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IN THE SUPREME COURT OF THE STATE OF IDAHO

Docket No. 38140

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,

MARGUARITE McLAUGHLIN, GERALD

GEDDES, MILFORD TERRELL, JUDI

DANIELSON, JOHN GOEDDE, ELAINE

MARTIN, MARK SNODGRASS, RODNEY

A. HIGGINS, TERRY GESTRIN, MAX

BLANCK and STEVE LANDON in their

capacity as members of the Board of

Directors of the State Insurance Fund,

 Defendants-Respondents. 

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Boise, December 2011 Term

2012 Opinion No. 27

Filed: January 27, 2012

Stephen Kenyon, Clerk

Appeal from the District Court of the Third Judicial District of the State of Idaho, 

Canyon County. Hon. Thomas J. Ryan, District Judge.

The decision of the district court is reversed and the case is remanded for 

proceedings consistent with this opinion.

Lojek Law Offices, Chtd. and Gordon Law Offices, Boise, for appellants. Donald

W. Lojek argued.

Hall, Farley, Oberrecht & Blanton, P.A., Boise, for respondents. Keely E. Duke 

argued.

 _______________________________________________

HORTON, Justice.

Randolph Farber, Scott Becker, and Critter Clinic (hereinafter “Farber”) represent the 

plaintiffs in this class action lawsuit. Farber alleges that the Manager of the State Insurance 

Fund (“SIF” or “the Fund”) failed to comply with I.C. § 72-915, which provides the means by 

which the SIF Manager may distribute a dividend to policyholders. The district court determined 
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that the gravamen of Farber’s claim sounded in statute and held that the three-year statute of 

limitation provided by I.C. § 5-218(1) barred all claims that accrued prior to July 21, 2003. 

Farber timely appealed. We reverse and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

The litigation underlying this appeal was previously before this Court in Farber v. Idaho 

State Insurance Fund, 147 Idaho 307, 208 P.3d 289 (2009), rehearing denied (May 12, 2009)

(Farber I). The facts are here restated:

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-today 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.1

 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.2

 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.3 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 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. 

 1 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.”

2 The dividend distributed in 2003 was for the policy year beginning in 2001.

3 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.
3

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.

Farber I, 147 Idaho at 309-10, 208 P.3d at 291-92. This Court agreed with the plaintiffs and 

reversed the district court’s grant of summary judgment, holding that the plain language of I.C. § 

72-915 “limited [the Manager’s discretion] to the decision of whether or not to distribute a 

dividend in the first place.” Id. at 312, 208 P.3d at 294. 

On remand, the parties disputed whether the gravamen of the complaint sounded in 

statute or in contract, the resolution of which would determine whether I.C. § 5-218(1) 

(providing a three-year statute of limitation for liabilities arising under statute) or I.C. § 5-216 

(providing a five-year statute of limitation for actions upon contracts) was applicable. The 

district court held that the gravamen of Farber’s claim was grounded in statute and granted 

partial summary judgment in SIF’s favor, dismissing as barred by the I.C. § 5-218(1) statute of 

limitation the claims and causes of action that accrued prior to July 21, 2003. Farber moved for 

reconsideration, which motion the court denied. The parties ultimately stipulated to a settlement 

agreement. The settlement agreement expressly permitted an appeal of the district court’s statute 

of limitation rulings as to the dividend periods from July 1, 1999 through June 30, 2000 and July 

1, 2000 through June 30, 2001. The court entered final judgment, and Farber appealed the 

statute of limitation issue to this Court. 

II. STANDARD OF REVIEW

“The determination of the applicable statute of limitation is a question of law over which 

this Court has free review.” Hayden Lake Fire Prot. Dist. v. Alcorn, 141 Idaho 388, 403, 111 

P.3d 73, 88 (2005) (Hayden Lake I) (citing Oats v. Nissan Motor Corp. in the U.S.A., 126 Idaho 

162, 164–72, 879 P.2d 1095, 1097–1105 (1994)).

