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
                                                                  MEMORANDUM OPINION* BY
    v.     Record No. 2320-04-4                                   JUDGE JAMES W. BENTON, JR.
                                                                        AUGUST 2, 2005
                     Iris W. Redmond (Midkiff, Muncie & Ross, P.C., on brief), for
                     (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.
           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
               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. . . .
    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
    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.
           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
           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
    require it to pay Duffner’s claim and that this application is contrary to legislative intent. We
           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).
           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
                   Wilkes v. Wilkes, 
    115 Va. 886
    80 S.E. 745
     [(1914)]; Walker v.
    130 Va. 567
    107 S.E. 720
     [(1921)]; Fidelity Co. v. Gill,
    116 Va. 86
    81 S.E. 39
     [(1914)]; Southern Railway Co. v.
    105 Va. 651
    55 S.E. 459
    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,
    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
    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.
    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
             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
    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).
                   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.
    For these reasons, we affirm the commission’s award.
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