No. 84-372 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1985 

WARREN LOU RAISLER, 

Plaintiff and Appel lant, 

BURLINGTON NORTHERN RAILROAD CO., a 

Delaware Corp., and ROSS-KO GRAIN, 

Defendants, 

and 

BURLINGTON NORTHERN RAILROAD COMPANY, 

Third-Party Plaintiff and Petitioner, 

FARMERS UNION ELEVATOR COMPANY, 

Third-Party Defendant and Respondent. 

ORIGINAL PROCEEDING: 

COUNSEL OF RECORD: 

Thomas W. Spence argued for Burlington Northern, 

Billings, Montana 

For Defendant/Respondent: 

Anderson, Brown, Gerbase, Cebull & Jones; Steven J. 

Harman & Cynthia R. Woods argued for Farmers Union 

Elevator, Billings, Montana 

Herndon, Harper & Munro; Rodney T. Hartman, Billings, 

Montana (F?.oss-KO Grain) 

Towe, Ball, Enright & Mackey; Thomas E. Towe, Billings, 

Montana (Raisler) 

Submitted: February 21, 1985 

Decided: December 31, 1985 

*4 

Clerk 
Mr. Justice Fred J. Weber delivered the Opinion of the Court. 

The United States District Court for the State of 

Montana has certified two questions to this Court from a 

federal action for personal injuries and a derivative third 

party suit for contribution or indemnity. The questions, as 

certified to us by the federal court, are: 

I. When an injured employee sues a third party for 

damages and the third party joins the employer as a third 

party defendant seeking contribution or indemnity, is the 

assertion of § 39-71-411, MCA, by the third party defendant 

employer as a defense, unconstitutional as it is applied to 

the third party plaintiff? Our answer is no. 

2. When an injured employee sues a third party for 

damages, and the third party joins the employer as a third 

party defendant seeking contribution or indemnity, and the 

employer has signed a written agreement with the provisions 

outlined in this certification, can the employer assert 5 

39-71-411, MCA, as a complete defense to the third party 

action? Our answer is yes. 

The certification order of the United States District 

Court sets forth the following allegations of fact: Warren 

Raisler was employed as a laborer by Farmers Union Elevator 

Company (Farmers). While loading grain cars at Farmers' 

facility, he fell from the top of a grain car that was being 

moved by a co-employee. Mr. Raisler sustained severe injuries, including a partial amputation of his foot. He has 

received workers' compensation benefits from Farmers for his 

in juries. 

Mr. Raisler initiated a personal injury action in 

Yellowstone County District Court. He named Ross-Ko Grain 

(Ross-KO) and Burlington Northern Rail road Company 

(Burlington Northern) as defendants. He alleged that 
Ross-KO, a Minnesota corporation, owned the railroad cars 

into which he was loading grain at the time of the accident. 

Burlington Northern, a Delaware corporation, a1 legedly owned 

the tracks and the land where the accident occurred. Farmers' grain handling facility is situated on land leased from 

Burlington Northern. The suit was removed to federal court 

based on the parties' diversity of citizenship. 

Rurlington Northern joined Farmers as a third party 

defendant and sought contribution and/or indemnity from 

Farmers, should Burlington Northern ultimately be found 

liable to Farmers ' employee, Raisler. Farmers moved for 

summary judgment on the ground that S 39-71-411, MCA, limited 

its liability to the payment of workers' compensation 

benefits. 

Section 39-71-411, MCA, provides: 

Provisions of chapter exclusive remedy - 

n~nliabilit~of insured employer. For 

all employments covered under the Workers' Compensation Act or for which an 

election has been made for coverage under 

this chapter, the provisions of this 

chapter are exclusive. Except as provided in part 5 of this chapter for uninsured employers and except as otherwise 

provided in the Workers' Compensation 

Act, an employer is not subject to any 

liability whatever for the death of or 

personal injury to an employee covered by 

the Workers' Compensation Act or for any 

claims for contribution or indemnity 

asserted by a third person from whom 

damages are sought on account of such 

injuries or death. . . . 

