No. 87-364

INTHE SUPREME COURTOF THE STATEOF MONTANA
1988

DAVID E. REISER, Claimantand Respondent,-vsCARDINALDRILLINGCOMPANY, Employer and HOME INDEMNITY COMPANY, Petitioner and Respondent, and STATE COMPENSATION INSURANCEFUND, DefendantandAppellant.

APPEAL FROM: TheWorkers Compensation Court, The Honorable Timothy Reardon,Judgepresiding.
COUNSELOF RECORD:

ForAppellant:
CharlesAdams, Helena,Montana For Respondent: Ugrin, Alexander, Zadick & Slovak;Gary M. Zadick, Great Falls,Montana Jardine, Stephenson,Blewett & Weaver; JamesE. Aiken, Great Falls,Montana Veeder,Broeder & Michelotti; RobertJ. Waller, Billings,Montana

Submitted on Briefs: Dec. 3, 1987 Decided: February 11, 1988
Filed:

## FEB11Mr. JusticeFred J. Weber delivered the Opinionof the Court.

The State Compensation Insurance Fund (State Fund) appeals the judgment of the Workers' Compensation Court that State Fund was the insurer on risk for the claim brought on behalf ofMr. Reiser. We affirm. The issue is whether the court erred in finding that State Fund was on risk for workers' compensation coverage on October 6, 1985. State Fund asserts the judgmentwas wrong for two reasons: 1. The court did not take into consideration State Fund's right to approve or reject an application for insurance coverage; 2. The court found that coverage with Home Indemnity Company (Home) terminated on September 13, 1985, although Home neverprovided notice of cancellationto the division of workers1compensationpursuant to 

### 5 39-71-2205,MCA. Beginning September 11, 1984, Cardinal Drilling Company (Cardinal)had workers1compensation coveragewith Home. The next year, Home notified Cardinal that the policy would not be renewed beyond September 11, 1985. Home did not provide written notification to the division of workers' compensation that the policy was cancelled, as required by 

### 5 39-71-2205, MCA. Cardinal, through a Denver brokerage firm, applied for coverage with State Fund in September 1985. On October 6, Mr. Reiser was fatally injured while employed by Cardinal. State Fund and Home have stipulated that Cardinal had workers' compensation coverage, leaving only the issue of which company is the insurer. On October 7, the vice president of administration for Cardinalphoned State Fund to notify it of the fatal accident and to inquire about coverage. He spoke with anadministrative clerk at State Fund, but she could not find the Cardinal application. She later testified that due to a three-month backlog, the applicationhad notbeen reviewed by her office until the October 7 call by Cardinal. The application had been stamped as received by the State Fund on September 13, 1985. The administrative clerk noted that the application submitted by Cardinal's broker was obsolete. At the same time, she told him over the phone that coverage was bound as of September 13, 1985, the day State Fund received the first application. The clerk, testifying by deposition, stated that State Fund never revoked thisbinder of coverage. Therefore, Cardinal assumed that coverage existed. Soon after this conversation, the administrative clerk called the brokerage firm inDenver. She informed an account assistant there thatnew applications would have to be resubmitted for each of the six companies listed on the original application. The brokerage firm received the new applications on October 14 and did not fill them out until November 5. State Fund received them on November 7 and notified Cardinal that coveragewas effective thatdate. On December 31, 1985, State Fund agreed to pay benefits without accepting liability. On February 28, 1986, the division ordered Home to pay benefits. Home then filedwith the Workers' Compensation Court a petition to determine insurer. In its June 26, 1987, judgment the court concluded that State Fund was the insurer on risk on October 6, 1985, the date of the fatality. I Did theWorkers1Compensation Court err innot considering State Fund's right to approve or reject an application for insurance coverage? Section 39-71-2303,MCA,provides inpart:The division shall prescribe the procedureby which employers may elect to be bound by compensation plan No. 3, the effective time of such election, and themanner inwhich such election is terminated for reasons other than default in payment of premiums.

Pursuant to this section and § 39-71-203,MCA, the division adopted 

### 5 24.29.3501, ARM,which reads as follows:

ELECTING COVERAGEUNDER PLANTHREE (1) An employer may request coverage with the State Compensation InsuranceFund eitherbymail, phone,or inperson. Coverage will not be extended to any employer having a delinquent account. In all cases, coverage is subject to the approval of the State Fund. Coverage obtained pursuant to thisrule will extend only to those employments not listed in Section 39-71-401, MCA, unless the procedures in rule 24.29.3502 ARM are followed. (2) By phone. An employer who requests coverageby telephoning Policy Services (Underwriting)

## , State Fund, at headquarters in Helena,Montana,may have coverage effective at 12:01 a.m. on the day following the telephone request, provided the following requirementsaremet: (a) A completed State Fund application, form 210, is received by the State Fund within 15 days after the telephoned request, or, if the employer requests the State Fund to supply application forms,within 

### 15days after the date the State Fund mails-application forms to the employer. (b) Payment in fullof the initial deposit is received within 15 days after the billing date shown on the statement for initial deposit, form 403. (3) By mail. An employer who mails a completed application, form 210, to the State Fund, may have coverage effective as of the date the application form is received at the office of the State Fund in Helena, Montana, provided the State Fund receives payment, in full, of the initial deposit within 15days after thebilling date shown on the statement for initial deposit, form 403. 

