Subrogating Longshore Payments Against Jones Act Recoveries

A recent decision by the 5th Circuit Court of Appeals has dramatically expanded a longshore harbor workers’ compensation carrier’s rights of subrogation in Jones Act cases. The Chenevert v. Travelers Indemnity Co., 2014 WL 902873 (5th Cir. 2014) decision declares for the first time that a longshore harbor workers’ compensation carrier has a right of recovery against an employee’s Jones Act recovery.

§905(b) Action – Employer As Vessel Owner

In 1984, Congress passed amendments to the Longshore Harbor Workers’ Compensation Act (LHWCA) which provided for a third-party action against an employer where the employer was also the owner of a vessel which caused the injury to the employee. Morehead v. Atkinson-Kiewit, 97 F.3d 603 (1st Cir. 1996); but see Heise v. Fishing Company of Alaska, 79 F.3d 903 (9th Cir. 1996) which suggests that Morehead is in conflict with 9th Circuit opinion. These are known as “dual-capacity” cases and are limited to certain categories of employees. Employees providing “shipbuilding, repairing, or breaking services” are barred from suing the employer-vessel owner for negligence in any capacity. 33 U.S.C. § 905(b). If a vessel is sued as a third party, § 905(b) of the LHWCA provides that the vessel may not seek indemnity against the employer, even if there is an agreement of indemnity in place.

Quite similar to state workers’ compensation scenarios, the LHWCA provides that the injured worker or longshoreman may proceed with a third-party action against some person other than the employer or a person or persons in the employer’s employ who may be “liable for damages.” 33 U.S.C. § 933(a) (2003). However, unlike state court workers’ compensation subrogation, under the LHWCA, a stevedore may have its own cause of action for indemnity against the vessel owner where the vessel owner has breached a duty of care owed to the stevedore. Peters v. North River Ins. Co., 764 F.2d 306 (5th Cir. 1985). This cause of action, known as a “Burnside Action,” held that there are no exclusions to the “unqualified” language of § 933 requiring the carrier’s consent to settlement. The employee might not have this cause of action and might not be pursuing it personally. Therefore, it is always important in LHWCA cases for the workers’ compensation carrier to look at possible liability of the vessel as well as other third parties. The longshoreman’s lawyer won’t do it for you. In cases where the vessel owner may be responsible, the employer is free to assert its independent cause of action against the third-party ship owner based on the third-party’s duty owed to the employer, not the worker. Id.

Vessel owners are typical third parties – entities other than the employer. However, vessel owners may also be the owners of the stevedoring companies which employ longshoremen. If this is the case, a third-party defendant has a dual capacity: (1) employer of the longshoreman; and (2) a vessel owner.

Therefore, because of this dual capacity, a carrier may intervene into a third-party suit to recover its lien against its own insured under these circumstances. Taylor v. Bunge Corp., 845 F.2d 1323 (5th Cir. 1988). In Taylor v. Bunge Corp., a longshoreman was injured by a vessel owned by his employer. The worker received LHWCA benefits from his employer’s insurer and later sued the vessel for negligence pursuant to § 905(b). The employee and the vessel settled for $700,000 “over and above the worker’s compensation benefits already paid,” in effect trying to settle around the insurer’s lien. The carrier intervened and attempted to enforce the employer’s lien against the settlement fund to recover the benefits it had paid. The Court held that an employee and a third party cannot settle around the employer’s lien. The settlement of the employee’s claim necessarily settles the employer’s subrogation claim and entitles the employer to reimbursement to the extent of the funds that the third party has agreed to pay in settlement. The Court held that the same principle applies when the employer is both employer and vessel owner and held that the worker’s compensation carrier’s ability to subrogate against the settlement is not affected by the fact that the employer was both employer and vessel owner. Id.

Under § 5(b) of the Act, a claimant may file a third-party action against a vessel. Bossard v. Port Allen Marine Service, Inc., 624 F.2d 671 (5th Cir. 1980). The term “vessel” is defined in the Act to include “said vessel’s owner, owner pro hac vice, agent, operator, charter or bare boat charterer, master, officer or crew member.” 33 U.S.C. § 902(21). If the claimant’s employer is also the vessel owner, the claimant can sue the employer for negligence and also collect compensation benefits from the employer. Jones and Laughlin Steel Corp. v. Pfeifer, 462 U.S. 523 (1983). However, if the claimant is employed by the vessel to provide stevedoring services, no third-party action is permitted if the injury is caused by the negligence of persons providing stevedoring services to the vessel. In addition, no third-party action is permitted for employees hired to provide ship building, repairing or breaking services if the employer is the “owner, owner pro hac vice, agent, operator, or charterer of the vessel.”

