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By Douglas J. Hayden
General Attorney New York State Insurance Fund
John Annarino
Chief Legal Officer Ohio Bureau of Workers' Compensation
Paul L. Isaacson
Principal Attorney New York State Insurance Fund
Jeremy B. Davis
Legal Intern New York State Insurance Fund
Injuries and deaths to civilian employees of contractors in Iraq have increased workers' compensation costs to the federal government.
The costs to the insurance industry and to the businesses that received contracts to perform work in Iraq could potentially increase as well.
The Associated Press reported June 17 that of the 771 injury claims filed by U.S. contractors so far this year, 345 occurred in Iraq. Also, of the 66 deaths reported at the time of the article, all but nine occurred in Iraq.
While presently there are three major insurance companies that provide benefits under the Defense Base Act—AIG WorldSource, ACT Ltd. and CNA Financial Group—the article suggests that with large outlays of money being expended prior to reimbursement, carriers could get more selective in offering DBA coverage.
"The security situation is virtually unprecedented," said Bob Hartwig, chief economist with the Insurance Information Institute, an industry group. "You've got the potential to be kidnapped, to be killed, to be tortured, shot at, blown up."
The DBA and War Hazards Compensation Act entitle civilian employees working overseas for contractors doing business in Iraq to workers' compensation benefits. Federal Acquisition Regulation 52.228-3 requires that contractors, before commencing performance on a contract, provide and maintain such workers' compensation insurance as required under the DBA. A similar clause requiring workers' compensation coverage must be inserted in the contract of any subcontractor.
Compensation under these acts is payable as set forth in the Longshore and Harbor Workers' Compensation Act. FAR Part 28 provides that when the DBA applies to employees, the benefits of the Longshore Act are extended through operation of the WHCA to protect the employees against the risk of war hazards (injury, death, capture or detention). The regulation further provides that when, by means of an insurance policy or self-insurance program, the contractor provides the workers' compensation coverage required by the DBA, the contractor's employees automatically receive war-hazard risk protection.
Benefits are more generous than the typical state workers' compensation benefits since compensation under the Longshore Act can be payable at up to twice the national average weekly wage, which is currently $1,030.78 per week. Benefits are also payable for medical costs and in the case of death, up to $3,000 for funeral expenses.
Handling claims under DBA
The New York State Insurance Fund presently has only one policy with a DBA endorsement. Thus far, NYSIF has received no DBA claims under that policy. However, with increasing claims and outlays of money, state insurance funds may see more requests for DBA endorsements.
Absent a DBA endorsement on a policy, a workers' compensation carrier could be expected to contest the payment of benefits under the DBA or WHCA.
Any carrier that pays benefits under the DBA or other applicable workers' compensation law for injury or death that arose from a warrisk hazard is entitled to reimbursement from the federal government except in circumstances where an additional premium for war-risk hazard was charged. Claims for reimbursement are filed with the U.S. Department of Labor, Office of Workers' Compensation Programs. Based on the government's audit of the claim, the government may deny or reduce the reimbursement claim. The carrier then has 60 days to file an objection.
 Another potential cost to carriers in considering a claim for reimbursement is that the federal government can consider whether the carrier exercised care and prudence in processing the claim and took reasonable steps to investigate and limit its liability on the claim. If costs increase, insurance carriers may resort to charging a loaded premium for defense base risks rather than making large outlays of money and then awaiting federal reimbursement.
Another alternative may be for the parties to seek a direct payment of benefits by the federal government rather than the carrier advancing benefits and then seeking reimbursement. However, a case for direct payment is not accepted until the rate of compensation or benefit and the period of payment becomes relatively fixed and known.
Claims under state law
It is possible there also could be claims filed for benefits under state workers' compensation laws.
In most cases falling under federal jurisdiction, a state can exercise concurrent jurisdiction under its workers' compensation law. A carrier might be expected to contest a claim for state workers' compensation coverage absent language in the policy or an endorsement covering such extraterritorial work. If significant state contacts do not exist, jurisdictional objections may also be raised.