III. ANALYSIS

Farber advances a claim for breach of contract arising from the incorporation of I.C. § 

72-9154 into the SIF’s workers’ compensation insurance policies. The issue in this case is 

 4 Idaho Code § 72-915 states: 

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, 
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whether the gravamen of Farber’s claim sounds in statute or contract.5

 Farber contends that 

where a contract incorporates a statutory framework, there is a continuum between statute and 

contract upon which the gravamen of a claim may sound, and where the true gravamen of such a 

claim is subject to reasonable dispute, the five-year statute of limitation for actions arising from 

contract should apply. Farber also contends that because his claim involves the consideration 

supporting the parties’ contract it falls on the contract end of the continuum such that the Court 

should apply the statute of limitation applicable to contracts. 

We hold that Farber’s claim is grounded in contract and, thus, the five-year statute of

limitation in I.C. § 5-216 applies. In so doing, we overturn the holding regarding application of 

the statute of limitation in Hayden Lake Fire Protection Dist. v. Alcorn (Hayden Lake I), 141 

Idaho 388, 111 P.3d 73 (2005) because it is manifestly incorrect. This is so because there would 

be no grounds upon which Farber could seek redress if the insurance contract did not exist. 

Farber correctly argues:

Absent a contract of insurance with the SIF, [I.C. § 72-915] confers no rights to 

any employer and imposes no duties on the SIF. The statute, standing by itself, 

does not create a cause of action. Employers in the State of Idaho who do not 

have an “agreement” or a “policy” or “contract” with the SIF are not entitled to 

any dividends pursuant to I.C. § 72-915. . . . It is the contract and its breach by 

the SIF that allow the Plaintiffs and their Class to bring this action . . . .

Former I.C. § 72-915 was a provision of the contract, and our previous decision in this matter 

allowed Farber to recover by virtue of this Court’s interpretation of that contract provision. See 

Farber I, 147 Idaho at 312, 208 P.3d at 294.

The insurance contract at issue here would not be complete without the premium 

provisions set out in Chapter 9, Title 72, Idaho Code. The policy issued to Farber and the other 

insureds only sets out the consideration that insureds will receive under the contract, i.e., the 

policy coverage provisions. Nothing in the policy outlines the consideration SIF will receive in 

exchange for the coverage—there is no mention of the premium or how it will be calculated. 

 

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.

Repealed by act effective May 6, 2009, ch. 294, § 1(6). 

5 Under I.C. § 5-218(1), a three-year statute of limitation applies to “[a]n action upon a liability created by statute, 

other than a penalty or forfeiture. . . .” In contrast, under I.C. § 5-216, a five-year statute of limitation applies to 

“[a]n action upon any contract, obligation or liability founded upon an instrument in writing.”
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Rather, only the statutory provisions do that. As Farber suggests, they are essential to the 

contract and its enforcement. Idaho Code § 72-905 authorizes the SIF Manager to make 

contracts of insurance. Idaho Code § 72-918 states that “[e]very employer insuring in the state 

insurance fund shall receive from the manager a contract or policy of insurance.” Idaho Code § 

72-913 requires the Manager to establish equitable rates for SIF’s insurance policies and to fix 

premiums “with due regard to the physical hazards of each industry, occupation, or employment, 

and, within each class, so far as practicable, in accordance with the elements of bodily risk or 

safety or other hazard . . . together with a reasonable regard for the accident experience and 

history of each such insured.”6 Idaho Code § 72-914 requires the Manager to account for monies 

paid in premiums based upon the classes of employment and to keep account of the 

disbursements and reserves. Former Idaho Code § 72-915 gave the Manager discretion to 

readjust rates and make refunds to policyholders. Idaho Code § 72-919 makes provision for 

recovery by SIF of delinquent premiums. Idaho Code § 72-923 creates liability against 

employers who misrepresent the amount of payroll upon which their premiums are calculated, 

imposing a penalty and providing for enforcement in a civil action by the Manager. 

These are not statutes of general application. Rather, these statutory provisions apply 

only to SIF policies, which are issued by SIF as only one of the worker’s compensation 

insurance carriers in the State. The provisions apply to no other worker’s compensation policies. 

They are written into, and become an integral part of, SIF’s worker’s compensation insurance 

policies. Idaho Code § 72-913 serves no purpose other than to establish the premium to be 

charged for SIF’s insurance contracts. Former I.C. § 72-915 served no purpose other than to 

allow the Manager to refund a portion of such contractual premiums. The only purpose of either 

provision was to fill in the blanks left open by the insurance policy. Without these provisions, 

which are essential to establish the consideration to be paid by the insured, and to be received by 

SIF, there could be no valid contract. See Vanderford Co., Inc. v. Knudson, 150 Idaho 664, 672, 

 6 The premium to be charged by SIF for an individual employer/policyholder is likely stated in a declaration sheet. 

Farber did not include a declaration sheet in the record before the Court. However, when an employer applies for an 

SIF insurance contract, the amount of the premium is not necessarily known. The application, which is contained on 

SIF’s website (www.idahosif.org), calls for the employer to describe the business and the type of work done by each 

type of employee, to provide information of prior coverage, and to provide specific information relative to 

employment risks. With the information provided on the application, SIF then calculates the premium “by 

multiplying your total annual payroll for each business classification code (or combination of codes) assigned to 

your policy by the rate per $100 of payroll for each class code,” subject to specified modifications. See SIF website.
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249 P.3d 857, 865 (2001) (“A contract must be complete, definite and certain in all its material 

terms . . . .”). 

This Court held in Kelso & Irwin, P.A. v. State Insurance Fund, 134 Idaho 130, 997 P.2d 

591 (2000):

It is undisputed that Kelso has a contract for worker’s compensation insurance 

with the SIF. Any violation of the provisions of that contract would constitute a 

breach of contract by the SIF. Additionally, the contract necessarily incorporates 

the statutory framework which both created the SIF and governs the actions that 

can be taken by the SIF with regard to the SIF’s funds. When Kelso contracted 

with the SIF it was entitled to rely on the statutes creating and regulating the SIF, 

and the limits those statutes place on how the SIF can invest its policyholders’ 

premiums. Consequently, any act taken by the SIF beyond its statutory authority 

would also be a breach of the SIF’s contract with Kelso.

Id. at 138, 997 P.2d at 599. In that case, the Court went on to hold that a claim seeking “the 

return of all monies to the policyholders held by the SIF under the designation of ‘surplus as 

regards policyholder’ in excess of the six million dollars of ‘reserves and surpluses’ required by 

[former] I.C. § 72-911” was “a cause of action for breach of contract on this issue.” Id. at 138, 

140, 997 P.2d at 599, 601. The Court held further that the plaintiff in that action had asserted a 

breach of contract claim by alleging SIF “has squandered assets and acted beyond its statutory 

authority by purchasing certain real property and then leasing that property to the State.” Id. at 

140, 997 P.2d at 601. It logically follows that a breach of contract suit, based upon such 

statutory provisions, is subject to the statute of limitation for contract actions in I.C. § 5-216. 

It would be an odd result to hold that some parts of an insurance contract were subject to 

a three-year statute of limitation, while other parts of the contract were subject to a five-year 

statute of limitation. Under the provisions that were not statutorily written into the insurance 

contract, either party could seek enforcement of the insurance contract for a period of five years, 

while the parties would only have three years to seek enforcement of the statutory provisions 

written into the contract. Since the written policy spells out most of the insured’s rights, suit 

could be brought against SIF during a period of five years in order to recover for breach of SIF’s 

obligations thereunder, e.g., an alleged failure to make proper payment for a worker’s 

compensation claim or to properly indemnify the insured against any liability under the policy. 

On the other hand, since SIF’s rights under the contract are virtually all statutory in nature, it 

would be subject to a three-year statute of limitation to seek redress from its insureds. For 

example, since I.C. § 72-919 provides the statutory mechanism to enforce payment for, or 
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recovery of, delinquent premiums, SIF would have only three years to file suit to recover a 

delinquent premium. Similarly, where an employer had misrepresented the amount of payroll 

upon which the premium was calculated, SIF would have only three years to bring suit under I.C. 

§ 72-923 to recover any premium underpayment and the penalty provided for therein. The SIFinsured employers, as in this case, would only have three years to recover a rate readjustment 

should the Manager determine that the initial premium was in excess of SIF’s needs.

