No. 85-31 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

WAYNE S. HALL, 

Petitioner and Appellant, 

STATE COMPENSATION INSURANCE 

FUND, DIVISION OF WORKERS' 

COMPENSATION, 

Respondent and Respondent. 

APPEAL FROM: Workers' Compensation Court, The Honorable 

Timothy Reardon, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Hash, Jellison, O'Brien & Bartlett; Kenneth E. O'Brien 

argued, Kalispell, Montana 

For Respondent : 

Garlington, Lohn & Robinson; Bradley J. Luck argued, 

Missoula, Montana 

Submitted: July 2, 1985 

Decided: October 3, 1985 

Clerk 
Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of 

the Court. 

Wayne S. Hall, appellant, requested the State Compensation Insurance Fund to waive any subrogation interest i.t 

might have in a third-party claim filed by Hall and to redetermine Ha11 ' s permanent partial impairment rating. The 

State Fund refused both requests. Hall petitioned the Division of Workers' Compensation to review the State Fund's 

decision. On March 23, 1984, the Division determined that 

the State Fund's decision was correct. On December 24, 1984, 

the Workers' Compensation Court also affirmed the State Fund. 

Hall now appeals to this Court. We reverse. 

This cause was submitted to the Workers' Compensation 

Court and to this Court on the following agreed statement of 

facts: 

"1. Wayne S. Hall was injured within the 

scope and course of his employment for 

Karl Weissman and Sons on August 6, 1982. 

At the time of the Petitioner's injury, 

Karl Weissman and Sons was enrolled under 

Plan 3 of the Workers' Compensation Act, 

and the State Compensation Insurance Fund 

was its compensation carrier. 

"2. Respondent accepted liability for 

the Claimant's injury and paid medical 

benefits of $2,260.01 and acknowledged 

liability for an indemnity permanent 

partial disability award of $11,835.00. 

The 'Guide to Evaluation of Permanent 

Impairment' published by the American 

Medical Association was utilized by the 

Compensation Insurance Fund in computing 

the indemnity for permanent partial 

disability. Utilizing this guide, the 

following evaluation was made: (a) 15% 

upper arm impairment = 9% of the whole 

man; (b) 25% of lower leg impairment = 

10% of the whole man; then utilizing the 

AM! Guide, the combination of those two 

impairments would equal 18% of the whole 

man. This resulted in a computation of 

90 weeks of compensation at $131.50 a 

week for a total of $11,835.00. 

"3. The preface of the AMA Guide published in 1971 contains the following 

language: 'After values of all impairments involved have been computed and 
transposed to a common denominator, the 

final impairment value, whether the 

result of a single or combined impairments, should be expressed in terms of 

the nearest 5%. ' The Claimant requested 

that these guidelines be followed and 

that his permanent partial impairment be 

set at 20% rather than 18%, and the State 

Fund declined to make the adjustment. 

"4. The Claimant pursued a third party 

claim as the result of the injury, and 

the State Fund declined to participate. 

The Claimant settled the third party 

claim for the sum of $25,000.00. This 

represented the insurance policy limits 

of the third party tort-feasor. The 

Claimant's expenses, costs and attorneys' 

fees for the third party action amounted 

to the sum of $6,259.00. The Respondent 

claimed a subrogation interest of 

$7,048.00 and subtracted that amount from 

the indemnity award at the time of payment. The Claimant contended that the 

Respondent was not entitled to subrogation. The Claimant contended that his 

third party claim was valued in excess of 

$40,000.00 but that the $25,000.00 settlement at policy limits was all that was 

available. On March 23, 1984, the Division of Workers1 Compensation conducted 

an administrative review of the matter 

and determined that the claimed subrogation interest of the Respondent was 

appropriate." 

Prior to oral argument, the parties settled the impairment rating issue. The remaining issue to be determined is: 

If the value of the claimant's total 

damage for the personal injuries he 

sustained exceeded $40,000, and the 

$25,000 insurance coverage constituted 

the only source of funds to liquidate 

such damage, was the respondent entitled 

to a subrogation interest in the $25,000 

settlement proceeds of the third-party 

claim? 

In answering this question affirmatively, the Workers' 

Compensation judge re1 ied on this Court ' s decision in 

Brandner v. Travelers Insurance Company (1978) , 179 Mont. 

208, 587 P.2d 933. This reliance is misplaced as Brandner is 

easily distinguishable from the case at bar. In Brandner, 

the claimant settled with the third party, BurlingtonNorthern, for $70,000, an amount not dictated by the upper 
limits of any insurance policy. We found that claimant was 

made whole by a voluntary settlement in satisfaction of all. 

claims. The defendant, Burlington Northern Railroad, had no 

limited liability. Since claimant had obtained full legal 

redress, we held that claimant's employer' s insurer was 

entitled to subrogation. 

In the case at bar, however, claimant reached a settlement with the third-party tortfeasor which did not afford 

full legal redress. The settlement was for the upper limit 

of the tortfeasor's insurance policy, $25,000. If claimant's 

damages exceed $40,000, claimant's settlement, together with 

the Workers' Compensation award, does not fully compensate 

claimant. Under these circumstances, we find our decision in 

Skauge v. Mountain States Telephone and Telegraph Company 

(1977), 172 Mont. 521, 565 P.2d 628, to be relevant. 

In Skauge, claimants' rented home was destroyed by an 

explosion. Their personal belongings were insured for 

$4,000. The actual value of the property was over $11,000. 

Claimants recovered the upper limit of their insurance policy, then sued third-party tortfeasors , seeking the tota 1 

amount of their loss. In addressing an issue regarding the 

subrogation rights of the insurer, we stated that: 

". . . when the insured has sustained a 

loss in excess of the reimbursement by 

the insurer, the insured is entitled to 

be made whole for his entire loss and any 

costs of recovery, including attorney's 

fees, before the insurer can assert its 

right of lega 1 subrogation against the 

insured or the tort-feasor." Skauge, 172 

Mont. at 528, 565 P.2d at 632. 

Applying this principle to the facts now before us, the State 

Fund is not entitled to any subrogation interest in the 

$25,000 settlement proceeds as claimant has not been made 

whole. 
Furthermore, 1972 Mont. Const., art. 11, S 16, provides 

in pertinent part: 

"No person shall be deprived ofkhis 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 . . ." 

This section was interpreted in White v. State (Mont. 1983) , 

661 P.2d 1272, 40 St.Rep. 507, as creating a fundamental 

right to full legal redress. Thus, to interpret the Workers' 

Compensation Act's subrogation statute, § 39-71-414, MCA, to 

allow the State Fund subrogation rights when the claimant has 

not achieved full legal redress would be an unconstitutional 

application of an otherwise constitutional statute. (See 

Brandner, 179 Mont. at 211-214, 587 P.2d at 936 - 937, for a 

discussion of the constitutionality of S 39-71-414, MCA.) 

We hold that, in a case of reasonably clear liability, 

where a claimant is forced to settle for the limits of an 

insurance policy which, together with claimant's workers' 

compensation award, do not grant full legal redress to claimant, the insurer is not entitled to subrogation rights under 

S 39-71-414, MCA. When claimant is made whole, subrogation 

begins. 

Reversed. 

We concur: 

Chief Justice 
Justices 
Mr. Justice Fred J. Weber dissents as follows: 

I respectfully dissent from the majority opinion. The 

majority relies upon Skauge v. Mountain States Tel. & Tel. 

Co. (1977) , 172 Kont. 521, 565 P. 2d 628, for its conclusion 

that the State Fund is not entitled to any subroqation interest in the $25,000 settlement proceeds until the claimant has 

been made whole for his entire loss including attorneys fees. 

While it is true that such. a theory was found to apply in 

Skauge, a case involving an insured and his own insurance 

company, the rationale does not apply to the present case. 

As we stated in Skauqe: 

The basic rationale for this rule, in 

either of the two categories, is best 

stated in St. Paul Fire & Marine Ins. Co. ---- -- 

- v. W. P. Rose Supply Co., supra, 198 

S.E.T~ at484: 

"* * * When the sum recovered by the 

Insured from the Tort-feasor is less than 

the total loss and thus either the Insured or the Insurer must to some extent 

go unpaid, -- the loss should be borne by 

the insurer ------- for that is a rzk the insured - has paid -- it to assume." (Emphasis 

supplied.) 

Again we note, the doctrine of legal 

subrogation is applied to subserve the 

ends of justice and to do equity in the 

particular case under consideration. 

Skauge, 172 Mont. at 528, 565 P.2d at 632. Skauge held that 

the loss should be borne by the insurance company because 

that is a risk which the insured has paid the company to 

assume. That is not the factual situation in the present 

case where it is the employer who has paid the premium for 

workers' compensation coverage. In addition, the doctrine of 

legal subrogation is shown in Skauge to have arisen in equity 

and is applied in order to do equity between the insured and 

his own insurance company. Again, that legal theory is not 

applicable in the present case where the insured worker has 

paid nothing to the insurance company. 
In this case, the right of subrogation is not based upon 

an insurance contract between the parties or upon a legal 

theory of subrogation involving an insurance company and its 

insured, as was the case in Skauge. Instead, it is based 

upon 5 39-71-414 (1) , MCA, which in pertinent part states: 

Jf an action is prosecuted as provided 

. . . the insurer is entitled to subrogation for all compensation and benefits 

paid or to be paid under the Workers' 

Compensation Act. The insurer's right of 

subrogation is a first lien on the claim, 

judgment, or recovery. 

