No. 84-372 INTHE SUPREME COURT OF THE STATE OF MONTANA 1985

WARREN LOU RAISLER, Plaintiff and Appellant,

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 forBurlingtonNorthern, Billings, Montana ForDefendant/Respondent: Anderson, Brown, Gerbase, Cebull & Jones; StevenJ. Harman & Cynthia R. Woods argued forFarmers Union Elevator, Billings, Montana Herndon, Harper & Munro; RodneyT. Hartman, Billings, Montana (F?.oss-KO Grain) Towe, Ball, Enright & Mackey; Thomas E. Towe, Billings, Montana (Raisler)

Submitted: February21, 1985 Decided: December 31, 1985

*4 ClerkMr. JusticeFred 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 orindemnity. The questions, as certified tousby 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 thethirdpartyplaintiff? Our answer 

### isno. 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 

### isyes. 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 carthatwas 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 forhis 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 thatRoss-KO, a Minnesota corporation, owned the railroad cars intowhich he was loading grain atthe

### timeof the accident. Burlington Northern, a Delaware corporation, a1legedly owned the tracks and the land where the accident occurred. Farm

### ers' grain handling facility 

### is situated on land leased from Burlington Northern. The suitwas removed to federal court based on theparties' diversityof 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 theground 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 Work

### ers' Compensation Act or for which an electionhasbeen made forcoverage under this chapter, the provisions of this chapter areexclusive. Except asprovided 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 injurytoan employee coveredby theWorkers' Compensation Act or for any claims for contribution or indemnity asserted by a third person from whom damages are sought on account of such injuriesordeath. 

# ..

# . The federal court requests this Court's interpretation of S39-71-411, MCA, as it relates to the Montana Constitution.

Montana enacted theWorkmen

### '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 topay compensation for work-related injuries regardless of fault. TheAct limited employers' liability toworkers' compensation benefits and provided that a claim under the Act was an injured worker's exclusive remedy against an employer that

was covered by theAct. 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 toworkers. 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 soughtby 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 indemnityprovisions in the lease agreement between Burlington Northern and Farmers. With regard to the theory of contribution, Burlington Northern claims that itwas Farmers' act of negligence that caused the accident and affords the basis for contribution. BurlingtonNorthern contends that

### it was onlypassively negligent, ifat all. The indemnity allegation 

### is based upon the express indemnity provisions contained inthe leaseagreement. Contribution distributes lossamong joint tortfeasorsby requiring each topay hisproportionate sharebased 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 topay 

### it tothe one who should bear the loss. W. Prosser, Law of Torts, 

### 5 51 at310 

## -- (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 at14-571 (1983). In 1977, 

### S 39-71-411, MCA, provided that an insured employer 

### "is not subject to any liability whatever for the death of orpersonal injurytoan employee" who 

### iscovered 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 soughtby third partiesunder a theory of contribution. That conclusion 

### isinaccord with thecurrentmajorityrulethata 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 alsoconcluded that theexclusive remedy provision of the Workers' Compensation Act barred aclaim for noncontractual indemnity. No express indemnity contract was involved inCordier, and theCourt reserved any ruling on such indemnity. Cordier, 184 Mont. at 513, 604 P.2d at92. While the appeal in Cordier was pending, the 1979 Montana Legislatureamended § 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 forcontributionorindemnity assertedby a thirdperson from whom damages 

### are sought 

### on account of such injuries or death

# ." 111 The firstcertified question 

### is: Where an injured employee suesa thirdparty fordamages and the third party joins the employer as a third party defendant seekingcontribution 

### or indemnity, 

### is theassertion of § 39-71-411, MCA, by thethirdpartydefendant employer as a defense, constitutional asit 

### isapplied tothethirdparty plaintiff? Phrased more succinctly: Is 

### it constitutional for an employer to use $ 39-71-411, MCA, as a complete defense toa thirdparty claim forcontributionorindemnity? Burlington Northern arguesthatthe 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 inpart that courts of justice shall be open toevery person and speedy remedy afforded forevery 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 legalredress.The 1889 Constitution had a comparable provision. Art. 111, § 6, Mont. Const. 1889 states: Courts of justice shallbe open toevery person, and a speedy remedy afforded for every injury of person, property, or character; and that right and justice sha11 be administered b~ithout sale, denial, ordelay. 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 tothe 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 theAct: [Tlheobject soughtwas tosubstitute 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 forany injury sufferedby him arisingoutof and during the course of the employment 

