No. 85-530
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
ROSE N. BUCKMAN,
Claimant and Appellant,
MONTANA DEACONESS HOSPITAL,
Employer,
and
STATE COMPENSATION INSURANCE FUND,
Defendant and Respondent.
APPEAL FROM: The Workers' Compensation Court, The Honorable
Timothy Rea.rdon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Lloyd E. Hartford argued, Billings, Montana
For Respondent:
Hughes, Kellner, Sullivan & Alke; Mike McCarter argued,
Helena, Montana
Submitted: J u l y 24, 1986
Decided: December 12, 1936
Filed: DEC 1 2 1986
Clerk
Mr. Justice William E. Hunt, Sr., delivered the Opinion of
the Court.
Rose Buckman appeals the judgment of the Workers'
Compensation Court denying her a conversion of her bi-weekly
Workers' Compensation benefits to a lump-sum payment.
Buckman's employer, Montana Deaconess Hospital and its
insurer, the State Compensation Insurance Fund appealed a
portion of the same judgment wherein the trial court
concluded that insurers could not discount lump-sum
conversions awarded for injuries which occurred prior to
April 15, 1985.
We affirm the Workers' Compensation Court in part,
reverse in part, and remand for proceedings pursuant to this
opinion.
The issues presented to us concern constitutional
challenges to the 1985 legislative amendment to § 39-71-741,
MCA, first presented to the legislature as S.B. 281.
Specifically, we are asked to decide:
1. Whether the procedure outlined in S 39-71-741(2),
MCA (1985), to guide the Workers' Compensation judge in
determining whether lump-sum conversion of biweekly payments
for permanent total injury will be awarded, as applied to
conversions for injuries occurring before April 15, 1985, is
constitut.ionally prohibited.
2. Whether the prospective application of the procedure
outlined in 39-71-741(2), MCA (1985), violates the equal
protection guarantees of the Montana and United States
Constitutions.
3. Whether the directions contained jn S 39-71-741(1),
.
MCA (1985), to discount to present value all conversions of
lump sums as applied to conversions for injuries occurring
prior to April 15, 1985, are constitutionally prohibited.
4. Whether the Workers' Compensation Court erred in
denying Buckman a lump-sum conversion of her biweekly
henefits.
In September, 1985, the Workers' Compensation Court
entered its findings of fact and conclusions of law and
judgment determining that the appellant Buckman, va
7s
permanently totally disabled and that she was entitled to
disability benefits. The Court denied her request for a
lump-sum conversion based upon her failure to meet the
requirements set out in § 39-71-741(2), MCA. The court said
the amendments found in S 39-71-741(2), MCA were procedural
in nature and could therefore be applied in Buckman's case
without offense to either constitution. Buckman had
challenged the constitutionality of S 39-71-741, MCA, as
applied to her case on the grounds that her injury predated
the effective date of the amendments. The Workers'
Compensation Court, relying on its earlier opinion in
Stelling v. Rivercrest Ranches, Inc., WCC No. 8412-2757
(1985), concluded that the discounting provision, found in §
39-71-741(1), MCA, if applied retroactively to Buckman's
award, would violate the contract clauses of both the United
States and Montana Constitutions. Ruckman appeals the
judgment as it concerns 39-71-741(2), MCA, and the Hospital
and State Fund appeal the judgment as it concerns §
39-71.-741(I), MCA.
For the reasons stated below, we hold that: As to the
first issue the application of 39-71-741(2), MCA is
constitutionally prohibited as applied to injuries that
occurred prior to April 15, 1985. As to the second issue we
hold that the prospective application of the procedure does
not violate the equal protection guarantees of the Montana
and United States Constitutions. As to the third issue, we
hold that discounting to present value conversions of
lump-sums for injuries that occurred prior to April $ 1i85
5
is constitutionally prohibited. Finally, as to the lump-sum
conversion of claimant's biweekly benefits we remand for a
determination of whether claimant is entitled to a conversion
of her benefits in light of our construction of S 39-71-741,
MCA .
