                                  No. 87-364
                IN THE SUPREME COURT OF THE STATE OF MONTANA
                                     1988


DAVID E. REISER,
                   Claimant and Respondent,
         -vs-
CARDINAL DRILLING COMPANY,
Employer and HOME INDEMNITY COMPANY,
              Petitioner and Respondent,
       and
STATE COMPENSATION INSURANCE FUND,
                   Defendant and Appellant.


APPEAL FROM:       The Workers Compensation Court, The Honorable Timothy
                   Reardon, Judge presiding.
COUNSEL OF RECORD:
         For Appellant:
                   Charles Adams, Helena, Montana
         For Respondent :
                   Ugrin, Alexander, Zadick & Slovak; Gary M. Zadick,
                   Great Falls, Montana
                   Jardine, Stephenson, Blewett & Weaver; James E. Aiken,
                   Great Falls, Montana
                   Veeder, Broeder & Michelotti; Robert J. Waller,
                   Billings, Montana


                                     Submitted on Briefs:   Dec. 3, 1987
                                       Decided: February 11, 1988

Filed:
         FEB 1 1
Mr. Justice Fred J. Weber delivered the Opinion of the Court.



     The State Compensation Insurance Fund (State Fund)
appeals the judgment of the Workers' Compensation Court that
State Fund was the insurer on risk for the claim brought on
behalf of Mr. Reiser. We affirm.
     The issue is whether the court erred in finding that
State Fund was on risk for workers' compensation coverage on
October 6, 1985.   State Fund asserts the judgment was wrong
for two reasons:
     1. The court did not take into consideration State
Fund's right to approve or reject an application for insur-
ance coverage;
     2. The court found that coverage with Home Indemnity
Company (Home) terminated on September 13, 1985, although
Home never provided notice of cancellation to the division of
workers1 compensation pursuant to 5 39-71-2205, MCA.
     Beginning September 11, 1984, Cardinal Drilling Company
(Cardinal) had workers1 compensation coverage with Home. The
next year, Home notified Cardinal that the policy would not
be renewed beyond September 11, 1985. Home did not provide
written notification to the division of workers' compensation
that the policy was cancelled, as required by 5 39-71-2205,
MCA. Cardinal, through a Denver brokerage firm, applied for
coverage with State Fund in September 1985. On October 6,
Mr. Reiser was fatally injured while employed by Cardinal.
State Fund and Home have stipulated that Cardinal had work-
ers' compensation coverage, leaving only the issue of which
company is the insurer.
     On October 7, the vice president of administration for
Cardinal phoned State Fund to notify it of the fatal accident
and to inquire about coverage.           He spoke with an
administrative clerk at State Fund, but she could not find
the Cardinal application. She later testified that due to a
three-month backlog, the application had not been reviewed by
her office until the October 7 call by Cardinal. The appli-
cation had been stamped as received by the State Fund on
September 13, 1985. The administrative clerk noted that the
application submitted by Cardinal's broker was obsolete. At
the same time, she told him over the phone that coverage was
bound as of September 13, 1985, the day State Fund received
the first application. The clerk, testifying by deposition,
stated that State Fund never revoked this binder of coverage.
Therefore, Cardinal assumed that coverage existed.
     Soon after this conversation, the administrative clerk
called the brokerage firm in Denver. She informed an account
assistant there that new applications would have to be resub-
mitted for each of the six companies listed on the original
application.   The brokerage firm received the new applica-
tions on October 14 and did not fill them out until November
5.   State Fund received them on November 7 and notified
Cardinal that coverage was effective that date.
     On December 31, 1985, State Fund agreed to pay benefits
without accepting liability.     On February 28, 1986, the
division ordered Home to pay benefits. Home then filed with
the Workers' Compensation Court a petition to determine
insurer. In its June 26, 1987, judgment the court concluded
that State Fund was the insurer on risk on October 6, 1985,
the date of the fatality.
                             I
     Did the Workers1 Compensation Court err in not consider-
ing State Fund's right to approve or reject an application
for insurance coverage?
     Section 39-71-2303, MCA, provides in part:
    The division shall prescribe the procedure by which
    employers may elect to be bound by compensation
    plan No. 3, the effective time of such election,
    and the manner in which such election is terminated
    for reasons other than default in payment of
    premiums.
Pursuant to this section and § 39-71-203, MCA, the division
adopted 5 24.29.3501, ARM, which reads as follows:

