Buckman v. Montana Deaconess Hospital

No. 85-530

IN THE SUPREME COURT OF THE STATE OF MONTANA

1986

ROSE N. BUCKMAN,

Claimant and Appellant,

MONTANA DEACONESS HOSPITAL,

Employer,

and

STATE COMPENSATION INSURANCE FUND,

Defendant and Respondent.

APPEAL FROM: The Workers' Compensation Court, The Honorable

Timothy Rea.rdon, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Lloyd E. Hartford argued, Billings, Montana

For Respondent:

Hughes, Kellner, Sullivan & Alke; Mike McCarter argued,

Helena, Montana

Submitted: J u l y 24, 1986

Decided: December 12, 1936

Filed: DEC 1 2 1986

Clerk

Mr. Justice William E. Hunt, Sr., delivered the Opinion of

the Court.

Rose Buckman appeals the judgment of the Workers'

Compensation Court denying her a conversion of her bi-weekly

Workers' Compensation benefits to a lump-sum payment.

Buckman's employer, Montana Deaconess Hospital and its

insurer, the State Compensation Insurance Fund appealed a

portion of the same judgment wherein the trial court

concluded that insurers could not discount lump-sum

conversions awarded for injuries which occurred prior to

April 15, 1985.

We affirm the Workers' Compensation Court in part,

reverse in part, and remand for proceedings pursuant to this

opinion.

The issues presented to us concern constitutional

challenges to the 1985 legislative amendment to § 39-71-741,

MCA, first presented to the legislature as S.B. 281.

Specifically, we are asked to decide:

1. Whether the procedure outlined in S 39-71-741(2),

MCA (1985), to guide the Workers' Compensation judge in

determining whether lump-sum conversion of biweekly payments

for permanent total injury will be awarded, as applied to

conversions for injuries occurring before April 15, 1985, is

constitut.ionally prohibited.

2. Whether the prospective application of the procedure

outlined in 39-71-741(2), MCA (1985), violates the equal

protection guarantees of the Montana and United States

Constitutions.

3. Whether the directions contained jn S 39-71-741(1),

.

MCA (1985), to discount to present value all conversions of

lump sums as applied to conversions for injuries occurring

prior to April 15, 1985, are constitutionally prohibited.

4. Whether the Workers' Compensation Court erred in

denying Buckman a lump-sum conversion of her biweekly

henefits.

In September, 1985, the Workers' Compensation Court

entered its findings of fact and conclusions of law and

judgment determining that the appellant Buckman, va

7s

permanently totally disabled and that she was entitled to

disability benefits. The Court denied her request for a

lump-sum conversion based upon her failure to meet the

requirements set out in § 39-71-741(2), MCA. The court said

the amendments found in S 39-71-741(2), MCA were procedural

in nature and could therefore be applied in Buckman's case

without offense to either constitution. Buckman had

challenged the constitutionality of S 39-71-741, MCA, as

applied to her case on the grounds that her injury predated

the effective date of the amendments. The Workers'

Compensation Court, relying on its earlier opinion in

Stelling v. Rivercrest Ranches, Inc., WCC No. 8412-2757

(1985), concluded that the discounting provision, found in §

39-71-741(1), MCA, if applied retroactively to Buckman's

award, would violate the contract clauses of both the United

States and Montana Constitutions. Ruckman appeals the

judgment as it concerns 39-71-741(2), MCA, and the Hospital

and State Fund appeal the judgment as it concerns §

39-71.-741(I), MCA.

For the reasons stated below, we hold that: As to the

first issue the application of 39-71-741(2), MCA is

constitutionally prohibited as applied to injuries that

occurred prior to April 15, 1985. As to the second issue we

hold that the prospective application of the procedure does

not violate the equal protection guarantees of the Montana

and United States Constitutions. As to the third issue, we

hold that discounting to present value conversions of

lump-sums for injuries that occurred prior to April $ 1i85

5

is constitutionally prohibited. Finally, as to the lump-sum

conversion of claimant's biweekly benefits we remand for a

determination of whether claimant is entitled to a conversion

of her benefits in light of our construction of S 39-71-741,

MCA .

As to the first issue, Buckman challenges the

retroactive application of the procedure contained in S

39-71-741(2), MCA. That statute as amended states that it

"must be used by the division and workers' compensation judge

in determining whether a lump-sum conversion of permanent

total biweekly payments will be approved or awarded . . ."

Before discussing any constitutional questions, it is

important that we consider the statutes which are to be

applied to an injured worker with regard to lump-sum conver-

sions or to normal benefits.

Workers' compensation benefits are determined by the

statutes in effect as of the date of injury. Trusty v.

Consolidated Freightways (Mont. 1984), 681 P.2d 1085, 41

St.Rep. 973; Iverson v. Argonaut Insurance Co. (Mont. 1982),

198 Mont. 340, 645 P.2d 1366.

In Trusty, we held that the standards for computations

of benefits for the claimant are fixed by the statutes in

effect as of the date of injury and concluded that the

legislature could not enact a statute reducing the benefits

to an injured worker by reason of social security benefits

paid. We further stated:

The statute in effect on the date of injury deter-

mines the benefits to be received ...

(Citations

omitted). That sets the contractual rights and

debts of the parties. In the instant case, once

the 100% offset statute was found constitutionally

unenforceable, that portion of the statute became

void. This Court cannot come back and change the

statute to a 50% offset. Once we found the statute

constitutionally unenforceable, then no offset

remains in effect.

We hold that the benefits due to the appellant

under his Workers' Compensation award shall not be

reduced by a.n offset for Social Security benefits.

The reasoning of the foregoing cases properly controls

in the present case where we are involved with an application

for a lump-sum conversion of permanent biweekly payments. We

specifically hold that where an injured worker seeks a

lump-sum conversion of biweekly benefits, the statutes in

effect at the time of injury set the standards for either the

award or refusal of a lump-sum conversion.

We therefore conclude that the amendments made in 1985

to § 39-71-741 (2), MCA, cannot be applied in considering the

Buckman application for a lump-sum conversion. We note this

is consistent with the 1985 amendments as there is no

provision in those amendments stating that any portion should

be applied retroactively, with a single exception of the

discount provision.

The second issue is whether the prospective application

of the procedure set out in § 39-71-741(2), MCA violates the

equal protection guarantees of the Montana and United States

Constitutions. We hold that it does not.

After careful consideration of the language of the

procedure set out in 39-71-741(2) and (3) and after

reference to the legislative history we are convinced that

those subsections merely codify, in detailed form, the prior

case law which allowed a conversion of biweekly benefits when

it was in the best interests of the claimant.

During the hearings leading to the enactment of S.B. 281

there was considerable discussion of more specific statutory

language concerning the award of lump sums. The record of

the February 14, 1985 meeting of the senate subcommittee is

representative of the intent of the legislature when

considering the specific language. Senator Haffey asked the

administrator of the Workers' Compensation Division whether

"if what he is talking about is language based on the

experience of the last couple of years, under which lump sum

payments are called for . . . Mr. Blewett replied yes."

Our estimate that the legislative intent was to codify

existing law, rather than altering the law, is borne out by

examination of the procedure contained in S 39-71-741 ( 2 ) and

(3)

Subsection 2 directs the Workers' Compensation Court to

award conversions "only if the worker or his beneficiary

demonstrates that his ability to sustain himself financially

is more probable with a whole or partial lump-sum conversion

than the biweekly payments and his other available

resources." The statute then goes on to lay out separate

criteria to indicate what is meant by "sustain himself

financially." We note here that the criteria in subsection

2 (a), that the difference between the discounted value of a

conversion and the future value of biweekly benefits cannot

be the only grounds for a conversion, directly codifies the

prior law of Kent v. Sievert (1971), 158 Mont. 79, 489 P.2d

104. The language contained in subsection 2(b) states that

the improvement of a claimant's financial position should not

be the basis of an award unless it can be awarded at the

price of an annuity. This would cost the insurer the same as

if it had purchased an annuity under the option contained in

S 39-71-2207, MCA, and merely states the same rule as our

holdings in Kent and in LaTTe v. School Dist. 82 (Mont. 19861,

713 P.2d 546, 43 St.Rep. 1-65.

Similarly, case law has required claimants to submit

financial plans when outstanding or delinquent debt is the

basis for a conversion request. Kuehn v. National Farmers

Union Property and Cas. Co. (1974), 164 Mont. 303, 521 P.2d

921. Furthermore where the court has found the outstanding

debt was not so significant as to necessitate a lump-sum

conversion, it has been denied. Ruple v. Bob Peterson

Logging Co. (M.ont. 1984), 679 P.2d 1252, 41 St.Rep. 704.

