Title: Randolph E. Farber v. The Idaho State Insurance Fund class action lawsuit for damages and injunctive relief

State: idaho

Issuer: Idaho Supreme Court (civil)

Document:

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IN THE SUPREME COURT OF THE STATE OF IDAHO 
 
Docket No. 35144 
 
RANDOLPH E. FARBER, SCOTT ALAN 
BECKER and CRITTER CLINIC, an Idaho 
professional association,                   
                                                             
          Plaintiffs-Appellants,                             
                                                             
v.                                                           
                                                             
THE IDAHO STATE INSURANCE FUND, 
JAMES M. ALCORN, its manager, and 
WILLIAM DEAL, WAYNE MEYER, 
MARGUERITE  MC LAUGHLIN, GERALD 
GEDDES, MILFORD TERRELL, JUDI            
DANIELSON, JOHN GOEDDE, ELAINE 
MARTIN, and MARK SNODGRASS in their 
capacity as members of the Board of  
Directors of the STATE INSURANCE FUND,                       
                                                             
          Defendants-Respondents.                            
                                                                                                                 
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Boise, February 2009 Term 
 
2009 Opinion No. 66 
 
Filed:  May 5, 2009 
 
Stephen W. Kenyon, Clerk 
 
SUBSTITUTE OPINION. 
THE COURT’S PRIOR  
OPINION DATED MARCH 5,  
2009, IS HEREBY  
WITHDRAWN  
 
Appeal from the District Court of the Third Judicial District of the State of Idaho, 
Canyon County.  The Honorable Thomas J. Ryan, District Judge. 
 
The summary judgment is reversed and the case is remanded. 
 
Lojek Law Offices, Chtd., and Gordon Law Offices, Boise, for appellants.   
Donald J. Lojek and Bruce S. Bistline argued.  
 
Hall, Farley, Oberrecht & Blanton, P.A., Boise, for respondents.   Richard E. Hall 
and Keely E. Duke argued.   
 
_____________________ 
 
J. JONES, Justice 
This class action lawsuit arises out of a decision by the Idaho State Insurance Fund (the 
Fund) to distribute dividends pursuant to I.C. § 72-915 only to those policyholders who paid 
more than $2,500.00 in premiums.  The Plaintiffs – those policyholders whose annual premiums 
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were $2,500.00 or less – sued the Fund, its Manager, and its Board of Directors1 for damages and 
injunctive relief.  Both parties moved for partial summary judgment regarding the interpretation 
of I.C. § 72-915.  The district court denied the Plaintiffs’ motion and granted the Fund’s motion.  
We reverse and remand. 
I. 
The Fund was created in 1917 to provide worker’s compensation insurance to Idaho 
employers, particularly those employers who could not otherwise obtain insurance from private 
carriers.  See I.C. § 72-901.  The Board of Directors sets the Fund’s policies while the Manager 
conducts the Fund’s day-to-day operations.  I.C. §§ 72-901 & 902.  Since the Fund’s inception, 
the Manager has, on occasion, distributed a dividend to policyholders pursuant to I.C. § 72-915.  
This dividend is different from the dividend issued to stockholders of a corporation and is instead 
a refund based upon a rate readjustment.  From at least 1982 until 2003, whenever the Manager 
decided to distribute a dividend it was distributed to all policyholders who had paid premiums 
for at least six months prior to the distribution.2  The amount of dividend each policyholder 
received was determined based on the premium amount the policyholder paid.  Beginning in 
2003, however, the Manager decided to calculate the dividend by splitting the entire surplus 
between those few policyholders who paid more than $2,500.00 in annual premiums to the 
Fund.3  This practice continued during the following years’ distributions as well.   
The Plaintiffs of this class action lawsuit are those Idaho employers who paid annual 
premiums of $2,500.00 or less to the Fund for worker’s compensation insurance from the policy 
year beginning in 2001 onward.  These class members comprise the majority of the Fund’s 
policyholders.4  Both parties moved for partial summary judgment regarding the proper 
interpretation of I.C. § 72-915.  The Fund argued that the statute does not require the Manager to 
distribute dividends according to a set formula, but rather allows the Manager to exercise his 
discretion in determining how to distribute dividends amongst policyholders.  The Plaintiffs 
conceded that the statute grants the Manager discretion in making the decision as to whether to 
                                                 
