Carrier Reimbursement Under War Hazards Compensation Act

My oldest son was recently in Afghanistan as a civilian contractor with Army and Air Force Exchange Service (AAFES). He is one of tens of thousands of employees of civilian contractors working overseas and subject to workers’ compensation under the Defense Base Act (DBA) and War Hazards Compensation Act (WHCA). The U.S. has military personnel deployed in over 150 countries (75% of the world’s nations) and they are all supported by civilian contractors and their employees. This statistic alone underscores the financial importance of WHCA carriers being familiar with the Act’s reimbursement laws and procedures and taking full advantage of them. Before we can fully understand reimbursement under the WHCA, however, we must be familiar with the DBA.

Defense Base Act (DBA)

The DBA is a system of federal workers’ compensation which benefits employees of U.S. contractors working outside of the U.S. pursuant to a contract with the federal government. First passed in 1941, the DBA extends Longshore and Harbor Workers’ Compensation Act (LHWCA) benefits to injuries sustained by civilians employed at American military bases abroad. 42 U.S.C. §§ 1651 – 1654. Its formal title is “Compensation For Disability Or Death To Persons Employed At Military, Air, And Naval Bases Outside United States.” The Act has been amended several times to include public works contracts (including non-military), and its scope has been broadened to include virtually any contract with an agency of the federal government for work outside the U.S. Only five pages long, the DBA sets the foundation for coverage and compensation for employees of U.S. government contractors abroad.

Companies working abroad under contracts with the federal government must obtain DBA coverage or risk considerable penalties and fines. All governmental contracts have a provision requiring those bidding for contracts with the U.S. government to obtain DBA coverage. The most severe legal consequence for an employer that fails to secure required DBA coverage is the loss of common law defenses in suits against them by injured employees. If the required DBA coverage is secured, an injured employee’s exclusive remedy against a negligent employer is the recovery of benefits under the DBA. 42 U.S.C. § 1651(c); Makris v. Spensieri Painting, LLC, 669 F.Supp.2d 201 (D.P.R. 2009). The premiums for this coverage are usually included in the companies’ contract with the Department of Defense. Many of the rules covering the DBA are a product of the LHWCA.

The DBA simply extends the benefits and procedures of the LHWCA to qualified employees of U.S. government contractors. Claims under the DBA are administered by the Division of Longshore and Harbor Workers’ Compensation under the DBA. Today, persons eligible for DBA benefits include:

  • Employees on a military base or reservation outside the U.S.;
  • Public employees funded by the federal government for work outside the country;
  • Public employees or those with a military contract from a foreign government engaged in work deemed necessary to U.S. National Security;
  • Employees that provide services funded by the federal government outside the realm of regular military issue;
  • Employees of American employers providing welfare or similar services outside of the U.S. for the benefit of the Armed Forces (e.g., the United Service Organizations “USO”); and
  • Employees of any subcontractors of a contract involved in work detailed above. 42 U.S.C. §§ 1651(a).

At the same time, employees who are not eligible to receive DBA compensation include:

  • Employees subject to subchapter I of chapter 81 of Title 5 (Federal Employees’ Compensation Act “FECA”);
  • Employees engaged in agricultural, domestic service, or casual and not in the usual course of the trade, business, or profession of the employer; and
  • Masters or members of a crew of any vessel. 42 U.S.C. §§ 1654.

Qualified employees receive medical disability and death benefits under the LHWCA. The LHWCA authorizes payment of compensation for “accidental injury or death arising out of and in the course of employment.” The test of entitlement to benefits under the DBA, however, is not a causal relationship between the nature of employment of the injured person and the accident. Nor is it necessary that the employee be engaged in activity of benefit to his employer (i.e., course and scope). All that is necessary is that the “obligation or condition” of employment created the “zone of special danger” out of which the injury arose. O’Leary v. Brown-Pac.-Maxon, 340 U.S. 504 (1951). Traditional subrogation under the DBA is often difficult to pursue because the injuries are often incurred in a hostile foreign land during armed conflict. However, subrogation under the DBA would parallel subrogation law under the LHWCA.

NOTE: In President Obama’s Fiscal Year 2014 Budget is a proposal to replace the DBA program with a new government-wide benefit program, the Overseas Contractors Compensation Act (OCCA). The proposed statute would create a government-wide fund to replace the patchwork of contract coverage now in effect under the DBA. The program would pay benefits directly from the federal fund administered by the Department of Labor and agencies would be billed only for their share of benefits and administrative costs. The proposal appears on page 772 of the proposed Budget.

Understandably, underwriting workers’ compensation involving war hazards, without the usual availability of traditional subrogation, would not be a very good risk to undertake. Yet, America needs civilian contractors abroad, such as in Iraq, Afghanistan, and elsewhere. That is where the WHCA comes into play.

War Hazards Compensation Act (WHCA)

In many cases, the event that causes injury to a contractor’s employee constitutes a “war-risk hazard.” 42 U.S.C. 1711; 20 C.F.R. 61.4. The WHCA was passed in 1942 to supplement the DBA and reflect the national policy that losses from war risk injuries and deaths should be borne by the general public rather than government contractors or their insurance companies. 42 U.S.C. §§ 1701 – 1717. The WHCA provides direct compensation payments to DBA employees as a result of their detention by a “hostile force or person” or to certain employees when injury or death occurs due to a “war-risk hazard.”

Overseas workers’ compensation under the WHCA, like the DBA, is consistent with the medical care, lost wages, and disability benefits available under the LHWCA. Compensation under the WHCA is subject to the following qualifications:

  1. The injury must proximately result from a war-risk hazard.
  2. The employees are typically those covered by the DBA, the Non-Appropriated Fund Instrumentalities Act, those employed directly by the U.S., and those providing welfare or similar services for the Armed Forces of the U.S.
  3. The WHCA also applies to persons:
    • Detained by hostile forces;
    • Missing under circumstances supporting an inference that the absence is a result of belligerent action;
    • Marooned due to the failure of the U.S. or its contractor to repatriate; and
    • The employee must not be an active-duty member of the Armed Forces. 42 U.S.C. § 1701.

The last exclusion listed above means that an injured soldier cannot sue the U.S. government, even if the injury was totally non-combat related.

War-Risk Hazard

A “war-risk hazard” is a hazard arising during a war in which the U.S. is engaged; during an armed conflict in which the U.S. is engaged, whether or not war has been declared; or during a war or armed conflict between military forces of any origin, occurring within any country in which a covered individual is serving. 42 U.S.C. § 1711(b). The statutory definition of a war-risk hazard does not specifically address terrorist attacks, but the Division of Federal Employees Compensation considers terrorist activity as a war-risk hazard. Section 1711(b) defines “war-risk hazard” as any hazard arising during a war or armed conflict and resulting from:

(1) The discharge of any missile (including liquids and gas) or the use of any weapon, explosive, or other noxious thing by a hostile force or person or in combating an attack or an imagined attack by a hostile force or person; or

(2) Action of a hostile force or person, including rebellion or insurrection against the United States or any of its Allies; or

(3) The discharge or explosion of munitions intended for use in connection with a war or armed conflict with a hostile force or person as defined herein (except with respect to employees of a manufacturer, processor, or transporter of munitions during the manufacture, processing, or transporting thereof, or while stored on the premises of the manufacturer, processor, or transporter); or

(4) The collision of vessels in convoy or the operation of vessels or aircraft without running lights or without other customary peacetime aids to navigation; or

(5) The operation of vessels or aircraft in a zone of hostilities or engaged in war activities. 42 U.S.C. § 1701(b).

A hostile force/individual is considered a nation, a subject of a foreign nation, or any person serving a foreign nation engaged in a war against the U.S. or any of its allies, or engaged in armed conflict, whether or not war has been declared, against the U.S. or any of its allies, or engaged in a war or armed conflict between military forces of any origin in any country in which a person covered by the WHCA is serving. 42 U.S.C. § 1711(b)(4)(5).

Reimbursement Under WHCA

The WHCA was enacted to affirmatively shift the financial burden of war-risk injuries and deaths from private general contractors and their insurance companies to the general public. In the age of trillion-dollar deficits and a $17 trillion national debt, shifting financial burdens from insurance companies to the taxpayer is not a popular philosophy. However, it has been a necessary evil of war and armed conflict since World War II. As a result, once a private contractor or its insurer has paid benefits to an employee under the DBA because of injuries caused by a ”war-risk hazard”, the employer, insurance carrier, or compensation fund that pays the benefits is statutorily entitled to reimbursement under the WHCA. As a result, subrogation professionals must be familiar with the procedures for reimbursement under the WHCA, and this reimbursement should be a critical part of any subrogation program within a company which provides DBA coverage and policies. The language of the WHCA itself provides for reimbursement to the employer or carrier of benefits paid to employees for injuries or death caused by a “war-risk hazard.”

Section 1704 of the WHCA specifically sets forth the benefits that are reimbursable. An employer, carrier, or compensation fund can seek a dollar-for-dollar reimbursement of all medical benefits, indemnity benefits, and funeral benefits it paid under the DBA. 33 U.S.C. §§ 907, 908, 909. In addition, either the carrier or employer is entitled to reimbursement of reasonable and necessary claims expense. Claims expenses can be allocated or unallocated. Allocated claim expenses include reasonable attorneys’ fees, court and litigation costs, expenses of witnesses and expert testimony, examinations, autopsies and other items that were reasonably incurred in determining liability under the DBA. 20 C.F.R. § 61.104. Unallocated expenses are expenses that cannot be specifically itemized or documented. The insurer is reimbursed by the federal government for 100% of the claim, plus 15% for administrative costs.

The Division of Federal Employees Compensation is the agency charged with administering the WHCA. It will apply unallocated expenses only to medical, indemnity, and funeral benefits, but not to future indemnity benefits incurred as a result of a commutation request. FECA Bulletin No. 12-01. All benefits paid pursuant to the DBA are reimbursable, along with all litigation costs associated with the claim. However, if all benefits paid under the DBA are reimbursable by the government, why would the carrier contest or diligently adjust such a claim when it could simply pay out whatever was sought and then seek reimbursement? The answer is that the WHCA itself requires that the carrier diligently litigate and adjust each claim just as it would if the WHCA did not apply. The failure to take reasonable measures to contest, reduce, or terminate its liability by appropriate available procedure could mean a denial of reimbursement. 20 C.F.R. 61.102(e).

With regard to when a carrier is entitled to reimbursement, the WHCA provides that an employer, carrier, or compensation fund is entitled to reimbursement when it is required to pay DBA benefits. 42 U.S.C. 1704. It is not necessary to wait for reimbursement until the claimant reaches Maximum Medical Improvement (MMI) or is released to return to work. The usual practice, however, is for a carrier to obtain a DBA compensation order prior to requesting reimbursement. See Office of Workers’ Compensation Programs (OWCP) Bulletin No. 05-01. A claim for reimbursement should consist of the following:

  1. Form CA 278;
  2. Statements of the employer and employee;
  3. Medical reports;
  4. Proof of liability (such as an insurance policy);
  5. Compensation Order, if applicable;
  6. Insurer statement as to why its claim should be reimbursed as a war hazard; and
  7. Itemization and proof of payments.

These WHCA claims are filed with and administered by the Division of Federal Employees Compensation. They are filed at:

U.S. Department of Labor

Office of Workers’ Compensation Programs

1240 East 9th Street, Room 851

Cleveland, OH 44199

If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].

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Gary L. Wickert
Partner

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has 35 years of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.