NO. 89-564
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
IN THE MATTER OF KENNETH ZACHER,
Claimant and Appellant,
AMERICAN INSURANCE COMPANY,
Insurer, petitioner and Respondent.
APPEAL FROM: Workerst Compensation Court
Honorable Timothy Reardon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Frank C. Richter, Richter & Torkelson, Billings,
Montana
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: For Respondent:
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:
-. - t Terry G. Spear, Billings, Montana
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Submitted on Briefs: April 5, 1990
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a Decided: June 7, 1990
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Justice Fred J. Weber delivered the Opinion of the Court.
The Workerst Compensation Court held that the insurer,
American Insurance Company, was entitled to assert a subrogation
claim against the third party recovery of the claimant, Kenneth
Zacher. Zacher appeals. We reverse and remand.
Mr. Zacher was an employee of Associated Pool Builders
(Associated Pool). Associated Pool carried workerst compensation
insurance through American Insurance Company (American). In May
of 1984, Associated Pool was engaged in the construction of a
swimming pool in Red Lodge, Montana. Mr. Zacher worked .on that
project . Associated Pool hired a subcontractor, Coutts
Construction Company (Coutts), to excavate a trench leading to the
pool. Coutts was insured by Commercial Union Insurance Company.
(Commercial).
Coutts completed the trench excavation. Mr. Zacher and
another Associated Pool employee then climbed into the trench in
order to connect pipes running to the pool. The trench caved-in
resulting in the burial of both men. As a result Mr. Zacher
suffered complete paraplegia as well as other related physical
problems. Mr. Zacher submitted his workerst compensation claim to
American which paid benefits to him.
Subsequently Mr. Zacher sued Coutts for his personal injuries,
alleging that the trench was negligently constructed because of a
failure to properly shore-up or reinforce the ditch, or to
properly slope the sides. The parties settled prior to trial, with
a payment of policy limits of $300,000 to Mr. Zacher by Commercial,
the Couttsr insurer. American asserted its statutory lien against
the $300,000 settlement with Mr. Zacher. American, the workersr
compensation carrier, had not participated in the negotiation and
settlement of the claim. The Workersr Compensation Court granted
summary judgment to American, and awarded $129,889.01 plus accrued
interest to American. Mr. Zacher appeals.
The sole issue is whether American is entitled to a
subrogation interest in Mr. Zacherlssettlement of his third-party
tort claim with Coutts and American, its insurance carrier.
The crux of Mr. Zacherrs contention is that the law does not
support subrogation in this case because he has not yet received
full legal redressrr. While there has been no factual
determination of the extent of his damages, Mr. Zacher estimates
that his damages are in excess of $3.5 million. He therefore
contends that his $300,000 settlement is not sufficient to amount
to full legal redress. American contends that Mr. Zacher does not
have such a right to full legal redress and urges that it is
entitled to subrogation under 5 39-71-414, MCA. We point out that
the full legal redress argument is not controlling in this case.
The key statute is 5 39-71-414, MCA (1983). It is important
to note that the current 1989 statute differs substantially from
the 1983 statute with regard to the subrogation rights of
insurer. Based upon the date of injury, the 1983 statute controls.
Section 39-71-414, MCA (1983) provides in pertinent part:
[Tlhe insurer is entitled to subrogation for all
(1)
compensation and benefits paid or to be paid under the
Workers1 compensation Act.
(5) If the amount of compensation and other benefits
payable under the Workers1 compensation Act have not been
fully determined at the time the employee, ... or the
insurer have settled in any manner the action as provided
for in this section, the division shall determine what
proportion of the settlement shall be allocated under
subrogation. The divisionls determination may be
appealed to the workerst compensation judge.
The Workerst Compensation Court, in its application of the
above statute, concluded that the insurer, American, was entitled
to assert its subrogation claim. The Workers1 Compensation Court
concluded that the rule in Hall v. State Compensation Ins. Fund
(1985), 218 Mont. 180, 708 P.2d 234. had been modified and
essentially overruled by Meech v. Hillhaven West, Inc. (Mont.
1989), 776 P.2d 488, 46 St.Rep. 1058. The Workers1 Compensation
Court pointed out that in Hall, this Court relied on Article 11,
Section 16 of the Montana Constitution and the requirement of full
legal redress as a basis for the decision. The Workerst
Compensation Court concluded that the effect of Meech, was to
overrule the full legal redress theory. We point out that Meech
involved an interpretation of 1 39-71-414, MCA, as modified by the
1987 Legislature. This amendment contained substantial changes in
the rights of the carrier to claim subrogation.
It is true that under Hall, the majority referred to Article
11, Section 16 of the Montana Constitution and White v. State
(1983), 203 Mont. 363, 661 P.2d 1272, and the fundamental right of
full legal redress and indicated that it would be an
unconstitutional application of the statute to allow subrogation
rights when the claimant had not achieved full legal redress.
However, that is not the primary basis for the opinion in Hall.
The primary theory of Hall was the conclusion that our
decision in Skauge v. Mountain State Tel. & Tel. Co. (1977), 172
Mont. 521, 565 P.2d 628, was relevant. Hall pointed out that in
Skause, the claimantst rented home was destroyed by an explosion.
The actual value of the property was over $11,000.00, but the
insurance was only slightly over $4,000.00. In addressing the
issue regarding the subrogation rights of the insurer, Hall quoted
the following from Skause:
'I... when the insured has sustained a loss in excess
of the reimbursement by the insurer, the insured is
entitled to be made whole for his entire loss and any
costs of recovery, includinq attorney's fees, before the
insurer can assert its right of legal subrogation against
the insured or the tort-feasor." (Emphasis supplied.)
(Citation omitted.)
Hall
I 708 P.2d at 236. The majority opinion then reached the
following conclusion in Hall:
Applying this principle to the facts now before us, the
State Fund is not entitled to any subrogation interest
in the $25,000 settlement proceeds as claimant has not
been made whole.
Hall, 708 P.2d at 236. The basic principle of Skause as reaffirmed
in Hall is that an insurer is not entitled to subrogation until a
claimant has been made whole for his entire loss and any costs of
recovery, including attorney fees. From the briefs, it is apparent
that counsel have some significant problems in interpreting our
decision in Hall. In part that arises from the holding in Hall
where this Court stated:
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 workers1
compensation award, do not grant full legal
redress to claimant, the insurer is not
entitled to subrogation rights under 3 39-71-
414, MCA. When claimant is made whole,
subroqation beqins. (Emphasis added).
Hall
I 708 P.2d at 237.
Considering Hall in the light of subsequent determinations by
this Court, we conclude that the primary conclusion of the holding
is contained in the last sentence which held that when a claimant
is made whole, subrogation begins.
We have also considered Getten v. Liberty Mut. Ins. Co. (Mont.
1989), 782 P.2d 1267, 46 St.Rep. 1967. A key statement and holding
of Getten is the following:
The instant case presents a voluntary settlement
(approximately 1.5 million dollars) for less than the
upper limits of the applicable insurance policy (six
million dollars). We hold that amellant received full
lesal redress. (Emphasis added.)
We conclude that the references to full legal redress have
been confusing and we will attempt to rectify that confusion. A
reference to Skause emphasizes the basis for the Skause rule which
was applied in Hall. That theory of equitable limitation on legal
subrogation was stated in Skause as follows:
Again we note, the doctrine of legal subrogation is
applied to subserve the ends of justice and to do equity
in the particular case under consideration ...
This theory is not dependent upon a right of recovery of full legal
redress under the Montana Constitution. It is based upon an
equitable balancing of the rights of the insurer as compared to the
claimant. As previously quoted, the basic conclusion is that when
the amount recovered by a claimant is less than the claimant's
total loss, with a result that either the claimant or the insurer
must to some extent go unpaid, then it is equitable that the loss
be born by the insurer which had been paid an insurance premium for
the assumption of its liability. While it is true that in a
workers1 compensation case such as the present case, the premium
has been paid by the employer, there is no rational distinction
between an insured under a house insurance policy and a claimant
in connection with workerst compensation. The key aspect is that
the insurer has been paid for the assumption of the liability for
the claim, and that where the claimant has not been made whole,
equity concludes that it is the insurer which should stand the
loss, rather than the claimant. With the aim of eliminating
confusion, we restate our holding in this subrogation case.
We hold that where a workers1 compensation claimant recovers
against a third party, an insurer has no subrogation rights until
a claimant has been made whole for his entire loss and any costs
of recovery, including attorney fees. In determining whether a
claimant has been made whole, the amounts received and to be
received under the workerst compensation claim shall be added to
the amounts otherwise received or to be received from third party
claims, and also added to the costs of recovery, including attorney
fees; and when that total equals claimant's entire loss, then the
insurer shall be entitled to subrogation from all amounts received
by the claimant in excess of his entire loss, pursuant to S 39-
71-414, MCA (1983) . To the extent that Hall and Getten contain
requirements which may be interpreted as adding to the foregoing
holding, Hall and Getten are expressly overruled. As a result,
there will be no need for parties to consider whether or not full
legal redress under the Constitution is involved and there will be
no need to prove reasonably clear liability. We do emphasize that
this opinion does not modify the actual decisions made in both Hall
and Getten. The author points out that the foregoing in some
measure contradicts his dissent in Hall. However, it is
appropriate that under the rule of stare decisis, the holding in
Hall on the equitable subrogation theory should be upheld.
The record before the Workers1 Compensation Court does not
establish as a matter of fact the extent of the loss, costs of
recovery, and attorney fees so far as Mr. Zacher is concerned. We
therefore hold that the matter is remanded to the Workers1
Compensation Court in order that the court may make a factual
determination as to whether Mr. Zacher has been made whole for his
entire loss and any costs of recovery, including attorney fees.
At that point the Workers1 Compensation Court can make its
appropriate order with regard to subrogation in accordance with the
principles stated in this opinion.
We Concur:
Chief Justice
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Justices