THE LONGSHOREMAN AND HARBOR WORKERS COMPENSATION ACT
AND ISSUES WHICH AFFECT DAMAGE RECOVERY BY THE PLAINTIFF
by Richard M. Martin, Jr.
The Longshoremen and Harbor Workers Compensation Act (“LHWCA”),1 allocates the costs of industrial accidents through a compromise between the rights of employees and employers that is typical of many workers’ compensation schemes: an injured worker is entitled to “prompt and certain” compensation benefits from his employer even if the employer is not to blame for the accident.2 The benefits, however, are generally less than the worker could recover under traditional tort compensation systems and constitute the employer’s exclusive liability for the worker’s injuries.3 To accomplish its “manifest purpose … to assure prompt aid to the employee when his need is greatest,”4 the Act encourages the voluntary payment of benefits,5 but also provides an administrative procedure for resolving disputed cases.6
The compensation scheme of the Act furthers at least two other objectives: (1) “placing the burden ultimately on the company whose default caused the injury,”7 and (2) “protecting employers who are subject to absolute liability by the Act.”8 The Act, as interpreted by the Supreme Court, furthers these objectives by (1) preserving a compensated worker’s remedies against third parties; (2) allowing the employer in certain circumstances to assert the worker’s rights against third parties when the worker has failed to do so; (3) denying third parties a right of contribution or indemnity from the employer even when the employer is at fault; (4) allowing the employer to recoup from third-party recoveries the benefits paid to the worker even if the employer is at fault; and (5) preserving the employer’s right to assert its own independent cause of action against third parties for recovery of the compensation benefits paid to the worker. The LHWCA preserves a compensated worker’s right to recover damages from parties other than his employer.9 The substantive right to recover against third parties is, of course, generally determined by law independent of the LHWCA. The Act does, however, regulate the procedure for asserting the worker’s third-party claim and the manner in which the fruits of that claim shall be distributed.
If the worker accepts compensation “under an award in a compensation order filed by the deputy commissioner, an administrative law judge, or the Benefits Review Board,” the Act gives him six months in which to commence an action against a third party who may be responsible for his injuries.10 If the worker does not commence an action within the six-month period, all of his rights against third parties are automatically assigned to the employer who may during the next ninety days assert the worker’s rights against third parties.11
During the assignment period, the employer’s control of the worker’s cause of action is exclusive; the worker is forbidden from commencing a suit on the claim.12 If the employer does not act within the ninety-day period, “the right to bring such action shall revert to the person entitled to compensation.”13 If a formal compensation award is not entered, the assignment provision of the Act does not apply, even if the employer has voluntarily made compensation payments, and the right to assert the worker’s third-party cause of action remains with the worker.14
The LHWCA provides the manner for distributing the recovery obtained from a third party. If a statutory assignment occurs, the employer is free to file suit and to prosecute the case to judgment or to compromise the claim.15 The Act expressly provides that, whether funds are recovered by judgment or by settlement, the employer-assignee shall retain from the recovery:
(1) Its expenses and attorneys’ fees;
(2) The medical and compensation benefits that the employer has already paid to the worker under the Act; and
(3) “The present value of all amounts thereafter payable as compensation … and the present value of the cost of all [medical] benefits thereafter to be furnished.”16
If, because a statutory assignment has not occurred, or because an assigned claim has reverted to the worker, the worker himself prosecutes the third-party claim and obtains a judgment, the LHWCA provides that the employer’s liability for compensation under the Act shall be reduced by the worker’s net recovery (i.e., “the actual amount recovered less the expenses reasonably incurred … in respect to such proceedings (including reasonable attorneys’ fees)”). Although an employer to whom a worker’s claim has been assigned has exclusive control over settlement decisions,17 the Act does not afford the same degree of control to a worker asserting an unassigned claim.
