Farber v. Idaho State Ins. Fund

• Decision Date: 27 January 2012
• Docket Number: No. 38140.,38140.
• Citation: 272 P.3d 467,152 Idaho 495
• Court: Idaho Supreme Court
• Parties: Randolph E. FARBER, Scott Alan Becker, and Critter Clinic, an Idaho professional association, Plaintiffs–Appellants, v. The IDAHO STATE INSURANCE FUND, James M. Alcorn, its manager, and William Deal, Wayne Meyer, Marguarite McLaughlin, Gerald Geddes, Milford Terrell, Judi Danielson, John Goedde, Elaine Martin, Mark Snodgrass, Rodney A. Higgins, Terry Gestrin, Max Blanck and Steve Landon in their capacity as members of the Board of Directors of the State Insurance Fund, Defendants–Respondents.

152 Idaho 495

272 P.3d 467

Randolph E. FARBER, Scott Alan Becker, and Critter Clinic, an Idaho professional association, Plaintiffs–Appellants,

v.The IDAHO STATE INSURANCE FUND, James M. Alcorn, its manager, and William Deal, Wayne Meyer, Marguarite McLaughlin, Gerald Geddes, Milford Terrell, Judi Danielson, John Goedde, Elaine Martin, Mark Snodgrass, Rodney A. Higgins, Terry Gestrin, Max Blanck and Steve Landon in their capacity as members of the Board of Directors of the State Insurance Fund, Defendants–Respondents.

No. 38140.

Supreme Court of Idaho, Boise, December 2011 Term

Jan. 27, 2012.

Rehearing Denied March 23, 2012.

Lojek Law Offices, Chtd. and Gordon Law Offices, Boise, for appellants. Donald W. Lojek argued.

Hall, Farley, Oberrecht & Blanton, P.A., Boise, for respondents. Keely E. Duke argued.

HORTON, Justice.

Randolph Farber, Scott Becker, and Critter Clinic (hereinafter "Farber") represent the plaintiffs in this class action lawsuit. Farber alleges that the Manager of the State Insurance Fund ("SIF" or "the Fund") failed to comply with I.C. § 72–915, which provides the means by which the SIF Manager may distribute a dividend to policyholders. The district court determined that the gravamen of Farber's claim sounded in statute and held that the three-year statute of limitation provided by I.C. § 5–218(1) barred all claims that accrued prior to July 21, 2003. Farber timely appealed. We reverse and remand.

I. FACTUAL AND PROCEDURAL BACKGROUND

The litigation underlying this appeal was previously before this Court in Farber v. Idaho State Insurance Fund, 147 Idaho 307, 208 P.3d 289 (2009), rehearing denied (May 12, 2009) (Farber I ). The facts are here restated:

The Fund was created in 1917 to provide worker's compensation insurance to Idaho employers, particularly those employers who could not otherwise obtain insurance from private carriers. See I.C. § 72–901. The Board of Directors sets the Fund's policies while the Manager conducts the Fund's day-to-day operations. I.C. §§ 72–901 & 902. Since the Fund's inception, the Manager has, on occasion, distributed a dividend to policyholders pursuant to I.C. § 72–915. This dividend is different from the dividend issued to stockholders of a corporation and is instead a refund based upon a rate readjustment. From at least 1982 until 2003, whenever the Manager decided to distribute a dividend it was distributed to all policyholders who had paid premiums for at least six months prior to the distribution.¹ The amount of dividend each policyholder received was determined based on the premium amount the policyholder paid. Beginning in 2003, however, the Manager decided to calculate the dividend by splitting the entire surplus between those few policyholders who paid more than $2,500.00 in annual premiums to the Fund.² This practice continued during the following years' distributions as well.

The Plaintiffs of this class action lawsuit are those Idaho employers who paid annual premiums of $2,500.00 or less to the Fund for worker's compensation insurance from the policy year beginning in 2001 onward. These class members comprise the majority of the Fund's policyholders.³ Both parties moved for partial summary judgment regarding the proper interpretation of I.C. § 72–915. The Fund argued that the statute does not require the Manager to distribute dividends according to a set formula, but rather allows the Manager to exercise his discretion in determining how to distribute dividends amongst policyholders. The Plaintiffs conceded that the statute grants the Manager discretion in making the decision as to whether to distribute dividends, but argued that the statute prescribes how to distribute dividends once the Manager decides to make a distribution. The district court denied the Plaintiffs' motion for summary judgment, and instead granted the Fund's motion for partial summary judgment. It then certified the judgment for appeal pursuant to Idaho Rule of Civil Procedure 54(b).

The Plaintiffs appealed to this Court, reiterating their argument that the statute grants the Manager no discretion regarding how to distribute dividends amongst policyholders.

Farber I, 147 Idaho at 309–10, 208 P.3d at 291–92. This Court agreed with the plaintiffs and reversed the district court's grant of summary judgment, holding that the plain language of I.C. § 72–915 "limited [the Manager's discretion] to the decision of whether or not to distribute a dividend in the first place." Id. at 312, 208 P.3d at 294.

