### No. 85-31 INTHE SUPREME COURT OF THE STATE OF MONTANA

WAYNE S. HALL, Petitionerand Appellant,

STATE COMPENSATION INSURANCE FUND, DIVISION OF WORKERS' COMPENSATION, Respondentand Respondent.

APPEAL FROM: Workers' CompensationCourt,The Honorable Timothy Reardon,Judgepresiding.

COUNSELOF RECORD:

ForAppellant: 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 decisionwas correct. On December 24, 1984, theWorkers' 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 Sonswas enrolled under Plan 3 of the Workers' Compensation Act, and the State Compensation InsuranceFund 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 impairmentswould 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 claimwas valued in excess of $40,000.00 but that the $25,000.00 settlement atpolicy limitswas all thatwas 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 re1ied on this Court

## 's 

### decision in Brandner v. Travelers Insurance Company (1978)

## , 179 Mont. 208, 

### 587 P.2d 933. This reliance ismisplaced 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 tosubrogation. In the case atbar, 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 thetortfeasor's insurancepolicy, $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), 172Mont. 521, 565 P.2d 628, tobe 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 

### limitof theirinsurancepolicy, then sued third-party tortfeasors

## , seeking the tota1 amount of their loss. In addressing an issue regarding the subrogationrightsof 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 forhisentire loss and any costs of recovery, including attorney's fees, before the insurer can assert 

### its right of lega1 subrogation against the insured orthetort-feasor." Skauge, 172 Mont. at528, 565 P.2d at632. Applying thisprinciple tothe factsnow 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 employerwho hired him if such immediate employer provides coverage under the Workmen's Compensation Laws of this state

# ..

# ." This sectionwas 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 rightswhen the claimant has not achieved full legal redresswould 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

### JusticesMr. JusticeFred J. Weber dissents asfollows: 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 thatthe StateFund 

### isnot entitledtoany subroqation interest inthe $25,000 settlementproceeds until the claimant has been made whole forhisentire lossincluding 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 statedinSkauqe: 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 theTort-feasor 

### is 

### less than the total loss and thus either the 

### Insured or the Insurer must tosome extent go unpaid, the loss should be borne by 

## -- the insurer for that 

### is a rzkthe

# in------- sured 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, 172Mont. at528, 565 P.2d at632. 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, thedoctrine of legal subrogation 

### is shown inSkauge tohave arisen in equity and 

### is applied in order todo equitybetween 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 tothe insurance company.Inthiscase, therightof subrogation 

### isnotbased 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

### isentitled

### to subrogation for all compensation and benefits paid 

### or to be paid under the Workers' Compensation Act. The insurer's rightof subrogation 

### is a firstlienon the claim, judgment, or recovery. This Courthaspreviouslypointed outthatthepurpose 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 forwrongful 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. 1therefore conclude that Skauge 

### is not authority for limiting the subrogation right granted to the StateFund. I also disagree with the majority conclusion that Brandner v. Travelers Ins. Co. (1978), 179 Mont. 208, 587 P.2d 933, 

### iseasilydistinguishable from thecase atbar. As I read that opinion, I conclude that theWorkers' Compensation Court was correct inholding thatRrandner required the decision which 

### it reached. The majority opinion concludes that inBrandner 

### we found that claimant was made whole by a voluntary settlement in satisfaction of allclaims, and that sinceclaimanthad obtained full legal redress, 

### it was appropriate 

### to allow subrogation. With regard towhether ornot claimant inBrandnerwas made whole, thisCourt stated:



# .

# .. In this case, 

### it cannot now be determined whether the claimant has sustained a loss in 

### excess of therecovery made against Burlington Northern, Inc. That 

### will only be determined in the future. In the meantime, to the extent that 

### it hasmade 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 farasWork

### ers' Compensation payments areconcerned, 

### is that claimant has been made whole to date and the continuinu liability for payments under the actasagainst Travel

### ers has assured that claimant 

### will continuetobe made whole. Hewill 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, thatclaimanthas notbeen made whole for his Workers

## ' Compensation in jury, when he, by his own voluntary action, has finally compromised his claim in full against thethird-party tortfeasor. Rrandner, 179 Mont. at215-16, 587 P.2d at938. 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 thethird-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 inWhite did not hold thattheright tofull 

### legal redress 

### is

an independent, fundamental right entitledto

### 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 tortclaimant. The challenged statute, S; 

### 2-9-104, MCA (1981)

## ,barred recovery of non-economic damages from the State and limited recovery ofeconomic damages to$300,000 foreach claimant and $1,000,000 foreach occurrence. While there 

### is broad language inWhite which does indicate that allpersons have a speedy remedy for every injury, I would 

### limit the holding of that case to the issue before the Court. The holdingby themajority of the Court was that 

### 5 2-9-104, MCA, violated the constitutional guarantee of a remedy for every injury. White, 661 P.2d at1275, 40 St.Rep. at510. That holding alone 

### isnot 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 theWorkers' Compensation Act. That exception 

### isdirectly applicable to the present case. I disagree with the conclusion that allowing State Fund subrogation rights would be an unconstitutiona1application of the statute. I would affirm the Order and Judgment of the Workers' Compensation Court.

concur the foreg