This prior law is directly reflected in the language of S

39-71-741 (2) (c).

Subsection 2 (d) of that same statute likewise codifies

prior case law requiring that a claimant show the worthiness

of her business venture plan and the adequacy of her business

acumen. - Bundtrock v. Duff Chevrolet (1982), 199 Mont.

See

128, 647 P.2d. 856; Krause v. Sears, Roebuck and Co. (1982),

197 Mont. 102, 641 P.2d 458.

Finally, S 39-71-741(3) allows the division to order

"financial, medical, vocational, rehabilitation, educational

or other evaluative studies to determine whether a lump-sum

conversion is in the best interest of the worker or his

beneficiary." These tests reflect the historical ways in

which a claima.nt could assert that a conversion was in her

best interests other than by showing strict financial

necessity. Prior case law has held a conversion to be in the

best interests of a claimant where medical considerations

required that the claimant and his family move to a different

climate. Polich v. Whalen's O.K. Tire Warehouse (1983), 203

Mont. 280, 661 P.2d 38. Prior case law has held it to be in

the best interest of the claimant where diagnosed mental

instability made the award of a lump sum necessary to relieve

the claimant's abnormal anxiety. Legowik v. Montgomery Ward

and Co. (1971), 157 Mont. 436, 486 P.2d 867.

The legislative use of the term "best interest" further

convinces us that 5 39-71-741(3), MCA, reflects the intent of

the legislature to make explicit in the statutory language

the previously used best interest test for the conversion of

biweekly benefits.

Subsection 3 itself does not mandate conversion of

benefits. However, when read in combination with subsection

5, giving the Workers' Compensation Court jurisdiction to

make the final determination, the combination convinces us

that subsection 3 provides an alternative method to qualify

for a lump-sum award when strictly financial considerations

do not mandate a conversion. This interpretation is

buttressed by a May 7, 1985, policy statement from the

Division of Workers' Compensation.

In summary, we construe the language of the statute to

represent no change from the law existing prior to April 15,

1985, and to represent no significant change from the

requirements placed on the permanently partially disabled by

case law. Therefore because no rights have been burdened,

nor any classification of claimants treated dissimilarly, we

can find no violation of equal protection in the prospective

application of the procedure set out in S 39-71-741, MCA.

As to the third issue, Buckman challenged the amended 5

39-71-741(1), MCA, as applied to her case, as a violation of

her "rights under the Montana and United States

Constitutions, including but not limited to her right to

equal protection of the laws and due process of law." The

Workers' Compensation Court held the discounting provision

violated the state and federal constitutional prohibitions

against impairments of contracts and susta-ined the procedural

criteria against the same impairment of contract test.

Consequently the lower court did not reach the due process or

equal protection issues.

In Montana we have repeatedly recognized that the state

constitution provides protection of rights separate from the

protection afforded by the federal constitution. State v.

Johnson (Mont. 1986), 719 P.2d 1248, 1254-55, 43 St.Rep.

1010, 1016-18; Pfost v. State (Mont. 1985), 713 P.2d 495,

500-1, 42 St.Rep. 1957, 1963-64; Madison v. Yunker (1978),

180 Mont. 54, 60, 589 P.2d 126, 129.

Because the federal constitution establishes the floor

and not the apex of constitutional rights, state action may

violate our Montana Constitution, but not violate any federal

constitutional guarantee. Therefore, pursuant to the wisdom

in the rule that we will not search to reach any issue not

necessary to dispose of the case, we will not reach a federal

constitutional challenge unless and until the case may not be

resolved on adequate and independent state grounds.

We now turn our attention to the contract clause

challenge before us. In the past we have generally

interpreted the contract clauses found in Art. 11, 5 31, 1972

Mont. Const. and Art. I, § 10 (1), United States Constitution

as interchangeable guarantees against legislation impairing

the obligation of contracts. Nee1 v. First Federal Savings

and Loan Assoc. (Mont. 1984), 675 P.2d 96, 103, 41 St.Rep.

18, 25. Consistent with our intention to initially examine

state grounds in an effort to resolve the issue, we turn to

prior Montana contract clause case law for independent

interpretation of our own prohibition of impairment of

contract. Federal cases cited are relied on for their

analytical persuasiveness but in no way mandate our decision.

The Montana Constitution states, "No ex post facto law

nor any law impairing the obligation of contracts, or making

any irrevocable grant of special privileges, franchises, or

immunities, shall be passed by the legislature." Art. 11, S

31, 1972 Mont. Const. We have construed the two contract

clauses interchangeably, and have cited United States Supreme

Court opinions to test the validity of Montana legislation

under both contract clauses. Neel, 675 P.2d at 103, 41

St.Rep. at 25.

The basis for Workers' Compensation is a contract of

hire either express or implied. Section 39-71-117, MCA; 5

39-71-118, MCA; 1C Larson Workmen's Compensation Law S 47.10

(1986) . This Court, as well as courts of other states have

held that Workers' Compensation is based on contract theory.

Estate of Baker (Kan. 1977), 563 P.2d 431; Harris v. National

Truck Service (Ala. 1975), 321 So.2d 690; Spengler v.

Employers' Commercial Union and Insurance Co. (Ga. App.

1974), 206 S.E.2d 693; Gaston v. San Ore Construction Co.

(Kan. 1970) , 477 P. 2d 956; Nadeau v. Power Plant Engineering

Co. (Ore. 1959), 337 P.2d 313; Morgan v. Industrial Accident

Board (1956), 130 Nont. 272, 300 P.2d 954.

This Court has assumed for a number of years that the

Workers' Compensation statutes in effect on the date of

injury set the contractual rights between the parties.

Trusty, 681 P.2d at 1085, 41 St.Rep. at 973. This is

consistent with the provisions of the Workers' Compensation

Act that the term employee or worker means "each person in

this state . . . who is in the service of an employer ...

under an appointment or contract of hire, express or implied,

oral or written." Section 39-71-118, MCA.

We approve the holding of the Kansas Supreme Court in

Estate of Baker (Kan. 1977), 563 P.2d at 436:

The liability of an employer to an injured or

deceased employee arises out of the contract

between them; the terms of the workmens'

compensation statute are embodied in the contract.

The substantive rights between the parties are

determined by the law in effect on the date of the

injury. (Citation omitted. ) However, the rights

under the contract vest when the cause of action

accrues, and the cause of action accrues on the

date of injury or death. (Citations omitted. )

We conclude that this analysis is clearly applicable to

this case where there is an application for conversion of

biweekly benefits to a lump-sum payment. We hold that the

liability of Montana Deaconess Hospital, employer, to

Buckman, employee, arises out of the contract between them,

and that the Workers' Compensation sta-tutes in effect on the

date of the Buckman injury are a part of that contract.

The question becomes whether the statute at issue in

this case constitutes an impairment of the obligation of

contract. We first turn to the three-tiered analysis set

down by the United States Supreme Court in Energy Reserves

Group, Inc. v. Kansas Power and Light Co. (19831, 459 U.S.

400, 103 S.Ct. 697, 74 L.Ed.2d 569, and followed by this

Court in Neel, 675 P.2d at 96, 41 St.Rep. at 18. The

threshold inquiry is "whether the state law has, in fact,

operated as a substantial impairment of a contractual

relationship." Neel, 675 P.2d at 104, 41 St.Rep. at 27.

Next, we must look to whether the state in justification, has

a significant a.nd legitimate public purpose for the

regulations. Finally, we must inquire whether the adjustment

of the rights and responsibilities of the contracting parties

are based on reasonable conditions and of a character

appropriate to the public purpose justifying adoption of the

legislation. Energy Reserves, 459 U.S.

at 704-5, 74 L.Ed.2d at 580-81. Neel, 675 P.2d at 104-5, 41

Several factors are used to evaluate the impairment of a

contract. Total destruction of the contract is not necessary

for a finding of substantial impairment. The severity of the

impairment increases the level of scrutiny to which the

legislation is subjected. However, state regulation that

restricts a party to gains it reasonably expects from a

contract does not substantially impair the contract. In

d.etermining impairment, we are to consider the extent to

which the industry has been regulated in the past. Energy

Reserves, 459 U.S. at 411, 103 S.Ct. at 704, 74 L.Ed.2d at

580. In analyzing these factors, the Workers' Compensation

Court stated:

Admittedly, workers' compensation is a closely

regulated industry. However, the impairment to the

claimant's contractual rights is severe. An

increased level of scrutiny is required. A

claimant, able to establish the required condition

precedent, that it is in his best interests to be

awarded a lump sum advance, is severely impacted by

the discount provision and annuity provision in

Senate Bill 281. This is a substantial restriction

not anticipated under the parties ' [sic] contract.

We agree that the dj-scounting provision as retroactively

applied substantially impairs the rights of claimants which

vested at the time of injury by altering the remedy to which

the claimant is entitled.

The second tier of the analysis is if the state in

justification has a significant and legitimate public purpose

behind the regulation. In this case, because the state is a

party to this contract a heightened level of scrutiny

attaches:

The Contract Clause is not an absolute bar to

subsequent modification of a State ' s own financial

obligations. As with laws impairing the

obligations of private contracts, an impairment may

be constitutional if it is reasonable and necessary

to serve an important public purpose. In applying

this standard, however, complete deference to a

legislative assessment of reasonableness and

necessity is not appropriate because the State's

self-interest is at stake.

United States Trust Co. of New York v. New Jersey (1977), 431

U.S. 1, 25-6, 97 S.Ct. 1505, 1519, 52 L.Ed.2d 92, 111-12.

The defendants advance as the purpose for enactment of 5

39-71-741, MCA, to "head off threatened premium increases,

hold down employers' cost of doing business, and promote the

Montana economy." We certainly agree with the legitimacy of

these purposes and share the legislative concerns in

promoting Montana's economy. However, those concerns in and

of themselves are not sufficient to solve the issues before

us in the present case. Clearly the discount provisions of

the section may be applied to injuries occurring after the

effective date of the Act. Such application will undoubtedly

result in the type of savings desired by the legislature.

However, our concerns must be directed to those who were

injured prior to April, 1985, such as Rose Buckman. The

record does not contain any significant evidence bearing on

the cost to the state which may result if the discount

provisions are not applied to workers injured prior to April,

1985. Under those circumstances, we conclude that the state

has failed to prove a significant public interest which

requires the application of the discount to workers such as

Buckman. The general statement of the reason in itself is

not sufficient to justify the severity of the impairment of

contract as in this case. We therefore hold that the

retroactive application of 5 39-71-741, MCA, violates the

contract clause of the 1972 Montana Constitution. We affirm

the judgment of the Workers' Compensation Court on this

issue. Because we have decided the statute is

unconstitutional and a violation of the contract clause, we

do not reach the due process or equal protection issues.

Finally, Buckma.n contends that the trial court erred in

denying her a conversion. In light of our construction of §

39-71-741, MCA, we remand the case for determination of

whether claimant is entitled to a conversion of her benefits

to a lump sum.

Affirmed in part, reversed in part and remanded for

proceedings pursuant to this opinion

We Concur:

Justices

Mr. Justice Frank B. Morrison, Jr. specially concurs as

follows:

I concur in the majority opinion although, in my

judgment, the legislature intended to change the "best

interest" test by enactment of 539-71-741, MCA.

Nevertheless, I concur in the majority holding that the

retroactive features of this legislation are

unconstitutional. The statutes covering workers1

compensation are a part of the employment contract. The

statutes in effect at the time of injury control. Any

attempt to change these rights after they vest constitutes an

abridgment of contract obligations and is unconstitutional as

the majority finds.

The prospective application of 5 39-71-741, MCA, is

affected by the Court's holding that the statute, reduced to

its essence, involves no more than the "best interest" test.

The Workers' Compensation Court has been proceeding under the

assumption that the statute changed the former test and the

legislative history indicates that was the intent of the

legislature. As noted in the majority opinion the purpose

advanced in support of the statute was to "head off

threatened premium increases, hold down employers cost of

doing business, and promote the Montana economy." To me this

indicates that the legislature intended to change eligibility

requirements for a lump sum settlement.

The effect of the majority holding will finally realize

what the legislature stated its goal to be but totally failed

to accomplish. The result of the legislature enacting the

subject statute has been to increase the cost of delivering

benefits to the worker and has contributed to the financial

crisis facing the state insurance fund. Prior to enactment

of 39-71-741, MCA, and the bureaucratic regulations

promulgated by the division, the worker simply had to show

that it was in the best interest of the injured worker to

receive a lump sum payment rather than a structured

settlement. The workers petition, prepared without

assistance of a lawyer, could easily satisfy this burden.

The new statute is so complicated that an injured worker has

to hire a "Philadelphia lawyer" in every case in which the

worker desires to achieve a lump sum payment. Furthermore,

the retained counsel must employ a battery of costly expert

witnesses to satisfy the requirements of the statute. The

result has been increased litigation, greatly increased

litigation expenses, and delay in payment of benefits. This

increasingly expensive system combined with low premiums

charged by the State Fund has produced a very serious

financial crisis for the State of Montana.

From a monetary standpoint, it should make no difference

to the State Compensation Insurance Fund whether payments are

made in a lump sum or paid in a structured settlement. Lump

sums are reduced to present value at an interest factor that

renders the means of payment financially irrelevant to the

fund itself.

The workers' compensation system must be returned to a

simple compensation system where injured workers can be

compensated without litigation expenses. Litigation can

never be eliminated entirely and where legitimate disputes

need legal counsel they should go forward and be presented to

the Workers1 Compensation Court. However, the "garden

variety" workers ' compensation case should not be subjected

to the complicated and tortured scheme set forth in

5 39-71-741, MCA.

In my opinion this statute should be repealed and a

simple "best interest" test reestablished so that injured

workers can be compensated without the necessity of costly

litigation. Perhaps the holding of the majority neuters the

statute and repeal is unnecessary. If that is the result of

the majority opinion a giant step forward has been taken to

preserve the future fiscal integrity of the State

Mr. Justice L. C. Gulbrandson, dissenting.

I respectfully dissent.

I woul-d affirm the Workers' Compensation Court ruling

that the amendments found in 5 39-71-741 ( 2 ) , MCA, are

procedural in nature and could be applied in this case even

though claimant's in-jury pre-dated the amendments.

I would reverse the holding of the Workers'

Compensation Court that the discounting provision in

$ 39-71-741(1), MCA, if applied retroactively to Buckman's

award, would violate the contract clauses of both the United

States and Montana Constitutions.

Those of us who feel that present Workers' Compensation

benefits are inadequate may find the majority opinion to be

an insurmountable obstacle in the event the legislature, in a

better economic climate, should attempt to increase benefits

for previously injured workers. The Nevada Supreme Court in

K-Mart Corporation v. State Industrial Insurance System (Nev.

1985), 693 P.2d 562, upheld an increase of benefits to

workers injured prior to statute amendments and specifically

ruled that such an amendment was not an unconstitutional

impairment of a contract. The majority opinion effectively

rules out the possibility of future relief for previously

injured workers in Montana.

The Constitutionality of Senate Bill 281 "is prima

facie presumed, and every intendment in its favor will be

made unless its unconstitutionality appears beyond a

reasonable doubt. " T & Trjr Chevrolet v. Darvial (1982), 196

Mont. 287, 641 P.2d 1386, 1370.

In my view, the laws relating to lump sum conversions

are unrelated to the enforcement of the bargained for