### (4) In person. An employer who delivers a completed application, form 210, to the State Fund in personmay have coverage effective at 12:Ol a.m.theday followingdelivery,provided the State Fund receives payment, in full, of the initial deposit within 15 days after the billing date shown on the statement for initial deposit, form 403.
On September 13, 1985, State Fund received in the mail Cardinal's application for coverage; thus the procedure of subsection (3) as recited above applies to this situation. State Fund does not contest that the initial deposit was received within 15 days of the billing date. However, the application formwhich Cardinal initiallymailed was not form 210 as required by the regulation. The State Fund administrative clerk testified that when an obsolete application form is received, new forms are sent to the applicant for resubmission,and coverage isbound retroactivelyto the date on which the obsolete applicationwas received by State Fund. The employee gave no indication that State Fund denies coverage simply because an obsolete form ismailed by the applicant. Three factors apparent from the record support this practice. Although the regulation requires that the employer mail "a completed application form 210,'' form 210 is an obsolete form. The form eventually accepted by State Fund.

was form PF lOOA "FormerlyForm 210". Additionally, the form submitted initially by Cardinal and the form eventually accepted contained substantially the same information. Also, unless applications were accepted and coverage backdated to the date of receiptby StateFund, employers could go as long

as 3 months without coverage due to the backlog at State Fund. Yet State Fund argues that it did not approve the obsolete applicationand, therefore,did not approve coverage for September 13. State Fund bases its position on a sentence found in subsection (1)

### of the regulation: 

### "In all cases, coverage is subject to the approval of the State Fund.

### " State Fund argues that three facts support itsassertion that "[c]learly coverage pursuant to this application was not approved": 1) the application of September 13

was an obsolete form; 2) six entities were combined on one form; 3) a box on the initial formwhich read "approved for coverage

# ..."was not marked by State Fund. We have already discussed the first two of these facts. State Fund regularly accepts coverage upon receipt of obsolete formsbut does require new forms be resubmitted. Cardinal properly complied with thisrequirement on November 7, 1985. The fact that six entitieswere combined on one form alsowas corrected by resubmission of new forms, forms which contained substantially the same information with regard to Cardinal's coverage. Finally,although the box on the obsolete formwas not marked by State Fund as "approved" this fact does not convince us that coveragewas "rejected". The forms currently used by State Fund contain no suchbox or other space for distinguishingan application "approved"fromone "rejected". In making this technical argument, State Fund disregards the uncontroverted testimony of its employees which established that coverage was bound as of September 13, 1985, and never revoked. Without deciding whether State Fund has a valid right to approve or reject coverage,we conclude that Cardinal complied with 

### 5 24.29.3501(3), ARM,by mailing a completed application to State Fund and by delivering the initial deposit within 15 days after billing date. We also conclude that coveragewas bound and remained in effect as of September 13, 1985. State Fund next argues that the new forms should have been returned within 15 days of the October 7phone call from Cardinal to State Fund. The Workers' Compensation Court addressed this issue adequately in its conclusions of law:[TlheStateFund contends that, in some manner,Mr. Leonhardt's call to the State Fund on October 7, 1985, in effect transformed the employer's written application to a telephone applicationand subjected the employer to the 15-day limit of subsection

(2) of A.R.M. 24.29.3501. Since the employer did not return the correct application within 15 days, the Fund reasons that the initial coverage date of September 13, 1985, is ineffectiveand thenew date is the date of receipt. This reasoning cannot stand close scrutiny. First, it is obvious that,had the State Fund been current in the processing of their applications, this matter would have been resolved prior to the accident. However, since the Fund was some three months behind, Cardinal Drilling Company's written application languished until Mr. Leonhardt called on October 7, 1985, with notice of the tragic accident. What transpired, or what was said, in the phone conversations between Cardinal Drilling, the State Fund and the Fred 

### S. James brokerage house is immaterial to this matter. The crucial facts are that this was a written application and not subject to the 15-day return limit of a phone application.

We approve the court's reasoning and affirm the holding of the Workers' Compensation Court that State Fund had approved and bound coverage for Cardinal effective September 13, 1985.

Did the court err in finding thatHome's coverage terminated on September 13, 1985, although Home never provided notice of cancellation to the division pursuant to 39-71-2205, MCA? Section 39-71-2205, MCA, states in full the following:

The policy remains in effect until canceled, and cancellationmay take effect only by written notice to the named insured and to the division at least 20 days prior to the date of cancellation. However, the policy terminates on the effective date of a replacement or succeeding workers' compensation insurancepolicy issued to the insured. Nothing inthis section prevents an insurer from canceling a policy of workers' compensation insurance before a replacementpolicy is issued to the insured.

We have affirmed the court's conclusion that the effective date of the State Fund coverage was September 13, 1985. Consequently, pursuant to § 39-71-2205,MCA, the Home policy terminated that samedate, the effective date of the replacement or succeeding workers' compensation insurance policy. We affirm the holding of the court that Home's coverage terminated on September 13, 1985,the effective date of State Fund coverage. F7e hold that State Fund was the insurer on risk for Cardinal on October 6, 1985. Affirmed.

Ke dbncur: