NO. 95-221 IN THESUPREME

COURTOFTHESTATEOFMONTANA 1996

THOMASR. BROEKER,

Petitioner, Appellant, andCross-Respondent,

v. GREATFALLSCOCA-COLABOTTLINGCOMPANY,

Employer, and STATECOMPENSATION MUTUALINSURANCEFUND, Defendant, Respondent, andCross-Appellant.

APPEALFROM: Workers' Compensation Court of the State of Montana

TheHonorable Mike McCarter, Judge presiding.

COUNSELOFRECORD:

For Appellant: Lawrence A.Anderson, Attorney at Law, Great Falls, Montana For Respondent: William 0. Bronson, James, Gray, &McCafferty, Great Falls, Montana For Amicus American Insurance Association: Jacqueline T. Lenmark, Keller, Reynolds, Drake, Johnson &Gillespie, Helena, Montana

Filed: Submitted onBriefs: February 1, 1996 Decided:~;:,:April 5, 1996

. .,:Justice Terry N. Trieweiler delivered the opinion of the Court

The petitioner, Thomas Broeker, filed a petition in the Workers' Compensation Court of the State of Montana in which he sought to reduce the amount by which State Compensation Mutual Insurance Fundwasoffsetting his workers' compensation disability benefits based on his receipt of social security disability benefits. He alleged that cost-of-living adjustments were inappropriately included in the offset computation and that the social security rate against which his benefits were offset should have been indexed to his date of injury, rather than his eligibility date. TheWorkers' Compensation Court entered anorder andjudgment resolving the cost-of-living issue in favor of Broeker and the indexing issue in favor of the State Fund. Both Broeker andthe State Fundappeal the order andjudgment. Weaffirm the order andjudgment of the Workers' Compensation Court. Theissues onappeal include: 1. Did the Workers' Compensation Court err whenit concluded that the State Fund could not include social security cost-ofliving increases in its calculation of the amount by which Broeker's workers' compensation benefits could bereduced? 2. Did the Workers' Compensation Court err whenit concluded that the social security disability benefit by which Broeker's workers' compensation benefits would beoffset should beindexed to the date onwhich hebecameeligible for social security benefits, rather than the date of his injury?

2FACTUALBACKGROUND

In 1980, Thomas Broeker, a truck driver and refrigeration repairman with a ninth-grade education, suffered an industrial injury whenaCokemachine fell onhim. His injury arose out of and in the course of his employment with Great Falls Coca-Cola Bottling Company, which was insured by the State Compensation Insurance Fund. Broeker properly reported his injury pursuant to the workers' compensation law and the State Fund accepted liability for his claim and has paid him benefits since 1980. After his injury, Broeker continued to work intermittently; however, byAugust 1984, the degree of his disability hadworsened andhewasnolonger able to perform his job. At that time, the State Fundbegan to payhim temporary total disability benefits, which it continued to pay until June 1, 1992, when his status was converted to permanent total disability. Since 1992, the State Fundhascontinued to pay Broeker permanent total disability benefits. On May 30, 1990, Broeker applied for Social Security Disability Benefits and in March 1992, after a hearing, an administrative law judge held that he was entitled to benefits. Thejudge found that Broeker's period of disability, pursuant to the Social Security Act, began onAugust 23, 1984. Benefits were awarded retroactive to May1989. While the payment accrued from May 1989, the initial benefit rate, which was $651 per month, reflected a basic rate indexed to August 23, 1984, plus five

3cost-of-living increases that hadgoneinto effect between December

1984and December 1987. Following the Social Security Administration's determination, the State Fund began to take an offset from Broeker's workers' compensation payments based on his reception of federal social security benefits pursuant to §§ 39-71-701(2) and -702(2), MCA (1979). Theamount of the offset wasbased onthe initial amount of the social security disability benefit, $651.50, andamounted to $74.91 per week. Broeker petitioned the Workers' Compensation Court to reduce the State Fund's offset based on his claim that the State Fund should not be able to include adjustments for inflation in its offset calculation. Healso claimed that the State Fund's offset should bebased onasocial security disability rate indexed to his date of injury, rather than the date onwhich hebecameeligible for benefits. ISSUE1 Did the Workers' Compensation Court err whenit concluded that the State Fund could not include social security cost-of-living increases in its calculation of the amount by which Broeker's workers' compensation benefits could bereduced? Wereview the Workers' Compensation Court's conclusions of law to determine whether they are correct. CNA Ins. Co’s,v.Dunn (Mont. 1995), 902P.2d 1014, 1016, 52St. Rep. 981, 982; Stordalenv.Ricci’sFood

Farm (1993), 261Mont. 256, 258, 862P.2d 393, 394.

4The State Fund contends that it did not miscalculate its

offset, but simply based it on the initial social security disability benefit Broeker wasentitled to receive. Andwhile this benefit included cost-of-living increases, the State Fundhas not taken an offset based upon any cost-of-living increases Broeker received since the date of his initial social security benefit. Therefore, the State Fundasserts that it did not act contrary to the offset statutes or this Court's decision in McClanathanv.Smith (198O)I 186Mont. 56, 606 P.2d 507. Theoffset statute applicable to this case provides: In cases where it is determined that periodic benefits granted by the Social Security Act, 42 U.S.C. 301 (1935), arepayable because of the injury, the weekly benefits payable under this section are reduced, but not below zero, by anamount equal, asnearly aspractical, to one-half the federal periodic benefits for suchweek. Sections 39-71-701(2) and-702(2), MCA(1979). In McClanathan, weheld that Congress intended that the offset apply only to the primary insurance amount specified pursuant to 42U.S.C. § 423, and not to cost-of-living increases provided pursuant to 42U.S.C. §415. McClanathan, 186Mont. at 64, 606P.2d at 512. McClanathan concerned cost-of-living increases made subsequent to the initial award, andtherefore, wedid not discuss increases included in the initial award. Anycost-of-living increases, including those which becomea part of the initial award, are governed bythe Social Security Act. Because the State Fund has not taken offsets based upon anycost-of-living increases since the initial award, the cost-ofliving adjustments at issue here are those built into the Social Security Administration's initial benefit determination in 1992. &e 42 U.S.C. 5415(i). Pursuant to 42 U.S.C. §415, the cost-ofliving increase is added to the primary insurance amount, and increases which are granted in any year following and including the year the individual becomes eligible for benefits are added to the primary insurance amount "without regard to the time of entitlement to that benefit." 42 U.S.C. §415(i) (2)(A)(ii)-(iii). Therefore, although Broeker did not apply for benefits until May 1990, he became eligible for benefits onAugust 23, 1984 (his disability date), subject to awaiting period, and was entitled to cost-of-living increases which were granted between that 1984 eligibility date and the date his benefits actually commenced. Broeker's commencement date was May 1989 at which time his initial benefit was $651.50 and included five cost-of-living increases granted social security recipients between 1984 and 1988. These increases included a 3.5 percent increase on 12/84; a 3.1 percent increase on 12/85; a 1.3 percent increase on 12/86; a4.2 percent increase on 12/87; and a4.0 percent increase on 12/88. When we decided A4cClanathan, the statutory formula for determination of the primary insurance amount, unlike the version which is now applicable, did not include cost-of-living adjustments. 42 U.S.C. §415. Therefore, when we decided that

case we concluded that:Thebenefits to which appellant is entitled under

42U.S.C. §423 are disability benefits, not cost-ofliving benefits, andare defined as"equal to his primary insurance amount for suchmonth" calculated asthough he hadattained age62. It is evident that the provisions of 42U.S.C. 5424a(d) allowing the states to provide an offset contemplate only the benefits recoverable under 42U.S.C. §423, relating to the individual's primarv insurance benefits. Therefore, wehold that the state offset maynot beusedto reduce the benefits accruing to the appellantunderthe cost-of-living increases provided in 42U.S.C. 5415. McClanathan, 186Mont. at 64, 606P.2d at 511-12 (emphasis added). Because the definition of primary insurance amount has since changed to include cost-of-living adjustments, we must IlOW determine whether the cost-of-living adjustments included in the primary insurance amount should also beexcluded from the offset determination. Despite the change in the definition of primary insurance amount, the basic benefit for disabled persons is still the amount prescribed by 42 U.S.C. § 415(a) before any cost-of-living increases are added. Anyincrease to that basic amount is dueto

an increase in the cost-of-living, which in turn is caused by inflation. For several reasons, inclusion of cost-of-living increases in offset calculations is neither equitable nor necessary. McClanathan, 186Mont. at 64, 606P.2d at 511. Reasons for exclusion were given bythe Colorado SupremeCourt in Engelbrecht

v.HartfordAccident andIndemnityCo. (Cola. 1984), 680P.2d 231. Thecourt reasoned: Allowing an injured worker to keep his cost-of-living increase better protects the worker andgives himamore 7reliable source of income. In addition acost-of-living

increase doesnot result in adouble award. Thefederal government has decided that it will maintain the buying power of social security payments, not that it will provide additional benefits for a particular injury. BecauseColorado doesnot provide [workers' compensation1 benefits to keeppacewith inflation, there is nodouble payment. Engelbrecht, 680 P.Zd at 233. Like Colorado's Act, the Montana Workers' Compensation Act, at the time of Broeker's injury, did not provide for cost-of-living increases. Therefore, allowing Broeker to keep the cost-of-living increases does not result in an increased benefit or adouble award. Moreover, inclusion of costof-living increases in offset calculations does not serve the purpose of the offset statute, which wehavedescribed asfollows:

The legislative intent behind the workers' compensation statutes is to replace income to injured workers. Thepurpose behind the state offset statute is to prevent "over replacement" or duplication of disability pay. Watsonv.Seekins (1988), 234Mont. 309, 314-15, 763P.2d 328, 332. Asnoted in Colorado, allowing aclaimant to keepthat portion of his or her benefits attributable to inflation allows that person to replace income without duplication of benefits. For these reasons, we conclude that all social security disability cost-of-living increases, whether included in the initial rate or awarded later, should beexcluded whenthe offset against workers' compensation disability benefits is calculated pursuant to 5s39-71-701(2) and-702(2), MCA(1979). Thedecision of the Workers' Compensation Court to this effect is affirmed

8ISSUE 2

Did the Workers' Compensation Court err when it concluded that the social security disability benefit bywhich Broeker's workers' compensation benefits would beoffset should be indexed to the date

on which he became eligible for social security benefits, rather than the date of his injury? Broeker contends that the language of the offset statute requires use of an offset based on a social security disability rate indexed to the date of his injury, rather than the date on which hebecame eligible to receive those benefits. His contention is based on his suggestion that the offset statute is ambiguous when it provides:

In cases where it is determined that periodic benefits granted by the Social Security Act, 42 U.S.C. 301 (1935), are payable because of the injury, the weekly benefits payable under this section are reduced, but not below zero, by an amount equal, as nearly as practical, to one-half the federal periodic benefits for such week. Sections 39-71-701(2) and -702(Z), MCA (1979) (emphasis added). Broeker claims that the phrase "for such week," is ambiguous because it could refer to the date of the claimant's industrial injury; the date of the claimant's disability; or the date of the claimant's ultimate entitlement to Social Security benefits. Broeker asks this Court to conclude that since the statute is ambiguous, it should be interpreted liberally in favor of the claimant so that "for such week" refers to "the week of the injury." See§39-71-104, MCA (1979).

9In response to this argument, the Workers' Compensation Court

held that: HOWeVer, the Court finds nothing ambiguous about the phrase. None of the proposed interpretations is correct. The provision is express and clear. It provides that "the weekly [workers' compensation] benefits" are to be reduced by "one-half of the federal periodic benefits for such week." It is plain from the words and context of the provision that "for such week" refers to the week in which the workers' compensation benefits are paid. The statute requires that the offset be based on actual social security benefits paid during the sameweek asthe workers' compensation benefits are paid. (Alteration in original.) Weagree. Furthermore, the rule of liberal construction in effect at the time of Broeker's injuries is inapplicable because,

as stated, the words of the statute are plain and unambiguous on their face and must be applied as written. Love11 v.statecamp.Mut.Ins. Fund (1993), 260 Mont. 279, 285, 860 P.2d 95, 99. Rules of construction applicable to ambiguous statutes donot apply to this statute.Therefore, we conclude that the Workers' Compensation Court

was correct when it held that the amount by which Broeker's workers' compensation benefits should be offset is based on the social security disability benefit as indexed to the date onwhich he became eligible to receive those benefits. For these reasons we affirm the order and judgment of the Workers' Compensation Court.weconcur:

Chief Justice

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