NO. 94-590
IN THE SUPREME COURT OF THE STATE OF MONTANA
1995
ED HAAG,
Petitioner and Appellant,
v.
MONTANA SCHOOLS GROUP
INSURANCE AUTHORITY,
Respondent and Insurer,
SCHOOL DISTRICT NO. 1
GREAT FALLS PUBLIC SCHOOLS,
Employer.
APPEAL FROM: Workers' Compensation Court, State of Montana
The Honorable Mike McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Tom Lewis; Lewis, Huppert & Slovak, Great Falls,
Montana
For Respondent:
Oliver Goe; Browning, Kaleczyc, Berry & Haven,
Helena, Montana
NOV2 B 19% Decided: November 21, 1995
Filed:
Justice Karla M. Gray delivered the Opinion of the Court
Ed Haag (Haag) appeals from the Findings of Fact, Conclusions
of Law and Judgment of the Workers' Compensation Court determining
that he did not suffer a compensable injury arising out of and in
the course of his employment. We reverse and remand.
The dispositive issue on appeal is whether the Workers'
Compensation Court erred in concluding that MSGIA's failure to
comply with § 39-71-606(l), MCA, did not preclude it from denying
liability for Haag's claim.
Haag began working as a custodian for School District No. 1
(School District) in Great Falls, Montana, in August of 1982; by
October of 1983, he had been promoted to first engineer. Haag
continued to work for the School District until March 24, 1992.
Haag claims that he injured his shoulder on March 23, 1992,
while employed by the School District. He contends that he felt
sudden pain in his shoulder as he lifted a table in the cafeteria.
Haag timely filed a claim for compensation with the School
District on April 6, 1992. More than two months later, the claims
adjuster for the Montana Schools Group Insurance Authority (MSGIA),
the School District's workers' compensation insurer, denied Haag's
claim on the basis that he did not suffer an "injury" resulting
from an "accident."
In October of 1992, Haag filed a Petition for Hearing with the
Workers' Compensation Court. Trial was held and the Workers'
Compensation Court subsequently issued its Findings of Fact,
2
Conclusions of Law and Judgment. The court concluded that Haag was
not injured in a work-related accident and, on that basis, was not
entitled to benefits or a penalty. The court also rejected Haag's
argument that he was entitled to benefits because of MSGIA's
failure to comply with § 39-71-606(l), MCA. Haag appeals.
Did the Workers' Compensation Court err in concluding
that MSGIA's failure to comply with 5 39-71-606(l), MCA,
did not preclude it from denying liability for Haag's
claim?
Section 39-71-606(l), MCA, mandates that "[elvery insurer .
shall, within 30 days of receipt of a claim for compensation,
either accept or deny the claim, and if denied shall inform the
claimant and the department in writing of such denial." The
parties agree that 5 39-71-606(l), MCA, is plain and unambiguous in
requiring insurers to accept or deny claims within thirty days. In
addition, there is no dispute over MSGIA's failure to comply with
this clear statutory mandate.
Relying on Solheim v. Ranch (19841, 208 Mont. 265, 677 P.2d
1034, the Workers' Compensation Court concluded that MSGIA's
failure to accept or deny Haag's claim within thirty days as
required by 5 39-71-606(l), MCA, did not amount to an automatic
acceptance of the claim. Haag contends that Solheim is
distinguishable from this case and that MSGIA's failure to comply
with 5 39-71-606(l), MCA, should be deemed an acceptance of
liability as a matter of law. We review the Workers' Compensation
Court's conclusions of law to determine whether the court's
interpretation of the law is correct. Caekaert v. State
Compensation Mutual Ins. Fund (19941, 268 Mont. 105, 110, 885 P.2d
3
495, 498 (citing Stordalen v. Ricci's Food Farm (1993), 261 Mont.
256, 258, 862 P.2d 393, 394).
We note at the outset that it is possible, as Haag contends,
to distinguish Solheim from the case before us and still reach the
correct legal result. While we do not present the full analysis
under which Solheim properly is distinguishable, it is sufficient
to observe that our decision there was based on the facts of that
case involving a dispute over the existence of the employment
relationship between the parties. Solheim, 677 P.2d at 1037-38.
Indeed, we emphasized that "the employment relationship is a
cornerstone upon which workers' compensation benefits are founded."
Solheim, 677 P.Zd at 1041.