As to the first issue, Buckman challenges the
retroactive application of the procedure contained in S
39-71-741(2), MCA. That statute as amended states that it
"must be used by the division and workers' compensation judge
in determining whether a lump-sum conversion of permanent
total biweekly payments will be approved or awarded . . ."
Before discussing any constitutional questions, it is
important that we consider the statutes which are to be
applied to an injured worker with regard to lump-sum conver-
sions or to normal benefits.
Workers' compensation benefits are determined by the
statutes in effect as of the date of injury. Trusty v.
Consolidated Freightways (Mont. 1984), 681 P.2d 1085, 41
St.Rep. 973; Iverson v. Argonaut Insurance Co. (Mont. 1982),
198 Mont. 340, 645 P.2d 1366.
In Trusty, we held that the standards for computations
of benefits for the claimant are fixed by the statutes in
effect as of the date of injury and concluded that the
legislature could not enact a statute reducing the benefits
to an injured worker by reason of social security benefits
paid. We further stated:
The statute in effect on the date of injury deter-
mines the benefits to be received ...
(Citations
omitted). That sets the contractual rights and
debts of the parties. In the instant case, once
the 100% offset statute was found constitutionally
unenforceable, that portion of the statute became
void. This Court cannot come back and change the
statute to a 50% offset. Once we found the statute
constitutionally unenforceable, then no offset
remains in effect.
We hold that the benefits due to the appellant
under his Workers' Compensation award shall not be
reduced by a.n offset for Social Security benefits.
The reasoning of the foregoing cases properly controls
in the present case where we are involved with an application
for a lump-sum conversion of permanent biweekly payments. We
specifically hold that where an injured worker seeks a
lump-sum conversion of biweekly benefits, the statutes in
effect at the time of injury set the standards for either the
award or refusal of a lump-sum conversion.
We therefore conclude that the amendments made in 1985
to § 39-71-741 (2), MCA, cannot be applied in considering the
Buckman application for a lump-sum conversion. We note this
is consistent with the 1985 amendments as there is no
provision in those amendments stating that any portion should
be applied retroactively, with a single exception of the
discount provision.
The second issue is whether the prospective application
of the procedure set out in § 39-71-741(2), MCA violates the
equal protection guarantees of the Montana and United States
Constitutions. We hold that it does not.
After careful consideration of the language of the
procedure set out in 39-71-741(2) and (3) and after
reference to the legislative history we are convinced that
those subsections merely codify, in detailed form, the prior
case law which allowed a conversion of biweekly benefits when
it was in the best interests of the claimant.
During the hearings leading to the enactment of S.B. 281
there was considerable discussion of more specific statutory
language concerning the award of lump sums. The record of
the February 14, 1985 meeting of the senate subcommittee is
representative of the intent of the legislature when
considering the specific language. Senator Haffey asked the
administrator of the Workers' Compensation Division whether
"if what he is talking about is language based on the
experience of the last couple of years, under which lump sum
payments are called for . . . Mr. Blewett replied yes."
Our estimate that the legislative intent was to codify
existing law, rather than altering the law, is borne out by
examination of the procedure contained in S 39-71-741 ( 2 ) and
(3)
Subsection 2 directs the Workers' Compensation Court to
award conversions "only if the worker or his beneficiary
demonstrates that his ability to sustain himself financially
is more probable with a whole or partial lump-sum conversion
than the biweekly payments and his other available
resources." The statute then goes on to lay out separate
criteria to indicate what is meant by "sustain himself
financially." We note here that the criteria in subsection
2 (a), that the difference between the discounted value of a
conversion and the future value of biweekly benefits cannot
be the only grounds for a conversion, directly codifies the
prior law of Kent v. Sievert (1971), 158 Mont. 79, 489 P.2d
104. The language contained in subsection 2(b) states that
the improvement of a claimant's financial position should not
be the basis of an award unless it can be awarded at the
price of an annuity. This would cost the insurer the same as
if it had purchased an annuity under the option contained in
S 39-71-2207, MCA, and merely states the same rule as our
holdings in Kent and in LaTTe v. School Dist. 82 (Mont. 19861,
713 P.2d 546, 43 St.Rep. 1-65.
Similarly, case law has required claimants to submit
financial plans when outstanding or delinquent debt is the
basis for a conversion request. Kuehn v. National Farmers
Union Property and Cas. Co. (1974), 164 Mont. 303, 521 P.2d
921. Furthermore where the court has found the outstanding
debt was not so significant as to necessitate a lump-sum
conversion, it has been denied. Ruple v. Bob Peterson
Logging Co. (M.ont. 1984), 679 P.2d 1252, 41 St.Rep. 704.
