Hayes v. Aetna Fire Underwriters

No. 14853

IN THE SUPREME COURT OF THE STATE OF MONTANA

1980

FRANCIS HAYES,

Plaintiff and Appellant,

AETNA FIRE UNDERWRITERS, a

corporation, and GEORGE WOOD,

d/b/a COMPENSATION ADJUSTERS, INC.,

Defendants and Respondents.

Appeal from: District Court of the Fourth Judicial District,

Honorable Jack L. Green, Judge presiding.

Counsel of Record:

For Appellant:

Hoyt, Trieweiler, Lewis & Regnier, Great Falls, Montana

John Hoyt argued, Great Falls, Montana

For Respondents:

Garlington, Lohn & Robinson, Missoula, Montana

Larry E. Riley argued, Missoula, Montana

Church, Harris and Johnson, Great Falls, Montana

Cresap S. McCracken argued, Great Falls, Montana

Submitted: January 15, 1980

Decided : MAR I E 1980

Filed: @AR 1? 198C

Mr. Justice Gene B. Daly delivered the Opinion of the Court.

This is an appeal from a judgment of dismissal of plain-

tiff's action from the District Court of the Fourth Judicial

District, in and for the County of Missoula.

Plaintiff was injured within the course and scope of his

employment with JMS Construction in an industrial accident that

occurred on October 23, 1975. Defendant Aetna was the Plan I1

carrier for JMS Construction. Aetna employed defendant Wood to

handle the adjusting of workers' compensation claims on its be-

half. Both defendants accepted plaintiff's workers' compensation

claim as compensable under the Workers' Compensation Act.

In January 1977, plaintiff filed a complaint against Aetna

and Wood in the District Court of the Fifteenth Judicial District,

in and for the County of Roosevelt, alleging tortious acts on the

part of Aetna and Wood with respect to the adjusting and handling

of his workers' compensation claim. Aetna and Wood appeared and

moved to dismiss. The Roosevelt County District Court granted the

motion to dismiss on May 12, 1977, determining that plaintiff first

had to establish his right to compensation before the Workers'

Compensation Court, which possessed exclusive jurisdiction.

Following the Roosevelt County District Court's dismissal,

plaintiff pursued his claim for workers' compensation benefits

before the Workers' Compensation Court, wherein he prevailed.

Aetna then appealed the Workers' Compensation decision to the

Montana Supreme Court. This Court affirmed the decision of the

Workers' Compensation Court. Hayes v. J.M.S. Const. (1978),

Mont . , 579 P.2d 1225, 35 St.Rep. 722.

Thereafter, plaintiff filed an amended complaint in Roose-

velt County District Court in July 1978, alleging that Aetna and

Wood had committed the intentional torts of fraud, conversion

and intentional infliction of emotional distress. Plaintiff also

alleged that Aetna and Wood had continuously refused to pay

compensation benefits and medical bills. Both Aetna and Wood

moved to dismiss in August 1978. On September 12, 1978, the

Roosevelt County District Court denied the motions of Aetna and

Wood to dismiss and ordered responsive pleadings.

The case was then transferred to Missoula County by

stipulation of counsel, together with a memorandum opinion issued

by the Honorable M. James Sorte, Judge of the District Court,

Fifteenth Judicial District, Roosevelt County. The pertinent

part reads:

"By reason of a stipulation filed by counsel,

this case is transferred to the jurisdiction of

Missoula County, Montana. However, there has been

filed in the case, Plaintiff's Reply to the Ob-

jections by Aetna,Fire Underwriters to Plaintiff's

Motion to Dismiss. The tenor of the reply is that

counsel for Plaintiff entered into a stipulation

that the matter could be transferred to Missoula

County but counsel for Defendants have raised

certain questions that have already been ruled

upon by this Court. It is the opinion of this Court

that the matters that have been briefed, considered

by the Court, and ruled upon, are the rule and law

of the case in this matter and that the District

Court of the Fourth Judicial District is and should

be bound by the rulings of this Court on all matters

that have been previously brought before the Court,

ruled upon, and are now final for those reasons.

