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No. 53-320
IN THE SUPREME COURT OF THE STATE OF MONTANA
1984

HENRY WILLIS, Claimant and Appellant, -vs-LONG CONSTRUCTION COMPANY, Employer, and STATE COMPENSATION IPJSURANCE FUND I Defendant and Respondent.
APPEAL FROM: Workers' Compensatian Court, The Honorable Timothy
Reardon, Judge presiding.

COUNSEL OF RECORD: For Appellant: Connell & Beers; Mark S. Connell argued, Missoula, Montana For Respondent: Sarah Power argued, Asst. Attorney General, Helena, Montana (State Comp. Ins. Fund)
Submitted: June 1, 1984
Decided: ~love~lIber

1, 1934

Clerk

Mr. Justice Daniel J. Shea delivered the Opinion of the
Court.

Claimant Henry Willis a-ppeals from an order of the
Workers' Compensation Court holding that the State
Compensation Insurance Fund could reduce to present value the
claimant's lump-sum entitlement to which the court held
claimant was entitled. In doing so, the trial court
erroneously relied on section 39-71-741, MCA, as constituting
the authority for a reduction to present value. The
legislative history of the statute clearly reflects an intent
to do away with a reduction to present value of any lump-sum
award. The trial court further held as an alternative that
the State Fund coul.d, at its option, discount the 1-ump sum
awarded by application of the 5% discount factor contained in
section 39-71-2207, MCA. We further hold that this statute
does not apply to the facts of this case.

I. Facts And Procedural Background

The claimant suffered a disabling industrial injury
during the course of his employment with Long Construction
Company. This employer is enrolled under Compensation Plan
No. 3 of the Workers' Compensation Act and. its insurer is the
State Compensation Insurance Fund (State Fund). At trial the
parties stipulated that the claimant was permanently, totally
disabled and the main issues were whether claimant was
entitled to a lump-sum payment of his future benefits and. if
so, whether the future benefits must be d.iscounted to present
value.

After the evidentiary hearing the trial court ruled that
because of cl-aimant's mec!ical, psychological and financial
situations, it was in claimant's best interests to convert

his permanent future total disability benefits into a
1-ump-sum payment. The court considered claimant's desires to
pay off existing debts, to purchase fuel efficient
transportation, to buy a whirlpool bath for physical therapy,
and to buy a home. The court found claimant's total
entitlement to future permanent disability benefits, assuming
a remaining life expectancy of 37.9 years, to be $331,184.68.
This was the undiscounted figure. The court then held,
however, that the State Fund could relieve itself of
liability under section 39-71-741, by purchasing a commercial
annuity at the then existing market rates, or by using the 5%
discount factor contained in section 39-71-2207.

Within two weeks of the order the State Fund elected to
pay based on the trial court's interpretation of section
39-71-741, rather than to pay by the alternative method of
discounting the lump sum to present value by using the 5%
factor contained in section 39-71-2207. The State Fund,
using the cost of a commercial annuity with a lo%% discount
factor, discounted the lump sum to $70,000.00. Claimant
refused the tender and elected to appeal the trial court's
decision. The State Fund has not appealed from the trial.
court's underlj~ing decision that claimant is entitled to a
lump-sum payment. The issues on appeal simply involve the
interpretation and application of sections 39-71-741 and
39-71-2207.

Defendant's postion, simply stated, is that section
39-71-741, governing lump-sum conversions, does not permit a
reduction to present value, and further, that section
39-71-2207 has no application to the facts of this case. The
State Fund, on the other hand, argues that section 39-71-741,
permits a reduction to present value, but implies in its

briefs that defendant is correct in contending that section

39-71-2207, has no application to the facts to this case.

11. Section 39-71-741 Does Not Allow A Reduction To Present

Value:
Although 39-71-741, as it presently exists, is silent on

whether a lump-sum conversion must be reduced to present

value, the latest amendment to this sta.tute clearly reflects

the intent that lump-sum payments not be reduced to present

value. Section 39-71-741, as it now reads, provides:

"Compromise settlements and lump-sum payments--
division approval required. The biweekly payments
provided for in this chapter may be converted, in
whole or in part, into a lump-sum payment. Such
conversion can only be made upon the written
application of the injured worker or the worker's
beneficiary, with the concurrence of the insurer,
and shall rest in the discretion of the division,
both as to the amount of such lump-sum payment and
the advisability of such conversion. The division
is hereby vested with full power, authority, and
iurisdiction to allow and approve compromises of
claims under this chapter. All settlements and.
compromises of compensation provided in this
chapter are void without the approval of the
division. Approval of the division must be in
writing. The division shall directly notify every
clzimant of any division order approving or denying
a claimant's settlement or compromise of a claim.
A controversy between a claimant and an insurer
regarding the conversion of biweekly payments into
a lump sum is considered a dispute for which the
workers' compensation judge has jurisdiction to

make a determination."

As it now reds this statute simply provides that a

lump-sum payment can he made, in whole or in part, and the

Workers1 Compensation Division has the discretion to approve

or reject a compromise settlement or lump-sum payment.

However, the statute further provides that the Workers1

Compensation Court can determine whether th.ere should be a

lump-sum conversion if a dispute exists between the claimant

and the insurer. Nowhere does that statute mention

discounti~ga lump sum to present value. Furthermore, the

history of this statute's evolvement to its present form
clearly reflects a legislative intent to eliminate the
discounting of lump sums to present worth.

Earlier versions of section 39-71-741, had specific
provisions for discounting to present worth together with a
statutory discount rate to be applied. The first statute
dealing with this question, Ch. 96, 5 16, Laws of Montana

(1915), provided that lump-sum payments be discounted to present value at the rate of 5% per annum. This rate remained until the 1951 amendment of section 92-715, R.C.M.
(1947), when the discount rate was reduced to 2% per annum. Finally in 1975 the legislature amended section 92-715, by passage of H.B. No. 39, entitled, "An Act Amending Section 92-715, R.C.M. 1947 to Remove the 2% Discount on Lump Sum Settlements in Workmen's Compensation Cases; and Providing an Effective Date.'' This amended statute is codified at section 33-71-741, quoted above.
From 1915 to 1975, some 60 years, the predecessors to section 39-71-741, were the only authority to discount lump-sum payments made to claimants under the Workers' Compensation Act. Before the 1975 amendment, the discount factor had been reduced from 5% to 2%, but after the 1975 amendment, the discount factor was eliminated altogether. This 1975 amendment did not simply eliminate the 2% discount factor, it eliminated entirely the requirement that lump-sum payments be discounted to present value. The background of the 1975 amendment clearly reflects this intent.
Passage of the 1975 amendment indicates that two primary
factors were behind the amendment. First, insurance carriers
under Plans I and 11 were customarj-ly waiving the statutory
2% discount, which means that claimants receiving benefits

under these plans wou1.d receive a lump-sum payment
undiscounted to present value. On the other hand, the Plan
I11 carrier, the State Fund, was under strong pressure from
the legislative auditor tc? apply the 2% discount fa.ctor to
lump-sum payments, and as a result claimants receiving
benefits und.er this plan would receive less than claimants
who received. benefits under Plans I and 11. By passage of
the 1975 amendment, the legislature intended to equalize the
benefits under all three plans--by totally eliminating the 2%
discount factor. This meant that the State Fund would no
longer discount lump-sum payments by a-pplication of the 2%
discount factor, and claimants, like the carriers under Plans
I and 11, would get their lump-sum payments undiscounted.

Second, there exists in the testimony before the
committees who considered this a.mendment, and in the minutes
of these committees, a recurring theme that a worker who
received a lump sum could only be made whole by receiving the
lump-sum payment undiscounted to present value.

There is no indication of opposition to this amendment,
either in the proceedings before the House or the proceedings
before the Senate. In considering H.B. No. 39, the minutes
of the Senate Labor and Employment Relations Committee, filed
Februa-ry 3, 1975, reflect that those supporting the bill

thought  it  unfair  to  compel  a  working  person  to  take  a  
lump-sum  payment  reduced  to  present  value.  The  Senate  
Minutes state:  

"Consideration of House Bill 39: Representative Mular appeared before the committee to introduce this bill. This bill eliminates the present 2% worth adjustment -on lump-sum settlements. This is like a sales tax on lump-sum payments. (See atta.chzd Memorandum. )-
"Norman Grosfield, of the Division of Workmen's
Compensation, appeared in support of this bill. In

the law, if someone applies for a lump-sum
settlement, the law requires a 2% discount be
taken. It is significant that an injured man, in

--.----
this day and *, receive all the money he can. This 2% adTstment is very insignificant . Private insurers and Plan 1 insur&rs waive this fee.
"Ernie Post, of the Montana AFL-CIO, appeared in support of HB 39. This 2% is deducted from the claimant's award. He also stated that in these times --
it is important to an injured worker to be
awarded his total claim." (Emphasis added.)

The memorandum referred to in Minutes of the Senate

Labor Employment Relations Committee (see emphasized. portion

of the quote from the Senate Minutes), was filed in both the

House of Representatives a.nd the Senate in support of H.B.No.

39. The memorandum is directed at eliminating the
requirement that lump-sum payments be discounted to present

value. It states in relevant part:

"House Bill 39 would amend Section 92-715, R.C.M.
1947, by eliminating a 2% present worth adjustment
on lump sum payments. Section 92-715 allows the
Division of Workmen's Compensation to grant lump
sum payments. Thus, an individual who may have a
certain sum of compensation due him can request
that that amount of compensation be converted into
a lump sum payment. Such a conversion must be
approved by the Division. In certain instances,
the Division will allow such conversions if the
injured worker can illustrate a need for the
conversion. If a conversion of future biweekly
payments is granted, the law grants to the insurer
a present worth adjustment.

"The 2% discount was placed in the law in order to
give the insurer a certain benefit in that if the
insurer were to pay out the award biweekly instead
of in a lump sum, the insurer would have the amount
of the award for a period of time for investment
purposes, etc.

"It should be noted that the 2% discount does not
apply to lump sum payments that relate to
accumulated compensation. It only applies to
settlements involving the conversion of future
biweekly compensation payments into a lump sum.
The Division has found that most self-insurers and
private insurance companies waive the 2% discount
in the settlement of cases. However, the Division
has taken the position that the State Insurance
Fund should not waive the 2% discount because of

the recommendations of the Legislative Auditor. The calculation --
of the discount is somewhat of an
administrative burden, and the-time spent b~
Division employees in calculating the discount
could be utilized more effectively in other areas.

"The discount has actually very little financial
effect on an insurer. but it could have a
considerable financial impact on an injurea
claimant who is in desperate need of financial
assistance for his family and himself. The removal.
of the discount will have very little or no effect
on employers premium rates. The present
application of the discount does discriminate
against employees under Plan 3 in that in most Plan
1 and 2 cases, the self-insurer or the private
insurer waives the discount in favor of the
employee.

"It is, therefore, recommended that the d.iscount be deleted. It is also recommended that House Rill 39 be given an immediate effective date. " (Emphasis added.)
Trial Court's Analvsis

In discussing the legislative background of the 1975
amendment the trial court, although it quoted the Minutes of
the House and Senate Committees, and quoted the supporting
memorandum submitted to each committee by the head of the
Workers' Compensation Division, ignored these documents other
than to seize upon one item: the trial court concluded that
the sole purpose of the amendment was to eliminate the
discrimination against claimants who fortuitously found
themselves covered by a Plan 111 (State Fund) insurer who was
compelled to apply the statutory 2% discount when paying in a
lump sum. The sole purpose of the amendment, the court
reasoned, was to equalize the treatment of claimants under
all three plans. With this as its premise, the trial court
then effectively ruled that a discount factor must be applied
to lump-sum payments under section 39-71-741, but that all
three insurance plans must employ the same basis for reaching
the proper discount factor.

In reaching its conclusion that section 39-71-741 still

requires a discount to present value, the trial court seized on the language of the statute which provides that future benefits payable to a claimant "may be converted . . .into a lump sum." (Emphasis added.) The court seized upon the word "converted" and reasoned that it must mean a discount to present value. The court applied two non-applicable non-Montana cases--Bethlehem Steel Co. v. Jackson (Md. 1952), 87 A.2d 841, and State Insurance Fund v. Renak (Utah 1980) , 621 P.2d 714--in hold-ing that the word "convert" meant essentially the same in the context of the issues involved, as the word "commute. " We have no need, however, to engage in a battle of semantics because these cases have no application to the issue involved in this case. IJeither case involved a situation with a legislative history such as section 39-71-741, and neither case involved a situation where, over the years the discount factor was at first 5%, then 2%, and then eliminated altogether. Based on section 39-71-741, and its history of amendments, we doubt that the Maryland and Utah courts would have reached the same decision as did the trial court here.
The trial court's order reading into section 39-71-741,
a requirement that lump-sum payments be discounted to present
value, flies in the face of the legislative history of the
statute and the proceedings finally removing the discount
factor altogether. Clearly, a lump-sum payment, when made
under section 39-71-741, cannot be discounted to present
value.

111. Section 39-71-2207, MCA, Does Not Apply To This Case

As we have already stated, the trial court ruled
alternatively that section 39-71-2207, applied to this

lump-sum payment also, and that the State Fund could relieve
itself of liability by paying a lump-sum to claimant
discounted at the statutory 5% discount rate. Here, however,

the  State Fund  elected  to  forego application of  section  
39-71-2207,  and  to  pay  according  to  the  trial  court.'^  
interpretation  of  section  39-71-741,  discussed  above.  

Perhaps one reason for the State's election was that section
39-71-2207, contains a mandatory 5% discount rate while the
trial court's interpretation of section 39-71-741 permitted
application of a discount rate based on the interest rates
then existing for commercial annuities. Based on this
holding, the State Fund discounted the lump sum using a lo*%
discount rate. Beyond this, however, it is possible the
State Fund believed 39-71-2207 to have no application to this
case. Whatever the State Fund's motives, we hold that
section 39-71-2207 does not apply to this case.

The focus and intent of section 39-71-2207, is
completely different from, and does not conflict with the
lump-sum provisions of section 39-71-741. As we have already
indicated, section 39-71-741, applied to lump-sum payments
either approved by the Workers' Compensation Division or
ordered by the Workers' Compensation Court where the parties
have disputed either entitlement or the amount. This statute
deals with the procedure authorizing the discretionary
conversion of a claimant's future disability benefits, in
whole or in part, into a lump-sum payment.

On the other hand, section 39-71-2207, applied to
situations in which the insurer is liable for future periodic
payments but seeks to avoid administration of the fund
necessary to assure the future payments. If the Workers'
Compensation Division approves the submitted plan, the

insurer is relieved of all future liability by either
depositing the sum, discounted to present worth, with the
Division, or by purchasing an annuity with an insura.nce
company. The statute applies to all insurers under the
Workers' Compensation Act, including the State Fund. (See
definition of insurer in section 39-71-116(8), MCA.) Section
39-71-2207, provides:

"How insurer relieved from Liability. Any insurer
against whom liability may exist for compensation
under this chapter may, with the approval. of the
division, be relieved therefrom by:

"(1) depositing the present value or the estimated
present value of the total unpaid compensation for
which such liability exists, assuming interest at
5% per annum, with the division; or

"(2) purchasing an annuity within the limitations provided by law in any insurance company granting annuities and authority to transact business in this state, subject to the approval of the division."
Under this statute the result is the same for the
claimant, regardless of which option the compensation insurer
invokes: the claimant does not get a lump-sum payment. If
the insurer invokes section (1) of the statute the Workers'
Compensation Division administers the fund and is responsible
for future payments. And if the compensation insurer invokes
section (2) of the statute an insurance company makes the
required periodic payments. In either situation claimants
entitlement to a lump-sum payment is not a factor.

IV. Conclusion

In summary, we hold that when a lump-sum payment is
ordered under section 39-71-741, MCA, it cannot be discounted
to present value. We further hold that section 39-71-2207,
MCA is inapplicable to lump-sum payments because it does not
deal with discretionary conversion of future benefits to a
lump sum to be paid a claimant. We therefore reverse the

order discounting the entire lump sum to present value.
However, we do not hold that claimant is entitled, as a
matter of right, to the entire undi-scounted sum of
$331,184.68. Rather, the trial court must determine, under
section 39-71-741, whether claimant's best interests would be
served by either a full lump-sum payment or by a partial
lump-sum payment, with the remainder to be paid out in
regular bi-weekly payments.

The issue of whether claima.nt is entitled to a lump-sum
payment has already been decided by the trial court.
However, we remand for a determination consistent with this
opinion, of whether it should be a full lump-sum payment or a
partial lump-sum payment.

/ -
/ Just@ ,/
We Concur:

Justices

Mr. Justice Fred J. Weber dissents as follows:
I respectfully dissent from the majority opinion in its
conclusion that Section 39-71-2207, MCA, does not apply to
this case. As pointed out in the majority opinion, an insur--
er has two alternatives to the continued payment of weekly
compensation. First, the insurer can deposit cash with the
Division in an amount equal to the estimated present value of
the total unpaid compensation, assuming interest at 5
percent. Following such a deposit, payment will be made to
the claimant on a weekly basis from that fund. The second
alternative is that the insurer may purchase an annuity
sufficient to pay out weekly compensation benefits owing to
the claimant. In that event, the insura-nce company shall pay
the weekly benefits to the claimant. The majority opinion
indicates such an annuity could be purchased for the claimant
for approximately $70,000.

The majority opinion results in an award of $331,184.68
to the claimant if the Workers' Compensation Court concludes
that a full lump sum settlement should be made. Should that
award be made, the claimant could take approximately $70,000
and purchase an annuity which would guarantee him the same
weekly benefits he presently is receiving from the insurer
for the balance of his life. This would then leave approxi-
mately $250,000 to be expended by the claimant. An
alternative possibility under the majority opinion is that
the claimant could use $140,000 to purchase an annuity giving
him lifetime weekly benefits twice those already awarded to
him by the Fund, and yet still have approximately $200,000
remaining for expenditure.

In holding that Section 39-71-2207, MCA, does not apply
in this case, the majority has failed to address the inter-
play of that section with Section 39-71-741, MCA. The result

of that failure can be illustrated simply by setting forth
the following argument, which the claimant now appropriately
may make before the Workers' Compensation Court on remand:

(1) Describe in detail. the various debts and needs on

+the part of the claimant which justify a request for a lump
sum payment.

(2)
Request that the Court award the full lump sum of
$331,184.68.


(3)
To remove any question present in the Court's mind
regarding proper protection for the claimant, offer to apply
approximately $70,000 from the lump sum settlement for the
purchase of a commercial annuity which will guarantee weekly
payments to the claimant equal in amount to those presently
being paid to him, thereby protecting claimant against any
future waste of funds.


(4)
Emphasize to the Court that it would -not be to the best interest of the claimant should the Court fail to award the full sum of $331,184.68, as that would benefit only the State Fund. Point out to the Court that under the statutes and opinions of the Montana Supreme Court, the Workers' Com- pensation Court must interpret the law liberally for the benefit of the claimant. Emphasize that such a liberal interpretation requires the payment of the full sum of $331,184.68 because of the obvious great benefit granted to claimant without any risk of harm.


The foregoing illustrates the dilemma resulting from the
majority opinion. In addition, it may cause a race of the
diligent as between insurers seeking to purchase an annuity
and claimants seeking a lump sum settlement.

I trust that the next session of our legislature will
address this dilemma.

Justice w
Mr. Justice John C. Harrison and Mr. Justice L. C. mlbrandson join in the foregoing dissent. yp
,, >/
u tices

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