    ELECTING COVERAGE UNDER PLAN THREE (1) An employ-
    er may request coverage with the State Compensation
    Insurance Fund either by mail, phone, or in person.
    Coverage will not be extended to any employer
    having a delinquent account. In all cases, cover-
    age is subject to the approval of the State Fund.
    Coverage obtained pursuant to this rule will extend
    only to those employments not listed in Section
    39-71-401, MCA, unless the procedures in rule
    24.29.3502 ARM are followed.
           (2) By phone.      An employer who requests
    coverage by telephoning Policy Services (Underwrit-
    ing) , State Fund, at headquarters in Helena, Mon-
    tana, may have coverage effective at 12:01 a.m. on
    the day following the telephone request, provided
    the following requirements are met:
          (a) A completed State Fund application, form
    210, is received by the State Fund within 15 days
    after the telephoned request, or, if the employer
    requests the State Fund to supply application
    forms, within 15 days after the date the State Fund
    mails - application forms to the employer.
           (b) Payment in full of the initial deposit is
    received within 15 days after the billing date
    shown on the statement for initial deposit, form
    403.
          (3) By mail.     An employer who mails a com-
    pleted application, form 210, to the State Fund,
    may have coverage effective as of the date the
    application form is received at the office of the
    State Fund in Helena, Montana, provided the State
    Fund receives payment, in full, of the initial
    deposit within 15 days after the billing date shown
    on the statement for initial deposit, form 403.
          (4) In person.     An employer who delivers a
    completed application, form 210, to the State Fund
    in person may have coverage effective at 12:Ol a.m.
     the day following delivery, provided the State Fund
     receives payment, in full, of the initial deposit
     within 15 days after the billing date shown on the
     statement for initial deposit, form 403.
      On September 13, 1985, State Fund received in the mail
Cardinal's application for coverage; thus the procedure of
subsection (3) as recited above applies to this situation.
State Fund does not contest that the initial deposit was
received within 15 days of the billing date. However, the
application form which Cardinal initially mailed was not form
210 as required by the regulation. The State Fund adminis-
trative clerk testified that when an obsolete application
form is received, new forms are sent to the applicant for
resubmission, and coverage is bound retroactively to the date
on which the obsolete application was received by State Fund.
The employee gave no indication that State Fund denies cover-
age simply because an obsolete form is mailed by the appli-
cant.   Three factors apparent from the record support this
practice. Although the regulation requires that the employer
mail "a completed application form 210,'' form 210 is an
obsolete form. The form eventually accepted by State Fund.
was form PF lOOA "Formerly Form 210". Additionally, the form
submitted initially by Cardinal and the form eventually
accepted contained substantially the same information. Also,
unless applications were accepted and coverage backdated to
the date of receipt by State Fund, employers could go as long
as 3 months without coverage due to the backlog at State
Fund.    Yet State Fund argues that it did not approve the
obsolete application and, therefore, did not approve coverage
for September 13.    State Fund bases its position on a sen-
tence found in subsection ( 1 ) of the regulation:    "In all
cases, coverage is subject to the approval of the State
Fund. "    State Fund argues that three facts support its
assertion that " [c]learly coverage pursuant to this applica-
tion was not approved": 1) the application of September 13
was an obsolete form; 2) six entities were combined on one
form; 3) a box on the initial form which read "approved for
coverage . . ."  was not marked by State Fund. We have al-
ready discussed the first two of these facts.      State Fund
regularly accepts coverage upon receipt of obsolete forms but
does require new forms be resubmitted.      Cardinal properly
complied with this requirement on November 7, 1985. The fact
that six entities were combined on one form also was correct-
ed by resubmission of new forms, forms which contained sub-
stantially the same information with regard to Cardinal's
coverage. Finally, although the box on the obsolete form was
not marked by State Fund as "approved" this fact does not
convince us that coverage was "rejected". The forms current-
ly used by State Fund contain no such box or other space for
distinguishing an application "approved" from one "rejected".
In making this technical argument, State Fund disregards the
uncontroverted testimony of its employees which established
that coverage was bound as of September 13, 1985, and never
revoked.   Without deciding whether State Fund has a valid
right to approve or reject coverage, we conclude that Cardi-
nal complied with 5 24.29.3501(3), ARM, by mailing a complet-
ed application to State Fund and by delivering the initial
deposit within 15 days after billing date. We also conclude
that coverage was bound and remained in effect as of Septem-
ber 13, 1985.
     State Fund next argues that the new forms should have
been returned within 15 days of the October 7 phone call from
Cardinal to State Fund.     The Workers' Compensation Court
addressed this issue adequately in its conclusions of law:
     [Tlhe State Fund contends that, in some manner, Mr.
     Leonhardt's call to the State Fund on October 7,
     1985, in effect transformed the employer's written
     application to a telephone application and subject-
     ed the employer to the 15-day limit of subsection
     (2) of A.R.M. 24.29.3501.   Since the employer did
     not return the correct application within 15 days,
     the Fund reasons that the initial coverage date of
     September 13, 1985, is ineffective and the new date
     is the date of receipt.
          This reasoning cannot stand close scrutiny.
     First, it is obvious that, had the State Fund been
     current in the processing of their applications,
     this matter would have been resolved prior to the
     accident. However, since the Fund was some three
     months behind, Cardinal Drilling Company's written
     application languished until Mr. Leonhardt called
     on October 7, 1985, with notice of the tragic
     accident.   What transpired, or what was said, in
     the phone conversations between Cardinal Drilling,
     the State Fund and the Fred S. James brokerage
     house is immaterial to this matter.    The crucial
     facts are that this was a written application and
     not subject to the 15-day return limit of a phone
     application.
We approve the court's reasoning and affirm the holding of
the Workers' Compensation Court that State Fund had approved
and bound coverage for Cardinal effective September 13, 1985.

     Did the court err in finding that Home's coverage termi-
nated on September 13, 1985, although Home never provided
notice of cancellation to the division pursuant to
  39-71-2205, MCA?
     Section 39-71-2205, MCA, states in full the following:

     The policy remains in effect until canceled, and
     cancellation may take effect only by written notice
     to the named insured and to the division at least
     20 days prior to the date of cancellation. Howev-
     er, the policy terminates on the effective date of
     a replacement or succeeding workers' compensation
     insurance policy issued to the insured. Nothing in
     this section prevents an insurer from canceling a
     policy of workers' compensation insurance before a
     replacement policy is issued to the insured.
We have affirmed the court's conclusion that the effective
date of the State Fund coverage was September 13, 1985.
Consequently, pursuant to § 39-71-2205, MCA, the Home policy
terminated that same date, the effective date of the replace-
ment or succeeding workers' compensation insurance policy.
We affirm the holding of the court that Home's coverage
terminated on September 13, 1985, the effective date of State
Fund coverage.
     F e hold that State Fund was the insurer on risk for
      7
Cardinal on October 6, 1985. Affirmed.



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