Board Clarifies Procedures in Defense Base Act Cases Where the Insurance Carrier May Be Entitled to War Hazards Compensation Act Reimbursement

Board Clarifies Procedures in Defense Base Act Cases Where the Insurance Carrier May Be Entitled to War Hazards Compensation Act Reimbursement

By Mark A. Reinhalter, Counsel for Longshore, Office of the Solicitor, U.S. Department of Labor, Washington, D.C.

The unprecedented degree of private contracting that accompanied the military interventions in Afghanistan in 2001 and Iraq in 2003 dramatically increased the significance of the Defense Base Act, 42 U.S.C.S. §§ 1651-1655 (DBA), and the War Hazards Compensation Act, 42 U.S.C.S. § 1701 et seq. (WHCA). Not only have claims under both statutes grown exponentially but also novel procedural questions have arisen as a result of the statutes’ interrelationship. In December 2012, the Benefits Review Board issued two published decisions addressing procedural issues stemming from a DBA insurance carrier’s actual or potential entitlement to reimbursement under the WHCA: Armani v. Global Linguist Solutions, 46 BRBS 63, BRB No. 12-0196 (December 19, 2012) (employer’s motion for reconsideration pending) and Cathey v. Service Employees International, Inc., 46 BRBS 69, BRB No. 12-0228 (December 26, 2012) (Director, OWCP’s motion for reconsideration pending). These decisions should assist private parties’ understanding of procedures in DBA cases.

The War Hazards Compensation Act and its Relationship to the Defense Base Act

The legislative histories of the DBA and the WHCA reflect their linkage both in purpose and in function. Both statutes provide compensation for private civilians injured (and the survivors of private civilians killed) while working on behalf of the U.S. government outside the United States. After enacting a bare-bones version of the DBA in August 1941, Congress, in December 1942, expanded its application to all overseas employment performed pursuant to federal contracts. 56 Stat. 1035, Dec. 2, 1942, c. 668. In the same legislation, Congress adopted the WHCA. 56 Stat. 1028, Dec. 2, 1942, c. 668. Legislative committee reports explain that the WHCA was intended to “supplement” the DBA. S. Rep. 1448 (1942). The purpose of the DBA was to provide a uniform, privately insured workers’ compensation scheme for civilian contractors performing work overseas by eliminating those workers’ coverage under state compensation law and instead employing the incorporated provisions of the Longshore and Harbor Workers’ Compensation Act (LHWCA). 42 U.S.C.S. § 1651(a), (c). Recognizing that much overseas work would be conducted in war zones, Congress, through the WHCA, made DBA insurance carriers eligible where the worker’s injury or death resulted from a “war-risk hazard” - for reimbursement from the government for the compensation paid under the DBA. See 42 U.S.C.S. §§ 1704; 1711(b).

The WHCA does more, however, than simply establish a mechanism for reimbursing certain insurance carriers for previously paid compensation under the DBA. See generally 42 U.S.C.S. § 1701; 20 C.F.R. § 61.3. As well as reimbursing DBA carriers, the WHCA pays compensation directly to certain enumerated persons employed outside the continental United States, including those individuals who would qualify as a DBA employee but where “no compensation is payable with respect to such injury or death under [the DBA].” 42 U.S.C.S. § 1701(a)(1); 20 C.F.R. § 61.3(d).[fn1]

The WHCA also pays benefits to those DBA-covered workers as well as certain other workers who are found to be missing (i.e., kidnapped) from their place of employment and it is known, or the circumstances support the inference that, the absence is due to the belligerent action of a hostile force or person. 42 U.S.C.S. § 1701(b)(1)(A); 20 C.F.R. § 61.3(e). These are referred to as “detention benefits” and a portion of these benefits can be paid to the dependents of the covered worker while the worker is detained. Under all three scenarios: (1) insurance carrier reimbursement of DBA benefits; (2) direct WHCA compensation payments; and (3) “detention” benefits – the benefits are paid from the Employees’ Compensation Fund established by 5 U.S.C.S. § 8147. And, in all three situations, “[t]he action of the … [Secretary] in allowing or denying any payment … shall be final and conclusive on all questions of law and fact and not subject to review by any other official of the United States or by any court by mandamus or otherwise….” 42 U.S.C.S. § 1715. Thus, judicial review of WHCA determinations is explicitly precluded. And WHCA determinations are beyond the authority of DBA adjudicators – the Office of Administrative Law Judges (OALJ) and the Benefits Review Board (BRB).

