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Schmill v. Liberty Northwest Insurance Corp.

Court of Workers Compensation of Montana

July 25, 2008

CASSANDRA SCHMILL Petitioner
v.
LIBERTY NORTHWEST INSURANCE CORPORATION Respondent/Insurer and MONTANA STATE FUND Intervenor.

         On Appeal at the Montana Supreme Court - August 27, 2008 Affirmed - December 22, 2009

          ORDER ADOPTING ORDER OF SPECIAL MASTER

          Jay P. Dufrechou Special Master J.

         TOPICS:

Common Fund Litigation: Generally. Where the Montana Supreme Court has already found a global common fund, the Workers' Compensation Court is not empowered to dismiss responding insurers from this litigation, but must require their payment of benefits and fees pursuant to the decision.
Common Fund Litigation: Jurisdiction. Where the Montana Supreme Court has already found a global common fund, the Workers' Compensation Court is not empowered to dismiss responding insurers from this litigation, but must require their payment of benefits and fees pursuant to the decision.
Jurisdiction: Common Fund. Where the Montana Supreme Court has already found a global common fund, the Workers' Compensation Court is not empowered to dismiss responding insurers from this litigation, but must require their payment of benefits and fees pursuant to the decision.

         ¶ 1 Issues in the above-entitled matter were duly briefed before Special Master Jay Dufrechou, who considered the evidence and prepared and submitted his Order for consideration by the Court. These issues are fully set forth in the Special Master's Order.

         ¶ 2 The Court considered the record in the above-captioned matter, considered the Order of the Special Master, and enters the following Order.

         ¶3 IT IS ORDERED the Findings and Conclusions of Special Master Denying Responding Insurers' Motion to dismiss on "Gateway Legal Issues" are adopted as follows:

¶ 3a The Motion to Dismiss brought by the insurers and self-insured employers identified in the Special Master's Findings and Conclusions as "Responding Insurers" is denied.

         ¶4 Pursuant to ARM 24.5.348(2), the July 25, 2008, Findings and Conclusions of Special Master Denying Responding Insurers' Motion to Dismiss on "Gateway Legal Issues" is certified as final and, for purposes of appeal, shall be considered as a notice of entry of judgment.

         FINDINGS AND CONCLUSIONS OF SPECIAL MASTER DENYING RESPONDING INSURERS' MOTION TO DISMISS ON "GATEWAY LEGAL ISSUES"

         I. Basis of the Motion to Dismiss

         ¶ 1 Before the Workers' Compensation Court (WCC) is a Motion to Dismiss filed and joined by numerous insurers and self-insured employers doing business in Montana (hereafter collectively referenced as "Responding Insurers")[1]. Liberty Northwest Insurance Corporation (the named insurer in this litigation, hereafter Liberty) and Montana State Fund (an Intervenor in this litigation) are not involved in the pending motion.

         ¶ 2 Responding Insurers argue that the "global common fund" created by this litigation violates their constitutional rights to Due Process under the Fourteenth Amendment of the United States Constitution and Article 2, Section 17 of the Montana Constitution. Their concern is that the underlying judgment enforced as a global common fund "now obligates every insurer that has ever written workers' compensation insurance in this state to conduct expansive and burdensome file reviews stretching back twenty years in order to identify and pay beneficiaries of her ruling (with a portion going to her counsel)." [2]

         ¶ 3 Responding Insurers contend that they were not provided notice or an opportunity to be heard on the issues decided in Schmill v. Liberty Northwest Ins. Corp. (Schmill I) [3] and Schmill v. Liberty Northwest Ins. Corp. (Schmill II).[4] Schmill I determined that the apportionment provisions of §39-72-706, MCA of the Occupational Disease Act violated equal protection principles by requiring reduction of benefits based on a percentage contribution of non-occupational factors to an occupational disease, where no such reduction was made in injury cases. Schmill II determined that Schmill I applied retroactively, that it created a common fund, and that the common fund was "global," i.e., inclusive of benefits payable by all insurers as a result of the decision, not just the insurers involved in the litigation.

         ¶ 4 Along with the due process argument of Responding Insurers come several other arguments. Responding Insurers contend that the principles articulated by the Montana Supreme Court in Stavenjord v. Montana State Fund (Stavenjord II) [5] argue against a common fund finding in the Schmill litigation. They contend that the WCC lacks subject matter jurisdiction over the enforcement aspects of this litigation; that claimant Cassandra Schmill received her benefits from Liberty and lacks standing to seek benefits from other insurers; that Schmill has failed to comply with the mandatory mediation requirements of the Workers' Compensation Act; and that requiring them to investigate their files for benefit entitlements of past occupational disease claimants impermissibly shifts the burden of proof onto insurers, when it should remain on injured workers claiming entitlement to additional benefits.

         ¶ 5 In support of their due process argument, Responding Insurers point out that the insurers participating in Schmill I and Schmill II did not contest whether Schmill created a common fund. [6] Responding Insurers quote from the Supreme Court's Schmill II decision as follows:

After an in-depth analysis of the issue, the WCC concluded that Schmill I created a common fund. The State Fund does not challenge this conclusion. Liberty does challenge the conclusion, but only on the assumption that Schmill I does not apply retroactively. Liberty goes so far as to say that if Schmill I does apply retroactively then the decision did create a common fund. Since we have determined that the WCC was correct in concluding that Schmill I does apply retroactively, there is no challenge to the court's further conclusion that Schmill I created a common fund. Therefore, we do not disturb the court's conclusion on this issue. [7]

         Thus, Responding Insurers argue that their interests with respect to findings of common fund and global common fund were not adequately represented by Liberty and Montana State Fund.

         ¶ 6 Though the arguments of Responding Insurers encompass several legal grounds, the crux of the motion seems to be whether the WCC can require, under the global common fund doctrine, numerous insurers and self-insured employers to review occupational disease claim files to determine whether benefits should be paid under Schmill I. Responding Insurers argue that

to the extent that there are potential Schmill beneficiaries covered under policies written by Responding Insurers, those beneficiaries have the duty to step forward and assert claims. In other words, it is their duty to identify themselves and not Responding Insurers' duty to do so at great burden and expense. As with any other claim for benefits, if a Schmill beneficiary notifies a Responding Insurer of a claim to unpaid benefits, that Responding Insurer will evaluate the claim and decide whether to accept or deny based upon the facts or the claim and the law set forth in Schmill I and II. If benefits are denied, the claimant may proceed to mediation, and if necessary, litigation bearing the burden of proving his entitlement to Schmill benefits.[8]

         ¶ 7 The Responding Insurers appear to acknowledge the retroactive application of Schmill I as found in Schmill II, but the Motion to Dismiss apparently assumes that their dismissal from the Schmill litigation would allow them to avoid an affirmative duty to review files and pay Schmill beneficiaries on their own initiative.

         ¶ 8 In arguing against the Motion to Dismiss, Petitioner Schmill contends that Schmill I created a vested right among all potential beneficiaries of that decision, regardless of insurer, to receive benefits payable under that decision. Relying on common fund precedent, Petitioner argues that common fund designation, already made by the Supreme Court in this case, creates the obligation of all insurers to investigate files and pay benefits. Petitioner also argues that Responding Insurers were not denied due process ...


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