The federal court requests this Court's interpretation 

of S39-71-411, MCA, as it relates to the Montana 

Constitution. 

Montana enacted the Workmen 's Compensation Act in 1915. 

Sec. 1, Chap. 96, Laws 1915. Under the statutory compensation scheme, employees relinquished their common law remedies 
against employers in exchange for employers' guarantee to pay 

compensation for work-related injuries regardless of fault. 

The Act limited employers' liability to workers' compensation 

benefits and provided that a claim under the Act was an 

injured worker's exclusive remedy against an employer that 

was covered by the Act. Section 92-204, R.C.M. (1947). 

Because the common law at that time left many 

work-related injuries uncompensated, Montana's transition to 

a statutory remedy was advantageous to workers. However, in 

light of improved prospects for recovery under modern tort 

theories, workers and third parties are turning increasingly 

to the courts for exemption from the exclusive remedy rule. 

"Continuing challenges to the exclusive remedy rule reveal an 

underlying tension between the workers' compens5tion system 

and the tort system.'' Note, Exceptions -- to the Exclusive 

Remedy Requirements - of Workers' Compensation Statutes, 96 

Harv. L. Rev. 1641 (1983). The creation of common law 

exceptions to the exclusive remedy rule reflects a judicial 

attempt to reconcile the workers' compensation scheme with 

modern tort theories, such as strict liability and 

comparative negligence. Courts have sought by various means 

to reconcile the relatively modest awards given to injured 

workers with larger monetary recoveries allowed in modern 

tort cases. 

I1 

Burlington Northern here asserts its right to collect 

from Farmers on the grounds of contribution or, in the 

alternative, on the express indemnity provisions in the lease 

agreement between Burlington Northern and Farmers. With 

regard to the theory of contribution, Burlington Northern 

claims that it was Farmers' act of negligence that caused the 

accident and affords the basis for contribution. Burlington 
Northern contends that it was only passively negligent, if at 

all. The indemnity allegation is based upon the express 

indemnity provisions contained in the lease agreement. 

Contribution distributes loss among joint tortfeasors by 

requiring each to pay his proportionate share based upon his 

proportion of the negligence which proximately caused the 

injuries. Section 27-1-703(1), MCA, authorizes contribution 

between tortfeasors. 

Indemnity, on the other hand, shifts the entire loss 

from the one who has been required to pay it to the one who 

should bear the loss. W. Prosser, -- Law of Torts, 5 51 at 310 

(4th ed. 1971). "The right of indemnity is based upon an 

independent duty or obligation owed by the employer to the 

v 

third party, either as the result of express contract or as 

the result of an implication raised by law." 2A Larson, 

Workmen's Compensation Law, 5 76.13 at 14-571 (1983). 

In 1977, S 39-71-411, MCA, provided that an insured 

employer "is not subject to any liability whatever for the 

death of or personal injury to an employee" who is covered by 

the Act. The 1977 statute did not mention contribution or 

indemnity. 

This Court interpreted that statute in Cordier v. 

Stetson-Ross, Inc. (1979), 184 Mont. 502, 604 P.2d 86. We 

concluded that the statute protected employers from damages 

sought by third parties under a theory of contribution. That 

conclusion is in accord with the current majority rule that a 

third party cannot sue or join a negligent employer as a 

joint tortfeasor under contribution statutes or at common 

law. 2A Larson, Workmen's Compensation - Law, S 76.20 at 

14-597 (1983). 

In Cordier. the Court also concluded that the exclusive 

remedy provision of the Workers' Compensation Act barred a 
claim for noncontractual indemnity. No express indemnity 

contract was involved in Cordier, and the Court reserved any 

ruling on such indemnity. Cordier, 184 Mont. at 513, 604 

P.2d at 92. 

While the appeal in Cordier was pending, the 1979 

Montana Legislature amended § 39-71-411, MCA. In addition to 

the proviso that the employer is not liable for death or 

injury to an employee covered by the Act, the amendment 

provided that employers shall not be liable "for any claims 

for contribution or indemnity asserted by a third person from 

whom damages are sought on account of such injuries or 

death . " 

111 

The first certified question is: 

Where an injured employee sues a third party for damages 

and the third party joins the employer as a third party 

defendant seeking contribution or indemnity, is the assertion 

of § 39-71-411, MCA, by the third party defendant employer as 

a defense, constitutional as it is applied to the third party 

plaintiff? Phrased more succinctly: Is it constitutional 

for an employer to use $ 39-71-411, MCA, as a complete 

defense to a third party claim for contribution or indemnity? 

Burlington Northern argues that the limitation contained 

in S 39-71-411, MCA, violates Art. 11, §§ 16 and 17 of the 

Montana Constitution. 

Art. 11, § 16, Mont. Const. 1972 provides in part that 

courts of justice shall be open to every person and speedy 

remedy afforded for every injury. Burlington Northern argues 

that S 39-71-411, MCA, deprives Burlington Northern of its 

constitutional right to a remedy for every injury and full 

legal redress. 
The 1889 Constitution had a comparable provision. Art. 

111, § 6, Mont. Const. 1889 states: 

Courts of justice shall be open to every 

person, and a speedy remedy afforded for 

every injury of person, property, or 

character; and that right and justice 

sha 11 be administered b~ithout sale, 

denial, or delay. 

This provision was interpreted in Shea v. North-Butte 

Mining Co. (1919), 55 Mont. 522, 179 P. 499, a personal 

injury action by a miner against his employer. Shea ' s 

counsel argued that the Workmen's Compensation Act of 1915 

was repugnant to the constitutional guarantee that courts of 

justice shall be open to every person and a speedy remedy 

afforded for every injury. Shea insisted that the 

legislature could not abolish an injured worker's right to 

sue in tort. This Court discussed the basis for the 

legislature's adoption of the Act: 

[Tlhe object sought was to substitute for 

the imperfect and economically wasteful 

common-law system by private action by 

the injured employee for damages for 

negligent fault on the part of the employer, which, while attended with great 

delay and waste, compensated those employees only who were able to establish 

the proximate connection between the 

fault and the injury, a system by which 

every employee in a hazardous industry 

might receive compensation for any injury 

suffered by him arising out of and during 

the course of the employment . . . In 

other words, the theory of such legislation is that loss occasioned by reason of 

injury to the employee shall not be borne 

by the employee alone as it was under the 

common-law system, but directly by the 

industry itself, and indirectly by the 

public . . . 

Shea, 55 Mont. 528-29, 179 P. at 500. 

The Shea rationale with regard to the theory of workers' 

compensation was reaffirmed a number of times after its 

initial declaration in 1919. Finally, the rationale was 
recognized in the 1.972 Montana Constitution. Art. 11, § 16, 

tlont. Const. 1972 states: 

Courts of justice shall be open to every 

person, and speedy remedy afforded for 

every injury of person, property, or 

character. No serson shall be desrived 

--- of this full legal redress for injury 

incurred in employment for which another 

LAserson marbe YiaLle L-- 

excest as to fellow 

employees -- and his immediate employer who 

hired him if - - - such immediate employer 

L 

srovides coveraae -I under the Workmen's - 

Compensation Laws --- of this state. Right 

and justice shall be administered without 

sale, denial, or delay. 

(Emphasis supplied.) The underscored sentence was added to 

the original provisions of Art. 111, § 6, Mont. Const. 1-889. 

An explanation of the amendment is set forth in a Committee 

Report to the Constitutional Convention: 

The committee voted unanimously to retain 

this section with one addition. The 

provision as it stands in the present 

Constitution guarantees justice and a 

speedy remedy for all without sale, 

denial or delay. The committee felt, in 

light of a recent interpretation of the 

Workmen's compensation Law, that this 

remedy needed to be explicitly guaranteed 

to persons who may be employed by one 

covered by Workmen's Compensation to work 

on the facilities of another. Under 

Montana law, as announced in the recent 

deci 

- Co., 

thir 

sion of Ashcraft v. Montana Power 

the employee has no redress against 

.d parties for injuries caused by them 

if his immediate employer is covered 

under the Workmen's Compensation Law. 

The committee feels that this violates 

the spirit of the quarantee - of a speedy - - 

remedy for - all injuries of person, 

property or character. It is this 

specific denia 1--and this one only--that 

the committee intends to alter with the 

following additional wording: "no person 

shall be deprived of this full legal 

redress for injury incurred in employment 

for which another person may be liable 

except as to fellow employees and his 

immediate employer who hired him if such 

immediate employer provides coverage 

under the Workmen's Compensation Laws of 

this state." In other words the 

committee wants to insure that the 

Workmen's Compensation Laws of the state 

will be used for their original 

purpose--to provide compensation to 
injured workmen--rather than to deprive 

an injured worker of redress against 

negligent third parties (beyond his 

employer and fellow employees) because 

his immediate employer is covered by 

Workmen's Compensation. 

Montana Constitutional Convention, Committee Report at 636 

(1972). There is no indication of intent to modify or change 

an employer's liability to an injured worker. The change was 

specifically aimed at allowing recovery by a worker against a 

responsible third party. 

For the first time, the Montana Constitution provided 

that the State could deprive an employee of full legal 

redress against his employer for injury incurred during 

employment. That is a express constitutional recognition of 

the rationale originally stated in Shea. 

Burlington Northern's challenge to § 39-71-411, MCA, is 

based primarily on the first sentence of Art. 11, § 16, which 

provides that courts of justice shall be open to all and a 

speedy remedy afforded for every injury. This contention 

tends to disregard the next sentence in 5 16, which 

specifically limits recovery for work-related injuries. We 

conclude that Art. 11, § 16 must be considered in its 

entirety, including the second sentence which limits the 

broad guarantees contained in the first sentence. 

The pertinent part of the second sentence states: 

No person [Raisler] shall be deprived of 

this full legal redress for injury incurred in employment for which another 

person [Burl ington Northern] may be 

liable except as to . . . his immediate 

employer [Farmers] . . . 

The sentence makes certain that no employee is deprived of 

redress against a third party. However, it allows an 

employee to be deprived of full legal redress against his 

employer. 
In substance, 5 39-71-411, MCA, provides that Farmers is 

not liable for a claim for contribution or indemnity asserted 

by Burlington Northern, a third party. If this limitation 

can be interpreted as an extension of the limitation on the 

worker's right to claim against his employer, then the 

limitation would be expressly authorized by Art. 11, S 16, 

B'Iont. Const. 1972. 

Is there a reason to distinguish between a claim by a 

third party for contribution or indemnity and a claim 

asserted directly by the employee? This question was 

answered in Cordier, where this Court stated: 

It is our opinion that the broad provisions of section 92-204.1, R.C.M. 1947, 

now section 39-71-411, MCA, require us to 

hold that the provisions of the Workers' 

Compensation Act are exclusive as to the 

liability of the employer for damages 

sustained by the injured employee whether 

they are sought by the employee directly, 

or by a third party under contribution. 

Our statute rules out "any liability 

whatever" even before it goes on to state 

that the employee and those under him are 

limited to such recovery as the Act 

allows against the employer. The language "any liability whatever" would be 

surplusage unless it is read to mean 

liability not only to the employee and 

those claiming under him, but also any 

other party attempting to claim liability 

against the employer for the same 

incident. 

Cordier, 184 Mont. at 508-09, 604 P.2d at 89-90. Under the 

Cordier holding, the employer was liable to the emplcyee for 

workers' compensation benefits, but the employer was found to 

he free of any other liability to the employee or to any 

other party attempting to claim liability against the 

employer as a result of the same injury. In Montana, there 

is no distinction between a third party claim for 

contribution or indemnity against an employer and a claim by 

an employee asserted directly against the employer. 
In White v. State (Mont. 1983), 661 P.2d 1272, 40 

St.Rep. 507 and in Pfost v. State of Montana, Supreme Court 

Cause No. 85-007, decided December 31, 1985, this Court 

struck down two Montana statutes as unconstitutional, on the 

grounds that the right to bring an action for personal 

injuries was a fundamental right and that any statutory 

abridgment of that fundamental right must pass the test of 

strict scrutiny. Those holdings are not applicable in the 

present case. Because an employer's immunity from tort 

liability in a workers' compensation case is constitutionally 

recognized in Art. 11, (5 16, Mont . Const. , we conclude no 

analysis of § 39-71-411, MCA, on a strict scrutiny theory is 

required. 