Monopolistic workers' compensation systems such as Ohio are expecting that some of their employers may look to the state system first when workers' compensation benefits are requested. Because the Ohio workers' compensation system specifically permits extraterritorial coverage in some circumstances, employers located in that state may presume that Ohio would extend coverage even for an accident overseas. For this reason, monopolistic state systems such as Ohio may receive claims that also fall under federal jurisdiction. Nonetheless, any injured employee of an Ohio employer would still be required to show sufficient contact with the state to establish jurisdiction over the workers' compensation claim.
Should a claim be found compensable in both a state workers' compensation system and under the federal WHCA, the state workers' compensation fund could pursue reimbursement from the federal government. Although the state might be able to recover the medical and indemnity costs of the claim through the federal government, the administrative expense of processing the claim through the state system would not be recovered.
Even if state coverage was found to exist and there were enough state contacts to establish jurisdiction, it would be unlikely for a claimant to file a state workers' compensation claim because federal benefits are much more generous.
Since compensation benefits under the WHCA or DBA are payable at rates up to $1,030.78 per week, such benefits would be more generous than state benefits. For example, the maximum rate for New York workers' compensation benefits is $400 per week, far lower than the federal benefit rate. More significantly, under the WHCA, no benefits shall be paid for injury or death to any person who recovers or receives workers' compensation benefits for the same injury or death under any other law of the United States or under the law of any state.
It is plausible that a court would interpret the statute to allow an offset for any state benefits received from what would be payable under the WHCA. However, the Supreme Court has said in dicta that Congress has clearly expressed its intent to limit the availability of a federal remedy under the WHCA where a claimant has received workers' compensation benefits related to the same injury.
If courts were to follow this dicta, a claimant who received state workers' compensation benefits would be barred from recovery under the WHCA. Thus, there is simply no significant incentive to file a claim for state workers' compensation benefits.
Another disincentive to filing for such state benefits, at least in states like New York, flows from the provisions of New York workers' compensation law, which provides:
"Awards according to the provisions of this chapter may be made by the board in respect of injuries subject to the admiralty or other federal laws in case the claimant, the employer and the insurance carrier waive their admiralty or interstate, commerce rights and remedies, and the state insurance fund or other insurance carrier may assume liability for the payment of such awards under this chapter."
A claimant would not want to risk waiving the right to more generous federal benefits by collecting New York workers' compensation benefits.
Since federal law preempts conflicting state law, some question arises whether the federal government would have to honor such a waiver of federal rights based on the provisions of a state statute and a claimant's collection of benefits under that statute. Recently, courts have been reluctant to find a waiver of federal rights by acceptance of a state workers' compensation award. To invoke such a waiver, the courts have looked for circumstances that make it clear that the claimant accepted a formal award from the state in lieu of all claims that could be pursued and that such compensation exceeded a mere award of interim benefits covering the period of unemployment.
Even though a statute, such as New York's Workers' Compensation Law §113, is no longer read to easily invoke a waiver of federal rights as a result of acceptance of state workers' offset for any state benefits collected under the WHCA, there is still no real incentive to pursue a state workers' compensation claim where the right to more generous federal benefits exists.
In summary
Based on the number of civilian injuries and deaths in Iraq, the federal government, contractors and the insurance industry as a whole will face increased workers' compensation costs.
State insurance funds may see claims made under the WHCA or DBA as a result of injuries sustained in Iraq where the policy with the employer contains a DBA endorsement. With the rising costs for injuries and deaths in Iraq, state insurance funds may see more requests for DBA endorsements.
More carriers may charge a loaded premium for DBA endorsements and forego reimbursement, thereby increasing the cost to businesses. Also, more claims for direct payment from the federal government may be pursued.
With generous benefits from the federal government and the possibility of no federal benefits if any state benefits are received, there seems little reason for a claimant to pursue a claim for state workers' compensation benefits.
Douglas Hayden can be reached at dhayd@nysif.com or (212) 312-0085; John Annarino at John.A.1@bwc.state.oh.us or (614) 466-1938; Paul Isaacson at pisaa@mail.nysif.com or (212) 312-7877.
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