This Court has previously pointed out that the purpose of the 

subrogation provision is to compensate an employer and his 

insurer to some extent for the additional liability which 

they assume under the Workers' Compensation Act for wrongful 

acts of independent third parties. See Tuttle v. 

Morrison-Knudsen Co., Inc. (1978), 177 Mont. 166, 580 P.2d 

1379; Fisher v. Missoula White Pine Sash Co. (1974), 164 

Nont. 41, 518 P.2d 795. 1 therefore conclude that Skauge is 

not authority for limiting the subrogation right granted to 

the State Fund. 

I also disagree with the majority conclusion that 

Brandner v. Travelers Ins. Co. (1978), 179 Mont. 208, 587 

P.2d 933, is easily distinguishable from the case at bar. As 

I read that opinion, I conclude that the Workers' Compensation Court was correct in holding that Rrandner required the 

decision which it reached. The majority opinion concludes 

that in Brandner we found that claimant was made whole by a 

voluntary settlement in satisfaction of all claims, and that 

since claimant had obtained full legal redress, it was appropriate to allow subrogation. With regard to whether or not 

claimant in Brandner was made whole, this Court stated: 

. . . In this case, it cannot now be 

determined whether the claimant has 

sustained a loss in excess of the 
recovery made against Burlington Northern, Inc. That will only be determined 

in the future. In the meantime, to the 

extent that it has made payments, or will 

make payments in the future, Travelers' 

subrogation rights are reduced to fifty 

percent under the statute. Travelers ' 

recovery may never exceed fifty percent 

of the amount for which it is liable 

under the Workers' Compensation Act. 

The truth of the matter, as far as Workers' Compensation payments are concerned, 

is that claimant has been made whole to 

date and the continuinu liability for 

payments under the act as against Travelers has assured that claimant will continue to be made whole. He will not lose 

any benefits under Workers' Compensation 

Act by virtue of the recovery, but in 

essence will recover his benefits under 

the Act, and fifty percent more. It 

cannot logically be contended therefore, 

that claimant has not been made whole for 

his Workers ' Compensation in jury, when 

he, by his own voluntary action, has 

finally compromised his claim in full 

against the third-party tortfeasor. 

Rrandner, 179 Mont. at 215-16, 587 P.2d at 938. In essence, 

Brandner holds that by virtue of the workers' compensation 

payments, claimant was made whole and would continue to be 

made whole because he received his full benefits plus 50 

percent of the amount recovered from the third-party. 

The majority relies upon White v. State (Mont. J.983), 

661 P.2d 1272, 40 St-Rep. 507, for the conclusion that it 

would be an unconstitutional application of the statute to 

allow the State Fund subrogation rights because of the 

claimed fundamental right of full legal redress. Our opinion 

in White did not hold that the right to full legal redress is 

an independent, fundamental right entitled to strict scrutiny 

in every instance, including workers' compensation cases. 

The issue before the Court in White was sovereign irnrnunj-ty 

from suit for non-economic damages of a tort claimant. The 

challenged statute, S; 2-9-104, MCA (1981) , barred recovery of 

non-economic damages from the State and limited recovery of 
economic damages to $300,000 for each claimant and $1,000,000 

for each occurrence. 

While there is broad language in White which does indicate that all persons have a speedy remedy for every injury, 

I would limit the holding of that case to the issue before 

the Court. The holding by the majority of the Court was that 

5 2-9-104, MCA, violated the constitutional guarantee of a 

remedy for every injury. White, 661 P.2d at 1275, 40 St.Rep. 

at 510. That holding alone is not authority for a conclusion 

that all persons in all circumstances necessarily have a 

fundamental right to full legal redress. Article 11, S 16 of 

the Montana Constitution illustrates why that broad conclusion is not appropriate. While it is true that the initial 

portion of S 16 states that no person shall be deprived of 

his full legal redress, it is immediately followed by an 

exception for employers who provide coverage under the Workers' Compensation Act. That exception is directly applicable 

to the present case. I disagree with the conclusion that 

allowing State Fund subrogation rights would be an unconstitutiona 1 application of the statute. 

I would affirm the Order and Judgment of the Workers' 

Compensation Court. 

concur the foreg