# .

# . . In otherwords, the theory of such legislation

### isthat lossoccasioned by reason of injurytotheemployee shallnotbe borne by theemployee alone as

### it was under the common-law system, but directly by the industry itself, and indirectly by the public

# ..

# . Shea, 55Mont. 528-29, 179 P. at500. The Shea rationalewith regard tothetheory of workers' compensation was reaffirmed a number of times after 

### its initial declaration in 1919. Finally, the rationale was

### recognized in the 1.972Montana 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 forwhich another serson marbe YiaLle excest as to fellowLAL-- 

### employees 

## -- and his immediate employerwho hired him if such immediate employer 

## - - - srovides coveraae under the Workmen's L -I 

## - Compensation Laws of 

### this state. Right --- 

### and justice shall be administeredwithout sale, denial,ordelay. (Emphasissupplied.) The underscored sentence was added to the original provisions ofArt. 111, § 

### 6,

### Mont. Const. 1-889. An explanation of the amendment is set forth in a Committee Report to the ConstitutionalConvention: The committeevoted 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 remedyneeded tobe explicitly guaranteed to persons who may be employed by one covered by Workmen's Compensationtowork on the facilities of another. Under Montana law, as announced in the recent deci Co., 

## - thirsion of Ashcraft v. Montana Power the employee has no redress against .dparties for injuriescaused 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 denia1--and this one only--that the committee intends to alter with the following additionalwording: "noperson 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 employerwho 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 toinjured 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 

### isno indicationof intenttomodify orchange

an employer's liabilitytoan injuredworker. The changewas specificallyaimed atallowingrecovery by a worker againsta responsiblethirdparty. 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 

### isa expressconstitutional recognition of therationale originally stated inShea. Burlington Northern's challenge to § 39-71-411, MCA, 

### is based primarily on the firstsentenceof Art. 11, § 16, which provides that courts of justice shall be open to alland a speedy remedy afforded for every injury. This contention tends to disregard the next sentence in 

### 5 16, which specifically 

### limits recovery forwork-related injuries. We conclude that Art. 11, § 16 must be considered in 

### its entirety, including the second sentence which 

### limits the broad guarantees contained inthe firstsentence. The pertinentpart 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 [Burlington 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 thatFarmers 

### is not liable fora claim forcontributionorindemnity 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 inCordier, where thisCourt stated: It 

### is our opinion that the broad provisions of section 92-204.1, 

### R.C.M. 1947, now section 39-71-411, MCA, requireusto hold that the provisions of theWorkers' Compensation Act are exclusive as to the liability of the employer for damages sustainedby theinjured employee whether they aresoughtby theemployee directly, orby a third party under contribution. Our statute rules out "any liability whatever" even before 

### it goes on tostate thattheemployee and thoseunder 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 partyattemptingtoclaim liability against the employer for the same incident. Cordier, 184 Mont. at508-09, 604 P.2d at 89-90. Under the Cordier holding, the employer was liable 

### tothe emplcyee for workers' compensation benefits, buttheemployer 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. InMontana, there 

### is no distinction between a third party claim for contribution orindemnity against an employer and a claim by



### anemployeeasserteddirectlyagainsttheemployer.

### In White v. State (Mont. 1983), 661 P.2d 1272, 40 St.Rep. 507 and in Pfost

### v. State ofMontana, Supreme Court Cause No. 85-007, decided December 31, 1985, this Court struck down two Montana statutesas 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 aworkers' 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 thirdpartywho hasbeen suedby the employee. The third party claims that its constitutionalright 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 conflictwith 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 contributionor indemnityby a 

### third party, S 

### 39-71-411,MCA, does notviolate Art. 11, § 

### 16,Mont. Const. Burlington Northern also argues that $ 

### 39-71-411, MCA, violates Art. 11, 17Mont. Const. which provides that: "No person shall be deprived of life, libertv, or property without due process of law." BurlingtonNorthern argues that the statute deprives a 

### third party plaintiff of its substantive right to contribution. Because no reasonable substitutehas 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 ofC.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 powermust he reasonably related to apermissible legislative objective. State v. Turk (1982),197Mont. 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 contributionor 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 

### theWorkers' CompensationAct in spiteofdeveloping 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 employeeswho receive compensation benefits. We therefore conclude that the limitations contained in S 39-71-411, MCA, are reasonably related to the permissible legislative objective ofprotecting the public welfare. We hold that assertionofS 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. InCordier, this Court held that an employer who has paid work

### ers' 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 inHoward S. Wright Const. v. F.E. DeBeer Mech. (1979), 185 Mont. 47, 604 ~.2d 323. Wright Const. allowed recovery by theplaintiffunder 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 controllinginthepresent case. In this case, Farmers, as 

### lessee, agreed inwriting to indemnify and hold Burlington Northern harmless forany loss, damage, injury ordeath from any actoromission 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 inthe lease agreement 

### isbroad enough to allow recovery as a matter of contract interpretation. Our question 

### iswhether 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 asan exception tothe exclusive remedy rule. See, Annot., 100 A.L.R.3d 

### 5 8[b] at 380 (1980). The frequently-stated rationale

### isthattheindemnity claim 

### isby 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

servesas consideration or at leastpartial 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 legislativepower,based on sound social policy ofprotecting injured workers. The Constitutional Convention Committee which considered Art. 11, § 

### 16,Mont. Const. 1972,was keenly aware of a need toprotect the interestsof 

### 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 1972Constitutional Convention. The above-quoted Committee Report indicates that the Convention had in mind the 1889 Constitution and at least one judicial interpretation that 1-imitedan employee's right to sue third parties. Had the Convention chosen todo so, 

### it could have amended Art. 111, fj 6, 1889 Mont. Const. todiminsh 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 thebill's sponsorexplained: With developments 

### intheproduct 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 theemployee on thetheory of implied orexpress 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 hisaction 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 toprotect 

### itsemployers and insurers from such claims by themanufacturers or sellers. SenateBill322 

### isdesigned toaccomplish the same result inMontana. Memorandum, Senator John E. Healy, Senate Judiciary Committee, February 7, 1979. Legislative intenttoprotectemploy

### ers from liabilitytothirdparties

### isclear. No distinction 

### is made between contractual and equitable indemnity in the

### statute itself or in the legislative history of the amendment. TheMontana 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, 675P.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 interchangeablyand 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 opinionnotes,unless the State is a 

### party to the contract, courts willproperly defer to3egislativejudgment on thisthird 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 contractua1 relationship that exists between Burlington Northern and Farmers. Thus, thethreshold inquiry 

### ismet. 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 tocontinue to guarantee limited liability to employers covered by the Act. The statutory prohibition against third party claims forcontribution orindemnitywas enactedwith thepurpose of perpetuatingMontana'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 partof thetest. The third requirement 

### is that the statutory adjustment of the rightsand responsibilitiesof thecontractingparties 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 apartytothecontractinquestion, courts

### willproperly defer tolegislativejudgment. Neel, 675 P.2d at105, 28 St.Rep. at 27-28. We conclude that 

### it is proper to defer to the legislativejudgment on thisthird point. Werecognize that many courts have held that an actiontoenforce 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. Aspointed 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 thirdparty. In the present case, 

### it is possible that Rais'l.er could

recover all of his damages in tort from Burlington Northern ifhe could prove thatthe negligence of Burlivgton Northern

was a cause of hisinjuries, even though theprincipal 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 hisemployer all of histortdamages forthe 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 liabilityupon an employer forinjury toemployees and eliminates all other liability on the part of theemployer. 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.eamendment to 

### 5 39-71-411, 

### MCA, set forth sound reasons for limiting employers' liability in order to protect the workers' compensation system inMontana. We find the l~gislature' s 1imit.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. JusticeL. C. 

### Gulbrandsondissenting. Iconcurwith theresponse to certified questionno. 1, butwould respond "no"to certified questionno. 2. Themajority 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 constitutionor indemnitvwas enacted

.L 

### with the purpose of perpetuatiny Montana's workers' compensation system in light of recent tort law development. (Emphasisadded.) Inmy view, themajority has donemore 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. 

### DeBeerMech. (1979),604P.2d 323, 185 Mont. 47, were in line with the majority of the states in approving contractual indemnity. Iwould 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 froma thirdparty, 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,orotherwise, tobe personally liableto the third party. In my opinion, the legislature never intended, nor considered,such a result.

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