This prior law is directly reflected in the language of S
39-71-741 (2) (c).
Subsection 2 (d) of that same statute likewise codifies
prior case law requiring that a claimant show the worthiness
of her business venture plan and the adequacy of her business
acumen. - Bundtrock v. Duff Chevrolet (1982), 199 Mont.
See
128, 647 P.2d. 856; Krause v. Sears, Roebuck and Co. (1982),
197 Mont. 102, 641 P.2d 458.
Finally, S 39-71-741(3) allows the division to order
"financial, medical, vocational, rehabilitation, educational
or other evaluative studies to determine whether a lump-sum
conversion is in the best interest of the worker or his
beneficiary." These tests reflect the historical ways in
which a claima.nt could assert that a conversion was in her
best interests other than by showing strict financial
necessity. Prior case law has held a conversion to be in the
best interests of a claimant where medical considerations
required that the claimant and his family move to a different
climate. Polich v. Whalen's O.K. Tire Warehouse (1983), 203
Mont. 280, 661 P.2d 38. Prior case law has held it to be in
the best interest of the claimant where diagnosed mental
instability made the award of a lump sum necessary to relieve
the claimant's abnormal anxiety. Legowik v. Montgomery Ward
and Co. (1971), 157 Mont. 436, 486 P.2d 867.
The legislative use of the term "best interest" further
convinces us that 5 39-71-741(3), MCA, reflects the intent of
the legislature to make explicit in the statutory language
the previously used best interest test for the conversion of
biweekly benefits.
Subsection 3 itself does not mandate conversion of
benefits. However, when read in combination with subsection
5, giving the Workers' Compensation Court jurisdiction to
make the final determination, the combination convinces us
that subsection 3 provides an alternative method to qualify
for a lump-sum award when strictly financial considerations
do not mandate a conversion. This interpretation is
buttressed by a May 7, 1985, policy statement from the
Division of Workers' Compensation.
In summary, we construe the language of the statute to
represent no change from the law existing prior to April 15,
1985, and to represent no significant change from the
requirements placed on the permanently partially disabled by
case law. Therefore because no rights have been burdened,
nor any classification of claimants treated dissimilarly, we
can find no violation of equal protection in the prospective
application of the procedure set out in S 39-71-741, MCA.
As to the third issue, Buckman challenged the amended 5
39-71-741(1), MCA, as applied to her case, as a violation of
her "rights under the Montana and United States
Constitutions, including but not limited to her right to
equal protection of the laws and due process of law." The
Workers' Compensation Court held the discounting provision
violated the state and federal constitutional prohibitions
against impairments of contracts and susta-ined the procedural
criteria against the same impairment of contract test.
Consequently the lower court did not reach the due process or
equal protection issues.
In Montana we have repeatedly recognized that the state
constitution provides protection of rights separate from the
protection afforded by the federal constitution. State v.
Johnson (Mont. 1986), 719 P.2d 1248, 1254-55, 43 St.Rep.
1010, 1016-18; Pfost v. State (Mont. 1985), 713 P.2d 495,
500-1, 42 St.Rep. 1957, 1963-64; Madison v. Yunker (1978),
180 Mont. 54, 60, 589 P.2d 126, 129.
Because the federal constitution establishes the floor
and not the apex of constitutional rights, state action may
violate our Montana Constitution, but not violate any federal
constitutional guarantee. Therefore, pursuant to the wisdom
in the rule that we will not search to reach any issue not
necessary to dispose of the case, we will not reach a federal
constitutional challenge unless and until the case may not be
resolved on adequate and independent state grounds.
