No. 87-364 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1988 

DAVID E. REISER, 

Claimant and Respondent, 

-vsCARDINAL DRILLING COMPANY, 

Employer and HOME INDEMNITY COMPANY, 

Petitioner and Respondent, 

and 

STATE COMPENSATION INSURANCE FUND, 

Defendant and Appellant. 

APPEAL FROM: The Workers Compensation Court, The Honorable Timothy 

Reardon, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Charles Adams, Helena, Montana 

For Respondent : 

Ugrin, Alexander, Zadick & Slovak; Gary M. Zadick, 

Great Falls, Montana 

Jardine, Stephenson, Blewett & Weaver; James E. Aiken, 

Great Falls, Montana 

Veeder, Broeder & Michelotti; Robert J. Waller, 

Billings, Montana 

Submitted on Briefs: Dec. 3, 1987 

Decided: February 11, 1988 

Filed: FEB 11 
Mr. Justice Fred J. Weber delivered the Opinion of 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 of Mr. 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 judgment was 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 never provided notice of cancellation to the division of 

workers1 compensation pursuant to 5 39-71-2205, MCA. 

Beginning September 11, 1984, Cardinal Drilling Company 

(Cardinal) had workers1 compensation coverage with 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 

Cardinal phoned State Fund to notify it of the fatal accident 

and to inquire about coverage. He spoke with an 
administrative clerk at State Fund, but she could not find 

the Cardinal application. She later testified that due to a 

three-month backlog, the application had not been 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 this binder of coverage. 

Therefore, Cardinal assumed that coverage existed. 

Soon after this conversation, the administrative clerk 

called the brokerage firm in Denver. She informed an account 

assistant there that new 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 coverage was effective that date. 

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 filed with 

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 the Workers1 Compensation Court err in not considering State Fund's right to approve or reject an application 

for insurance coverage? 

Section 39-71-2303, MCA, provides in part: 
The division shall prescribe the procedure by which 

employers may elect to be bound by compensation 

plan No. 3, the effective time of such election, 

and the manner in which 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 COVERAGE UNDER PLAN THREE (1) An employer may request coverage with the State Compensation 

Insurance Fund either by mail, phone, or in person. 

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 this rule 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 

coverage by 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 requirements are met: 

(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 15 days after the date the State Fund 

mails - application forms to the employer. 

(b) Payment in full of 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 15 days after the billing 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 person may have coverage effective at 12:Ol a.m. 
the day following delivery, 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 form which Cardinal initially mailed 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 is bound retroactively to the date 

on which the obsolete application was received by State Fund. 

The employee gave no indication that State Fund denies coverage simply because an obsolete form is mailed 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 "Formerly Form 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 receipt by State Fund, 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 application and, 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 its 
assertion 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 form which 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 forms but 

does require new forms be resubmitted. Cardinal properly 

complied with this requirement on November 7, 1985. The fact 

that six entities were combined on one form also was 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 form was 

not marked by State Fund as "approved" this fact does not 

convince us that coverage was "rejected". The forms currently used by State Fund contain no such box or other space for 

distinguishing an application "approved" from one "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 coverage was 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 7 phone call from 

Cardinal to State Fund. The Workers' Compensation Court 

addressed this issue adequately in its conclusions of law: 
[Tlhe State Fund 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 application and 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 ineffective and the new 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 that Home'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 

cancellation may 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 

insurance policy issued to the insured. Nothing in 
this section prevents an insurer from canceling a 

policy of workers' compensation insurance before a 

replacement policy 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 same date, 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: