Hogan v. Federated Mut. Ins. Co.
| Decision Date | 09 April 2021 |
| Docket Number | WCC No. 2020-5103 |
| Citation | 2021 MTWCC 6 |
| Parties | BRADY HOGAN Petitioner v. FEDERATED MUTUAL INSURANCE COMPANY Respondent/Insurer. |
| Court | Montana Workers Compensation Court |
Summary: Petitioner moves for summary judgment, asserting that Respondent does not have a right of subrogation against his third-party tort recovery as a matter of law because § 39-71-414, MCA (2017) — the statute governing a workers' compensation insurer's right of subrogation — is unconstitutional and "wholly void." Petitioner interprets § 39-71-414(1), MCA (2017), as allowing an insurer to immediately exercise its right of subrogation against a third-party tort recovery based on the amount of workers' compensation benefits "to be paid" in the future. He argues that this subsection violates his right to due process under Mont. Const. art. II, § 17, because there are too many variables and unknowns for this Court to make a finding of the amount of benefits "to be paid" in the future and because the subsection does not include any procedure by which a claimant could recoup the amount he pays to satisfy the insurer's subrogation lien if the insurer does not ultimately pay that amount of benefits. Petitioner argues that § 39-71-414(6)(a), MCA (2017), is unconstitutional under the second sentence of Mont. Const. art. II, § 16, because it allows a workers' compensation insurer to exercise its right of subrogation before the claimant is made whole. Petitioner also argues that § 39-71-414(6)(a), MCA (2017), violates his right to due process under Mont. Const. art. II, § 17, because it assigns the claimant the burden of proving that the workers' compensation insurer may not exercise its right of subrogation. Respondent asserts that this Court should not address Petitioner's constitutional challenges because they are not ripe and because there is an issue of material fact. In the alternative, Respondent argues that the statute is constitutional.
Held: This Court granted in part and denied in part Petitioner's Motion for Summary Judgment. Petitioner's constitutional challenges are ripe and there is no issue of material fact to the purely legal issues on which Petitioner moved for summary judgment. This Court did not reach the merits of Petitioner's argument that § 39-71-414(1), MCA (2017), is unconstitutional because, as interpreted by the Montana Supreme Court, this subsection does not give a workers' compensation insurer the right to immediately subrogate against a claimant's third-party tort recovery based on the amount of benefits "to be paid" in the future. The Montana Supreme Court has held in many cases that a workers' compensation insurer's right of subrogation is limited by the made whole doctrine, which provides that an insurer cannot exercise its right of subrogation until the claimant has been made whole for his entire loss and any costs of recovery in his third-party tort claim, including attorney fees. This Court ruled that § 39-71-414(6)(a), MCA (2017), is unconstitutional under Mont. Const. art. II, § 16, because its plain language allows an insurer to subrogate before the claimant has been made whole. However, contrary to Petitioner's position, the remedy is not a ruling that Respondent has no right of subrogation as a matter of law. Under established Montana law, Respondent has a right of subrogation under § 39-71-414(1), MCA (2017), and may exercise that right when Petitioner is made whole. This Court did not address the merits of Petitioner's argument that § 39-71-414(6)(a), MCA (2017), is unconstitutional because it assigns him the burden of proof because, having already ruled that this subsection is unconstitutional, this constitutional challenge is now moot.
¶ 1 Petitioner Brady Hogan moves for summary judgment, challenging the constitutionality of § 39-71-414(1) and (6)(a), MCA (2017). Hogan argues that Respondent Federated Mutual Insurance Company (Federated Mutual) does not have a right of subrogation against his third-party tort recovery as a matter of law because these provisions are unconstitutional and "wholly void." Federated Mutual argues that this Court should not address the merits of Hogan's constitutional challenges because they are not yet ripe and because there is an issue of material fact. Alternatively, Federated Mutual argues that § 39-71-414(1) and (6)(a), MCA (2017), are constitutional and that it has a right of subrogation as a matter of law and that it may presently exercise it against Hogan's tort recovery.
¶ 2 For the following reasons, this Court grants in part and denies in part Hogan's Motion for Summary Judgment.
¶ 3 On February 25, 2019, Hogan was injured while working for a subcontractor on a construction site. His injury ultimately led to a below-knee amputation.
¶ 4 Federated Mutual insured Hogan's employer under the Workers' Compensation Act (WCA). It accepted liability for Hogan's injury.
¶ 5 Hogan filed a tort action against Highline Partners, Ltd., the general contractor. Highline Partners had liability policies with limits totaling $8 million.
¶ 6 In the spring of 2020, Hogan and Highline Partners, and its liability insurers, reached a settlement agreement under which Hogan accepted $7,875,000 in exchange for a release. Highline Partners' insurers paid the remaining $125,000 of the policy limits to the other person injured in the accident.
¶ 7 From his tort recovery, Hogan paid $2,536,421.41 in attorney fees and approximately $101,000 in costs.
¶ 8 Federated Mutual has paid approximately $650,000 in workers' compensation benefits.
¶ 9 Federated Mutual has asserted a right of subrogation against Hogan's tort recovery under § 39-71-414, MCA (2017).
¶ 10 On April 8, 2020, Hogan's attorney sent an email to Federated Mutual's attorney, stating, "Please notify us exactly how much money your client wants us to set aside in order to satisfy the lien your client is choosing to assert against Brady Hogan's third-party recovery."
¶ 11 Federated Mutual's attorney responded with an email stating, "I think $500,000 will be sufficient and it is something we can discuss at MMI if Mr. Hogan is interested in resolving his claim."
¶ 12 Pursuant to Federated Mutual's asserted subrogation lien, Hogan's attorney has placed $500,000 from Hogan's tort recovery into his IOLTA account.
¶ 13 In his Petition for Hearing, Hogan asserts that Federated Mutual does not have a right of subrogation under Montana law because § 39-71-414(1) and (6)(a), MCA (2017), are unconstitutional. Thus, Hogan alleges that Federated Mutual's asserted subrogation lien is invalid. In the alternative, Hogan asserts that Federated Mutual cannot exercise its right of subrogation because he has not been made whole.
¶ 14 This case is governed by the 2017 version of the Montana WCA because that was the law in effect at the time of Hogan's industrial injury.1
¶ 15 To prevail on a motion for summary judgment, the moving party must meet its initial burden of showing the "absence of a genuine issue of material fact and entitlement to judgment as a matter of law."2 "[If] the moving party meets its initial burden to show the absence of a genuine issue of fact and entitlement to judgment, the burden shifts to the party opposing summary judgment either to show a triable issue of fact or to show why the undisputed facts do not entitle the moving party to judgment."3
¶ 16 The Montana Supreme Court recently explained:
To be a justiciable controversy, a case must be ripe, meaning it must present an actual, present controversy. "The basic purpose of the ripeness requirement is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements." Thus, "[r]ipeness is predicated on the central perception that courts should not render decisions absent a genuine need to resolve a real dispute; hence, cases are unripe when the parties only point to hypothetical, speculative, or illusory disputes as opposed to actual, concrete conflicts."4
¶ 17 Federated Mutual asserts that Hogan's constitutional challenges to § 39-71-414(1) and (6)(a), MCA (2017), are not ripe on the grounds that the statute has not yet been applied to deprive Hogan of any legal interest. Because this Court is to "avoid constitutional issues whenever possible,"5 Federated Mutual maintains that this Court must first hold the trial and make the findings necessary to decide whether it may exercise its right of subrogation. If this Court decides that Federated Mutual may exercise its right of subrogation, Federated Mutual asserts that Hogan's constitutional challenges will then be ripe and that this Court can circle back and decide whether § 39-71-414(1) and (6)(a), MCA (2017), are constitutional, thereby deciding whether it has a right of subrogation under Montana law.
¶ 18 However, Hogan's constitutional challenges to both subsections are ripe because they present actual, present controversies. Hogan's challenge to § 39-71-414(1), MCA (2017), presents an actual, present controversy because Federated Mutual is currently using this statute to deprive him the use of $500,000 from his tort recovery. In asserting that it can presently exercise its right of subrogation against Hogan's tort recovery under § 39-71-414(1), MCA (2017), which provides that an insurer's right of subrogation is a"first lien" on the recovery, Federated Mutual has encumbered $500,000 of Hogan's tort recovery and demanded that Hogan's attorney not release that money to Hogan. Hogan maintains that Federated Mutual does not have a right of subrogation and that its subrogation lien is therefore invalid because § 39-71-414(1) MCA (2017), is unconstitutional. Thus, Hogan seeks the release of the $500,000. Because there is an actual, present controversy over whether...
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