We now turn our attention to the contract clause
challenge before us. In the past we have generally
interpreted the contract clauses found in Art. 11, 5 31, 1972
Mont. Const. and Art. I, § 10 (1), United States Constitution
as interchangeable guarantees against legislation impairing
the obligation of contracts. Nee1 v. First Federal Savings
and Loan Assoc. (Mont. 1984), 675 P.2d 96, 103, 41 St.Rep.
18, 25. Consistent with our intention to initially examine
state grounds in an effort to resolve the issue, we turn to
prior Montana contract clause case law for independent
interpretation of our own prohibition of impairment of
contract. Federal cases cited are relied on for their
analytical persuasiveness but in no way mandate our decision.
The Montana Constitution states, "No ex post facto law
nor any law impairing the obligation of contracts, or making
any irrevocable grant of special privileges, franchises, or
immunities, shall be passed by the legislature." Art. 11, S
31, 1972 Mont. Const. We have construed the two contract
clauses interchangeably, and have cited United States Supreme
Court opinions to test the validity of Montana legislation
under both contract clauses. Neel, 675 P.2d at 103, 41
St.Rep. at 25.
The basis for Workers' Compensation is a contract of
hire either express or implied. Section 39-71-117, MCA; 5
39-71-118, MCA; 1C Larson Workmen's Compensation Law S 47.10
(1986) . This Court, as well as courts of other states have
held that Workers' Compensation is based on contract theory.
Estate of Baker (Kan. 1977), 563 P.2d 431; Harris v. National
Truck Service (Ala. 1975), 321 So.2d 690; Spengler v.
Employers' Commercial Union and Insurance Co. (Ga. App.
1974), 206 S.E.2d 693; Gaston v. San Ore Construction Co.
(Kan. 1970) , 477 P. 2d 956; Nadeau v. Power Plant Engineering
Co. (Ore. 1959), 337 P.2d 313; Morgan v. Industrial Accident
Board (1956), 130 Nont. 272, 300 P.2d 954.
This Court has assumed for a number of years that the
Workers' Compensation statutes in effect on the date of
injury set the contractual rights between the parties.
Trusty, 681 P.2d at 1085, 41 St.Rep. at 973. This is
consistent with the provisions of the Workers' Compensation
Act that the term employee or worker means "each person in
this state . . . who is in the service of an employer ...
under an appointment or contract of hire, express or implied,
oral or written." Section 39-71-118, MCA.
We approve the holding of the Kansas Supreme Court in
Estate of Baker (Kan. 1977), 563 P.2d at 436:
The liability of an employer to an injured or
deceased employee arises out of the contract
between them; the terms of the workmens'
compensation statute are embodied in the contract.
The substantive rights between the parties are
determined by the law in effect on the date of the
injury. (Citation omitted. ) However, the rights
under the contract vest when the cause of action
accrues, and the cause of action accrues on the
date of injury or death. (Citations omitted. )
We conclude that this analysis is clearly applicable to
this case where there is an application for conversion of
biweekly benefits to a lump-sum payment. We hold that the
liability of Montana Deaconess Hospital, employer, to
Buckman, employee, arises out of the contract between them,
and that the Workers' Compensation sta-tutes in effect on the
date of the Buckman injury are a part of that contract.
The question becomes whether the statute at issue in
this case constitutes an impairment of the obligation of
contract. We first turn to the three-tiered analysis set
down by the United States Supreme Court in Energy Reserves
Group, Inc. v. Kansas Power and Light Co. (19831, 459 U.S.
400, 103 S.Ct. 697, 74 L.Ed.2d 569, and followed by this
Court in Neel, 675 P.2d at 96, 41 St.Rep. at 18. The
threshold inquiry is "whether the state law has, in fact,
operated as a substantial impairment of a contractual
relationship." Neel, 675 P.2d at 104, 41 St.Rep. at 27.
Next, we must look to whether the state in justification, has
a significant a.nd legitimate public purpose for the
regulations. Finally, we must inquire whether the adjustment
of the rights and responsibilities of the contracting parties
are based on reasonable conditions and of a character
appropriate to the public purpose justifying adoption of the
legislation. Energy Reserves, 459 U.S.
at 704-5, 74 L.Ed.2d at 580-81. Neel, 675 P.2d at 104-5, 41
Several factors are used to evaluate the impairment of a
contract. Total destruction of the contract is not necessary
for a finding of substantial impairment. The severity of the
impairment increases the level of scrutiny to which the
legislation is subjected. However, state regulation that
restricts a party to gains it reasonably expects from a
contract does not substantially impair the contract. In
d.etermining impairment, we are to consider the extent to
which the industry has been regulated in the past. Energy
Reserves, 459 U.S. at 411, 103 S.Ct. at 704, 74 L.Ed.2d at
580. In analyzing these factors, the Workers' Compensation
Court stated:
Admittedly, workers' compensation is a closely
regulated industry. However, the impairment to the
claimant's contractual rights is severe. An
increased level of scrutiny is required. A
claimant, able to establish the required condition
precedent, that it is in his best interests to be
awarded a lump sum advance, is severely impacted by
the discount provision and annuity provision in
Senate Bill 281. This is a substantial restriction
not anticipated under the parties ' [sic] contract.
We agree that the dj-scounting provision as retroactively
applied substantially impairs the rights of claimants which
vested at the time of injury by altering the remedy to which
the claimant is entitled.
The second tier of the analysis is if the state in
justification has a significant and legitimate public purpose
behind the regulation. In this case, because the state is a
party to this contract a heightened level of scrutiny
attaches:
The Contract Clause is not an absolute bar to
subsequent modification of a State ' s own financial
obligations. As with laws impairing the
obligations of private contracts, an impairment may
be constitutional if it is reasonable and necessary
to serve an important public purpose. In applying
this standard, however, complete deference to a
legislative assessment of reasonableness and
necessity is not appropriate because the State's
self-interest is at stake.
United States Trust Co. of New York v. New Jersey (1977), 431
U.S. 1, 25-6, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92, 111-12.
The defendants advance as the purpose for enactment of 5
39-71-741, MCA, to "head off threatened premium increases,
hold down employers' cost of doing business, and promote the
Montana economy." We certainly agree with the legitimacy of
these purposes and share the legislative concerns in
promoting Montana's economy. However, those concerns in and
of themselves are not sufficient to solve the issues before
us in the present case. Clearly the discount provisions of
the section may be applied to injuries occurring after the
effective date of the Act. Such application will undoubtedly
result in the type of savings desired by the legislature.
However, our concerns must be directed to those who were
injured prior to April, 1985, such as Rose Buckman. The
record does not contain any significant evidence bearing on
the cost to the state which may result if the discount
provisions are not applied to workers injured prior to April,
1985. Under those circumstances, we conclude that the state
has failed to prove a significant public interest which
requires the application of the discount to workers such as
Buckman. The general statement of the reason in itself is
not sufficient to justify the severity of the impairment of
contract as in this case. We therefore hold that the
retroactive application of 5 39-71-741, MCA, violates the
contract clause of the 1972 Montana Constitution. We affirm
the judgment of the Workers' Compensation Court on this
issue. Because we have decided the statute is
unconstitutional and a violation of the contract clause, we
do not reach the due process or equal protection issues.
Finally, Buckma.n contends that the trial court erred in
denying her a conversion. In light of our construction of §
39-71-741, MCA, we remand the case for determination of
whether claimant is entitled to a conversion of her benefits
to a lump sum.
Affirmed in part, reversed in part and remanded for
proceedings pursuant to this opinion
We Concur:
Justices
Mr. Justice Frank B. Morrison, Jr. specially concurs as
follows:
I concur in the majority opinion although, in my
judgment, the legislature intended to change the "best
interest" test by enactment of 539-71-741, MCA.
Nevertheless, I concur in the majority holding that the
retroactive features of this legislation are
unconstitutional. The statutes covering workers1
compensation are a part of the employment contract. The
statutes in effect at the time of injury control. Any
attempt to change these rights after they vest constitutes an
abridgment of contract obligations and is unconstitutional as
the majority finds.
The prospective application of 5 39-71-741, MCA, is
affected by the Court's holding that the statute, reduced to
its essence, involves no more than the "best interest" test.
The Workers' Compensation Court has been proceeding under the
assumption that the statute changed the former test and the
legislative history indicates that was the intent of the
legislature. As noted in the majority opinion the purpose
advanced in support of the statute was to "head off
threatened premium increases, hold down employers cost of
doing business, and promote the Montana economy." To me this
indicates that the legislature intended to change eligibility
requirements for a lump sum settlement.
The effect of the majority holding will finally realize
what the legislature stated its goal to be but totally failed
to accomplish. The result of the legislature enacting the
subject statute has been to increase the cost of delivering
benefits to the worker and has contributed to the financial
crisis facing the state insurance fund. Prior to enactment
of 39-71-741, MCA, and the bureaucratic regulations
promulgated by the division, the worker simply had to show
that it was in the best interest of the injured worker to
receive a lump sum payment rather than a structured
settlement. The workers petition, prepared without
assistance of a lawyer, could easily satisfy this burden.
The new statute is so complicated that an injured worker has
to hire a "Philadelphia lawyer" in every case in which the
worker desires to achieve a lump sum payment. Furthermore,
the retained counsel must employ a battery of costly expert
witnesses to satisfy the requirements of the statute. The
result has been increased litigation, greatly increased
litigation expenses, and delay in payment of benefits. This
increasingly expensive system combined with low premiums
charged by the State Fund has produced a very serious
financial crisis for the State of Montana.
From a monetary standpoint, it should make no difference
to the State Compensation Insurance Fund whether payments are
made in a lump sum or paid in a structured settlement. Lump
sums are reduced to present value at an interest factor that
renders the means of payment financially irrelevant to the
fund itself.
The workers' compensation system must be returned to a
simple compensation system where injured workers can be
compensated without litigation expenses. Litigation can
never be eliminated entirely and where legitimate disputes
need legal counsel they should go forward and be presented to
the Workers1 Compensation Court. However, the "garden
variety" workers ' compensation case should not be subjected
to the complicated and tortured scheme set forth in
5 39-71-741, MCA.
In my opinion this statute should be repealed and a
simple "best interest" test reestablished so that injured
workers can be compensated without the necessity of costly
litigation. Perhaps the holding of the majority neuters the
statute and repeal is unnecessary. If that is the result of
the majority opinion a giant step forward has been taken to
preserve the future fiscal integrity of the State
Mr. Justice L. C. Gulbrandson, dissenting.
I respectfully dissent.
I woul-d affirm the Workers' Compensation Court ruling
that the amendments found in 5 39-71-741 ( 2 ) , MCA, are
procedural in nature and could be applied in this case even
though claimant's in-jury pre-dated the amendments.
I would reverse the holding of the Workers'
Compensation Court that the discounting provision in
$ 39-71-741(1), MCA, if applied retroactively to Buckman's
award, would violate the contract clauses of both the United
States and Montana Constitutions.
Those of us who feel that present Workers' Compensation
benefits are inadequate may find the majority opinion to be
an insurmountable obstacle in the event the legislature, in a
better economic climate, should attempt to increase benefits
for previously injured workers. The Nevada Supreme Court in
K-Mart Corporation v. State Industrial Insurance System (Nev.
1985), 693 P.2d 562, upheld an increase of benefits to
workers injured prior to statute amendments and specifically
ruled that such an amendment was not an unconstitutional
impairment of a contract. The majority opinion effectively
rules out the possibility of future relief for previously
injured workers in Montana.
The Constitutionality of Senate Bill 281 "is prima
facie presumed, and every intendment in its favor will be
made unless its unconstitutionality appears beyond a
reasonable doubt. " T & Trjr Chevrolet v. Darvial (1982), 196
Mont. 287, 641 P.2d 1386, 1370.
In my view, the laws relating to lump sum conversions
are unrelated to the enforcement of the bargained for