Uninsured Employer's Fund v. Cheryl E. Duffner and Montgomery Ward & Company ( 2005 )

COURT OF APPEALS OF VIRGINIA
Present: Judges Benton, Haley and Senior Judge Annunziata
Argued at Alexandria, Virginia
UNINSURED EMPLOYER’S FUND
MEMORANDUM OPINION* BY
v. Record No. 2320-04-4 JUDGE JAMES W. BENTON, JR.
AUGUST 2, 2005
CHERYL E. DUFFNER AND
MONTGOMERY WARD & COMPANY
FROM THE VIRGINIA WORKERS’ COMPENSATION COMMISSION
Iris W. Redmond (Midkiff, Muncie & Ross, P.C., on brief), for
appellant.
(Cheryl Duffner, pro se, on brief).
No brief or argument for appellee Montgomery Ward & Company.
Cheryl Duffner suffered a compensable injury in 1978 while working for Montgomery
Ward & Company and received an award for lifetime benefits. Montgomery Ward, a
self-insured employer, was declared bankrupt in 2000. Upon Duffner’s application for payment
of medical expenses, the Workers’ Compensation Commission ruled that the Uninsured
Employer’s Fund was required to pay Duffner’s benefits pursuant to Code § 65.2-1203(A),
which was amended in 1983 to provide benefits from the Fund “[w]henever . . . a self-insured
employer or its surety . . . is unable to satisfy an award in whole or in part.” The Fund contends
the commission erred in ruling that the statute “should be applied retroactively” and in requiring
the Fund to pay Duffner’s benefits. For the reasons that follow, we affirm the award.
*
Pursuant to Code § 17.1-413, this opinion is not designated for publication.
I.
In 1980, the commission entered an award against Montgomery Ward & Company, a
self-insured employer, and in favor of Cheryl Duffner for injuries sustained in 1978 to her right
upper extremities. The award included lifetime medical benefits, which Montgomery Ward paid
until 1987, when it surrendered its self insurance privilege. Duffner continued to receive benefits
from Montgomery Ward’s commercial insurance carrier until payments were discontinued in
2000, when Montgomery Ward was liquidated in bankruptcy.
On January 22, 2002, Duffner filed an application seeking payment for medical expenses.
The deputy commissioner found that Duffner’s medical and travel expenses were causally
related to her 1978 injury by accident, but ruled that the Uninsured Employer’s Fund was not
liable for those payments because Duffner’s injury occurred in 1978, prior to the 1983
amendment of Code § 65.1-149.1 The deputy commissioner ruled that the General Assembly
1
In 1978, Code § 65.1-149 provided as follows:
After an award has been entered against an employer for
compensation benefits under any provision of this chapter, and
upon a finding that the employer has failed to comply with the
provisions of § 65.1-104, the Commission shall order the award to
be paid from the Uninsured Employers Fund.
At that time, Code § 65.1-104 contained the following provision:
Every employer subject to this Act shall insure and keep insured
his liability thereunder in some corporation, association, or
organization or State insurance fund authorized to transact the
business of workmen’s compensation insurance in this State or in
some mutual insurance association formed by a group of
employers so authorized, or shall furnish to the Industrial
Commission satisfactory proof of his financial ability to pay direct
the compensation in the amount and manner and when due as
provided for in this Act. In the latter case the Commission may in
its discretion require the deposit of an acceptable security,
indemnity or bond to secure payment of compensation liabilities as
they are incurred. . . .
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gave no indication it intended retroactive application of the amended statute (now Code
§ 65.2-1203(A)(1)).
Duffner appealed to the full commission. The commission noted that the Fund did not
dispute that Duffner’s medical expenses were causally related to her injury by accident. The
commission agreed with the deputy commissioner’s ruling that when the injury by accident
occurred in 1978, the Workers’ Compensation Act did not require the Fund to pay benefits on
behalf of a self-insured employer who was unable to pay, unless the employer had violated the
Act. The commission found that Montgomery Ward had not violated the Act and had complied
with the requirements of Code §§ 65.1-149 and 65.1-104 prior to its liquidation. As the
commission explained, it could have required Montgomery Ward to provide satisfactory proof of
its financial ability to pay; it could also have required Montgomery Ward to provide a deposit of
an acceptable security, indemnity, or bond; but it did not do so. Because of these circumstances,
the Fund would have not been liable under the law as it existed in 1978.
After reviewing the purpose for which the General Assembly created the Fund, the
commission construed Code § 65.2-1203, which is the successor to Code § 65.1-149, and ruled
that it was applicable to the facts of this case. Two members of the commission ruled that the
legislature intended for Code § 65.2-1203 to apply retroactively and that, when the statute was
applied to the circumstances of this case, the Fund was required to pay Duffner’s medical
expenses because Montgomery Ward was unable to satisfy the award.
One commissioner disagreed with the conclusion that the statute could be applied
retroactively. He joined in the result, entering an award against the Fund, but reasoned that this
was not a retroactive application of the statute because Duffner’s cause of action against the
Fund did not arise until she incurred medical bills in 2000. At that time, Montgomery Ward and
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its surety were no longer able to pay for her medical treatments, which occurred after the
bankruptcy liquidation in 2000 and after the Fund became liable under the 1983 amendment.
II.
The Fund contends that the commission erred in entering an award requiring the Fund to
pay Duffner’s medical benefits and in ruling that Code § 65.2-1203 should be applied
retroactively.
While “[t]he commission’s construction of the Act is entitled to great weight on appeal,”
Am. Mutual Fire Ins. Co. v. Barlow, 4 Va. App. 352, 354, 358 S.E.2d 184, 186 (1987), we
review de novo questions of law, such as whether Code § 65.2-1203(A)(1) applies retroactively
or prospectively. Rusty’s Welding Serv., Inc. v. Gibson, 29 Va. App. 119, 127, 510 S.E.2d 255,
259 (1999).
The statute, which was amended in 1983, now provides, in pertinent part, as follows:
Whenever, following due investigation of a claim for
compensation benefits, the Commission determines that . . . the
employer of record has failed to comply with the provisions of
[Code] § 65.2-801 or that a self-insured employer or its surety as
required by [Code] § 65.2-801 is unable to satisfy an award in
whole or in part . . . the Commission shall make a provisional
award of compensation benefits, or any unpaid balance thereof,
without further delay. Thereafter, the Commission shall make a
final award concerning such benefits or unpaid balance thereof, in
accordance with the provisions of this chapter and all applicable
provisions of this title. The Commission shall order payment of
any award of compensation benefits pursuant to this chapter from
the Uninsured Employer’s Fund.
Code § 65.2-1203(A)(1).
The statutory language is unambiguous. The issue this case presents is whether the
statute may be applied retroactively and whether its application to Duffner’s case is a retroactive
application of the statute. The Fund contends that the statute must be applied retroactively to
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require it to pay Duffner’s claim and that this application is contrary to legislative intent. We
disagree.
In our determination of these issues, we begin, as did the commission, by looking at the
purpose of the Fund and the language of the 1983 amendment. We first examine the purpose of
the Fund.
The Fund, a statutorily created entity financed by taxes levied
upon insurers, functions as a workers’ compensation insurer of last
resort under the limited circumstances described in the statute, i.e.,
when an employer fails to be suitably insured as required by Code
§ 65.2-801 or otherwise fails to satisfy a compensable claim. See
Code § 65.2-1203(A).
Uninsured Employer’s Fund v. Flanary, 27 Va. App. 201, 206-07, 497 S.E.2d 912, 914 (1998).
Interpreting Code § 65.1-149 as it existed prior to the 1983 amendment, we held that the Fund’s
function as a last resort is a means “to insure that injured employees will be paid their
compensation benefits even though their employer has breached [its] duty to secure
compensation insurance.” A.G. Van Metre, Jr., Inc. v. Gandy, 7 Va. App. 207, 213-14, 372
S.E.2d 198, 202 (1988).
Prior to 1983, the Fund was mandated to pay benefits to employees of employers who
had “breached their duty to secure compensation insurance,” (see former Code § 65.1-149);
however, the language of the statute did not provide coverage for claims against self-insured
employers who, after becoming insolvent, could no longer satisfy their awards. The General
Assembly obviously was aware of a gap in the Fund’s last resort function, and it amended the
statute to provide the following: “Whenever . . . a self-insured employer or its surety as required
by § 65.2-801 is unable to satisfy an award in whole or in part . . . the Commission shall make a
provisional award of compensation benefits, or any unpaid balance thereof . . . [and] shall order
payment of any [final] award . . . from the Uninsured Employer’s Fund.” Code
§ 65.2-1203(A)(1).
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In our review of the statute, we are guided by the principle that “‘[w]e must take the
statute as we find it, gather the legislative intent from the words used and give effect to the
purposes thus ascertained.’” Jeneary v. Commonwealth, 262 Va. 418, 426, 551 S.E.2d 321, 324
(2001) (quoting Van Geuder v. Commonwealth, 192 Va. 548, 554, 65 S.E.2d 565, 568 (1951)).
In so doing, we note that the Supreme Court has on several occasions interpreted statutes under
the Act against claims that the statutes were improperly deemed retroactive. Answering a
question posed by the commission, the Court in Allen v. Mottley Const. Co., 160 Va. 875, 170
S.E. 412 (1933), determined that the language of a statute unambiguously “shows it was intended
to apply retroactively and prospectively.” Id. at 889, 170 S.E. at 417. The Court’s analysis in
Allen is germane to this case:
[The amended statute] provides “no such review *** shall be
made after twelve months from the date of the last payment of
compensation pursuant to an award under this act”. . . . The
legislature has placed a limitation in which the petition for review
must be filed. The words “an award” are all-inclusive. If the
interpretation of the statute claimed by the employee in this case
should be placed upon the act, then it would be necessary for us to
supply words not found in the statute; that is, such construction
would make the act read “no such review *** shall be made after
twelve months from the date of the last payment of compensation
to any award hereafter made.” Such is not the language of the act.
As adopted, it includes two classes of awards -- those theretofore
made, and those thereafter to be made. There is nothing in the
phraseology that confines its operations to either past or future
awards, but both are included. For interpretation of similar
language see Litton’s Case, 101 Va. 833, 44 S.E. 923 [(1903)];
Wilkes v. Wilkes, 115 Va. 886, 80 S.E. 745 [(1914)]; Walker v.
Temple, 130 Va. 567, 107 S.E. 720 [(1921)]; Fidelity Co. v. Gill,
116 Va. 86, 81 S.E. 39 [(1914)]; Southern Railway Co. v.
Simmons, 105 Va. 651, 55 S.E. 459 [(1906)].
Allen, 160 Va. at 889-90, 170 S.E. at 417.
The Supreme Court has continued to apply this interpretation and “has relied upon Allen
as a ‘decisive’ example of a situation where retrospective intent is expressed in legislative
language.” Buenson Division v. McCauley, 221 Va. 430, 435, 270 S.E.2d 734, 737 (1980). We,
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likewise, have applied this same interpretation model to the words, “all wages,” in an amended
Workers’ Compensation statute and concluded that the statute, “as written, evidences a
retrospective legislative intent to include all wages, those already paid at the time of [the
statutory] enactment, and those thereafter paid.” Cohen v. Fairfax Hospital Association, 12
Va. App. 702, 710, 407 S.E.2d 329, 332 (1991).
In view of these decisions, we hold that, by using the term “an award” in the language of
the 1983 amended statute (“[w]henever . . . a self-insured employer or its surety . . . is unable to
satisfy an award”), the General Assembly intended that Code § 65.2-1203(A)(1) would apply to
both future awards and those already in existence. As the Supreme Court noted in Allen, if the
General Assembly did not intend to cover pre-enactment injuries, it could have simply included
the language that the Fund was only liable for those “awards . . . hereafter made.” 160 Va. at
889, 170 S.E. at 417. It did not do so when it amended the Act in 1983 to expand the claims the
Fund was required to pay. Instead, the plain language of the statute expresses an intention “that
it includes both past and future awards.” Id. at 890, 170 S.E. at 417. Thus, we hold that the
General Assembly intended to include both potential and currently existing awards with the
amendment and that the commission did not err in holding that the statute applied to require the
Fund to pay the award.
The Fund contends further that “the amendment should not be applied retroactively
because it affects the substantive rights of the Fund.” The Fund argues it has a substantive right
that is affected by a retroactive application of the statute because “[t]he amendment created an
obligation, where one did not previously exist, for the Fund to step in and respond to
non-payment of self-insured.”
In essence, the Fund, a statutorily created entity, contends that even if the General
Assembly manifested an intention that the statute be applied retroactively, it has a substantive
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right it can assert to thwart the intention of the General Assembly. While Courts long have
embraced a presumption against retroactivity that burdens private vested rights, see Shiflet v.
Eller, 228 Va. 115, 120, 319 S.E.2d 750, 753 (1984), the Fund provides no authority for the
proposition that it, a legislatively created statutory entity, can interpose a claim that it has a
protected substantive right in the statute as it existed prior to 1983 and that the legislature cannot
adjust retrospectively the Fund’s statutory obligation.2 We need not address this policy issue
because we hold that when applied in this case the 1983 amendment acted prospectively.
A statute does not operate “retrospectively” merely because it is
applied in a case arising from conduct antedating the statute’s
2
Although the commission did not address this issue, several authorities suggest that
such a claim may not be asserted by a state created entity:
“A state constitutional provision barring the passage of retroactive
laws protects only the rights of citizens; hence, a state may
constitutionally pass a retroactive law which impairs its own rights
and the rights of municipalities in such states.” 16B Am. Jur. 2d
Constitutional Law § 697 (2004) (footnotes omitted).
“[T]he state itself has no protection against retroactive application
of an act of its legislature.” 2 Norman J. Singer, Statutes and
Statutory Construction § 41:3 (6th ed. 2001).
“[T]he general rule applicable to individuals does not apply to
retroactive legislation impairing a state’s own rights. A state has
no vested rights which are immune from its legislative control.”
Skelton v. B.C. Land Co., 539 S.W.2d 411, 413 (Ark. 1976) (citing
16 C.J.S. Constitutional Law § 243 (1956)).
“This state may constitutionally pass retrospective laws waiving or
impairing its own rights or those of its subdivisions, or imposing
upon itself or its subdivisions new liabilities with respect to
transactions already passed, as long as private rights are not
infringed. ‘The court [in Fullilove v. U.S. Casualty Co. of New
York, 129 So. 2d 816 (La. App. 1961),] distinguished divesting a
state of its rights from divesting a person of his or her rights; the
latter action oversteps constitutional limitations on state action,
whereas no such proscriptions prevent a state from passing
retrospective laws waiving or impairing its own vested rights.’”
Rousselle v. Plaquemines Parish Sch. Bd., 633 So. 2d 1235, 1247
(La. 1994) (citations omitted).
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enactment or upsets expectations based in prior law. Rather, the
court must ask whether the new provision attaches new legal
consequences to events completed before its enactment. The
conclusion that a particular rule operates “retroactively” comes at
the end of a process of judgment concerning the nature and extent
of the change in the law and the degree of connection between the
operation of the new rule and a relevant past event. Any test of
retroactivity will leave room for disagreement in hard cases, and is
unlikely to classify the enormous variety of legal changes with
perfect philosophical clarity. However, retroactivity is a matter on
which judges tend to have “sound . . . instinct[s],” and familiar
considerations of fair notice, reasonable reliance, and settled
expectations offer sound guidance.
Landgraf v. USI Film Products, 511 U.S. 244, 269-70 (1994) (citations and footnotes omitted).
As we have noted, the General Assembly amended the Act in 1983 to provide for
payment of claims by the Fund to employees of “a self-insured employer . . . [that] is unable to
satisfy an award in whole or in part.” Code § 65.2-1203(A)(1). At the time the statute was
enacted, Montgomery Ward was a self-insured employer. In 2000 Montgomery Ward was
liquidated in bankruptcy. In 2002, Duffner filed an application to have her medical expenses
paid because Montgomery Ward’s agent had stopped payments in November 2000.
We agree with Commissioner Tarr’s assessment that, on these facts, the statute can
properly be viewed as operating prospectively. In this case, while the “rights of the employer
and employee [were] fixed at the time of the injury by accident,” see Roller v. Basic
Construction Co., 238 Va. 321, 330, 384 S.E.2d 323, 327 (1989), Montgomery Ward continued
to pay Duffner’s award well beyond 1983 when the statute was amended. The Fund’s obligation
was only inchoate in 1983. Had Montgomery Ward remained an ongoing concern, the Fund
might never have become liable. Thus, by definition, the operation of the amended statute on
these facts was prospective. Making the Fund liable for what was only a potential future
obligation, and for an obligation it might never incur, is plainly a prospective application.
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For these reasons, we affirm the commission’s award.
Affirmed.
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