1 This opinion will refer to the defendants collectively as “the Fund.” 
2 The Manager stated in an affidavit that large policyholders were paid a larger percentage dividend than small 
policyholders, based in part on the fact that “certain costs associated with writing a policy are essentially the same 
whether it be for $2,000 or $200,000 policy.”  
3 The dividend distributed in 2003 was for the policy year beginning in 2001.   
4 The parties estimate that the class may be as large as 30,000 members and comprises at least seventy-five percent 
of all the Fund’s policyholders.   
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distribute dividends, but argued that the statute prescribes how to distribute dividends once the 
Manager decides to make a distribution.  The district court denied the Plaintiffs’ motion for 
summary judgment, and instead granted the Fund’s motion for partial summary judgment.  It 
then certified the judgment for appeal pursuant to Idaho Rule of Civil Procedure 54(b). 
The Plaintiffs appealed to this Court, reiterating their argument that the statute grants the 
Manager no discretion regarding how to distribute dividends amongst policyholders.     
II. 
A. 
Standard of Review 
When reviewing an order for summary judgment, the standard of review for this Court is 
the same standard used by the district court in ruling on the motion.  P.O. Ventures, Inc. v. 
Loucks Family Irrevocable Trust, 144 Idaho 233, 237, 159 P.3d 870, 874 (2007).  The Court 
exercises free review over the entire record that was before the district judge to determine 
whether either side was entitled to summary judgment.  Id.  Summary judgment is proper when 
“the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that 
there is no genuine issue as to any material fact and that the moving party is entitled to judgment 
as a matter of law.”  Idaho R. Civ. P. 56(c).   
In order to resolve this appeal we must engage in statutory interpretation, which is an 
issue of law over which this Court exercises free review.  In re Daniel W., 145 Idaho 677, 679, 
183 P.3d 765, 767 (2008).  The objective of statutory interpretation is to derive the intent of the 
legislative body that adopted the act.  Payette River Prop. Owners Ass’n v. Bd. of Comm’rs of 
Valley County, 132 Idaho 551, 557, 976 P.2d 477, 483 (1999).  Statutory interpretation begins 
with the literal language of the statute.  Paolini v. Albertson’s, Inc., 143 Idaho 547, 549, 149 P.3d 
822, 824 (2006).  Provisions should not be read in isolation, but must be interpreted in the 
context of the entire document.  Westerburg v. Andrus, 114 Idaho 401, 403, 757 P.2d 664, 666 
(1988).  The statute should be considered as a whole, and words should be given their plain, 
usual, and ordinary meanings.  Id.  It should be noted that the Court must give effect to all the 
words and provisions of the statute so that none will be void, superfluous, or redundant.  
AmeriTel Inns, Inc. v. Pocatello-Chubbuck Auditorium Dist., 146 Idaho 202, 204, 192 P.3d 1026, 
1028 (2008).  When the statutory language is unambiguous, the clearly expressed intent of the 
legislative body must be given effect, and the Court need not consider rules of statutory 
construction.  Payette River, 132 Idaho at 557, 976 P.2d at 483.  Therefore, the plain meaning of 
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a statute will prevail unless it leads to absurd results.  Driver v. SI Corp., 139 Idaho 423, 427, 80 
P.3d 1024, 1028 (2003).   
A statute is ambiguous when the language is capable of more than one reasonable 
interpretation.  Porter v. Bd. of Trustees, 141 Idaho 11, 14, 105 P.3d 671, 674 (2004).  However, 
a statute may not be deemed ambiguous merely because parties present differing interpretations 
to the court.  Id.   
B. 
The Statute Unambiguously Requires the Manager to Distribute the 
Dividend According to the Formula Provided Therein 
 
 
The Fund argues that I.C. § 72-915 is ambiguous and, when read together with other 
statutes and laws, the affidavit of the Manager, and holdings from sister states, it grants the 
Manager the discretion to distribute dividends however he sees fit.  The Plaintiffs, on the other 
hand, argue that the statute unambiguously requires the Manager to distribute the dividend 
monies proportionately according to the amount of premium paid by each policyholder who 
meets the six-month longevity requirement and who falls within the classes of employment 
sharing in the dividends.   
The statute in question reads: 
DIVIDENDS.  At the end of every year, and at such other times as the manager in 
his discretion may determine, a readjustment of the rate shall be made for each of 
the several classes of employments or industries.  If at any time there is an 
aggregate balance remaining to the credit of any class of employment or industry 
which the manager deems may be safely and properly divided, he may in his 
discretion, credit to each individual member of such class who shall have been a 
subscriber to the state insurance fund for a period of six (6) months or more, prior 
to the time of such readjustment, such proportion of such balance as he is properly 
entitled to, having regard to his prior paid premiums since the last readjustment of 
rates. 
 
I.C. § 72-915.   
 
 
1.  The District Court Erred in Finding the Statute Ambiguous 
The district court found that the statute was ambiguous because, in the court’s view, the 
statute could reasonably be interpreted three ways.  In addition to the interpretation advanced by 
the Plaintiffs, the district court posited two alternate interpretations.  First, the district court 
stated that the statute could be interpreted to mean that the Manager could distribute dividends 
only to the larger policyholders because they are the only ones “properly entitled” to receive a 
dividend.  However, a careful reading of the statute does not support this conclusion.  The statute 
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reads “[the Manager] may in his discretion, credit to each individual member [a dividend].”  I.C. 
§ 72-915 (emphasis added).  This language indicates that all members who meet the longevity 
requirement are entitled to receive a dividend.  The district court’s emphasis on the language 
“properly entitled” is misplaced, as that language relates to the requirement that the dividend be 
distributed pro rata “having regard to [the policyholder’s] prior paid premiums.”  See id. 
Second, the district court asserted that the statute could be interpreted to mean that each 
policyholder is entitled to a dividend, but that the dividend need not “be in direct proportion to 
the amount of premium the [policyholder] paid relative to the whole.”  Again, this interpretation 
is not supported by the plain language of the statute.  Should a dividend be declared, the statute 
provides that each policyholder who has been a subscriber for at least six months prior shall be 
credited “such proportion of such balance as he is properly entitled to, having regard to his prior 
paid premiums.”  I.C. § 72-915.  The inclusion of the words “proportion” of the balance, and 
“having regard to” the policyholder’s “prior paid premiums” can only mean that the distribution 
of dividends must be done on a pro rata basis.  Id.  The language is not ambiguous as to this 
requirement, and the district court erred in finding it ambiguous on these grounds. 
Instead, the plain language of I.C. § 72-915 demonstrates that the statute grants the 
Manager discretion to distribute a dividend when “there is an aggregate balance remaining to the 
credit of any class of employment or industry” and the Manager deems that the aggregate 
balance “may be safely and properly divided.”  The Manager’s discretion is therefore limited to 
the decision of whether or not to distribute a dividend in the first place.  The remainder of the 
sentence sets forth the method by which dividends are to be distributed, requiring the Manager to 
“credit to each individual member of such class” who has been a policyholder for at least six 
months “such proportion of such balance as he is properly entitled to, having regard to his prior 
paid premiums since the last readjustment of rates.”  Id.  The phrase “any class of employment or 
industry,” when read with other statutes related to worker’s compensation insurance, refers to the 
class to which each policyholder belongs for purposes of determining the rate paid for worker’s 
compensation coverage.5  The statute contemplates dividing the aggregate balance 
                                                 
5 The district court erroneously held that the word “or” rendered the phrase ambiguous.  Originally the Manager 
divided different employments into classes and, after taking into consideration the hazards of the different classes, 
fixed the premium rates for each class.  See I.C. § 72-913.  However, in 1961, the Legislature set up a system in 
which every insurer that writes worker’s compensation insurance in Idaho, including the Fund, must be a member of 
a ratings organization.  I.C. § 41-1615.  The ratings organization then establishes classes of employment or industry 
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proportionately according to the policyholder’s prior paid premiums relative to all paid 
premiums.  To argue that this language could be construed to somehow grant discretion 
regarding how to calculate the distribution makes no sense, and would require this Court to 
stretch the plain language beyond its obvious meaning.  Finally, in 2002 the Idaho Legislature 
passed House Bill No. 511, an appropriations bill, which casts further doubt on the Fund’s 
proposed interpretation of I.C. § 72-915.  H.R. 511, 56th Leg., 2d Reg. Sess. (Idaho 2002).  The 
bill provided that the Fund would distribute a specified amount to state agencies as 
policyholders, and that “[t]he balance of the dividends shall be credited to each individual 
agency proportionally in accordance with Section 72-915, Idaho Code.”  Id.  This language 
demonstrates that in 2002, the Legislature viewed section 72-915 as requiring a pro rata 
distribution of dividends.   
 
2.  The Fund’s Argument for Interpreting the Statute is Unpersuasive 
In addition to relying on the district court’s reasoning, as discussed above, the Fund 
argues that reading I.C. § 72-915 together with I.C. § 72-902 makes clear that the Manager has 
the discretion to determine how to distribute the dividend.  Section 72-902 reads: 
The board of directors . . . shall appoint a manager of [the Fund], whose duties, 
subject to the direction and supervision of the board, shall be to conduct the 
business of [the Fund], and do any and all things which are necessary and 
convenient in the administration thereof, or in connection with the insurance 
business to be carried on under the provisions of this chapter. 
 
I.C. § 72-902.  The Fund argues that the Manager’s power to “do any and all things which are 
necessary and convenient” includes the discretion to determine how to distribute a dividend.  The 
Fund also argues that I.C. § 72-901(3) provides that the Board has a duty “to direct the policies 
and operation of the [Fund] to assure that the [Fund is] run as an efficient insurance company, 
remains actuarially sound and maintains the public purposes for which the [Fund] was created.”  
However, sections 72-901(3) and 902 are general statutes, while section 72-915 is a specific 
                                                                                                                                                             
and fixes rates.  I.C. § 41-1620.  The effect of the later-enacted statute is that “[t]he powers granted to the [Manager 
of the Fund] under sections 72-903 and 72-913 . . . shall be subject to the provisions of this chapter.”  I.C. § 41-
1618(1).  Therefore, the Manager no longer has unfettered power to determine rates.  See Id.  The ratings 
organization establishes different classes to which each policyholder is assigned to determine the rate for purchasing 
worker’s compensation insurance.  To illustrate the class system used by the current ratings organization, the 
following are examples of classes: “landscape gardening and drivers,” “fruit packing,” “printing,” “bookbinding,” 
“hotel: restaurant employees,” and other classes that define specific classes of employment or industry.  See Idaho 
State Insurance Fund, Rates, http://www.idahosif.org/Rates/rates.aspx (last visited March 3, 2009).  Because there is 
no other possible meaning of the phrase “class of employment or industry” it is unambiguous. 
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statute.  Therefore, the more specific statute controls.  See Shay v. Cesler, 132 Idaho 585, 588, 
977 P.2d 199, 202 (1999).  As discussed above, section 72-915 sets forth a specific method for 
determining how the manager is to distribute dividends.   
 
Because the statute is unambiguous, there is no need to consider the plethora of evidence 
and testimony provided by the Fund to support its argument that the Manager acted reasonably in 
choosing to distribute a dividend only to those policyholders who paid more than $2,500.00 in 
annual premiums.  The arguments, evidence, and testimony provided to this Court would be 
better targeted at the Legislature, which is empowered to change existing law.  No matter the 
number and persuasiveness of the Fund’s arguments, this Court’s role is to interpret the law, 
which in this case was unambiguously established in 1917.  See In re Permit No. 36-7200, 121 
Idaho 819, 824, 828 P.2d 848, 853 (1992) (stating that “[t]he wisdom, justice, policy, or 
expediency of a statute are questions for the Legislature alone”) (citing Berry v. Koehler, 84 
Idaho 170, 177, 369 P.2d 1010, 1013 (1962)).  If, in the intervening time, it has become prudent 
to alter the statutory language related to the requirements for distribution of dividends, the proper 
remedy is to approach the Legislature to change the law.    
C. 
 The Fund’s Interpretation of the Statute is not Entitled to Deference 
 