Here, no "cornerstone" dispute exists. MSGIA's position is
not based on the absence of the employment relationship; rather,
MSGIA contends that Haag did not sustain an "injury" caused by an
"accident" as those terms are statutorily defined. Therefore,
Solheim is not applicable here. To extend Solheim to encompass
this commonplace basis for denying a claim would completely nullify
5 39-71-606(l), MCA. Moreover, because it is our view, for the
reasons discussed below, that Solheim incorrectly interpreted §§
39-71-606(l) and 39-71-2907, MCA, we overrule Solheim.
In Solheim, the claimant was denied workers' compensation
benefits because he was an independent contractor rather than an
employee and, therefore, was excluded from coverage under § 39-71-
118(l) (a), MCA. Solheim, 677 P.2d at 1040. The claimant argued
that, notwithstanding his independent contractor status, he was
4
entitled to workers' compensation benefits because the insurer
failed to accept or deny his claim within thirty days as required
by 5 39-71-606(l), MCA. Solheim, 677 P.2d at 1040. We refused to
impose the "drastic penalty" of liability as a matter of law where
the insurer failed to comply with § 39-71-606(l), MCA, based on its
contention that no employment relationship existed. Solheim, 677
P.2d at 1041. We concluded, instead, that the penalty provision
contained in § 39-71-2907, MCA, provides adequate protection for a
claimant in the event that an insurer fails to accept or deny
liability within thirty days. Solheim, 677 P.2d at 1040-41. On
the basis of that conclusion, we held that an insurer's failure to
comply with § 39-71-606(l), MCA, does not automatically entitle a
claimant to benefits. Solheim, 677 P.2d at 1042.
Our analysis of § 39-71-2907, MCA, in Solheim, however, was
incomplete. We did not take into sufficient account either the
actual language of 5 39-71-2907, MCA, or the effect of overlaying
that statute onto the clear mandate of 5 39-71-606(l), MCA, that an
insurer accept or deny a claim within thirty days.
Section 39-71-2907, MCA, states, in pertinent part:
Increase in award for unreasonable delay or refusal to
pay. (1) The workers' compensation judge may increase by
20% the full amount of benefits due a claimant during the
period of delay or refusal to pay, when:
.
(b) prior or subsequent to the issuance of an order
by the workers' compensation judge granting a claimant
benefits, the insurer unreasonably delays or refuses to
make the payments.
Under the plain language of this statute, a claimant would be
compelled to meet two significant statutory requirements before an
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insurer could be penalized under 5 39-71-2907, MCA, for a clear and
undisputed failure to comply with 5 39-71-606(l), MCA.
First, the Workers' Compensation Court would have to determine
the claim was compensable and issue an order awarding the claimant
benefits. Section 39-71-2907(1)(b), MCA. However, nothing in the
clear "notice" requirement of 5 39-71-606(l), MCA, suggests that it
is intended to relate to the legitimacy, or lack thereof, of a
denial of a claim as later determined by the Workers' Compensation
Court.
Second, the Workers' Compensation Court would have to make a
factual finding that the insurer's denial or refusal to pay was
unreasonable. Section 39-71-2907(l) (b) and (2), MCA; Love11 v.
State Compensation Mutual Ins. Fund (1993), 260 Mont. 279, 288, 860
P.2d 95, 101. This requirement of § 39-71-2907, MCA, as applied in
the context of an insurer's failure to accept or deny a claim
within thirty days, is inconsistent with the mandatory nature of 5
39-71-606(l), MCA.
Nothing in § 39-71-606, MCA, suggests that the legislature
intended § 39-71-2907, MCA, to serve as a penalty provision for an
insurer's noncompliance. Moreover, if a claimant were unsuccessful
in satisfying the two statutory requirements of § 39-71-2907(l) (b),
MCA, then the insurer's noncompliance with § 39-71-606 (l), MCA,
would have no consequence. As we stated in Solheim, we should be
extremely cautious before imposing a direct penalty where the
legislature has failed to insert a penalty provision. Solheim, 677
P.2d at 1041. However, failure to do so here would totally
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abrogate the statutory mandate of 5 39-71-606(l), MCA, clearly
intended by the legislature.
What we failed to recognize in Solheim is that a denial of
liability for a claim based on the lack of an employment
relationship is, at its most fundamental, merely a denial of the
claim. Section 39-71-606(l), MCA, merely requires acceptance or
denial of a claim within thirty days; it does not concern itself
with the basis of any denial. We erred in Solheim by judicially
exempting a particular category of denial from the clear
legislative mandate contained in § 39-71-606(l), MCA.