Jones Act

Enacted in 1920 as part of the Merchant Marine Act, the Jones Act provides a remedy to sailors for injuries or death resulting from the negligence of an owner, a master, or a fellow sailor of a vessel. 46 U.S.C.A. § 688. The Jones Act defines the legal rights of seamen who are injured or killed in the course of maritime service. The Act allows seamen or their survivors to sue their employer in the event that their fellow workers or shipmasters are negligent (unreasonably careless) and to receive a trial by jury. Before the Jones Act, sailors did not enjoy these rights. Interpreting the Act has been an arduous process for the federal courts, which have exclusive jurisdiction over Jones Act claims. The crux of the problem is the Jones Act’s failure to define the term seaman, which courts have generally, but not always, construed to mean “a shipmaster or crew member.” The Jones Act provides tort remedies to sea-based maritime workers, while the LHWCA provides workers’ compensation benefits to land-based maritime employees.

An employee whose job title fits one of the enumerated occupations under the LHWCA (e.g., longshoreman or ship repairman) may nevertheless be a “seaman” excluded from LHWCA coverage and titled to pursue a Jones Act claim against his employer. Southwest Marine, Inc. v. Gizoni, 502 U.S. 81 (1991). This is a “fact-specific” issue that depends on the nature of the vessel and the employee’s relation to it. An employee who receives voluntary LHWCA benefits without a formal award is not barred from later pursuing a Jones Act claim. Id. When a LHWCA carrier makes benefit payments based on the assumption that the injured worker was a longshoreman, but the employee then files a Jones Act action claiming to be a seaman, the issue regarding the carrier’s rights of recovery become somewhat confusing. After all, an employer cannot have a lien on the settlement funds the employer itself pays in settlement to the employee as a seaman in a Jones Act case. Under such circumstances the 5th Circuit has disallowed any subrogation recovery but, instead, allowed only credit against those items of damages ultimately allowed that bear a reasonable relation to the items of loss compensated by workers’ compensation benefits under the LHWCA. Massey v. Williams–McWilliams, Inc., 414 F.2d 675 (5th Cir.1969).

The 5th Circuit had previously held that when an employer (not a subrogated LHWCA carrier) pays LHWCA benefits and the employee later recovers from the employer under the Jones Act, the employer is entitled to credit the LHWCA benefits toward the Jones Act damages it owes. Id. However, it had not been decided whether an insurer’s right of subrogation for reimbursement under § 905(b) (claim against employer in its capacity as vessel owner) also exists against Jones Act recovery. That issue was decided in 2014 when the 5th Circuit decided the landmark decision of Chenevert v. Travelers Indemnity Co., 2014 WL 902873 (5th Cir. 2014). Chenevert announced for the first time that a LHWCA carrier’s right of reimbursement against a Jones Act recovery is no different.

Chenevert v. Travelers Indemnity Company

In Chenevert, the employee received nearly $278,000 in LHWCA benefits. The insurer (Travelers Indemnity) stopped the benefits in May 2010 because Chenevert filed a Jones Act claim against his employer asserting that he was a seaman rather than a longshoreman. When it became clear, in discussions to settle the Jones Act lawsuit, that Chenevert opposed any effort by Travelers to recover from his pending settlement, Travelers moved to intervene for the purpose of asserting its subrogation. While the motion was pending, Chenevert and his employer settled the Jones Act lawsuit for $1.725 million, out of which an amount equal to Chenevert’s LHWCA benefits was deposited into the court’s registry. The district court denied the motion to intervene and held that Travelers had no right of subrogation as to the settlement proceeds. The case was appealed and the 5th Circuit had to decide whether an insurer’s subrogation rights against a § 905(b) recovery also existed as to the Jones Act recovery. The Court reversed, holding:

We perceive no sound reason why an insurer’s right of reimbursement against a Jones Act recovery should be different from its right of reimbursement against a § 905(b)recovery. Arguably, the insurer has an even stronger equitable claim to repayment from a Jones Act recovery. A worker who recovers against a third party under § 905(b) is necessarily covered by the LHWCA and therefore entitled to compensation benefits; nevertheless, the worker must still use the proceeds of the recovery to repay the employer or insurer for the benefits. On the other hand, a worker who succeeds in a Jones Act claim is necessarily a seaman, and therefore not entitled to LHWCA benefits. It would be particularly unfair to deny the insurer the right to recover the benefits it has paid in such a situation. Id.

The Court said that the rule prohibiting a carrier from subrogating against its own insured is valid only when the claims arise from the very risk for which the insured was covered by the insurer. Here, Travelers did not insure the employer against Jones Act liability. As a result, an insurer who makes voluntary LHWCA payments to an injured employee on behalf of the employer acquires a subrogation lien on any recovery by the employee in a Jones Act suit against the employer based on the injuries for which the insurer has already compensated him.

If you should have any questions regarding this article or subrogation in general, please contact Jim Busenlener at jbusenlener@mwl-law.com.

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James T. Busenlener
Partner

James T. Busenlener is an insurance trial lawyer and the managing partner of Matthiesen, Wickert & Lehrer, S.C.’s New Orleans branch office. Jim is licensed to practice law in Louisiana, Texas, and Pennsylvania, as well as numerous federal district and appellate courts.