Like the DBA and LHWCA, the WHCA is administered by the U.S. Department of Labor’s Office of Workers’ Compensation Programs (OWCP). 20 C.F.R. § 1.2. While the DBA and LHWCA are administered by OWCP’s Division of Longshore and Harbor Workers’ Compensation, the WHCA is administered by OWCP’s Division of Federal Employees’ Compensation (DFEC). 20 C.F.R. § 701.101(a); OWCP Bulletin No. 12-01 (Oct. 6, 2011) available online at http://www.dol.gov/owcp/dfec/regs/compliance/DFECfolio/bctfy12/#OWCPB120.

DFEC determines whether to grant a DBA insurance carrier’s request for reimbursement under the WHCA depending on whether the injury or death was caused by a “war-risk hazard.” 42 U.S.C.S. § 1704(a)(1); 20 C.F.R. § 61.102.

After determining that a DBA injury or death resulted from a “war risk hazard” and that the insurance carrier is entitled to be reimbursed out of the Employees’ Compensation Fund for the benefits paid, DFEC is authorized to elect to “pay such benefits, as they accrue and in lieu of reimbursement, directly to any person entitled thereto.” 42 U.S.C.S. § 1704(a); 20 C.F.R. § 61.105. DFEC generally prefers to pay directly only those DBA claimants who reside in the United States. If DFEC exercises its discretion to pay a DBA beneficiary’s compensation directly, the Secretary of Labor has specified by regulation that “medical care for the effects of a war-risk injury may be furnished in a manner consistent with the regulations governing the furnishing of medical care under the Federal Employees' Compensation Act, as amended (5 U.S.C.S. § 8101 et seq.)” 20 C.F.R. § 61.105(d). Thus, in directly paid WHCA cases, DFEC assumes the administration of medical benefits from the insurance carrier.

In any WHCA reimbursement case, whether the insurance carrier is paying the claimant or whether the DFEC is paying the claimant directly, if a dispute arises in connection with the DBA claim, the insurance carrier and the claimant retain all the relevant DBA procedural rights and obligations, i.e., those incorporated into the DBA from the LHWCA. 20 C.F.R. § 61.105(e).[fn2] Indeed, in the event of a dispute in a DBA claim, even if DFEC is paying a claimant benefits directly, a carrier’s subsequent reimbursement claim may be reduced or denied, if the carrier fails to defend and present all viable defenses in the DBA proceeding. 20 C.F.R. §§ 61.102(e)(2); 61.105(b).

The Board Decisions

Armani

Matters relevant to a DBA insurance carrier’s request for WHCA reimbursement under 42 U.S.C.S. § 1704 may be separate and distinct from the factual inquiries relevant to a claimant’s entitlement to benefits under the DBA. In particular, it does not matter whether an employee’s injury or death results from a “war-risk hazard,” in order to determine coverage and compensability under the DBA. But that fact is essential to a DBA insurance carrier’s right to reimbursement under the WHCA. Thus, the DBA insurance carrier in Armani sought a subpoena to depose the claimant, indicating that although there were no DBA matters in dispute, it sought formal discovery before the OALJ, a DBA forum, solely to develop the evidence necessary to pursue a claim for WHCA reimbursement. The Benefits Review Board reasonably concluded that because the DBA carrier sought information relating solely to its eligibility for WHCA reimbursement, that information was irrelevant to resolving the compensability of the DBA claim, and the ALJ therefore had no authority to issue the subpoena the carrier requested.

Armani came to the Board on the claimant’s appeal from an ALJ’s order granting the insurance carrier’s motion for a subpoena compelling the claimant to appear for a deposition. (The DBA claim itself remained pending before the District Director.)[fn3] The carrier argued that the circumstances of the claimant’s injury might entitle it to WHCA reimbursement and stated it was seeking the deposition to determine “which act [the DBA or WHCA] applies.” Armani v. Global Linguist Solutions, 46 BRBS 63, BRB No. 12-0196, slip op. at 2. The claimant declined to be deposed. The claimant argued that the employer should have first requested that the claimant disclose the information voluntarily before resorting to a subpoena. She further complained that submitting to a deposition would subject her to costs in the form of an attorney’s time and travel expenses, for the sole purpose of assisting the employer in its WHCA reimbursement claim. A WHCA reimbursement award would ultimately place the cost of the claimant’s work injury on the government.[fn4]

On appeal to the Board, the claimant argued, among other things, that a subpoena was not necessary because she had volunteered to attend an informal conference. The Director also urged the Board to quash the subpoena but for different reasons. Emphasizing the carrier’s stated reason for seeking the claimant’s deposition, to determine whether the DBA or the WHCA applies, the Director argued the carrier was pursuing the subpoena for the sole purpose of obtaining information relevant to its potential WHCA reimbursement request – a matter over which the ALJ had no statutory authority.

The Board agreed and vacated the ALJ’s order. The Board held that because the information sought by the carrier related solely to ascertaining its eligibility for WHCA reimbursement, information that was not relevant to the DBA claim, the subpoena exceeded the scope of permissible discovery under 29 C.F.R. § 18.14.[fn5] Armani, slip op. at 8. The Board identified the issue as “does the [ALJ] have the authority to issue a subpoena in this case where employer has stated that the deposition is needed solely to determine its entitlement to reimbursement under the WHCA.” The Board concluded that the ALJ did not. Id. at 7. Citing Longshore Act section 19(a), 33 U.S.C.S. § 919(a), and Temporary Employment Services v. Trinity Marine Group, Inc., (Ricks), 261 F.3d 456, 35 BRBS 92(CRT) (5th Cir. 2001), the Board held that the information sought by the carrier was not “in respect of” the DBA claim, id., because the information was simply not relevant to it. It was potentially relevant only to the DBA carrier’s WHCA reimbursement request. Id. at 8.

Cathey

In Cathey, the DBA carrier’s application for WHCA reimbursement under 42 U.S.C.S. § 1704 was granted because DFEC accepted that the claimant’s injury resulted from a “war-risk hazard.” DFEC had also elected to pay the claimant directly. The DBA carrier and the claimant entered into a settlement agreement under section 8(i) of the LHWCA, 33 U.S.C.S. § 908(i), which was approved, thereby resolving the claimant’s right to disability compensation but leaving open his right to medical benefits. Because the case was in “direct pay” status (meaning that DFEC was paying compensation directly to the claimant), the DFEC also undertook administration of the claimant’s medical benefits. In accordance with the applicable regulatory provision, 20 C.F.R. § 61.105(d), DFEC informed the claimant that his medical treatment and resulting bills would be processed in accordance with FECA procedures. Similarly, the District Director informed the claimant’s treating physician that he should contact OWCP for authorization of treatment.

Instead of contacting OWCP, however, the claimant submitted a request for surgery to the DBA insurance carrier. The carrier declined to act on the request because DFEC had undertaken responsibility for administering the claimant’s medical care. In response to the claimant’s request that his claim be heard by an ALJ on the matter of the carrier’s liability for medical treatment, the District Director transferred the case to OALJ, following which the DBA carrier moved for summary decision. Although recognizing the claimant’s right to be heard in DBA adjudicatory forums under 20 C.F.R. § 61.105(e), the ALJ nevertheless summarily ruled in the carrier’s favor.