Pursuant to our holding in Solheim, insurers could disregard
the mandate contained in 5 39-71-606(l), MCA, with impunity because
the existence of any legitimate factual or legal dispute would
insulate them from an "unreasonable" finding and, therefore, from
the penalty contained in 5 39-71-2907, MCA. Such a result does not
provide sufficient protection for claimants. Moreover, an
interpretation of § 39-71-606(l), MCA, which permits such a result
exceeds our proper role in interpreting statutes. See f3 l-2-101,
MCA. Therefore, we overrule Solheim insofar as it addresses the
legal effect of an insurer's noncompliance with § 39-71-606(l),
MCA.
Here, MSGIA notified Haag two weeks after he filed his claim
that it could not accept or deny his claim at that time because it
had insufficient medical information. MSGIA ultimately denied the
claim more than two months after receiving it. When an insurer
faces such a situation where compensability and liability issues
7
might legitimately be disputed on receipt of additional
investigative information, the legislature has provided the insurer
with a statutory alternative to affirmatively accepting or flatly
denying the claim.
Section 39-71-608, MCA, authorizes an insurer to begin
payments within thirty days of receipt of a claim for compensation
without admitting liability or waiving any defenses. This statute
recognizes that situations may arise in which an insurer should
not, in fairness, be forced to irrevocably accept or deny a claim
within thirty days as required by § 39-71-606 (1) , MCA.
Importantly, however, § 39-71-608, MCA, contains the same thirty-
day period for the insurer's action as § 39-71-606(l), MCA. Thus,
§ 39-71-608, MCA, does not merely provide an alternative for an
insurer faced with the dilemma of complying with its statutory
mandate to accept or deny a claim within thirty days. Read
together with § 39-71-606 Cl), MCA, it reemphasizes the
legislature's intent to require an insurer to take action on a
claim for compensation, and give notice thereof to the claimant,
within thirty days.
Additionally, 55 39-71-609 and 39-71-610, MCA, provide
insurers with the means to subsequently deny liability for a claim
after affirmatively accepting a claim under 5 39-71-606(l), MCA, or
beginning payments with a reservation of rights under § 39-71-608,
MCA. Thus, the Workers' Compensation Act clearly provides insurers
with an alternative which is not unduly burdensome and which is, at
the same time, entirely consistent with an insurer's clear
8
obligation under 5 39-71-606(l), MCA. Accordingly, we hold that
when an insurer fails to act on a claim for compensation within
thirty days, either by accepting or denying liability pursuant to
5 39-71-606(l), MCA, or by beginning payments with a reservation of
rights under § 39-71-608, MCA, the claim is deemed accepted as a
matter of law.
Finally, we address the Workers' Compensation Court's
conclusion that l'[e]ven if MSGIA's failure to deny the claim within
thirty (30) days is deemed an acceptance of the claim, MSGIA may
contest the claim on the basis of fraud." MSGIA argues on appeal
that "when an insurer denies a claim on the basis the alleged
accident never occurred, the insurer is, in effect, claiming the
alleged accident was fabricated and the claim filed fraudulently."
To sustain a claim of fraud, however, MSGIA was required to
plead and prove each of the nine elements of fraud. See Hartfield
v. City of Billings (1990), 246 Mont. 259, 263, 805 P.Zd 1293,
1296. Thus, whether MSGIA could have contested Haag's claim on the
basis of fraud is irrelevant here because MSGIA did not plead
fraud. Moreover, fraud is not set forth in the final Pretrial
Order either in MSGIA's contentions or as a contested issue to be
resolved by the court as required by 5 24.5.318(5) (e) and (f), ARM.
See Garcia v. State Compensation Mutual Ins. Fund (1992), 253 Mont.
196, 200-201, 832 P.2d 770, 773. We conclude that the fraud issue
was not properly before the Workers' Compensation Court and that
the court erred in addressing it.
Therefore, we hold that the Workers' Compensation Court erred
9
in concluding that MSGIA's failure to comply with § 39-71-606(l),
MCA, did not preclude it from denying liability for Haag's claim.
On the facts of this case, MSGIA's failure to accept or deny Haag’s
claim within thirty days as required by § 39-71-606(l), MCA, is
deemed an acceptance of Haag's claim as a matter of law.
Reversed and remanded for further proceedings consistent with
this opinion.
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November 21, 1995
CERTIFICATE OF SERVICE
I hereby certify that the following certified order was sent by United States mail, prepaid, to the
following named:
Tom L. Lewis
LEWIS, HUPPERT & SLOVAK
P.O. Box 2325
Great Falls, MT 59403-2325
Oliver Goe
BROWNING, KALECZYC, BERRY & HOVEN, P.C.
P.O. Box 1697
Helena, MT 59624-1697
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA