NO. 91-093
IN THE SUPREME COURT OF THE STATE OF MONTANA
WAYNE FRANCETICH,
Claimant and Appellant,
-VS- q ~ ; .t jQ92
-:i".
..
!L.:+~,,;
STATE COMPENSATION MUTUAL INSURANCE FUND,
Defendant and Respondent.
APPEAL FROM: Workers' Compensation Court,
The Honorable Timothy W. Reardon, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Don Edgar Burris argued, Attorney at Law, Billings,
Montana.
For Respondent:
Laurence A. Hubbard argued, Attorney at Law, Helena,
Montana; Mark E. Cadwallader, Attorney at Law,
Helena, Montana
For Amicus Curiae:
Patricia Cotter argued, Cotter & Cotter, Great
Falls, Montana.
submitted: November 5, 1991
Decided: March 10, 1992
Filed:
Clerk
Justice William E. Hunt, Sr., delivered the opinion of the Court.
Claimant and appellant Wayne Francetich suffered an on-the-job
injury on December 2, 1988. Respondent State Compensation Mutual
Insurance Fund accepted liability and paid workers' compensation
benefits to the claimant. The claimant also obtained a policy
limits insurance settlement from the third party responsible for
the accident. The State Fund attempted to exercise subrogation
rights pursuant to 5 39-71-414(6)(a), MCA. The claimant resisted
the State Fund's attempt to subrogate, contending that the statute
providing for subrogation in this instance is in direct violation
of Article 11, Section 16, of the Montana Constitution. We
reverse.
We are presented with the following three issues for review:
1. Is 5 39-71-414(6) (a), MCA, unconstitutional in that it
directly contravenes the clear language of Article 11, Section 16,
of the Montana Constitution?
2. Does 5 39-71-414(6)(a), MCA, violate constitutional
guarantees of equal protection?
3. Does 5 39-71-414(6)(a), MCA, violate the worker's right
to due process of law?
Because of our holding on issue one that 5 39-71-414(6)(a),
MCA, is unconstitutional, we need not address issues two and three.
The determinative issue before this Court is whether
5 39-71-414(6) (a), MCA, is unconstitutional in that it directly
contravenes the clear language of ~rticle11, Section 16, of the
Montana Constitution.
Claimant petitioned for a hearing before the Department of
Labor and Industry for a determination of the State Fund's
subrogation interest. The parties submitted their dispute to an
administrative hearing officer before the Department of Labor and
Industry by way of the following stipulated uncontested facts,
along with a motion for summary judgment.
1. On December 2, 1988, the claimant Wayne Francetich
suffered an industrial injury while employed by an insured of the
respondent State Fund.
2. The State Fund paid temporary total disability and other
benefits to claimant.
3. Claimant accepted a policy limits settlement in the
amount of $25,000 from the third-party tortfeasors responsible for
the December 2, 1988, accident.
4. The State Fund contends that it has a 50 percent
subrogation interest in the settlement proceeds from the claimant's
third-party recovery and is entitled to subrogation in the amount
of $10,865.14.
5. The State Fund demanded payment from claimant in the sum
of $5,391.03, that amount being 50 percent of the benefits
previously paid to claimant.
6. On April 6, 1990, the State Fund refunded to claimant the
aforesaid $5,391.03 pursuant to the decision of this Court in Malek
v. Henry's Safety Supply Company (1990), 242 Mont. 311, 790 P.2d
965.
7. The State Fund has demanded that it only be required to
pay any future compensation or medical benefits to the claimant at
50 percent until the State Fund has reached their total entitlement
of $10,879.61.
On September 26, 1990, the hearing examiner granted summary
judgment for the respondent while correctly declining to address
the constitutional questions on the grounds that administrative
agencies lack the necessary judicial power to decide such issues.
Jarussi v. Board of Trustees (1983), 204 Mont. 131, 135-36, 664
P.2d 316, 318. Claimant appealed this decision to the Workers1
Compensation Court. Following a briefing of the constitutional
issues by the parties, the Workers1 Compensation Court on
January 17, 1991, entered its order on appeal, affirming the
administrative decision of the Department of Labor and Industry.
Claimant appeals from the decision of the Workers1 Compensation
Court.
Both parties stipulated to an agreement of facts below and the
dispute was before the Workers1 Compensation Court solely for an
interpretation of the law. In reviewing conclusions of law of the
Workers' Compensation Court, we apply a different standard of
review than we would if reviewing factual findings, Factual
findings by the Workers1 Compensation Court are reviewed using the
substantial credible evidence standard. Our review of conclusions
of law is, as we recently stated:
"In such a case, the appropriate standard of review is
simply whether the lower court's interpretation of the
law is correct. We are not bound by the lower court's
conclusion and remain free to reach our own."
Schaub v. Vita Rich Dairy (l989), 236 Mont. 389, 391, 770 P.2d 522,
523. We explained the rational for this standard in Steer, Inc. v.
Department of Revenue (1990), 245 Mont. 470, 803 P.2d 601:
The reasoning for simply determining if the court's
conclusions are correct is that no discretion is involved
when a tribunal arrives at a conclusion of law--the
tribunal either correctly or incorrectly applies the law.
For that reason, this Court concludes that our standard
of review relating to conclusions of law, whether the
conclusions are made by an agency, workers1 compensation
court, or trial court, is whether the tribunal's
interpretation of the law is correct.
m, 803 P.2d at 603. The instant case involved only an
interpretation of the law by the Workers' Compensation Court, and
therefore, upon review we will simply determine whether or not the
conclusion was correct.
Additionally, this case involves the interpretation of a
statute that is being challenged on constitutional grounds. This
Court has long held that when the constitutionality of a statute is
in question:
"We commence inquiry into the constitutional questions
with the well-settled rule that when the constitu-
tionality of a statute is under scrutiny, the statute is
presumed to be constitutional and [that] the party
attacking it has the burden of proving its invalidity.
[Citations omitted.] This presumption of validity
applies to all legislative enactments and it is the duty
of the court to resolve all conceivable doubts in favor
of validity whenever possible. [Citations omitted.]"
Reevesv.IlleElectricCo. (1976), 170 Mont. 104, 109, 551 P.2d
647, 650.
McClanathan v. Smith (1980), 186 Mont. 56, 65-66, 606 P.2d 507,
This case involves an analysis of 5 39-71-414(6)(a), MCA, in
relation to Article 11, Section 16, of the Montana Constitution.
Section 39-71-414(6)(a), MCA, provides:
The insurer is entitled to full subrogation rights
under this section, even though the claimant is able to
demonstrate damages in excess of the workers'
compensation benefits and the third-party recovery
combined. The insurer may subrogate against the entire
settlement or award of a third party claim brought by the
claimant or his personal representative, without regard
to the nature of the damages.
Article 11, Section 16, of the Montana Constitution, as
amended in 1972, provides:
Courts of justice shall be open to every person, and
speedy remedy afforded for every injury of person,
property, or character. No person shall be deprived of
this full leqal redress for iniurv incurred in emplovment
for which another Derson mav be liable exce~t as to
fellow em~lovees and his immediate emplover who hired him
if such immediate emplover provides coveraqe under the
Workmen's Com~ensationLaws of this state. Right and
justice shall be administered without sale, denial, or
delay. [Emphasis added.]
The emphasized portion of Article 11, Section 16, was added by
amendment during the Constitutional Convention of 1972. Subsection
6(a) was added to 5 39-71-414, MCA, in 1987. Prior to the 1987
amendment, the statute was silent concerning the issue of
subrogation when the injured worker's damages were in excess of the
workers' compensation benefits and the third-party recovery
combined. This is the first time that we have been called upon to
review the 1987 amendment to the subrogation statute in light of
Article 11, Section 16, of the Montana Constitution.
A review of the history of the cases interpreting Article 11,
Section 16, as well as those cases discussing subrogation when the
injured worker's damages exceed the worker's compensation benefits
and the third-party recovery combined, is necessary to demonstrate
the rationale and reasoning underlying our decision in this case.
A good starting point for the discussion on Article 11,
Section 16, is our decision in White v. State (1983), 203 Mont.
363, 661 P.2d 1272. In White, the issue before this Court was the
constitutionality of § 2-9-104, MCA (1981), a statute which limited
the liability of any governmental entity of the State. The statute
provided that governmental entities were not liable for noneconomic
damages, nor for any economic damages in excess of $300,000 for any
one claimant, or more than $1,000,000 in any one occurrence. white
held that Article 11, Section 16, created a fundamental right to
full legal redress for all injuries. The Court stated in White
that:
Article 11, section 16 of the Montana Constitution
guarantees that all persons shall have a "speedy remedy
.
. . for every injury of person, property, or
character.l1 In Corngan v. Janney (1981), Mont., 626 P.2d
838, 38 St.Rep. 545, this Court held that it is "patently
unconstitutionalv for the legislature to pass a statute
which denies a certain class of Montana citizens their
causes of action for personal injury and wrongful death.
We affirm and refine our holding in Comgan v Janney,
.
supra; we hold that the Montana Constitution guarantees
that all persons have a speedy remedy for every injury.
The language laevery injurya1 embraces all recognized
compensable components of injury, including the right to
be compensated for physical pain and mental anguish and
the loss of enjoyment of living.
White, 661 P.2d at 1275. Having found a fundamental right to full
legal redress, White then held that the statute in question
violated the equal protection guarantee of the Montana
Constitution. The State could provide no compelling interest to
justify classifying tortfeasor victims on the basis of whether they
had suffered pain and loss of quality of life or whether they had
suffered primarily economic loss. The section in its entirety was
found to be unconstitutional.
In 1989, this Court again had the opportunity to examine
Article 11, Section 16, in Meech v. Hillhaven West, Inc. (1989),
238 Mont. 21, 776 P.2d 488. Meech involved a challenge to the
Wrongful Discharge From Employment Act on the grounds that the Act
violated an individual's fundamental right to full legal redress
within the meaning of Article 11, Section 16, of the Montana
Constitution. In Meech, this Court concluded that full legal
redress, as provided for in the Montana Constitution, means "the
equal right to be made whole again by what the law defines as a
cause of action and its elements." w, 776 P.2d at 498.
Further, it is up to the courts and the legislature to determine
what constitutes available causes of action, remedies, and redress.
Therefore, this Court held that there is no fundamental right to
any particular cause of action, remedy, or redress. Regarding the
second sentence of the provision which specifically refers to full
legal redress, the majority stated that !'the delegates narrowly
drafted the amendment to accomplish the single purpose of limiting
the lawmakerstpower in restricting third-party actions in workerst
compensation law,It Meech, 776 P.2d at 497. Additionally in Meech,
this Court stated that:
[Tlhe testimony before the Convention demonstrates that
the amendment to Article 11, section 16, was to operate
in only one particular area of law. Specifically, the
addition prevents lawmakers, that is both the courts and
the legislature, from denying workerst compensation
claimants a cause o action against negligent third parties
f
for job related injuries. The amendment did not seek to
define "full legal redresstp a fundamental right which
as
could not be altered by the legislature.
Meech, 776 P.2d at 499.
Several cases involving subrogation also need to be examined.
In Skauge v. Mountain States Telephone and Telegraph (1977), 172
Mont. 521, 565 P.2d 628, the plaintiffst rented home was destroyed
by an explosion. The value of the plaintif fst personal property
destroyed exceeded $11,000. The personal property was insured up
$4000, and this amount was paid to the plaintiffs by the
insurer. Plaintiffs then initiated suit against a third party who
plaintiffs alleged were responsible for the fire, The issue before
this Court in Skaucfe was whether the insurer could subrogate from
any award the plaintiffs might recover, and if so, how much was the
insurer entitled to. In Skauqe, we held that:
[Tjhe doctrine of legal subrogation is applied to
subserve the ends of justice and to do equity in the
particular case under consideration. Bower v, Tebbs, supra.
For these reasons we adopt the view that 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, including attorney's fees, before the insurer
can assert its right of legal subrogation against the
insured or the tortfeasor.
Skause, 565 P.2d at 632.
The issue of subrogation in relation to Article 11,
Section 16, of the Montana Constitution was considered by this
Court the year following the Skause decision in Brandner v.
Travelers Insurance Company (1978), 179 Mont. 208, 587 P.2d 933.
In Brandner this Court allowed subrogation against a third-party
recovery by an injured worker. The worker, an employee of Con Agra
Montana, Inc., was injured while loading a railroad car owned by
Burlington Northern. The worker then settled with Burlington
Northern for $70,000, an amount not dictated by the upper limits of
any insurance policy. The employer's insurer sought subrogation
for amounts previously paid to the injured worker. The insurer
disagreed with the Workers' Compensation Court's determination
concerning the subrogation right and sought review by this Court.
This Court reversed the Workers' Compensation Court and held that
subrogation was appropriate in light of Article 11, Section 16, of
the Montana Constitution. The Court also distinguished the
situation in Brandner from the decision in Skause. The basis for
this distinction apparently was the Court's belief that the injured
worker's voluntary settlement with the third party for less then
the upper limits of the third party's insurance policy indicated
t h a t t h e worker had been f u l l y compensated for his injuries. There
is language in Brandner which might be viewed as indicating that
subrogation might have been appropriate even if the injured worker
had not been fully compensated for his injuries. To the extent
that Brandner might be interpreted as allowing for subrogation
prior to the injured worker receiving full compensation it is
overruled.
In Hall v. State Compensation Insurance Fund (1985), 218 Mont.
180, 708 P.2d 2 3 4 , this Court was faced with a factual situation
nearly identical to the present case. The claimant in Hall
suffered damages in excess of the workers1 compensation benefits
and a policy limits recovery of $25,000 from the responsible
third-party tortfeasor combined. The insurer sought subrogation
from the third-party recovery, even though the injured worker had
not been made whole. In 1985, the subrogation statute was silent
as to an insurer's subrogation rights before the injured worker was
made whole. The Court relied on its decision in Skauqe and the
theory of equitable limitation on legal subrogation in deciding
that the insurer in Hall could not subrogate until the injured
worker had been made whole. Additionally, the Hall decision
mentioned White, and indicated that allowing subrogation in this
instance, when the injured worker's damages exceeded his total
recovery, would violate his fundamental right to full legal redress
created by Article 11, Section 16, of the Montana Constitution.
The result in Hall was, therefore, justified on two separate
grounds. In the absence of statutes governing like cases, this
Court was free to apply appropriate theories of equity in reaching
our conclusion. Additionally, the fundamental right to full legal
redress established in White served as an alternative basis for the
decision.
We again considered this same issue in the recent case of
Zacher v. American Insurance Company (1990), 243 Mont. 226, 794
P.2d 335. It should be noted that although Zacher was decided in
1990, it construed the 1983 subrogation statute. The claimant was
injured in 1983 and it is well-settled that the statute existing at
the time of the injury governs. Watson v. Seekins (1988), 234
Mont. 309, 312, 763 P.2d 328, 331. Additionally, it is significant
to recognize that the Meech decision was a 1989 decision and in
effect at the time of Zacher. The claimant alleged in Zacher that
allowing subrogation under these circumstances would deprive him of
full legal redress. This Court agreed that the insurer was not
entitled to subrogation, but did not rely on the full legal redress
argument presented by the claimant in reaching that conclusion.
Instead, the Court relied on the equitable limitation on legal
subrogation doctrine which was the basis for the earlier Skause and
Hall opinions. This doctrine is based
[Ulpon 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.
Zacher, 794 P.2d at 338. To the extent that the Hall decision had
relied on White, and the full legal. redress doctrine which was
abandoned in Meech, it was overruled.
We are presented with the same factual circumstances in this
case as in both Hall and Zacher. However, this is the first case
to come before the Court since the 1987 amendment to the workers'
compensation subrogation statute which specifically directs that
the insurer shall have the right to subrogate even though the
injured worker s damages exceed his total recoveries. This
specific legislative directive effectively overrules the equitable
theories concerning subrogation that this Court relied on in
deciding Hall and Zacher, i.e., that subrogation could not begin
until the injured worker had been made whole.
However, the claimant argues that subrogation in this instance
specifically violates the second sentence of Article 11,
Section 16, of the Montana Constitution, which was added during the
Constitutional convention of 1972. The claimant recognizes that in
Meech this Court held that entitlement to full legal redress is not
a fundamental right. The claimant argues, however, that the
present situation is the one instance in which the Montana
constitution does specifically guarantee a full legal redress,
which neither the courts nor the legislature may take away.
Section 39-71-414 (6)(a), MCA, restricts an injured worker ' s
right to obtain a full legal redress against third-party
tortfeasors. The second sentence of Article 11, Section 16,
states this cannot be done. The record of the debate at the
convention is clear that this was the delegatesv intent in amending
the provision. The second sentence is mandatory, prohibitive, and
self-executing and it prohibits depriving an employee of his full
legal redress, recoverable under general tort law, against third
parties. Finally, as noted above, we recognized and explained this
very idea in Meech.
We hold that 5 39-71-414(6)(a), MCA, is unconstitutional in
light of the clear and direct language of Article If, Section 16,
of the Montana Constitution. 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 clairnantgsworkersv
compensation award, do not grant full legal redress under general
tort law to the claimant, under workersq compensation laws the
insurer is not entitled to subrogation rights under 5 39-71-414,
MCA .
The record before the Workerst compensation Court does not
contain evidence relative to the extent of the damages, recovery,
costs of recovery, and attorney fees so far as the claimant is
concerned. We therefore remand the matter to the Workersf
Compensation Court so that the court may make a factual
determination as to whether the claimant's damages and costs of
being made whole exceed his workers' compensation and third-party
recovery combined, and for an appropriate order in accordance with
the principles stated in this opinion.
Reversed and remanded.
We concur:
A .-
Chief Justice
n
March 10, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
Don Edgar Burris
Attorney at Law
P.O. Box 2344
Billings, MT 59103
Laurence A. Hubbard, Legal counsel
State Comp. Mutual Ins. Fund
5 So. Last Chance Gulch
Helena, MT 59601
Patricia Cotter, Esq.
Cotter & Cotter
P.O. Box 3425
Great Falls, MT 59403
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
B