The claimant appealed to the Board and argued that notwithstanding DFEC’s election to directly pay compensation and provide medical benefits in accordance with FECA, the DBA insurance carrier must nevertheless continue to process his requests for medical benefits. The Board disagreed and held that because DFEC was directly administering the case, and because DFEC was simply applying 20 C.F.R. § 61.105(d), the claimant was required to “comply with the procedures outlined under the FECA and its implementing regulations.” Cathey v. Service Employees International, Inc., 46 BRBS 69, BRB No. 12-0228, slip. op. at 5-6. The Board further held that the DBA insurance carrier was relieved of its obligation to respond to the claimant’s requests regarding medical treatment. Id. at 6. Notably, the insurance carrier appeared and defended the matter before OALJ and the BRB.

Predicted Effects of the Board Decisions

To the extent that Armani precludes insurance carriers from misusing the discovery process in DBA proceedings to pursue information not relevant to the DBA claim, it should have the salutary effect of streamlining DBA adjudications. DBA cases comprise an ever-increasing percentage of OALJs workload, and the speedy and efficient operation of the DBA adjudicatory process benefits all parties.

Cathey should assist the private parties’ understanding of the procedures available in DBA cases where the DFEC has accepted a claim for WHCA reimbursement and undertaken direct delivery of benefits to the claimant. In such cases, claimants should understand that authorization for their medical treatment will initially be handled by DFEC, not the DBA carrier. If a dispute arises with respect to a substantive right under the DBA, even after DFEC has assumed direct payment of compensation, the DBA adjudicatory process remains available to all parties to resolve those disputes. As in Cathey, notwithstanding that DFEC has undertaken direct payment of benefits, the carrier must appear and defend in any subsequent DBA adjudication.

Footnotes:

1. The typical case coming within this provision of the WHCA would be a DBA-covered worker who incurs harm outside the course of his employment - circumstances that would ordinarily preclude payment because the harm does not constitute an injury within the meaning of the LHWCA, 33 U.S.C.S. § 902(2).

2. The regulations state, “[t]he transfer of a case to the Office [of Workers’ Compensation Programs] for direct payment does not affect the hearing or adjudicatory rights of a beneficiary or carrier as established under the Defense Base Act ….” 20 C.F.R. § 61.105(e).

3. When the claimant refused to be deposed, the insurance carrier requested that the District Director forward the matter to OALJ pursuant to Maine v. Brady-Hamilton Stevedore Co., 18 BRBS 129 (1986) (en banc). In Maine, the Board held that if a party frustrates pre-hearing discovery by refusing to produce requested evidence, even while the case remains “at the informal level” before the District Director, an ALJ may issue a necessary subpoena. 18 BRBS at 133. In Armani, the District Director referred the subpoena request to OALJ, and the ALJ granted the motion for a subpoena compelling the claimant’s deposition. The claimant appealed, but the Board initially dismissed the appeal as interlocutory. The Director sought reconsideration urging the Board’s review given the importance of the issue and notwithstanding its interlocutory nature. The Board agreed and reinstated the appeal.

4. While a DBA insurance carrier’s attorney fee expenses are reimbursable under the WHCA, 20 C.F.R. § 61.104(b), a DBA claimant’s attorney fee expenses may only be shifted to the DBA carrier if the terms of the relevant LHWCA provision, 33 U.S.C.S. § 928, are satisfied. It is difficult to see how a claimant’s attorney fee could ever be shifted to the DBA insurance carrier for work relating solely to the carrier’s WHCA reimbursement claim because such services would not result in the successful prosecution of the DBA claim or an increased amount of DBA compensation paid to the claimant.

5. The OALJ discovery regulation, similar to Rule 26(b)(1) of the Federal Rules of Civil Procedure, limits the scope of discovery to “any matter, not privileged, which is relevant to the subject matter involved in the proceeding.” 29 C.F.R. § 18.14(a).

© Copyright 2013 U.S. Department of Labor. All rights reserved. Reprinted by permission. This article appeared in Benefits Review Board Service—Longshore Reporter (LexisNexis).