           IN THE SUPREME COURT OF THE STATE OF MONTANA
                           No.      82-392


DONAL R. SORUM (FATAL),
DELORES P. SORUM, personal
representative for the Estate
and of DENISE SORUM MATZ and
LEE ANN GETTEN, as children
of the deceased,
            Claimant and Appellant,
             v.

RIEDER AND COMPANY,
            Employer,
     and
AMERICAN HARDWARE MUTUAL,
            Insurer, Respondent and
            Cross-Appellant.


                      ORDER AMENDING OPINION

PER CURIAM:
     The parties having notified the Court that an error of
fact appears in our opinion in this case,
     IT IS ORDERED:
     1.     The opinion of Court in this case be and is hereby
amended so that the language appearing on page three of the
opinion reads as follows:
     "Claimants Sorum and American Hardware were unable
     to reach an amicable agreement as to the division
     of the settlement. As a result, $285,000 of the
     settlement had before this appeal been distributed
     to Sorum; the remaining $15,000 has been placed in
     deposit with a trustee pending the outcome of this
     litigation."

     DATED this    la    day .8&
                              34-
                              of
                    -   \
C h i e f Justice
                                              No.    82-392

                     I N THE SUPREME COURT O THE STATE O M N A A
                                            F           F OTN

                                                     1983




D N L R . SORUM, (FATAL), DELORES P.
 O AD
SORUM, p e r s o n a l r e p r e s e n t a t i v e f o r t h e
E s t a t e o f DENISE S R M YATZ AND LEE ANN
                          OU
GETTEN a s c h i l d r e n o f d e c e a s e d ,

                                 C l a i m a n t and A p p e l l a n t ,



RIEDER AND COMPANY, Employer,

               and

AMERICAN H R W R MUTUAL,
          AD AE

                                 Defendant and Respondent.




Appeal from:          W o r k e r s ' Compensation C o u r t , The H o n o r a b l e
                      Timothy Reardon, J u d g e p r e s i d i n g .


C o u n s e l o f Record:

           For Appellant:

                      F r i s b e e , I4oore & S t u f f t ; J o h n P . Moore a r g u e d ,
                      C u t Bank, Montana


           F o r Respondent:

                      M a r r a , Wenz, J o h n s o n & Hopkins; Thomas Marra a n d
                      C h a r l e s J o h n s o n a r g u e d , Great F a l l s , Montana




                                              Submitted:            J u n e 2 , 1983

                                                  Decided:          J u l y 1 4 , 1983



           JUL 14 1383
F i l e d ..




                                              Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the Court.
     Claimants Sorum appeal from an order of the Workers'
Compensation Court awarding              100% subrogation to American
Hardware Mutual in the proceeds of a third-party settlement
of   tort   claims       achieved   by    Sorum.     American           Hardware
cross-appeals         from   the    application      by       the       Workers
Compensation Court of the Swanson rule (Swanson v. Champion
International Corporation (1982),                  Mont   .         ,   646 P.2d
1166, 39 St.Rep. 639), to the subrogation rights of American
Hardware.
     We reverse the Workers Compensation Court as to the 100%
subrogation interest of American Hardware, and affirm the
application of the Swanson rule.
     Before discussing the issues, we state the general facts
giving rise to the controversy.            Donald R. Sorum, an employee
of Rieder   &       Company of Cutbank, Montana, lost his life on
August 22, 1979 as the result of an industrial accident.                     One
Leonard F. Doran was operating a road grader which got out of
control and struck a scaffold upon which decedent Sorum was
working.    The circumstances related to this court indicate
that the death may have been instantaneous.
     Rieder     &   Company, Sorumfs employer, carried its workersf
compensation coverage with American Hardware.                 That company,
in the regular course of events, began paying workmanfs
compensation benefits to the widow of the deceased, Dolores
P. Sorum.     The subrogation rights of American Hardware arise
out of the payment of those benefits.
     Dolores Sorum, as personal representative and widow of
the decedent, and the heirs in their own behalf, brought suit
against Leonard F. Doran for damages arising out of the
injuries and death of Donald R. Sorum.              While this suit was
in progress, Doran's           insurance carrier, Safeco Insurance
Company, brought action in the District Court, 18th District,
Gallatin County, alleging fraud in the procurement of the
insurance policy which would otherwise insure Doran for his
liability arising out of Sorum's death.                Through claimants'
counsel, Sorums intervened in the Gallatin County action and
eventually the District Court in Gallatin County granted
summary judgment in favor of the Sorums, refusing to hold
Doran's insurance policy void.           As a result, a settlement of
$300,000 was reached for Safeco's responsibility as insurer
of Doran.
     Claimants Sorum and American Hardware were unable to
reach    an    amicable agreement as        to    the division of     the
settlement.          As a result, the $300,000 has been placed on
deposit       with     a   trustee    pending    the   outcome   of   this
litigation.          In the meantime, the matter was brought to the
Workers' Compensation Court for decision, resulting in the
orders which are here appealed from by the parties.


Whether       American     Hardware   - entitled - - - -
                                      is         to 50% or 100%
subrogation - - benefits - - paid - -
            for the      it has   or will pay -
                                              to
claimants Sorum.
     The subrogation rights of American Hardware, a first
lien on the claim, judgment or recovery made by the Sorums,
an controlled by section 39-71-414, MCA.               In pertinent part,
that section provides:
        "Section 39-71-414.      Subrogation.
     "(1) If an action is prosecuted as provided
     for.      ..
              the insurer is entitled to subrogation for
     all compensation and benefits paid or to be paid
     under the Workman's Compensation Act. .             .
     " (2) (a) If the injured employee intends to
     institute the third-party action, he shall give the
     insurer reasonable notice            of   his     intention    to
     institute the action.
     "(b) The injured employee may request that the
     insurer pay a proportionate share of the reasonable
     cost of the action, including attorneys' fees.
     " (c) The insurer may elect not to participate in
     the cost of the action. If this election is made,
     the insurer waives 5 0 % of its subrogation rights
     granted by this section.


     " ( 3 ) If an injured employee refuses or fails to
     institute the third-party action within 1 year from
     the date of injury, the insurer may institute the
     action in the name of the employee and for the
     employee's benefit or that of the employee's
     personal representative.          . ."
     The principal controversy under this issue is whether
American Hardware communicated to Sorums that it elected to
pay a proportionate share of the reasonable costs of the
action against Doran, including attorney's fees.                   American
Hardware contends that it did communicate such election to
counsel for the Sorums.            On the other hand, the Sorums
contend that American Hardware never communicated its intent
to pay such costs and attorney's fees until the settlement
had been achieved and, therefore, it has waived 5 0 % of its
subrogation rights.
     The record in this case, the arguments in brief and the
oral presentation are replete with charges and countercharges
by each counsel of bad faith and sharp practice on the part
of   the   other.      We        cut    through    these    charges       and
countercharges to     go    to    the heart       of   the matter:       What
evidence in the record indicates on the part of American
Hardware an unequivocal agreement communicated to the Sorums
that the company would pay a proportionate share of the
reasonable costs of the action, including attorney's fees?
        In the voluminous record of this case, all that we have
on this principal issue is a few letters between the parties
that    shed    any   light on American     Hardware's communicated
intent to Sorum.       Although the deposition of Wesley Noel, the
insurance adjuster for American Hardware handling the case at
the time, was taken in the course of the proceedings here,
Noel    was    prevented   by   his   counsel at   the   time of his
deposition from producing material from his file which would
have aided in determining American Hardware's intent as to
such participation.        Moreover, at the Workerst Compensation
Court hearing, no additional evidence was presented on oral
testimony other than documentary exhibits, including those to
which we will here advert.            We are, therefore, in as good
position as the Workers' Compensation Court to determine the
fact issue.
       As we indicated, on August 22, 1979, the decedent met
his unfortunate dea.th. On August 28, 1979, Noel traveled to
Bozeman to discuss the facts of the accident with Doran, the
operator of the road grader.           On October 12, 1979, letters
were issued to Dolores Sorum as personal representative of
the decedent's estate.          She signed the complaint against
Leonard Doran on October 26, 1979.         On November 6, 1979, ~ o e l
addressed a letter to counsel for the claimant, in which he
said with respect to the payment of costs and attorney's
fees:
       "As of now, we - - reached a final
                            have not
       determination - t o whether - - - - - - will
                     as -           or not we will-or

       --
       not participate - - - - of any action which
       miaht be filed.
                        in the cost
                          In the event YOU are unable to
                                             z

       reach an agreement with the Dorants insurance
       company or Doran and his representatives, and
       determine it is necessary to institute an action, I
       would appreciate your giving me ample notice of
       your intentions." (Emphasis supplied).
       On November 12, 1979, counsel for the Sorums transmitted
to Noel, along with an enclosing letter, a copy of Sorum's
complaint against Doran which, the letter stated, had been
filed.     The court file indicates that the complaint was filed
on November 15, 1979.
       The written records in this cause do not indicate that a
request was made by counsel for Sorums for payment of the
company's      share of    the   costs a.nd attorney's        fees under
section 39-71-414 (2)(b).        However, Noel's letter of November
6, 1979, stating the company had not yet made a decision,
indicates such a request had been made.
       It should be apparent that when a request is made upon
an insurer under section 39-71-414, MCA, for payment of a
share of the attorney's fees and costs of an action against a
responsible third party, the response of the insurer as to
its    intention should be       explicit, immediate and without
reservation.      Such a response is necessary because it will
aid the claimant's attorney to evaluate the claim from his
clients'      viewpoint,   and   it   will   give    assurance      to   the
claimant that costs will be shared as incurred if the suit is
unsuccessful;     and, further, it means that attorney's fees in
the third-party suit will be shared in those cases where the
claimant is responsible for fees.
       The next correspondence in the record is a letter from
Noel     to   claimant's    attorney    dated       January   24,    1980.
Confirming a recent conversation, Noel stated:
       "As I pointed out in our telephone conversation, -
                                                        we
       do - - to actively participate - - third-party
       -  wish                           in a
       action and, thus, protect our subrogation rights as
       per theworkman's compensation law.          I ha=
       discussed this point with the company attorney.
       and he has suggested that perhaps it might be
                                                                 ..
       helpful if he were to assist by taking depositions,
       or in any other area where his expertise might be
       of some benefit. If you have other suggestions as
     to how we might be able to participate, which would
     be   to our mutual benefit, please advise."
     (Emphasis supplied)
     It is on the language of that letter that the Workers'
Compensation       Court    relied    when    it    found    that    American
Hardware intended to pay the reasonable costs of the action,
including   attorney's        fees.          In    order    to   reach   that
conclusion, however, the court must                 infer that Noel, in
proposing "to actively participate" was talking about payment
of costs and not about participating                  in the third-party
action itself by having its attorney participate.                   The tenor
of the letter seems to be that the attorney for American
Hardware would, himself, take a part in the prosecution of
claimant's claim against the responsible third party.                     Of
course, this could not be.            The claimant has a right to his
or her own attorney in the prosecution of such action, and
the employer or its carrier has no right to prosecute the
action unless the injured employee or his estate refuses or
fails to institute the third-party action within one year
from the date of the injury.             (Section 39-71-414(3), MCA.)
That the insurer was entertaining a reservation about whether
it would participate in the payment of attorney's fees is
buttressed by          the next item of correspondence from Noel,
which was not sent until July 14, 1980, in which he stated:
    "I can appreciate your concern over our principal's
               -   -


    refusal to make a substantial advance to cover
    costs, as I am sure that Mrs. Sorum does not have
    the funds available to readily advance these funds.
    However, we would. - agreeable to participating on
                       be
    - pro ratabasis, the incurred costs of discover5
    a
    and would also furnish the services-of      our own
                                            - - -
    attorney - assist you.
              to                I would question very
    seriously - -we would have any obligation to
               that
    participate - - - - of attorney's fees incurred
                 in the cost
    -
    to prosecute the declaratory judgment action.
    "I wish to point out that the law clearly sta.tes
    that we are entitled to a 50% recovery of the total
    benefits we have paid, regardless of whether we
       participate in any manner.  This, understandably,
       is one of the reasons why the company is not
       agreeable to making advances along the lines you
       have previously suggested."   (Emphasis supplied)
       No other interpretation of the foregoing language is
possible except that the company was hedging with respect to
sharing the payment of attorney's fees.                   The declaratory
judgment referred to in the letter is the action that was
brought by Safeco to set aside the insurance policy covering
Doran.    American Hardware was questioning any responsibility
for its contribution to that action, although the proceeds of
settlement which are now on the table arose from that action.
It is clear that American Hardware misinterpreted its duties
with    respect    to    section   39-71-414          .
                                                (2) (b)       Under   that
section, if the company intended to share in the costs, it
must not only share the costs of discovery, but also the
attorneys fees.         Again, the insurer is suggesting that its
attorney would      "assist" claimant ' s counsel in the action
against the responsible third party.           There is no legal basis
for that suggestion under statutes applicable.
       On July 17, 1980, counsel for the Sorums wrote to Noel
indicating that American Hardware had refused to participate
by sharing costs and fees, and that he was going ahead on the
basis that the company had a 50% subrogation right.
       Thereafter, when the settlement proceeds arrived in the
form of a check from the responsible carrier, the parties
were unable       to agree on its division and the resulting
proceedings before the Workers' Compensation Court that we
have described above occurred.
       There are no other references in the record, either in
correspondence or by deposition from Noel, which would give
us any further information as to the intent of American
Hardware to participate in this action, prior to the proceeds
of the settlement being obtained, except as we have stated
them here.        We   do not    find therefrom that the insurer
communicated      to   the    claimants     its   intention   to   "pay   a
proportionate share of the reasonable cost of the action,
including attorney's fees. "          Section 39-71-414 (2)(b), MCA.
Accordingly, we hold that the Workers' Compensation Court
erred in determining that American Hardware is entitled to
100% subrogation rights in this case, and hold instead that
it   is     entitled     to    but    50%     subrogation.         Section




        Should   - -
                 the rule     against     retroactive   application       -
                                                                          of
decisional law prevent application - - Swanson - -to the
                                   of the      rule -
insurer's subrogation rights?
     American Mutual Hardware cross appeals from the decision
of the Workers' Compensation Court applying the Swanson rule
in determining the subrogation rights of the insurer in this
case.     The Swanson rule was announced by us in Swanson v.
Champion International Corporation (1982),                    Mont.        I



646 P.2d 1166, 39 St.Rep. 639.
     As we said, Donald R. Sorum died on August 22, 1979.                 A
petition was filed in the Workers' Compensation Court on
September 22, 1980.           The cause was heard by the Workers'
Compensation Court on December 16, 1981, and was deemed
submitted on February 2, 1982.          On April 9, 1982, the Swanson
decision was handed down.            The Workers' Compensation Court
issued its findings of fact and conclusions of law in this
case on September 14, 1982.          American Hardware contends that
the court has made a retroactive application of the Swanson
rule and that the company is entitled. to have its subrogation
right determined    according to Tuttle v.         Morrison-Knudsen
Company, Inc. (1978), 177 Mont. 166, 580 P.2d 1379.
     American Hardware also contends that the decision in
Swanson, supra, overruled Fisher v. Missoula White Pine Sash
Company v. Michigan Mutal Liability Company (1974), 164 Mont.
41, 518 P.2d 795, and thus constitutes "new" decisional law
which should not be given retroactive application.
     The cross appeal misapprehends our holding in Swanson.
We distinguished, rather than overruled, Fisher, supra.        See
646 P.2d at 1173.     We pointed out that the Fisher rule should
no   longer pertain    because   of   changes made    in the   1977
legislature on provisions of the Workman's Compensation Act,
upon which Fisher had depended.       We stated:
     "More important is the change that was made in the
     1977 Montana Legislature of the provisions that
     relate to the protection of the employer through
     the exclusivity of the Workers' Compensation Act.
     In Fisher, this court placed great reliance on that
     part of former Section 92-204 RCM 1947, which
     stated, 'and in case of death shall bind his
     personal representative, and all persons having any
     right or claim to compensation for his injury or
     death,' as meaning that the recovery rights of the
     heirs were subject to the subrogation rights of the
     employer. 164 Mont. at 45, 518 P.2d at 797.
     "The 1977 amendment removed this language from the
     subrogation portions of former Section 92-204, and
     established a separate statute which related to the
     exclusivity of the Workers' Compensation Act as to
     the employer. The intent of the legislature that
     the heirs were bound as to exclusivity but not as
     to subrogation is now more clear. That statute now
     reads: ([here is set out the provisions of section
                .
     39-71-4111 )
     "A study of the foregoing statute will demonstrate
     that the inclusion of the words 'all persons having
     any right or claim to compensation for his injury
     or death' is intended to bind those persons as to
     suits against the employer, not third parties. In
     that context, any reference to this language with
     respect to the subrogation rights in the succeeding
     statutes is to take the quoted language out of
     context and away from the subject to which it is
     intended to pertain.     The language relates to
     exclusivity; under the present statutory scheme,
     it should not be construed to include the Workers'
      Compensation subrogation provisions, for         in none of
      the present subrogation provisions is            there any
      indication that the legislature intended         to include
      the rights of heirs within the                   employer's
      subrogation lien.
      "We therefore conclude that under the present
      statutory scheme, as it applies to this case, and
      because of the intrinsic differences that exist now
      and have always existed in the source and effect of
      recoveries    made   in    survival   actions    as
      distinguished from wrongful death actions, the
      subrogation rights of the employer or its insurer
      under the Workers' Compensation Act do not extend
      to recoveries made under wrongful death claims. To
      that extent, we distinguish Fisher v. Missoula
      White Pine Sash Company (1974), 164 Mont. 41, 518
      P.2d 795.''  646 P.2d at 1173, 39 St.Rep at 647.
      The statutory changes to which we adverted in Swanson
occurred   in      1977.    The 1977 amendments to the Workers'
Compensation statutes preceded the occurrence in 1979 of the
death of Donald Sorum, and also preceded the proceedings of
the Workers' Compensation Court in this case by more than
three years.
      Even if arguendo, the application of Swanson in this
case be considered as retroactive, American Hardware                 cannot
bring itself within the rules requiring nonretroactivity.
One of the factors which must be considered in determining
nonretroactive application is whether application would be
inequitable.       LaRoque v. State   &    Alley (1978), 178 Mont. 315,
583 P.2d 1059, citing Chevron Oil v. Huson (1971), 404 U.S.
97,   92   S.Ct.     349,   30   L.Ed.2d     296.   American       Hardware
contends that in determining equity, we may not look at the
affect on the Sorum claimants, but may only consider the
affect of nonretroactivity on American Hardware                &   Mutual.
However, we feel that equity is a two-sided coin.
      This Court has repeatedly stated that under section
39-71-104, MCA,        the Workers'        Compensation Act    is to be
liberally construed in favor of the employee.                 In effect,
American Hardware     &   Mutual is contending here by seeking to
avoid   the    Swanson      rule       that       it     may     reach     into        the
non-economic     damages     recovered under               the      wrongful      death
statutes in favor of the heirs in order to satisfy its
subrogation rights.       We can think of nothing more inequitable
than allowing the insurer to go beyond the economic damages
to invade the recovery made by the heirs for such items as
the loss of comfort and society of the decedent suffered by
the   surviving heirs,        and      the       loss    of    consortium         by    a
surviving spouse.         646 P.2d      at 1170.          To hold in favor of
American Hardware         on this issue would be to lose sight of
the factors that guided us to our decision in Swanson, supra.
The cross appeal is, therefore, denied.
      We,    therefore,     remand       this        cause     to    the    Workers'
Compensation Court with instructions to conduct such hearings
as may be necessary and to make and enter its findings,
conclusions and order determining the subrogation rights of
the insurer in this case based on the guidance of this
opinion.                                     ,   - .-\




We Concur:


 %d!@u&q
      Chief Justice




           Justices
                                   -   12   -
Mr. J u s t i c e J o h n Conway H a r r i s o n d i s s e n t i n g :


       I dissent.

      The p l a i n t i f f s c o n t e n d     t h a t the     insurer        is not e n t i t l e d      to

100 p e r c e n t s u b r o g a t i o n b e c a u s e t h e i n s u r e r d i d n o t p a r t i c i p a t e
in    the      third-party           action.         I   disagree        and        would    hold      under
39-71-414,            MCA,       that     there      was       sufficient           showing      of    par-

t i c i p a t i o n on t h e p a r t of t h e i n s u r e r t o e n t i t l e him t o t h e 1 0 0
percent        subrogation.             S e e T u t t l e v.     Morrison-Knutson              Co.,     Inc.
( 1 9 7 8 ) , 1 7 7 Mont.        1 6 6 , 580 P.2d        1 3 7 9 , where t h i s C o u r t a p p r o v e d

such a subrogation.                  The f o r m u l a s e t f o r t h i n t h a t c a s e r e q u i r e s
the     insurer          pay      its     proportionate           share        of     the     costs      and
attorney's           f e e s and t h a t amount c o u l d be computed a f t e r s e t t l e -

ment o r i u d q m e n t .        An i n h e r e n t p r o b l e m i n t h e f o r m u l a i s t h a t i t
is impossible              to    compute      t h e p r o p o r t i o n a t e s h a r e of    attorney 's
f e e s and c o s t s p r i o r t o s e t t l e m e n t o r judgment b e c a u s e t h e amount

of t h e t h i r d - p a r t y    r e c o v e r y is unknown.          I conclude the claimant

may r e q u e s t t h e i n s u r e r a d v a n c e a l l c o s t s ,        including attorney's
f e e s , a s they are incurred.
      The W o r k e r s ' C o m p e n s a t i o n A c t must be l i b e r a l l y c o n s t r u e d i n
f a v o r of      the claimant,           s e c t i o n 39-71-104,       MCA.        I f the claimant
r e q u e s t s t h e i n s u r e r t o a d v a n c e c o s t s , " t h e i n s u r e r may e l e c t n o t

t o p a r t i c i p a t e i n t h e c o s t of        the action.            If     t h i s e l e c t i o n is
made,       the      insurer      w a i v e s 50 p e r c e n t of       its subrogation               rights
g r a n t e d by t h i s s e c t i o n . "    S e c t i o n 39-71-414 ( 2 ) ( c ), MCA.

      The c l a i m a n t ' s c o n t e n t i o n t h a t t h e i n s u r e d i s n o t e n t i t l e d t o
100 p e r c e n t s u b r o g a t i o n because it f a i l e d t o p a r t i c i p a t e a c t i v e l y
in a      third-party            action      i s , i n my o p i n i o n ,      without merit.             On
January        4,     1980,      the     insurer       wrote     to    the     claimant's         counsel
stating:            "we do w i s h t o a c t i v e l y p a r t i c i p a t e i n t h e t h i r d - p a r t y
a c t i o n and t h u s p r o t e c t o u r        subrogation r i g h t s a s per workers'

c o m p e n s a t i o n law."       The i n s u r e r c o n s i s t e n t l y h e l d t o t h i s p o s i -

t i o n and l a t e r o f f e r e d t o a d v a n c e c o s t s on a p r o - r a t a            basis i f
c l a i m a n t ' s c o u n s e l would f u r n i s h it w i t h r e c e i p t s w i t h t h e a c t u a l

c o s t expenditures.                The c l a i m a n t ' s   counsel did not               furnish the
insurer with the r e c e i p t s for actual cost expenditures u n t i l the
third-party          a c t i o n was s e t t l e d and t h e amount p r o v e d             t o be f a r
less      than     what     counsel          for    the    insured      originally         suggested.
Here t h e Workers' Compensation C o u r t found t h e i n s u r e d agreed t o

p a r t i c i p a t e and i s e n t i t l e d t o 1 0 0 p e r c e n t      subrogation.             There
i s , i n my o p i n i o n , s u b s t a n t i a l e v i d e n c e t o s u p p o r t t h e W o r k e r s '
Compensation C o u r t ' s          f i n d i n g and      t h i s C o u r t s h o u l d have u p h e l d
those      findings.           See Pinion            v.    H.   E.   Smith      Construction          Co.

(1980 1 1              Mont   .          ,   619 P.2d       1 6 7 , 37 St.Rep:l355;            Head v.
Missoula        S e r v i c e Company         ( 1 9 7 9 ) , 1 8 1 Mont.    129,     592 P.2d         507.
       T h e r e b e i n g s u b s t a n t i a l e v i d e n c e t o s u p p o r t t h e f i n d i n g s of

the     Compensation          Court,         I     would    uphold     the     findings        of    that

court.




         We concur in the dissent
