
The Public Participation Act does require advance notice of
final agency action, however, and the District Court pointed out
that State Fund has not always complied with this provision (5 2-3-
103, MCA). Further, 5 2-3-103 requires state agencies, including
State Fund, to develop procedures for public participation. State
Fund has adopted only one rule providing for public participation,
and it provides that the date, time and place of a Board meeting
may be obtained by contacting the State Fund office. The District
Court found that this provision is not adequate, and we agree.
State Fund, however, did not appeal the District Court's conclusion
that it must adopt rules that comply with 5 2-3-103, MCA.
ATTORNEY'S FEES
Appellants have requested reasonable attorney's fees and costs
incurred in this appeal. This Court has adopted the "American
Rule" regarding attorney's fees. Department of Fish, Wildlife and
Parks v. Montana Stockgrowers Ass'n, Inc. (1989), 240 Mont. 39, 782
P.2d 898. Under the American Rule, a party in a civil action is
generally not entitled to fees absent a specific contractual or
statutory provision. Section 25-10-711(1), MCA, provides for
attorney's fees in civil actions to which the state is a party, but
only when the party seeking attorney's fees has prevailed the
court finds that the state's claim or defense is frivolous or
pursued in bad faith. See Armstrong v. Dept. of Justice (1991),
250 Mont. 468, 820 P.2d 1273; Myers v. Dept. of Agriculture (l988),
232 Mont. 286, 756 P.2d 1144. Here, there is no indication that
State Fund's defense was frivolous or in bad faith. Appellants
therefore are not entitled to attorney's fees for this appeal.
CONCLUSION
We reverse the judgment of the District Collrt that State Fund
is not required to provide employer-specific information and remand
to the District Court for entry of an appropriate order. We affirm
the judgment of the District Court with respect to all other issues
addressed herein.
We concur:
- v-
-cs
ie
January 4, 1993
CERTIFICATE O F SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
G. Steven Brown
Attorney at Law
1313 Eleventh Ave.
Helena, MT 59601
John T. Alke
Hughes, Kellner, Sullivan & Alke
P.O. Box 1166
Helena, MT 59624-1166
Nancy Butler, General Counsel
State Comp. Mutual Ins. Fund
P.O. Box 4759
Helena, MT 59604
ED SMITH
CLERK O F THE SUPREME COURT
STATE OF MONTANA
BY:
Deputy