This Court’s holding in Dietrich v. Copeland Lumber Co., 28 Idaho 312, 154 P. 626 

(1916), does not dictate this odd result. Indeed, it has no application here. Dietrich was not a 

situation where a statutory provision was implied into a contract and, indeed, the statutory 

provision in Dietrich had nothing to do with the enforcement of the contract at issue there. That 

case involved a claim for recovery on promissory notes that had been executed by a foreign 

corporation. Id. at 315, 154 P. at 627. The corporation “had not complied with the laws of the 

state of Idaho in regard to filing its articles of incorporation and designating an agent upon whom 

service of process might be had in this state.” Id. Former section 2792, Revenue Codes, made 

officers of a noncomplying corporation personally liable upon indebtedness contracted for while 

the corporation was noncompliant. Id. at 318, 154 P. at 628. That statute was a stand-alone 

provision that did not become a part of any contract, and the action to recover against the officers 

was not a contract action but, rather, an action only available because of the statute penalizing 

officers of noncomplying corporations. The officers being sued in Dietrich were not parties to 

the notes, and the liability Dietrich attributed to the corporate officers was non-contractual in 

nature. These facts are wholly distinguishable from those of the present case, where the very 

nature of the case is a suit on a contract to recover a rate readjustment, i.e, a portion of the 

consideration paid for the contract. See Farber I, 147 Idaho at 309, 208 P.3d at 291 (a dividend 

under I.C. § 72-915 is “a refund based upon a rate readjustment.”). While a policyholder could 

not sue SIF to force the payment of a rate refund under former I.C. § 72-915 because any rate 

readjustment was left to the discretion of the SIF Manager, Kelso & Irwin, 134 Idaho at 139, 997 

P.2d at 600, once the Manager decided to issue a refund, it had to be made to all policyholders on 

a pro rata basis under that code section. Farber I, 147 Idaho at 312, 208 P.3d at 294. This right 

to a pro rata share of such refunds was an integral part of the bargained-for consideration that 

supported the parties’ contract. Based on the important distinctions between Dietrich and the 

line of cases dealing with statutory provisions incorporated into the SIF policies, we hold that the 
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Court’s decision in Hayden Lake I, regarding the applicable statute of limitation, is clearly 

erroneous.7 The Court erred by relying on Dietrich without analyzing its facts, which are so 

distinguishable that the case is simply inapplicable, to both Hayden Lake I and the present case. 

Viewed in retrospect, in Hayden Lake I, this Court should have considered this Court’s 

decisions in two other cases where statutes played a part in what were essentially actions to 

recover on contract. The first case, Lincoln County v. Twin Falls North Side Land & Water Co., 

23 Idaho 433, 130 P. 788 (1913), involved a situation where the county recorder of Lincoln 

County made a deal with a Carey Act company to charge less than the legislatively-mandated fee 

for recording property documents. Id. at 438-39, 130 P. at 790. Although the county 

commissioners initially approved the agreement, they subsequently sought to recover the 

deficiency in the recording fees. Id. at 439, 130 P. 790. The Court held that because the contract 

ran counter to the statute, it was void. Id. With regard to the contention that recovery beyond 

three years was unavailable to the county because the liability was created by statute, the Court 

said:

Finally, it is argued that a part of this claim is barred by the provisions of subd. 1, 

sec. 4054, Rev. Codes. That statute provides, “An action upon a liability created 

by statute, other than a penalty or forfeiture,” shall be commenced within three 

years after the cause of action accrued. We cannot agree that this is the kind of an 

action contemplated by subd. 1, see. 4054. This cause of action was not created 

by statute. On the contrary, we think it is governed by the provisions of sec. 

4053, which provides that, “An action upon a contract, obligation, or liability not 

founded upon an instrument of writing,” shall be commenced within four years 

from the accrual thereof. This is clearly an action upon contract. 

Id. at 440, 130 P. at 791.

The second case, Cruzen v. Boise City, 58 Idaho 406, 74 P.2d 1037 (1937), involved an 

action by property owners against the city for failure of the city clerk to properly apply payments 

made by the property owners on a local improvement assessment on bonds upon which they 

were obligated. The property owners paid the clerk sufficient money to pay the bonds in full, but 

the clerk never paid part of the amount to the bond holder, having embezzled the same. Id. at 

 7 We note also that the reasoning of Hayden Lake I does not extend to this case because the statutes at issue in that 

case were not necessary and integral components of the contract at issue. The Court’s statute of limitation holding 

in Hayden Lake I dealt solely with real estate-related claims arising under provisions of Idaho’s insurance law, 

particularly I.C. §§ 41-722 and 41-728. 141 Idaho at 392, 404, 111 P.3d at 77, 89. Those provisions are, at best, 

peripheral to the insurance contract. The provision at issue here, however, being part of the contract consideration, 

is an integral and necessary part of the contract. 
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410-11, 74 P.2d at 1037. The city claimed it was not responsible for the clerk’s defalcation, 

citing a statutory provision (I.C. § 49-2728) stating that “[t]he holder of any bond issued under 

the authority of this Article [chapter] shall have no claim therefor against the municipality by 

which the same is issued, in any event, except for the collection of the special assessment made 

for the improvement for which said bond was issued . . . .” Id. at 411, 74 P.2d at 1038. The 

property owners claimed that the exception made the city liable for the clerk’s errant behavior. 