The Fund argues, in the alternative, that even if the district court’s reasons for granting it 
summary judgment are determined to be incorrect, this Court should affirm the judgment based 
on the principle of agency deference.  An agency’s interpretation of its enabling statutes is 
entitled to deference if a four-pronged test is satisfied.  Pearl v. Bd. of Prof’l Discipline of Idaho 
State Bd. of Med., 137 Idaho 107, 113, 44 P.3d 1162, 1168 (2002); J.R. Simplot Co. v. Idaho 
State Tax Comm’n, 120 Idaho 849, 857-59, 820 P.2d 1206, 1214-16 (1991).  First, the agency 
must have been entrusted with the responsibility to administer the statute at issue.  Id.  Second, 
the agency’s statutory construction must be reasonable.  Id.  Third, the court must determine that 
the statutory language at issue does not treat the precise issue.  Id.  Fourth, the court must ask 
whether any of the rationales underlying the rule of deference are present.6  Id.  If the test is met, 
                                                 
6 The rationales include: (1) public groups’ reliance on the agency’s interpretation over a period of time; (2) the 
agency’s interpretation represents a “practical” interpretation of the statute; (3) the Legislature is charged with 
knowledge of how its statutes are interpreted, and thus when it does not alter the statute, it presumably sanctions the 
agency’s interpretation; (4) the agency’s interpretation is entitled to additional weight when it is formulated 
contemporaneously with the passage of the statute at issue; and (5) courts should recognize and defer to the agency’s 
expertise.  J.R. Simplot Co., 120 Idaho at 857-59, 820 P.2d at 1214-16.   
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the court must give “considerable weight” to the agency’s interpretation.  Id.  Without 
considering the first and fourth prongs, we hold that the second and third prongs are not met, and 
therefore no agency deference is warranted.  
The Fund argues that the second prong is met because its Manager testified that the 
Fund’s practice conformed to industry practice and was consistent with the goal of running the 
Fund as an efficient insurance business.  The Fund further asserts its position is similar to those 
held by sister states, which is evidence of its reasonableness.  See Cantry v. Idaho State Tax 
Comm’n, 138 Idaho 178, 59 P.3d 983 (2002).  However, the sister states that the Fund 
emphasizes do not have statutes that are comparable to Idaho’s statute.  Montana specifically 
allows the board of its state insurance fund to “set a minimum [premium] amount below which a 
dividend shall not be payable to an individual policyholder.”  MONT. ADMIN. R. 2.55.502 (2006).  
Similarly, North Dakota has a rule that specifies that small accounts are ineligible for dividend 
payments.  See N.D. ADMIN. CODE § 92-01-02-55 (2005).  Therefore, no reason exists to 
compare Idaho’s statute authorizing dividends to the markedly different statutes of Montana and 
North Dakota.   
 
As to the third prong, the Fund asserts that because I.C. § 72-915 is ambiguous, the issue 
of how to distribute dividends is not precisely treated.  However, we have determined otherwise.  
The language of the statute unambiguously provides the manner in which any declared dividend 
is to be distributed.  Furthermore, no language in I.C. § 72-915 permits the imposition of an 
arbitrary $2,500 premium-payment threshold for entitlement to a dividend.   
  
Since the second and third prongs are not met, the Fund has not shown that its 
interpretation of I.C. § 72-915 is entitled to deference.7 
 
                                                 
7 It might be observed that, as a general proposition, an agency has a more difficult task arguing for deference to its 
interpretation of a statute when the agency’s interpretation of the statute has changed without a change in the statute.  
I.C. § 72-915 has not been amended since 1941.  The $2,500 premium-payment threshold was not imposed by the 
Fund until 2003.  No such threshold existed between 1917, when I.C. § 72-915 was enacted, and 2003, when the 
$2,500 threshold was adopted.  While the Fund argues strenuously for its current interpretation, the Plaintiffs could 
argue just as strenuously for the Fund’s pre-2003 interpretation of I.C. § 72-915 – an interpretation of much longer 
standing.    
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III. 
The district court’s order granting summary judgment to the Fund is reversed and the 
case is remanded for further proceedings.  Costs are awarded to Appellants. 
 
Justices BURDICK and HORTON, and Justice Pro Tem KIDWELL CONCUR.