In a similar manner, in Hall v. State Comp. Ins. Fund 

(Mont. 1985), 708 P.2d 234, 42 St.Rep. 1502, the Court 

disallowed subrogation by an insurance company against an 

employee. The Court concluded that it would be an 

unconstitutional application of an otherwise constitutions-l 

statute if the State Fund were granted suhrogation against a 

claimant employee who had not achieved full legal redress. 

Here we are not concerned with an employee as in Hall, 

but rather the third party who has been sued by the employee. 

The third party claims that its constitutional right of full 

legal redress against the employer has been eliminated. We 

have already concluded that an employee, may be 

constitutionally deprived of full legal redress against his 

employer, both directly and indirectly. We conclude that 

there is no distinction between a direct claim by Raisler, 

the employee, against Farmers, the employer, or an indirect 

claim by Burlington Northern, third party, against Farmers, 

the employer. Hall does not conflict with our holding here. 
In our analysis of Art. 11, S 16, Mont. Const., we 

conclude that, in workers' compensation cases, the second 

sentence affords a limitation upon the broad provisions in 

the first sentence. We conclude that where an employer has 

provided workers' compensation coverage, an employee 

constitutionally may be deprived of full legal redress for 

injury against his employer, both directly and indirectly. 

We hold that in denying liability for any claims for 

contribution or indemnity by a third party, S 39-71-411, MCA, 

does not violate Art. 11, § 16, Mont. Const. 

Burlington Northern also argues that $ 39-71-411, MCA, 

violates Art. 11, 17 Mont. Const. which provides that: 

"No person shall be deprived of life, libertv, or property 

without due process of law." Burlington Northern argues that 

the statute deprives a third party plaintiff of its 

substantive right to contribution. Because no reasonable 

substitute has been provided, Burlington Northern contends it 

has been unlawfullv deprived of a due process right. We 

disagree. 

Substantive due process analysis requires a test of the 

reasonableness of a statute in relation to the State's power 

to enact such legislation. "The essence of substantive due 

process is that the State cannot use its police power to take 

unreasonable, arbitrary or capricious action against an 

individual." Matter of C.H. (Mont. 1984), 683 P.2d 931, 936, 

41 St.Rep. 997, 1002. In order to satisfy substantive due 

process guarantees, a statute enacted under a state's police 

power must he reasonably related to a permissible legislative 

objective. State v. Turk (1982), 197 Mont. 311, 314-15, 643 

P.2d 224, 226. 

The 1979 legislature amended § 39-71-411, MCA, specifically to preclude liability on the part of an insured 
employer for contribution or indemnity to third parties. The 

legislative objective was to protect employers from "the 

great potential liability" that could result if employers 

were required to pay the amount collected by an employee in 

his action against a third party in addition to payment of 

the compensation benefits. Memorandum, Senate Judiciary 

Committee, February 7, 1979. Section 39-71-411, MCA, was 

amended to ensure that the scope of liability of employers 

would continue to be limited by the Workers' Compensation Act 

in spite of developing tort theories. 

The effect of the amendment to S 39-71-411, MCA, was to 

promote the continued economic welfare of employers who pay 

into the State Fund and the welfare of employees who receive 

compensation benefits. We therefore conclude that the 

limitations contained in S 39-71-411, MCA, are reasonably 

related to the permissible legislative objective of protecting the public welfare. 

We hold that assertion of S 39-71-411, MCA, as a defense 

to liability of an employer covered by the Act, does not 

violate Art. 11, S 17, Mont. Const. 1972. 

IV 

The second certified question is: 

Where an injured employee sues a third party for 

damages, and the third party joins the employer as a third 

party defendant seeking contribution or indemnity, and the 

employer has signed a written agreement with the provisions 

outlined in this certification, can the employer assert 

S 39-71-411, MCA, as a complete defense to the third party 

action? 

As previously discussed, indemnity is an all or nothing 

proposition. It shifts the entire loss from the one who has 

been required to pay it to the one who should bear it. In 
Cordier, this Court held that an employer who has paid workers' compensation benefits to an employee is not subject to 

indemnity based on a noncontractual claim by a third party. 

The Cordier Court did not rule on contractual indemnity. 

Contractual indemnity was considered in Howard S. Wright 

Const. v. F.E. DeBeer Mech. (1979), 185 Mont. 47, 604 ~.2d 

323. Wright Const. allowed recovery by the plaintiff under a 

contractual indemnification provision executed by DeBeer, a 

subcontractor to Wright, the primary contractor. We 

distinguish that case from the present case, where Farmers 

asserts immunity under 5 39-71-411, MCA. In Wright Const., 

the subcontractor did not assert a defense against liability 

nor claim immunity as an insured employer under S 39-71-411, 

MCA . As a result, the holding in Wright Const. is not 

controlling in the present case. 

In this case, Farmers, as lessee, agreed in writing to 

indemnify and hold Burlington Northern harmless for any loss, 

damage, injury or death from any act or omission of Farmers, 

its employees or agent, to the person or property of the 

parties to the lease and their employees. In form, the 

indemnity provision in the lease agreement is broad enough to 

allow recovery as a matter of contract interpretation. Our 

question is whether Farmers can now assert 5 39-71-411, MCA, 

as a complete defense to the action for contractual 

indemnity. 

A majority of courts has recognized express contractual 

indemnity as an exception to the exclusive remedy rule. See, 

Annot., 100 A.L.R.3d 5 8[b] at 380 (1980). The 

frequently-stated rationale is that the indemnity claim is by 

definition a separate legal cause based upon a contractual 

relationship and a contractual obligation. 2A Larson, 

Workmen's Compensation Law, 5 76.42 at 14-630 (1983). The 
increased exposure of the employer is bargained for and 

serves as consideration or at least partial consideration for 

whatever is received from the third party. Robinson, 

Workmen's Compensation: The Third Party Dilemma, 19 Idaho L. 

Rev. 259, 268 (1983) . 

Courts in three jurisdictions have concluded that their 

statutory language specifically precludes third party suits 

for contractual indemnity, and such contractual obligations 

are therefore void. Roberts v. Gray's Crane & Rigging 

(0r.Ct.App. 1985), 697 P.2d 985; Paul Krebs & Assoc. TT. 

Fritts Const. (Ala. 1978), 356 So.2d 638; Gulf Oil Corp. v. 

Rota-Cone Field Operating Co. (N.M.Ct.App. 1972), 505 P.2d 

78. The stated rationale in these cases is that if the 

employee is allowed to recover from a third party and then 

the third party is allowed to recover from the employer, the 

employer is subjected to double liability. 

In view of these contradictions in legal theories, we 

find it important to review our Montana cases and 

Constitution. Shea construed Montana's Act in relation to 

the 1889 Constitution and set forth reasons why the 

legislature adopted the workers' compensation system as a 

substitute for common law tort suits by an employee against 

his employer. We concluded in Shea that the Act was a permissible exercise of legislative power, based on sound social 

policy of protecting injured workers. 

The Constitutional Convention Committee which considered 

Art. 11, § 16, Mont. Const. 1972, was keenly aware of a need 

to protect the interests of injured employees. As previously 

discussed, it was that awareness that resulted in the 

addition of the second sentence in Art. 11, § 16. 

Indemnification of third parties was a commonly recognized theory of recovery at the time of the 1972 
Constitutional Convention. The above-quoted Committee Report 

indicates that the Convention had in mind the 1889 

Constitution and at least one judicial interpretation that 

1-imited an employee's right to sue third parties. Had the 

Convention chosen to do so, it could have amended Art. 111, 

fj 6, 1889 Mont. Const. to diminsh the protection granted to 

employers. The Convention concluded instead that the 

continued protection of employers covered by workers' 

compensation was proper. 

As previously discussed, the legislature's 1979 amendment of § 39-71-411, MCA, expressed legislative intent that 

the liability of an employer should not be broadened in such 

a manner as to allow a third party to recover from an 

employer. As the bill's sponsor explained: 

With developments in the product liability law, a relatively new problem for 

employers has emerged. The injured 

employee collects compensation. He then 

sues the manufacturer or seller of the 

equipment which may have contributed to 

his injury. The manufacturer or seller 

of the equipment then sues the employer 

for the amount sought by the employee on 

the theory of implied or express indemnity Thus, the employer is confronted 

with the possibility of not only paying 

workers' compensation benefits, but also 

the amount collected by the employee in 

his action against a third party. 

Oregon was confronted with this same 

problem and to protect the employers in 

that state from the great potential 

liability, it enacted an amendment to its 

law to protect its employers and insurers 

from such claims by the manufacturers or 

sellers. 

Senate Bill 322 is designed to accomplish 

the same result in Montana. 

Memorandum, Senator John E. Healy, Senate Judiciary Committee, February 7, 1979. Legislative intent to protect employers from liability to third parties is clear. No distinction 

is made between contractual and equitable indemnity in the 
statute itself or in the legislative history of the 

amendment. 

The Montana Legislature chose - not to grant a third party 

the right to recover on a contractual indemnity theory from 

an employer carrying workers' compensation insurance. That 

choice was consistent with the opinion of the people as 

expressed by their adoption of Art. 11, 1.6, Mont. Const. 

1972. We conclude that neither the Convention nor the 

legislature desired to make a change which would grant a 

third party the right to recover from an employer on a 

contractual indemnity theory. 

Burlington Northern argues that a failure to allow 

recovery against Farmers impairs the obligation of its 

indemnification contract. This subject was discussed at 

length in Neel v. First Federal Sav. and Loan Assoc. (Mont. 

19841, 675 P.2d 96, 41 St.Rep. 18. Both Art. 11, § 31, Mont. 

Const. and Art. 1, § 10, U. S. Const. prohibit the impairment 

of contracts. This Court pointed out in Neel that the two 

contract clauses have been construed interchangeably and set 

forth the test to be applied: 

The Supreme Court in Energy Reserves, 

noted that an examination of the 

legislation for validity under the 

contract clause requires a three step 

analysis. The threshold inquiry is 

"whether the state law has, in fact, 

operated as a substantial impairment of 

the contractual relationship." If there 

is no substantial impairment of the 

contractual relationship, the inquiry is 

ended. Second, if the legislation 

substantially impairs the contractual 

rights, " [t] he state, in justification, 

must have a significant and legitimate 

public purpose behind the regulation." 

Third, the adjustment of rights and 

responsibilities of contracting parties 

must be based " [ulpon reasonable 

conditions'' and be " [o] f a character 

appropriate to the public purpose 

justifying the legislation's adoption." 

As the opinion notes, unless the State is 

a party to the contract, courts will 
properly defer to 3egislative judgment on 

this third step. 

Neel, 675 P.2d at 104-05, 41 St.Rep. 27-28 (citations 

omitted). 

We find that the statutory prohibition against 

enforcement of an indemnity contract is a substantial 

impairment of the contractua 1 relationship that exists 

between Burlington Northern and Farmers. Thus, the threshold 

inquiry is met. 

The second question is whether the State had a 

significant and legitimate public purpose in enacting the 

statute. As previously pointed out in Shea, the aim of the 

Workers' Compensation Act was to compensate every employee 

for any injury suffered during the course of employment, 

whether the employer was at fault or not. Employers who 

participated in the compensation system were guaranteed 

limited liability. The system was designed for the common 

good so that injured workers would not become public wards. 

This purpose is both significant and legitimate. The 

legislative purpose behind $ 39-71-411, MCA, is to continue 

to guarantee limited liability to employers covered by the 

Act. The statutory prohibition against third party claims 

for contribution or indemnity was enacted with the purpose of 

perpetuating Montana's workers' compensation system in light 

of recent tort law development. We find this to be a 

significant and legitimate public purpose, which meets the 

second part of the test. 

The third requirement is that the statutory adjustment 

of the rights and responsibilities of the contracting parties 

must be based upon reasonable conditions and be of a 

character appropriate to the purpose of the statute. In 

Neel, this Court concluded that where a State is a not a 
party to the contract in question, courts will properly defer 

to legislative judgment. Neel, 675 P.2d at 105, 28 St.Rep. at 

27-28. We conclude that it is proper to defer to the 

legislative judgment on this third point. We recognize that 

many courts have held that an action to enforce an indemnity 

contract is an action separate from the original claim for 

the injury of the employee, and recovery can therefore be 

allowed against the employer. That is not an appropriate 

distinction under our Workers' Compensation Act. As pointed 

out in Cordier, an employer should not be held liable for 

damages sustained by an injured employee, whether such 

damages are sought by the employee directly or indirectly 

through recovery from a third party. 

In the present case, it is possible that Rais'l.er could 

recover all of his damages in tort from Burlington Northern 

if he could prove that the negligence of Burlivgton Northern 

was a cause of his injuries, even though the principal cause 

of such injuries might have been the neg3igence of his 

employer. In the event of such a recovery by the employee, 

Burlington Northern then could claim its right to recover 

from Farmers on a contractual indemnity basis. The end 

result would be that the employee would recover indirectly 

from his employer all of his tort damages for the injury for 

which he also received compensation benefits. That indirect 

recovery is inappropriate. It would contradict the basic 

foundation of the workers' compensation law in this state, 

which imposes absolute liability upon an employer for injury 

to employees and eliminates all other liability on the part 

of the employer. 

We conclude that the three-part test in Neel has been 

met. We hold that § 39-71-411, MCA, does not violate the 

constitutional prohibitions against impairment of obligation 
of contracts, and that Farmers can assert 5 39-71-All, MCA, 

as a complete defense to the third party action by Burlington 

Northern. 

Shea, Cordier, and the Judiciary Committee Minutes on 

th.e amendment to 5 39-71-411, MCA, set forth sound reasons 

for limiting employers' liability in order to protect the 

workers' compensation system in Montana. 

We find the l~gislature' s1imit.ation on employers' 

liability to be constitutional. We conclude that an insured 

employer can properly assert 5 39-71-411, MCA, as a complete 

defense to a third party action for express indemnity. 

Justices 
Mr. Justice L. C. Gulbrandson dissenting. 

I concur with the response to certified question no. 1, 

but would respond "no" to certified question no. 2. 

The majority opinion states: 

The legislative purpose - - behind 

S 39-71-411, MCA, is to continue to 

guarantee limited liability to employers 

covered by the Act. The statutory 

prohibition against third party claims 

for constitution or indemnitv .L was enacted 

with the purpose of perpetuatiny 

Montana's workers' compensation system in 

light of recent tort law development. 

(Emphasis added.) 

In my view, the majority has done more than "continue" 

or "perpetuate" what was present at the time the legislature 

acted. This Court's previous pronouncements in DeShaw v. 

Johnson (1970), 155 Mont. 355, 472 P.2d 298 and Howard S. 

Wright Const. v. F. E. DeBeer Mech. (1979), 604 P.2d 323, 185 

Mont. 47, were in line with the majority of the states in 

approving contractual indemnity. 

I would allow contractual indemnity, where the parties 

have had the opportunity to negotiate, prior to any claim, 

the distribution of the loss, as long as the injured 

employee's right to bring an action against the third party 

is not prejudiced. Under current law, where an employee 

recovers from a third party, the employer's insurer can share 

in the recovery through subrogation. Section 39-71-414, MCA. 

Where an employee recovers from a passively negligent third 

party, it may now be possible for the employer's insurer to 

share under subrogation, no matter how careless the employer 

has been in preparing the work place, and even though the 

employer has specifically contra.cted, through liability 

insurance, or otherwise, to be personally liable to the third 

party. In my opinion, the legislature never intended, nor 

considered, such a result. 

r