The Act makes no provision for a situation in which the worker desires to settle the claim for more than the total compensation owed by the employer; presumably, the worker is free to do so and, the employer’s liability for any unpaid benefits would be extinguished.18 If, on the other hand, the worker desires to settle the claim for less than the total compensation owed by the employer, the worker must obtain the written approval of both the employer and its insurance carrier.19 If such approval is obtained, the net amount of the settlement reduces the employer’s liability to the same extent that a judgment would.20 If such approval is not obtained, “all rights to compensation and medical benefits under the LHWCA shall be terminated, regardless of whether the employer or the employer’s insurer has made payments or acknowledged entitlement to benefits under this chapter.”21
The courts, at least since The Etna,22 have uniformly held that the employer has a subrogation right to be reimbursed from the worker’s net recovery from a third-party for the full amount of compensation benefits already paid.23 The employer may also intervene in the worker’s suit and assert a lien on the worker’s recovery to the extent of the compensation benefits it has paid.24 Although Congress has not explicitly recognized the right to reimbursement in the statute, the legislative history of various amendments to the LHWCA makes it clear beyond question that Congress is aware that the courts have recognized a compensation lien on third-party recoveries and, indeed, intends for the lien to “remain[ ] inviolable, consistent with Bloomer.25
Bloomer recognizes that the compensation lien attaches to funds obtained by settlement or by judgment. Moreover, the lien recognized in Bloomer does not depend upon proof that the third-party breached a duty to the employer or upon an agreement between the employer and the third-party to settle a dispute between themselves. Rather, the right to reimbursement attaches to (a) the proceeds of a judgment based upon the third-party’s breach of duty to the worker or (b) to the proceeds of a compromise agreement between the worker and the third party. Bloomer also establishes that the employer is entitled to recoup from a third-party recovery the entire amount of the benefits paid without a reduction for its proportionate share of the litigation expenses and attorneys’ fees incurred by the worker. Thus, when a plaintiff’s suit against a vessel under 33 U.S.C. § 905b results in a recovery of damages, and he has been paid compensation under the LHWCA, unlike a recovery where state law compensation benefits have been paid, there is no Moody “one-third” reduction in the compensation lien because the plaintiff has also acted on behalf of the compensation carrier.26 The compensation lien attaches to the worker’s net recovery.27
If the worker’s recovery is insufficient to cover both the worker’s litigation expenses and the compensation lien, therefore, the litigation expenses must be paid first.28 Thus, when the worker recovers from a third-party by judgment or compromise, at least where a settlement agreement does not specifically mention the compensation lien, the funds are distributed as follows:
(1) The worker retains his litigation expenses and a reasonable attorneys’ fee;
(2) The employer receives from the recovery a credit for any compensation liability not yet satisfied and reimbursement for compensation already paid; and
(3) The worker retains what is left, if anything.29
What happens when the worker’s recovery is insufficient to cover both the attorney fees and the compensation lien, leaving the employee with nothing? The district court must evaluate the reasonableness of the fees and make an equitable adjustment as between the employee and his attorney.30
While the employer’s liability under the LHWCA is exclusive, the employer’s remedy of subrogation is not the exclusive means through which it may recover compensation benefits that it has paid to an injured worker. An employer who pays compensation to an injured worker may assert whatever causes of action may exist under applicable law against third parties who have, by causing the worker’s injuries, triggered the employer’s absolute statutory duty to pay compensation.31
An independent cause of action exists under federal maritime law on behalf of an employer who has incurred LHWCA liability at the hands of a negligent shipowner. The cause of action is bottomed on the duty of care owed by a vessel to all who are lawfully on board, including stevedores and harbor workers. If the vessel owner breaches that duty, “the shipowner’s liability … extend[s] to the foreseeable obligations of the stevedoring contractor for compensation payments to … a longshoreman … occasioned by the shipowner’s breach of his duty to the stevedoring contractor.”32 The Court emphasized that the cause of action is an independent one belonging to the employer, not to the worker: “[the claim] is founded not on [the third party’s] wrong to [the worker] but on its independent wrong to [the employer].”33
1 33 U.S.C. § 901, et seq.
2 Louviere v. Shell Oil Co., 509 F.2d 278, 283 (5th Cir.1975), cert. denied, 423 U.S. 1078, 96 S.Ct. 867, 47 L.Ed.2d 90 (1976).
3 See 33 U.S.C. § 905(a).
4 Louviere, 509 F.2d at 283.
5 See 33 U.S.C.A. § 914(a), (d).
6 See id. § 914(d).
7 Louviere, 509 F.2d at 283, quoting Italia Societa v. Oregon Stevedoring Co., 376 U.S. 315, 324, 84 S.Ct. 748, 754, 11 L.Ed.2d 732 (1964).
8 Id., quoting Pope & Talbot, Inc. v. Hawn, 346 U.S. 406, 412, 74 S.Ct. 202, 206, 98 L.Ed. 143 (1953).
9 See 33 U.S.C. § 933(a).
10 See 33 U.S.C. § 933(b).
12 Rodriguez v. Compass Shipping Co., Ltd., 451 U.S. 596, 101 S.Ct. 1945, 68 L.Ed.2d 472 (1981).
13 See 33 U.S.C. § 933(b).
14 Pallas Shipping Agency, Ltd. v. Duris, 461 U.S. 529, 103 S.Ct. 1991, 76 L.Ed.2d 120 (1983). Although the Act and the regulations envision formal compensation awards as a matter of course only in those cases in which there is a dispute between the worker and the employer, an employer may upon request cause entry of a compensation award, though he does not contest his liability under the Act, solely for the purpose of triggering the six-month period and the possibility of a statutory assignment. Id., 103 S.Ct. at 1996.
15 See 33 U.S.C. § 933(d).
16 The employer retains the present value of future compensation benefits “as a trust fund to pay such compensation and the cost of such benefits as they become due.” See 33 U.S.C. § 933(e)(1)(D). The employer must pay what is left, if anything, to the worker. Id.
17 See 33 U.S.C. § 933(d).
18 See 33 U.S.C. § 933(f).
19 See 33 U.S.C. § 933(g)(1).
21 See 33 U.S.C. § 933(g)(2).
22 The Etna, 138 F.2d 37 (3d Cir.1943).
23 See, e.g., Allen v. Texaco, Inc., 510 F.2d 977, 979-80 (5th Cir. 1975)
25 Bloomer v. Liberty Mutual Insurance Co., 445 U.S. 74, 100 S.Ct. 925, 63 L.Ed.2d 215 (1980).” H.R.Rep. No. 1027, 98th Cong., 2d Sess. 36, reprinted in 1984 U.S.Code Cong. & Ad. News 2734, 2771, 2786.
26 Moody v. Arabie, 498 So.2d 1081 (La.1986) held that when an employer pays worker’s compensation to its employee who has been injured by the wrongful act of a third person, the employer and the employee become co-owners of a property right consisting of the right to recover damages from the third person. Since a co-owner may force another co-owner to contribute to the costs of maintenance and conservation of the common thing in proportion to his interest, the necessary and reasonable costs of recovery against the third party, including attorney fees, are to be apportioned between the worker and the employer according to their interests in recovery. Moody was subsequently codified in La. R.S. 23:1103.
27 Ochoa v. Employers National Insurance Co., 754 F.2d 1196, 1199 (1985).
29 Ochoa v. Employers National Insurance Co., 724 F.2d 1171, 1177 (5th Cir. 1984), vacated, 105 S.Ct. 583 (1984), on remand,754 F.2d 1196 (1985).
30 Ochoa, 754 F.2d at 1199.
31 Federal Marine Terminals, Inc. v. Burnside Shipping Co., 394 U.S. 404, 89 S.Ct. 1144, 22 L.Ed.2d 371 (1969). See also Olsen v. Shell Oil Co., 708 F.2d 976, 981-82 (5th
Cir.1983), cert. denied, — U.S. —-, 104 S.Ct. 715, 79 L.Ed.2d 178 (1984).
32 Burnside, 394 U.S. at 415, 89 S.Ct. at 1150.
33 Id. at 418, 89 S.Ct. at 1152.