No. 87-365 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

JODY MC KINLEY, 

Claimant and Respondent, 

-VSAMERICAN DENTAL MANUFACTURING COMPANY, 

Employer, 

and 

STATE COMPENSATION INSURANCE FUND, 

Defendant and Appellant. 

APPEAL FROM: Workers' Compensation Court of the State of Montana 

In and For the Area of Missoula 

The Honorable Timothy Reardon, Judge Presiding 

COUNSEL OF RECORD: 

For Appellant: 

Oliver H. Goe; Browning, Kaleczyc, Berry & Hoven, P.C. 

Helena, MT 

For Respondent: 

Julio K. Morales; Morales & Volinkaty, Missoula, MT 

Submitted: March 4, 1988 

Decided: May 17, 1988 

Filed: MAY 1 7 1988 

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

This is an appeal of the amount of attorney fees awarded 

by the Workers' Compensation Court in Ms. McKinley's claim 

for disability benefits. We reverse and remand to the workers' Compensation Court. 

Appellant State Compensation Insurance Fund (State Fund) 

states the issue as whether the lower court erred in ignorinq 

offers of settlement made prior to trial in determining the 

attorney fee awardable under § 39-71-612, MCA (1983). 

The claimant Ms. McKinley suffered an industrial accident to her right hand, arm, and shoulder in January 1984. 

The State Fund paid temporary total disability benefits until 

January 1986, when Ms. McKinley started to work for a new 

employer. At that time, the State Fund terminated temporary 

total disability benefits and began paying Ms. McKinley 

permanent partial benefits. 

The complaint before the Workers' Compensation Court was 

filed because of a disagreement on the calculation of Ms. 

McKinley's permanent partial disability benefits. Ms. 

McKinley successfully argued that her benefits should be 

calculated under S. 39-71-705, MCA. The court awarded her 500 

weeks of permanent partial disability benefits at the rate of 

$97.87 per week, or a total of $48,935. However, the court 

noted that since Ms. McKinley's benefit rate is based on 

actual lost earnings, the rate may change. The court ruled 

that either Ms. McKinley or the State Fund may return once a 

year to recompute the difference between current wages and 

pre-injury wages. The court therefore denied Ms. McKinley's 

request for attorney fees in a lump sum but ordered them paid 

as Ms. McKinley receives her benefits. 

The Workers' Compensation Court computed Ms. McKinley's 

attorney fee based on the difference between the amount 
awarded and $9,695, which it determined was the "floor offer" 

by the State Fund. That determination is appealed. 

Did the lower court err in ignoring offers of settlement 

made prior to trial in determining the attorney fee awardable 

under .§ 39-71-612, MCA? 

Section 39-71-612, MCA (1983), governs the award of 

attorney fees in this case. That statute provided, in relevant part: 

(1) If an employer or insurer pays or tenders 

payment of compensation under chapter 71 or 72 of 

this title, but controversy relates to the amount 

of compensation due and the settlement or award is 

greater than the amount paid or tendered by the 

employer or insurer, a reasonable attorney's fee as 

established by the division or the workers' compensation judge if the case has gone to a hearing, 

based solely upon the difference between the amount 

settled for or awarded and the amount tendered or 

paid, may be awarded in addition to the amount of 

compensation. 

As amended in 1985, the words "based solely upon the difference between the amount settled for or awarded and the amount 

tendered or paid" are eliminated from the statute. However, 

we must apply the statute as in effect on the date of injury. 

Wight v. Hughes Livestock Co., Inc. (1983), 204 Mont. 98, 664 

P.2d 303. Our key question is the amount of a reasonable 

attorney fee when the amount of the fee is "based solely upon 

the difference between the amount settled for or awarded and 

the amount tendered or paid." 

The correspondence between Ms. McKinley's attorney and 

the State Fund prior to filing of the claim with the Worker's 

Compensation Court can be summarized as follows: 

On August 16, 1985, Ms. McKinley's attorney Mr. 

Morales wrote to the State Fund, making a demand 
for payment of benefits for permanent partial 

disability totalling $57,400. 

On January 29, 1986, the State Fund wrote to Mr. 

Morales. The State Fund advised that because Ms. 

McKinley had returned to work, payments would begin 

at $113.07 per week under § 39-71-703, MCA, for the 

diminution of wages. The Fund also mentioned an 

impairment rating of 15% of the whole person and 

asked that Mr. Morales contact his client and 

advise whether she wanted benefits under § 703 or § 

705. The Fund pointed out that benefits under S 

705 would amount to $138.50 per week for not to 

exceed 75 weeks. 

On February 7, 1986, Mr. Morales wrote to the State 

Fund. He objected to changing the benefits from 

temporary total to permanent partial and made a 

demand for temporary total benefits. Also, demand 

was made for the payment of the minimum indemnity 

benefit based on the 15% impairment rating - 

$10,385.50 was recognized in the Fund letter. Mr. 

Morales suggested an agreement that Ms. McKinley 

was entitled to the maximum benefits of $138.50 for 

500 weeks for a total of $69,250. He asked for 

settlement on that amount. 

On February 27, 1986, the State Fund replied to Mr. 

Morales' letter of February 7 stating that it 

interpreted the letter to mean that Ms. McKinley 

would like to have benefits paid under § 705. 

Therefore, 14 days from the date of the letter wage 

loss benefits under 5 703 would be discontinued and 

one month after that, under 5 709 the State Fund 

would begin payment of "the undisputed liability 

resulting from the impairment rating." (Note that 

this in fact is what the Fund did in its April 28 

letter.) The State Fund also advised that it did 

not believe that Ms. McKinley was entitled to 500 

weeks at $138.50 as its calculations showed that 

even if she were to receive a 5% pay increase each 

year for the past 2 years she would not qualify for 

the $138.50. Finally, the Fund noted that Mr. 

Morales originally had requested settlement for 

$57,400. The State Fund rejected that offer for 

lack of sufficient information and observed that 

the demand had gone up $12,000. 
On March 4, 1986, Mr. Morales wrote to the State 

Fund. Mr. Morales outlined his theory of loss of 

earning capacity at 75 weeks at $138.50 per week 

plus 425 weeks at $137.33 or a total of $68,762.67. 

He then indicated his client was willing to accept 

the foregoing in full compensation of the permanent 

partial disability benefits. 

On March 21, 1986, the State Fund wrote to Mr. 

Morales. This letter contained the words, "our 

offer of settlement on this case is $36,927.80." 

The next paragraph described how the client was 

entitled to 70 weeks of partial benefits at $138.50 

per week for a total of $9,695. The next paragraph 

pointed out that the loss of hourly wages translates to $129.68 per week under § 703 so that for 

the remaining 210 weeks, she would be entitled to 

$27,232.80. These two figures together of course 

total the offer of settlement of $36,927.80. 

On April 28, 1986, the State Fund wrote to Mr. 

Morales. In this letter, the State Fund mentioned 

that Ms. McKinley was to receive benefits for 70 

weeks at $138.50 per week payable biweekly from 

April 1, 1986, which was the date of her first 

entitlement to indemnity benefits under 705. 

They also advised that 3 weeks had passed so she 

was entitled to a $415.50 lump sum payment. In 

addition the Fund stated that if Ms. McKinley 

needed a lump sum payment of future benefits she 

should contact the claims examiner. 

The claim before the Workers' Compensation Court was filed on 

March 27, 1986. Prior to the trial before the Workers' 

Compensation Court, on August 27, 1986, the attorney for the 

State Fund wrote a letter to Ms. McKinley's attorney offering 

settlement in the amount of $40,940. 

The lower court found that the first "offer" - the offer 

that precipitated the dispute - was the January 1986 reduction of Ms. McKinley's benefits from a temporary total rate 

to a permanent partial rate. However, it found that the 

duration of benefits in this offer was unclear. It then 

found that a $36,927.80 offer was extended in the March 21, 
1986, letter but was withdrawn in the April 28, 1986 letter, 

bringing the parties back to 70 weeks at $138.50, or $9,695. 

The court determined that "a reasonable attorney fee in this 

matter should be based on the difference between the amount 

awarded and the first firm, specific and determinable offer 

made by the defendant," that is, $9,695. 

Factually we conclude that as of March 21, 1986, the 

State Fund had made an offer of settlement in the amount of 

$36,927.80 and there was a specific breakdown on a weekly 

basis as to the computation of that amount. We disagree with 

the lower court's conclusion that this offer was withdrawn in 

the April 28 letter. In Holton v. F.H. Stoltze Land & Lumber 

Co. (Mont. 1981), 637 P.2d 10, 38 St.Rep. 1835, this Court 

held that an insurer has a duty to promptly pay any undisputed compensation, refusal of which triggers penalties. In 

this case, as of January 1986, the State Fund had acknowledged liability for disability benefits under $ 39-71-705, 

MCA, of $138.50 per week for not to exceed 75 weeks. We 

conclude that the April 28, 1986, letter sets forth Ms. 

McKinley's Holton benefits. There simply is no factual basis 

for the conclusion that the March 21 offer was withdrawn. 

The letter makes no mention of the March 21 offer of 

$36,927.80, and we conclude that it does not constitute a 

withdrawal of that offer. 

The State Fund argues that the August 27, 1986, offer by 

its attorney should be compared with the final offer to 

determine attorney fees. It cites Lasar v. Oftedal & Sons 

(Mont. 1986), 721 P.2d 352, 43 St.Rep. 1938. In that case, 

this Court held that there were two conditions to an award of 

attorney fees under $ 39-71-612, MCA (1983) : the amount of 

attorney fees must be in controversy, and the amount awarded 

must exceed the amount paid or tendered. Lasar, 721 P.2d at 

354. This Court refused to award attorney fees in that case 
because three weeks prior to trial, the insurer had conceded 

the total amount of compensation due. Thus the first re-- 

quirement for application of the statute was not met. In 

contrast, the amount of compensation in the present case 

remained in controversy through the trial. 

Here, following the State Fund's offer of $36,927.80, 

the petition was filed in the Workers' Compensation Court in 

March 1986. In June, July, and August the parties engaged in 

discovery including depositions and written interrogatories, 

and hearing was set for September 2. The letter in which the 

offer of $40,940 was made is dated August 27, 1986, one day 

before the pretrial conference and less than a week before 

the scheduled hearing date. The statute does not clarify 

whether the "amount tendered or paid" could refer to this 

late offer. We conclude, however, that use of the 

eve-of-trial $40,940 figure would not result in a "reasonable 

attorney fee" under the facts of this case. In this case, we 

conclude that the "reasonable attorney fee" under 

5 39-71-612, MCA (1983), is computed using the difference 

between the amount awarded and the $36,927.80 offer made 

preceding the filing of the petition. 

Ms. McKinley's counsel has briefed the issues of whether 

he was erroneously denied a lump sum award of his fees and 

whether he is entitled to interest on his fees. However, he 

has not raised- these issues properly by filing a 

cross-appeal. Therefore we will not consider these issues, 

and the lower court's ruling will stand that attorney fees 

will be paid on a weekly basis as Ms. McKinley's benefits are 

paid. 

Ms. McKinley's counsel also points out that his fee 

agreement with Ms. McKinley entitles him to an increase in 

attorney fees because this case has been appealed. The fee 

agreement provides that he will recei1.e 40% of compensation 
payments if the case is appealed to this Court. Because it 

was, the Workers' Compensation Court may increase his attorney fee to be paid by the State Fund to 40% of the difference 

between the amount awarded and the $36,927.80 tendered. We 

remand this action to the Workers' Compensation Court for 

entry of an order for attorney fees consistant with this 

opinion. 

We Concur: H 

d 

Chief Justice 

Justices 
Mr. Justice William E. Hunt, Sr., dissenting: 

I concur with the majority's opinion that a lump-sum fee 

should not be awarded in this case for the reason that 

respondent did not raise this issue properly in a 

cross-appeal. 

I dissent, however, with the majority's disregard of the 

Workers' Compensation Court's finding that the original offer 

is $36,000 even though the Workers' Compensation judge found 

it had been withdrawn and replaced by one for $9,000. It is 

up to the fact finder to determine what offer or tender is to 

be used under § 39-71-612, MCA. In this case the Workers' 

Compensation Court found the "floor" to be the offer 

contained in the March 28 letter. That offer was $9,000 

finding of the "first, firm, specific and determinable offer" 

seems to me to be a proper criteria of a floor. Where there 

is a genuine offer, that is later withdrawn and replaced by a 

lesser offer, attorney fees cannot be defeated when, through 

the efforts of the attorney, the claimant recovers a greater 

amount than claimant would have received without the help of 

the attorney. 

By its decision, the majority ignores that the purpose 

of the Workers' Compensation Act is to provide for the worker 

injured on the job who cannot provide for himself; it also 

ignores that 39-71-104, MCA, which requires liberal 

construction of these statutes by the courts, was still in 

effect at the time of McKinley's injury and is still 

applicable to this case. 

/- 

join the dissent o f Mr. Justi 

Justice