To allow counsel to again raise the same questions as

have been ruled upon by this Court would do nothing

less than encourage counsel to shop around for a

different venue so that their position could be ruled

upon on several occasions. All of this is contrary

to the clear intent of our rules of procedure."

In disregard of Judge Sorte's Opinion, Wood and Aetna refiled

in the Missoula County District Court on February 28, 1979 and

March 13, 1979, respectively, motions which had been previously

ruled upon in Roosevelt County. Such refiling constitutes a

contempt. Sections3-1-502 and 503, MCA. On June 1, 1979, the

Missoula County District Court filed an order dismissing plaintiff's

complaint upon the grounds that the District Court lacked juris-

diction because exclusive jurisdiction rested with the Workers'

Compensation Court under section 92-204.1, R.C.M. 1947, and the

complaint failed to state a claim against the defendant upon which

relief could be granted.

Plaintiff now appeals from the judgment of the Missoula

County District Court granting the defendants' motions to dis-

miss.

The appellant in this case states the issue for review

by this Court as follows: whether a worker who sustains an in-

jury covered by the Workers' Compensation Act may assert in

District Court a separate claim for damages alleging that the

insurer and its adjustor committed intentional torts and acted

in bad faith in adjusting and processing the workers1 compensation

claim. Stated in another manner, is a complaint alleging that a

workers' compensation insurer and its adjustor committed the

intentional torts of fraud, conversation, and intentional inflic-

tion of emotional distress upon a workers' compensation claimant

within the exclusive subject matter jurisdiction of the Workers'

Compensation Court?

Respondent George Wood agrees with the issue as stated by

appellant. Respondent Aetna would like to confine the issue to

the question: can the injured workman have his cake and eat it

too?

We will accept the issues as formulated by appellant.

The dismissal by the Missoula District Court dated May 31,

1979, is with prejudice for lack of jurisdiction and exclusive

jurisdiction in the Workers' Compensation Court under section

92-204.1, R.C.M. 1947, and because the complaint fails to state a

claim against the defendant upon which relief can be granted.

It is a little difficult to agree or disagree with the

Missoula District Court because the presiding judge rendered no

opinion. We do not know if the court meant that under the exclu-

sivity provision of section 92-204.1, R.C.M. 1947, (now section

39-71-411, MCA) the Workers' Compensation Court has jurisdiction

to try willful torts not arising out of the actual employment or

that the pleading was such that it did not state a claim in any

court. In any case, the dismissal appears to be in direct con-

flict with the law of the case as established by the District

Court of the Fifteenth Judicial District, the court of original

jurisdiction.

We will not attempt to evaluate the merits of the dismissed

case by the manner in which it was pleaded, but rather try to eval-

uate it from the standpoint of the type of action at bar and its

genesis.

At the center of the dispute is the exclusivity provision

of the Montana Workers' Compensation Act, which is set forth in

section 39-71-411, MCA. That statute states:

"For all employments covered under the Workers'

Compensation Act or for which an election has

.

.

been made for coveraae under this chapter, the

provisions of this chapter are exclusive. Ex-

c e ~ t ~rovidedin part 5 of this chapter for

as

unlnsureh employers and except as othekwise

provided in the Workers' Compensation Act, -

an

employer is not subject to any liability what-

. .

ever for the death of or personal injury to an

em~loveecovered bv the Workers' Compensation

A C ~ for any claims for contribution or in-

o;

demnity asserted by a third person from whom

damages are sought on account of such injuries

or death. The Workers' Compensation Act binds

the employee himself, and in case of death binds

his personal representative and all persons hav-

ing any right or claim to compensation for his

injury or death, as well as the employer and the

servants and employees of such employer and those

conducting his business during liquidation, bank-

ruptcy, or insolvency." (Emphasis added.)

Professor Larson in his treatise on Workmen's Compensa-

tion Law has categorized exclusivity statutes in state workers'

compensation schemes into three general types. Larson, Workmen's

Compensation Law, S 66.00, at 12-20, 21. Montana's statute is a

blend of two categories. It is intended to be a broad surrender

of liability. It partakes of the California and Michigan type

statutes, which state that an employer shall have "no other lia-

bility whatsoever," and the New York type statute, which carries

the surrender of liability one step farther by specifying that

the excluded action includes those by "such employee, his per-

sonal representative, husband, parents, dependents or next of

kin, or anyone otherwise entitled to recover damages, at common

law or otherwise on account of such injury or death." The last

category is the Massachusetts type, which is the narrowest and

states that the employee, by coming within the act, only waives

his common law rights.

In three recent cases, this Court has been concerned with

the exclusivity of Montana's Workers' Compensation Act. Each

time the Court has resolved any doubt about the exclusivity of

remedies in favor of the provisions of the Act. See Jacques v.

Nelson (1979), Mont . , 591 P.2d 186, 36 St.Rep. 287;

Carlson v. Anaconda Co. (1974), 165 Mont. 413, 529 P.2d 356.

Cordier v. Stetson-Ross, Inc. (1979), Mont. , 604 P.2d 86,

Respondents urge that Carlson is on all fours with the

present cases. Carlson may be distinguished from the case at bar,

however, on the basis that the facts and circumstances in Carlson

give the case a much different character. Whereas the present

case involves intentional torts or the presence of bad faith,

Carlson involved a case of negligence or mismanagement. In Carlson,

the Court seems to have accepted Anaconda's argument that the

failure to pay resulted from a mix-up in record keeping, not from

bad faith. The Court distinguished Carlson from cases like Reed

v Hartford Accident

. & Indemnity Co. (E.D. Pa. 1973), 367 F.Supp.

134, which involved the commission of intentional torts. In Carlson-

the Court stated:

"Reed, cited by plaintiff is distinguishable on

theacts. There the action at law was against

the employer's Workmen's Compensation insurance

carrier based on independent intentional torts

and breach of an express contract to pay total

disability benefits by false, fraudulent and

perjured means. This is a far cry from the facts

here and the attempted analogy fails." 165 Mont.

at 417, 529 P.2d at 358.

Jacques involved a claimant who filed a common law tort

action in ~istrictCourt against his employer, Anaconda Company,

for injuries sustained while he was working as an employee at

the Anaconda Reduction Works. Anaconda was a Plan I self-insurer

under the Workers' Compensation Act who had failed to file an

employer's first report of injury or to give the required notice

that the claim was being denied. Anaconda moved to dismiss the

complaint on the grounds that Jacques' remedy was exclusively

within the Workers' Compensation Act. The motion was granted.

Upon appeal, Jacques contended that the Act was not his exclusive

remedy because Anaconda had elected not to comply with certain

mandatory requirements of the Act. This Court rejected Jacques'

argument by stating:

"The Act requires the employer to file a first

report of injury. .. Here, plaintiff's employer

failed to do so. The Act provides a civil penalty

of not more than $1,000 against the employer for

failure to file the first report of injury. . .

Nowhere in the Act does such failure constitute

an election by the employer not to be bound by the

Act or subject him to a common law tort action.

The mandatory coverage of all private employment

not expressly exempted under the Act would be null-

ified were we to hold that such failure removes

Workmen's Compensation coverage.

"The Act further requires the employer to give

written notice to the employee of denial of his

claim. .. Plaintiff alleges he never received such

notice. The Act provides for the imposition of a

10% penalty if compensation is awarded by the Workers'

Compensation Court. . .

Nowhere in the Act does

failure to give such notice remove the employer

from coverage under the Act or subject him to a com-

mon law tort action.

"If the law were otherwise, the purpose and intent

of the mandatory coverage of the Act would be effec-

tively subverted. The employer could eliminate the

coverage of the Act over a particular employee or a

particular accident at will simply by refusing to

file an accident report or failing to notify its

employee of a,denial of his claim. This would in-

deed be a unique and unparalleled kind of Workmen's

Compensation Act coverage." Jacques, supra, 591 P.2d

at 187, 188.

Again, respondents urge that Jacques is persuasive and

controlling. Jacques may be distinguished from the cases at bar,

however, on the basis that it involved an action in District

Court against an employer for injuries sustained by an employee

during the course of his employment, whereas the present cases

involve actions in District Court against insurers and their

adjusters for intentional torts committed after the employment

relationship had ceased. Where the exclusivity statute states

that "an employer is not subject to any liability whatever for

the death of or personal injury to an employee," Jacques clearly

fits within the exclusion. (~mphasis

added.)

The law is very clear and Montana follows it with regards

to Workers1 Compensation exclusivity and the exclusive jurisdic-

tion of the Workers' Compensation Court to settle disputes of all

kinds that arise in good faith and legitimately out of workers'

claims. Yet, the respondents fail to follow the argument through

the problems we face in the case at bar. What happens to an in-

tentional or bad faith tort that arises, not out of the workers'

employment, but after his employment has ceased? Although it is

not new in the law, Montana has not reached that situation until

now. Other jurisdictions have been confronted with the precise

issue presented in this case, Gibson v. Nat. Ben ~ranklinIns. Co.

(1978)I Me. , 387 A.2d 220; Martin v. Travelers Insurance

Company (1st Cir. 1974), 497 F.2d 329; Stafford v. Westchester

Fire Ins. Co. of N.Y., Inc. (Alaska 1974), 526 P.2d 37; Unruh v.

Truck Insurance Exchange (1972), 102 Cal.Rptr. 815, 498 P.2d 1063;

Coleman v. American Universal Ins. Co. (1970), 86 Wis.2d 615, 273

N.W.2d 220. See also Reed, supra. These cases have upheld the

right of a claimant to bring an action in District Court against

an insurer and its adjuster for independent intentional torts

committed in the processing of a workers' compensation claim.

The right has been upheld on several different grounds.

First, and most frequently, the courts have upheld the right to

bring an action for independent intentional torts because the

tortious conduct, which gives rise to the action, does not arise

out of the original employment relationship. It occurs after

employment and arises out of the employee's relationship with the

insurance carrier after the employment relationship has been ter-

minated. It is preuicated on an act after the injury and during

the settlement of the claim. The insurance carrier is no longer

the "alter ego" of the employer, but rather is involved in an

independent relationship to the employee when committing such tor-

tious acts. Gibson, 387 A.2d at 222-223; Reed, 367 F.Supp. at

Martin, Stafford, Unruh ,

4 9 8 P.2d at 1073; Coleman, 273 N.W.2d at 223. Perhaps the best

statement of the concept is found in Coleman, which stated:

"The injury for which remedy is sought in the

instant case is the emotional distress and other

harm caused by the defendants' intentional acts

during the investigation and during the course of

payment of the claim. This claimed injury was

distinct in time and place from the original on-

the-job physical injury which was subject to the

Compensation Act. The injury for which recovery

is sought in the present actions did not occur

while the plaintiff was employed or while he was

performing services growing out of and incidental

to his employment. As the plaintiff repeatedly

and correctly stresses in his brief, this action

is based not on the original work-related injury

but on a second and separate injury resulting from

the intentional acts of the insurer and its agents

while investigating and paying the claim. The Act

does not cover the alleged injury, and the exclus-

ivity provision does not bar the claim." 273 N.W.2d

at 223.

The second basis upon which courts have upheld the right

to bring an action for independent intentional torts concerns the

penalty provisions of the state workers' compensation acts.

Many state acts like Montana's contain provisions which create

penalties where employers fail to pay benefits or exercise unreason-

able delay in paying such benefits. Several courts have deter-

mined that these provisions are not exclusive with respect to a

claimant's remedies because legislatures did not contemplate them

as being remedies for intentional wrongdoings. Where the wrong is

intentional, malicious and calculated to cause intimidation,

courts have held that a claimant is entitled to another remedy.

Gibson, 387 A.2d at 223; Martin, 497 F.2d at 331; Stafford,

526 P.2d at 43; Coleman, 273 N.W.2d at 224.

One court has determined that the character of the penalty

provisions within the workers' compensation schemes is such that

they are especially applicable to kinds of conduct which are not

intentional. Though they may be triggered by intentional wrong-

doings or the presence of bad faith, they apply to conduct which

falls short of bad faith, such as cases of mismanagement or de-

ficient administrative practices. Where intentional wrongdoing

is involved, one court has stated that the conduct cannot merely

be expiated by penalty payments augmented in the amount of 10%.

Coleman, supra, 273 N.W.2d at 224.

Other bases have been offered by courts to substantiate

the right as well. One court has relied upon a state constitu-

tional provision, such as Article 11, section 16, 1972 Montana

Constitution, which provides that every person shall have a remedy

by due course of law for an injury done to him. Gibson, supra,

387 A.2d at 223.

The weight of authority has resolved this issue in favor

of an independent action in the District Court for an intentional

tort, as it does not arise out of an employment relationship. The

penalty provisions of state schemes are not intended as remedies

for intentional wrongdoings. The Compensation Act should not be

a "shield" which will insulate those who would engage in intention-

al wrongdoing in the settlement and investigation of workers' claims.

No one should be allowed intentionally and tortiously to cut off

a claimant unilaterally for whatever purpose they choose and then

hide behind workers' compensation exclusivity in assurance that the

only retribution will come in the form of a compensation penalty

paid for by society.

Insofar as the plea made by the respondents in their

limited defense of the carrier, we can only add that any

party involved in the business of insurance knows its

rights and responsibilities as well as its obligation

to deal in good faith and with fairness toward those who

are entitled to the protection of the Workers' Compensa-

tion Act.

The order and judgment dismissing plaintiff's com-

plaint is hereby vacated and set aside and the cause re-

manded to the District Court for further proceedings.

We concur:

%AQ0&4da&

Chief Justice

c16.IyLBJ2!dL/

Justices

Mr. Justice John Conway Harrison specially concurring:

In signing this opinion, I must express a real concern--

one perhaps that needs the attention of the legislature if

our workers' compensation system is to properly care for the

needs of our citizens. I recognize the right of a claimant

to bring an action for the commission of an intentional tort

in the settling of a workers' compensation claim. I am con-

cerned, however, with the effect of these cases on the prac-

tical workings and operation of the workers' compensation

system. Today we possibly open the door to abuse in the

settling of workers' compensation claims. A claimant who

disagrees with a settlement offer made to him by an insur-

ance adjuster may escape the provisions of the Workers'

Compensation Act by merely alleging the commission of an

intentional tort. This may prove to be a tactic that places

insurance adjusters at a severe disadvantage in settling

claims. I have no special affinity for insurance adjusters.

However, this is not the fashion in which the legislature

envisioned the settlement process to operate.

The safeguards against this type of abuse lie in the

procedures established for dismissing actions that lack

merit at the District Court level. The safeguards include

motions for summary judgment and motions for directed ver-

dicts. Prompt impositions of these safeguards will protect

against abuse of the workers' compensation settlement pro-

cess by lessening the possibility that an insurance ad-

juster will be forced to defend against a claim that lacks

merit. The case here is before the Court on a motion to

dismiss. At this stage of the proceedings, the allegations

of the complaints must be taken as true and do state a

cause of action for intentional tort. I, therefore, agree

procedurely with t h e r e s u l t reached i n t h e case. I cannot

s a y , however, t h a t I would a g r e e w i t h t h e r e s u l t s i f t h e c a s e

came t o u s a f t e r summary judgment. The c l a i m a n t would have

t o produce much more e v i d e n c e t h a n t h e r e c o r d now i n d i c a t e s

e x i s t s b e f o r e t h e f a c t s would show i n t e n t i o n a l wrongdoing

by t h e i n s u r a n c e a d j u s t e r i n t h i s c a s e . This i s e s p e c i a l l y

t r u e g i v e n t h e r e a l p r a c t i c a l problems o f a b u s e of t h e

w o r k e r s ' compensation system t h a t may o c c u r i f t h i s C o u r t

and t h e D i s t r i c t C o u r t s do n o t c a r e f u l l y e n f o r c e t h e s a f e -

g u a r d s p r o v i d e d by t h e j u d i c i a l p r o c e s s . I therefore join

i n t h e o p i n i o n of t h e C o u r t i n t h i s c a s e , b u t w i t h t h e

above-noted r e s e r v a t i o n s .