The Court held:

The plain reading of the statute . . . supports [the property owners] and not [the 

city]. The statute says the holder of bonds shall have no remedy against the 

municipality, “except for the collection of the special assessment.” The 

Legislature intended the statute should mean something, and the evident 

interpretation is that the city would be liable for the bona fide collection of the 

assessments. Thus the statute itself makes an exception as to collection, and the 

collection would be of no avail unless the money collected is disbursed as it 

should be. 

Id. at 412, 74 P.2d at 1039. Although the city had no obligation to collect the bond assessments, 

since another statute, I.C. § 49-2721, authorized (but did not require) the city clerk to collect 

such assessments, the Court held that because the city opted to make collection under that 

section, “[t]he city cannot now question the legality of its acts since there was statutory authority 

therefor and it assumed to and did proceed under said statute.” Id. at 413, 74 P.2d at 1039. The 

Court went on to say:

Section 49-2728, I.C.A., supra, did not create the liability, it does not require the 

city to make good the defalcations of its officers, it merely removed any bar to the 

enforcement of the trust against appellant by respondent, which might have 

existed because the bonds were not general obligations of the city.

Id. at 415, 74 P.2d at 1040 (emphasis original). The Court went on to note that the cause of 

action was not based on the statute, but rather on the obligation resting on every trustee to fulfill 

and comply with the terms of a trust. Id. That being the case, the Court held, “[t]he cause of 

action not being created by statute, it is not a statutory liability governed or barred by [I.C. §] 5-

218.” Id. The Court then cited the above-quoted language from Lincoln County and observed:

[Lincoln County] considered section 2124, Rev. Codes, to be in effect a contract 

comparable to considering section 49-2723 I.C.A., and the underlying ordinances 

all carried into, and in effect made provisions of the bonds, as constituting the 

contract between the city and the bondholders creating the trust, but not creating 

the liability for violation of the trust, which later arises by operation of law when 

a trust comes into existence. 
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Id. at 416, 74 P.2d at 1041.

The Lincoln County and Cruzen decisions stand for the proposition that a contract statute 

of limitation will apply where, even though statutes provide a critical element for recovery, the 

action is primarily a contract action instead of an action authorized by a specific statutory 

provision. The Cruzen court indicated that the statutory provisions in each case were essentially 

contractual provisions that facilitated recovery under the contracts. Both cases depended on a 

contractual relationship in order for the plaintiff to have any claim—in the case of Lincoln 

County, it was the contract between the county recorder and the Carey Act company, and in 

Cruzen it was the contract between the property owners and the bond holder.

This rationale extends to the present case—here there would be no claim but for the 

contracts between SIF and Farber and the other members of his class. Hayden Lake I was 

erroneously decided because it did not take the Lincoln County and Cruzen precedents into 

account. Where a holding establishing precedent on a question of law is manifestly wrong, we 

should correct it. Greenough v. Farm Bureau Mut. Ins. Co., 142 Idaho 589, 592-93, 130 P.3d 

1127, 1130-31 (2006). The Court’s statute of limitation holding in Hayden Lake I is manifestly 

wrong, particularly as it applies in this case, and we therefore overrule it.8 We hold that the fiveyear statute of limitation in I.C. § 5-216 applies to Farber’s claim.

IV. CONCLUSION

We reverse the district court’s dismissal of the claims barred by application of I.C. § 5-

218(1) and remand for proceedings consistent with this opinion. Costs to Appellants.

Chief Justice BURDICK and Justices J. JONES, W. JONES and Justice Pro Tem 

KIDWELL CONCUR.

 8 Similarly, the Court’s ruling on attorney fees in Hayden Lake Fire Protection District v. Alcorn (Hayden Lake II), 

denying attorney fees to SIF because the case was based on statute and not upon contract, is erroneous. 141 Idaho 

307, 312-13, 109 P.3d 161, 166-67 (2005).