On remand, the parties disputed whether the gravamen of the complaint sounded in statute or in contract, the resolution of which would determine whether I.C. § 5–218(1) (providing a three-year statute of limitation for liabilities arising under statute) or I.C. § 5–216 (providing a five-year statute of limitation for actions upon contracts) was applicable. The district court held that the gravamen of Farber's claim was grounded in statute and granted partial summary judgment in SIF's favor, dismissing as barred by the I.C. § 5–218(1) statute of limitation the claims and causes of action that accrued prior to July 21, 2003. Farber moved for reconsideration, which motion the court denied. The parties ultimately stipulated to a settlement agreement. The settlement agreement expressly permitted an appeal of the district court's statute of limitation rulings as to the dividend periods from July 1, 1999 through June 30, 2000 and July 1, 2000 through June 30, 2001. The court entered final judgment, and Farber appealed the statute of limitation issue to this Court.

II. STANDARD OF REVIEW

"The determination of the applicable statute of limitation is a question of law over which this Court has free review." Hayden Lake Fire Prot. Dist. v. Alcorn, 141 Idaho 388, 403, 111 P.3d 73, 88 (2005) (Hayden Lake I ) (citing Oats v. Nissan Motor Corp. in the U.S.A., 126 Idaho 162, 164–72, 879 P.2d 1095, 1097–1105 (1994) ).

III. ANALYSIS

Farber advances a claim for breach of contract arising from the incorporation of I.C. § 72–915⁴ into the SIF's workers' compensation insurance policies. The issue in this case is whether the gravamen of Farber's claim sounds in statute or contract.⁵ Farber contends that where a contract incorporates a statutory framework, there is a continuum between statute and contract upon which the gravamen of a claim may sound, and where the true gravamen of such a claim is subject to reasonable dispute, the five-year statute of limitation for actions arising from contract should apply. Farber also contends that because his claim involves the consideration supporting the parties' contract it falls on the contract end of the continuum such that the Court should apply the statute of limitation applicable to contracts.

We hold that Farber's claim is grounded in contract and, thus, the five-year statute of limitation in I.C. § 5–216 applies. In so doing, we overturn the holding regarding application of the statute of limitation in Hayden Lake Fire Protection Dist. v. Alcorn (Hayden Lake I ), 141 Idaho 388, 111 P.3d 73 (2005) because it is manifestly incorrect. This is so because there would be no grounds upon which Farber could seek redress if the insurance contract did not exist. Farber correctly argues:

Absent a contract of insurance with the SIF, [ I.C. § 72–915 ] confers no rights to any employer and imposes no duties on the SIF. The statute, standing by itself, does not create a cause of action. Employers in the State of Idaho who do not have an "agreement" or a "policy" or "contract" with the SIF are not entitled to any dividends pursuant to I.C. § 72–915.... It is the contract and its breach by the SIF that allow the Plaintiffs and their Class to bring this action....

Former I.C. § 72–915 was a provision of the contract, and our previous decision in this matter allowed Farber to recover by virtue of this Court's interpretation of that contract provision. See Farber I, 147 Idaho at 312, 208 P.3d at 294.

The insurance contract at issue here would not be complete without the premium provisions set out in Chapter 9, Title 72, Idaho Code. The policy issued to Farber and the other insureds only sets out the consideration that insureds will receive under the contract, i.e., the policy coverage provisions. Nothing in the policy outlines the consideration SIF will receive in exchange for the coverage—there is no mention of the premium or how it will be calculated. Rather, only the statutory provisions do that. As Farber suggests, they are essential to the contract and its enforcement. Idaho Code § 72–905 authorizes the SIF Manager to make contracts of insurance. Idaho Code § 72–918 states that "[e]very employer insuring in the state insurance fund shall receive from the manager a contract or policy of insurance." Idaho Code § 72–913 requires the Manager to establish equitable rates for SIF's insurance policies and to fix premiums "with due regard to the physical hazards of each industry, occupation, or employment, and, within each class, so far as practicable, in accordance with the elements of bodily risk or safety or other hazard ... together with a reasonable regard for the accident experience and history of each such insured."⁶ Idaho Code § 72–914 requires the Manager to account for monies paid in premiums based upon the classes of employment and to keep account of the disbursements and reserves. Former Idaho Code § 72–915 gave the Manager discretion to readjust rates and make refunds to policyholders. Idaho Code § 72–919 makes provision for recovery by SIF of delinquent premiums. Idaho Code § 72–923 creates liability against employers who misrepresent the amount of payroll upon which their premiums are calculated, imposing a penalty and providing for enforcement in a civil action by the Manager.

These are not statutes of general application. Rather, these statutory provisions apply only to SIF policies, which are issued by SIF as only one of the workers' compensation insurance carriers in the State...