N3. 92-044 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1993 

MONTANA HEALTH CARE ASSOCIATION: 

a Montana nonprofit corp.; DISCOVERY 

CARE CENTRE; a Montana Corporation; AND 

VALLEY NURSING, INC., d/b/a VALLEY HEALTH 

CARE CENTER, a Minnesota Corporation, 

>w>y Plaintiffs and Appellants, ,,. F~r: 

, %' ~. 

MONTANA BOARD OF DIRECTORS OF THE STATE 

COMPENSATION MUTUAL INSURANCE FUND; PATRICK 

SWEENEY, Executive ~irector of the State 

IAN 4 - 1993 

Compensation Mutual Insurance Fund; and 

STATE COMPENSATION MUTUAL INSURANCE FUND, -I 3Lid 'L- LIF SIJPREME COURT 

5' ATE OF MONTANA 

Defendants and Respondents. 

APPEAL FROM: District Court of the First Judicial District, 

In and for the County of Lewis & Clark, 

The Honorable Thomas C. Honzel, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

G. Steven Brown argued, Attorney at Law, Helena, 

Montana 

For Respondents: 

John T. Alke argued, Hughes, Kellner, Sullivan & 

Alke, Helena, Montana 

Nancy Butler, General Counsel, State Compensation 

Mutual Insurance Fund, Helena, Montana 

Filed: 

submitted: September 10, 1992 

Decided: January 4, 1993 
Justice John Conway Harrisondelivered the Opinion of the Court. 

This is an appeal from a declaratory judgment of the First 

Judicial District Court, County of Lewis and Clark, the Honorable 

Thomas C. Honzel presiding. The original action was a request for 

writs of mandamus and prohibition and a declaratory judgment that 

the respondents (State Fund) had illegally adopted workers1 

compensation rates, including a substantial increase in appellants1 

premium, and had violated the Montana Open Meeting Act, the Montana 

Public Participation Act, the Montana Administrative Procedure Act 

(MAPA) and Article 11, sections 8 and 9 of the Montana 

Constitution. We affirm in part and reverse in part. 

The District Court decided that even though State Fund had 

violated the notice provisions of the Public Participation Act, it 

would not be appropriate to set aside the rate increases, or issue 

a writ of mandamus or prohibition, I1because of the requirement that 

the state insurance program be adequately funded." Instead, the 

court issued a declaratory judgment that State Fund is not required 

to release employer-specific data on payroll and claims experience; 

that State Fund must comply with MAPA in amending a rule that 

incorporates the Underwriting Manual; and that State Fund must make 

an llassociation plan1' available to every policy holder. The court 

also ruled that State Fund is not required to follow MAPA rulemaking procedures when it changes its schedule for premium payments 

or adopts portions of the Underwriting Manual, and that State Fund 

is not required to mail packets of Board of Directors materials to 

the public in advance of meetings, as long as the materials are 

2 
available for review at State Fund's office. Attorney's fees were 

awarded to appellants. 

The State Compensation Mutual Insurance Fund is the workers' 

compensation insurer for 27,000 Montana employers. It collects 

approximately 64 percent of the premiums paid for workers' 

compensation insurance in Montana. Patrick Sweeney is its 

executive director. 

The Montana Health Care Association (MHCA) is a Montana 

nonprofit corporation whose members provide long-term health care 

throughout the state. Discovery Care Centre and Valley Health Care 

Center are members of MHCA and hold State Fund workers' 

compensation insurance policies. 

DISCLOSURE OF EMPLOYER-SPECIFIC INFORK%TION 

The first issue on appeal is whether State Fund must make 

available to the public the employer-specific payroll and claims 

information that is used to calculate workersf compensation rates. 

In May 1991, State Fund notified MHCA members that the fiscal 

1992 workersf compensation rate for class code 8829 (nursing homes) 

would be increased from $10.67 to $13.33. Although State Fund had 

already advised MHCA of the general method used to calculate these 

rates, MHCA requested employer-specific information, in a letter 

dated May 21, 1991. State Fund provided some but not all of the 

requested information, and on June 19, 1991, State Fund informed 

MHCA that it would not provide this information without a signed 

release from each policy holder. MHCA filed the District Court 

action on June 21, 1991. 
Appellants rely on Article 11, section 9 of the Montana 

Constitution, which provides that no one may be deprived of the 

right to examine documents or observe the deliberations of public 

bodies except when the demand of individual privacy "clearly 

exceeds the merits of public disclosure." State Fund relies on 

Article 11, section 10 of the Montana Constitution, which provides 

that the right of individual privacy shall not be infringed without 

the showing of a compelling state interest, and on 5 39-71-224, 

MCA, which exempts from disclosure public records of the Department 

of Labor that contain information of a personal nature. 

This Court has held that the only limit on the public's right 

to receive information is the constitutional right to privacy. 

Allstate Insurance Co. v. City of Billings (1989), 239 Mont. 321, 

325, 780 P.2d 186, 188. We have adopted the following two-tier 

test for determining whether a person has a constitutionally 

protected privacy interest: 

(a) Whether the person has a subjective or actual expectation 

of privacy; and 

(b) whether society recognizes that expectation as reasonable. 

Great Falls Tribune Co. v. Cascade County Sheriff (1989), 238 Mont. 

103, 105, 775 P.2d 1267, 1268, citing Montana Human Rights Div. v. 

City of Billings (1982), 199 Mont. 434, 441, 649 P.2d 1283, 1287. 

If we determine that a constitutionally protected privacy right 

exists, we then balance it against the constitutional right to 

know. 

Most of the cases in which we have balanced the public's right 
to know against the right to privacy concerned the privacy of 

individuals. In Great Falls Tribune, for example, we held that 

when law enforcement officers have engaged in conduct that subjects 

them to disciplinary action, the public's right to know outweighs 

law enforcement officers' privacy interests. Similarly, we held in 

Montana Human Riahts Division that the State's interest in 

prohibiting employment discrimination outweighs the privacy 

interest of city employees who had not complained of 

discrimination, but whose employment records were critical to the 

Human Rights Division investigation of a complaint. In Engrav v. 

Cragun (1989), 236 Mont. 260, 769 P.2d 1224, on the other hand, we 

found that the public's right to know about county law enforcement 

operations does not outweigh the privacy interest of people whose 

names appeared in telephone logs and case files. Here, we must 

balance the public's right to know against the privacy interest of 

employees and employers insured by State Fund. 

Appellants concede that employer-specific payroll information 

meets our criteria for a right to privacy, but they contend that 

the merits of public disclosure are more important, and that the 

District Court wrongly held that the insured employees' and 

employers' right to privacy outweighs appellants1 right to know. 

To support this contention, appellants assert that MHCA cannot 

assess the accuracy of State Fund classifications without access to 

employer-specific data. This assessment is critical, they argue, 

because a State Fund error regarding one employer in a class 

affects the workers' compensation rate for every member of that 
class. 

State Fund argues that appellants can detect errors and 

illegal actions on the part of State Fund by reviewing published 

aggregate data: therefore, no compelling state interest justifies 

an invasion of the insured employees1 and employers' privacy. In 

other words, State Fund asserts, employer-specific information 

should not be released merely to allow MHCA to check State Fund's 

arithmetic. 

Our cases establish that corporations have a right to privacy 

and that a state agency may assert the privacy interest of others, 

including corporations. Belth v. Bennett (1987), 227 Mont. 341, 

345, 740 P.2d 638, 641; Mountain States Telephone and Telegraph Co. 

v. Dept. of Pub. Sen. Reg. (1981), 194 Mont. 277, 634 P.2d 181. 

The question here is whether the privacy interests of State Fund's 

insured employees and employers outweigh the right of the public, 

as represented by appellants, to inspect aggregate payroll data and 

claims experience for individual employers. 

State Fund points to our decision, in Belth, that public 

access to insurance companies1 financial statements should be 

denied because the demands of privacy outweighed the merits of 

public disclosure. In Belth, however, we found that the insurance 

companies had provided the information with the understanding that 

it was confidential and that comparable information was available 

to the public elsewhere. Here, it has not been argued that the 

insured employees and employers were assured of confidentiality, 

and comparable information is not available elsewhere. Employer- 
specific claims data are not available from any source, though some 

of the payroll data sought by appellants have been reported to the 

Department of Health and Environmental Sciences for health planning 

purposes. 

The District Court found that appellantst purpose in 

requesting employer-specific claims and payroll information is 

essentially an "audit fun~tion,'~ because an employer has no right 

to a contested case hearing when its premium rate is changed. The 

court concluded, therefore, that the insured employees' and 

employers' right to privacy outweighs appellantst right to know and 

that State Fund therefore is not required to release employerspecific claims or payroll information. 

We reverse, holding that in this case employees' and 

employerst right to privacy does not clearly exceed the merits of 

public disclosure, and that the public's right to know therefore 

outweighs the privacy interest. We believe, as we suggested in 

Mountain States Telephone and Teleqraph, 634 P.2d at 187, that 

an order can be fashioned in such manner that the state 

public agencies can perform their duties with the fullest 

available information and at the same time disclose to 

the public all information required to enable citizens to 

determine the propriety of governmental actions affecting 

them. 

We remand this case to the District Court for an order that meets 

this standard. 

RULEMAKING 

The second issue on appeal is whether State Fund must adopt 

the following as rules under MAPA: provisions of State Compensation 

Mutual Insurance Fund Policy Service Underwriting Manual 

7 
(Underwriting Manual); criteria for "association plans;" and 

policies regarding the payment of premiums. Since different 

considerations govern each of these areas, we address them 

separately. 

First, however, we emphasize that the State Compensation 

Mutual Insurance Fund (the state fund) is subject, as the District 

Court recognized, to laws that apply generally to state agencies, 

including MAPA and the Montana Public Participation and Open 

Meetings Acts. Section 39-71-2314(2), MCA. In particular, the 

state fund must follow MAPA rulemaking procedures when it adopts "a 

process, a procedure, formulas, and factors" for setting or 

changing premium rates, under 5 39-71-2316(6), MCA, though it is 

exempt from MAPA rulemaking procedures when it chanaes 

classifications and premium rates. In other words, once the state 

fund has promulgated rules for establishing premium rates, it need 

not go through MAPA rulemaking procedures to change those rates. 

The Underwritinq Manual 

On May 6, 1991, State Fund published a Notice of Proposed 

Amendment of ARM 2.55.301, which prescribes the method of 

classifying occupations for the purpose of assessing workers' 

compensation rates. The proposed amendment incorporated by 

reference the lgClassifications't section ofthe Underwriting Manual, 

effective July 1, 1991. This section is the only portion of the 

Underwriting Manual that State Fund has adopted formally as a rule. 

Patrick Sweeney adopted the amendment for the state fund on June 
17, 1991.' 

MHCA requested a copy of the July 1991 Underwriting Manual in 

June but was told that it had not been prepared or printed and 

probably would not be available until September 1991. On July 8, 

MHCA was given a draft version of the revised classification 

section. This draft was not available to Patrick Sweeney when he 

adopted the amended rule on June 17. Comment on the proposed 

amendment was invited on May 6, but as the District Court pointed 

out, it was not possible at that time for an employer to know 

whether it was affected by the changes. 

As the District Court said, "for an agency to adopt as a rule 

something which is not available for review and comment is directly 

contrary to the requirements of MAPA." We agree. Since State Fund 

adopted the classification section of the Underwriting Manual as a 

rule, it may amend that section only through the process described 

in Title 2, chapter 4, MCA. 

Appellants contend that the District Court should have 

required State Fund to adopt the "General Rules" section of the 

Underwriting Manual, which is incorporated in its insurance 

contracts, as a formal rule under MAPA, because this section 

implements and prescribes law and policy in ways that affect 

employerst substantive rights. State Fund argues that its 

' The District Court found that the state fund's rulemaking 

power must be exercised by the State Fund Board of Directors, not 

by the state fund's executive director. State Fund has not 

appealed this decision, and the Board of Directors has adopted 

rules that are identical in effect to those previously adopted by 

the executive director. 
insurance policy is a contract and that the "General RulesM section 

of the Underwriting Manual merely states some of the contract terms 

and does not implement, interpret, or prescribe law or policy. 

The District Court found that State Fund's failure to adopt 

the "General Rules" section of the Underwriting Manual in 

accordance with MAPA was not critical to this lawsuit, and that in 

any case State Fund is not required to adopt this section of the 

Underwriting Manual as a formal rule. Finding that the District 

Court interpreted MAPA correctly, we affirm. 

Association Plans 

State Fund has agreements with three trade associations 

(loggers, food distributors, and motor carriers) under which it 

reimburses the association for providing safety inspectors in lieu 

of State Fund safety inspectors. These agreements are called 

"association plans." 

Appellants complain that State Fund has no policies or 

criteria regarding the creation or administration of association 

plans, and that State Fund has never met with MHCA, as it promised 

it would in March 1990, to determine whether MHCA is eligible for 

an association plan. Appellants assert that association plans 

provide substantial benefits to the employers that have them, and 

that all State Fund policy holders pay indirectly for the safety 

inspectors hired under these plans. Therefore, appellants argue, 

State Fund should be ordered to adopt as formal rules its criteria 

and standards for awarding and administering the plans. 
State Fund asserts that it has no policy of general 

application with respect to association plans and that formal rulemaking is not appropriate because each t~planl~ isa unique contract, 

with provisions that depend on the nature of the trade association 

involved. State Fund also implies, though it does not state 

directly, that it intends to make association plans available to 

all trade associations, including MHCA if it is "willing and able 

to enter into the contract." 

The District Court held that State Fund must make association 

plans available to all associations and must let associations and 

employers know that such plans are available, but it was ltnot 

convinced'l that State Fund must adopt rules setting forth uniform 

standards for such plans. We agree. The intent of the 1989 act 

that created the state fund was that the state fund must, as the 

Itprimary means" of insuring its solvency, Iginstitute safety 

programs and set rates in a manner that rewards employers who 

provide a safe working environment and penalizes those who do not. 

Statement of Intent, 1989 Mont. Laws, Ch. 613. So long as State 

Fund administers its association plans consistently with this 

intent, formal rulemaking is not required. Indeed, State Fund 

probably can fulfill the intent of the Act only by entering into 

contracts tailored to the needs and circumstances of each trade 

association or class of employers. 

Premium Payment Schedule 

Until early 1991, State Fund's practice was to require 
employers to submit payroll information at the end of each quarter 

and then to pay the premium due for that quarter thirty days later. 

In mid-1991 State Fund combined payroll reporting and premium 

payment on a single form, which in effect accelerated the premium 

payment by thirty days. This change in procedure was initiated by 

staff and apparently accepted by the Board at its meeting of May 

24, 1991. No notice of this change was sent to MHCA or to policy 

holders. 

Appellants argue that MAPA applies because State Fund's 

decision to change the premium date affects parties' rights and 

obligations, and that State Fund's decision therefore should be 

subject to public notice and comment. The District Court held that 

the obligation to pay a premium arises when the coverage is 

provided, and tbat the timing of billing for that coverage is not 

a matter that requires a rule. We affirm. State Fund's billing 

schedule does not alter the obligation incurred by employers who 

enroll with State Fund. 

PUBLIC PARTICIPATION AND THE BOARD PACKET ISSUE 

The third issue on appeal is whether State Fund should be 

required to mail a copy of the agenda and the meeting materials or 

"Board packet" to anyone who requests it, prior to a meeting of the 

State Fund Board of Directors (Board). 

Board agendas and packets of materials are generally mailed to 

Board members a week to ten days in advance of meetings. On June 

3, 1991, MHCA requested advance notice of Board meetings and 

advance copies of the agenda and other materials sent to Board 
members. Patrick Sweeney promised to ask his receptionist to call 

MHCA two or three days before each Board meeting, but he declined 

to provide packets on the grounds that the materials would be 

available at the State Fund office to anyone who wished to inspect 

them. 

Appellants contend that agenda materials sent to members of 

the Board must be mailed to interested members of the public in 

advance of Board meetings. They argue that Article 11, section 8 

of the Montana Constitution, which establishes a right to "such 

reasonable opportunity for citizen participationv1 in the operation 

of governmental agencies Itas may be provided by law," and the 

Public Participation Act that implements it, require State Fund to 

provide any interested person with advance notice of the agenda and 

copies of materials distributed to Board members. See 55 2-3-101 

through -114, MCA. In short, appellants assert that by refusing to 

mail Board packets to members of the public who request them, State 

Fund denies the public a reasonable opportunity for meaningful 

public participation before final decisions are made. 

State Fund contends that MHCAVs right to public participation 

is not impaired by State Fund's refusal to mail advance Board 

packets on request because the material is available at State 

Fund's office, which is across the street from MHCA's office. No 

one else has requested an advance Board packet. The District Court 

agreed, holding that State Fund is not required to mail Board 

packets. We affirm. 

As we held in Kadillak v. Anaconda Co. (1979), 184 Mont. 127, 
141, 602 P.2d 147, 155, "the right to participate is limited to 

those instances where that right is provided by law." Neither the 

Public Participation Act nor the Open Meetings Act requires advance 

mailings. Making Board agenda materials available to the public at 

State Fundls office, in our view, provides a "reasonable 

opportunity" for participation. 

The Public Participation Act does require advance notice of 

final agency action, however, and the District Court pointed out 

that State Fund has not always complied with this provision (5 2-3- 

103, MCA). Further, 5 2-3-103 requires state agencies, including 

State Fund, to develop procedures for public participation. State 

Fund has adopted only one rule providing for public participation, 

and it provides that the date, time and place of a Board meeting 

may be obtained by contacting the State Fund office. The District 

Court found that this provision is not adequate, and we agree. 

State Fund, however, did not appeal the District Court's conclusion 

that it must adopt rules that comply with 5 2-3-103, MCA. 

ATTORNEY'S FEES 

Appellants have requested reasonable attorney's fees and costs 

incurred in this appeal. This Court has adopted the "American 

Rule" regarding attorney's fees. Department of Fish, Wildlife and 

Parks v. Montana Stockgrowers Ass'n, Inc. (1989), 240 Mont. 39, 782 

P.2d 898. Under the American Rule, a party in a civil action is 

generally not entitled to fees absent a specific contractual or 

statutory provision. Section 25-10-711(1), MCA, provides for 

attorney's fees in civil actions to which the state is a party, but 
only when the party seeking attorney's fees has prevailed the 

court finds that the state's claim or defense is frivolous or 

pursued in bad faith. See Armstrong v. Dept. of Justice (1991), 

250 Mont. 468, 820 P.2d 1273; Myers v. Dept. of Agriculture (l988), 

232 Mont. 286, 756 P.2d 1144. Here, there is no indication that 

State Fund's defense was frivolous or in bad faith. Appellants 

therefore are not entitled to attorney's fees for this appeal. 

CONCLUSION 

We reverse the judgment of the District Collrt that State Fund 

is not required to provide employer-specific information and remand 

to the District Court for entry of an appropriate order. We affirm 

the judgment of the District Court with respect to all other issues 

addressed herein. 

We concur: 

- -ices v- 
January 4, 1993 

CERTIFICATE OF SERVICE 

I hereby certify that the following order was sent by United States mail, prepaid, to the 

following named: 

G. Steven Brown 

Attorney at Law 

1313 Eleventh Ave. 

Helena, MT 59601 

John T. Alke 

Hughes, Kellner, Sullivan & Alke 

P.O. Box 1166 

Helena, MT 59624-1166 

Nancy Butler, General Counsel 

State Comp. Mutual Ins. Fund 

P.O. Box 4759 

Helena, MT 59604 

ED SMITH 

CLERK OF THE SUPREME COURT 

STATE OF MONTANA 

BY: 

Deputy