Section 33(a) (33 U.S.C. 933(a)) of the Longshore Act provides that an injured worker may proceed in tort against a third party (not his employer) if he believes that the third party may be liable to him for damages for negligently causing his work related injury.
Section 33(f) gives the employer the right to offset the net recovery by the employee in the third party lawsuit against the employer’s compensation liability.
Section 33(g) protects the employer’s offset interests. The injured worker must either, (1) obtain the prior written approval of a settlement from both the employer and the insurance carrier if the settlement is for an amount less than the employer’s compensation liability, or (2) give written notice to the employer of any settlement or judgment in the third party lawsuit in the injured workers’ favor regardless of the amount of the recovery.
NOTE: The section 33(g)(2) notice requirement is an affirmative duty that the claimant must satisfy. The section 33(g)(2) requirement is not met if the employer learns about the settlement or judgment some other way.
NOTE: It may appear to someone taking a close look at section 33(g)(2) and the U.S. Department of Labor’s implementing regulations at 20 C.F.R. 702.281 that the regulations require more from the claimant than does the statute. For example, the regulations attach a notice obligation on the part of the claimant not only in the event of a settlement or judgment, but also upon initiation or dismissal of third party proceedings. If this confuses you then you are responding appropriately. The good news is that since the regulations provide no penalty for the claimant’s failure to give notice of initiation or dismissal of third party proceedings we really only have to be concerned with the notice requirement as set out in the statute in section 33(g)(2).
If the injured worker fails to meet the requirements of section 33(g)(1) or 33(g)(2) then his entitlement to indemnity and medical benefits under the Longshore Act is terminated.
There is an important question that the language of the statute does not answer.
Do you use the gross amount of a third party settlement or the net amount to determine if the injured worker has met his prior written approval obligation under section 33(g)(1)? There can be a big difference in the amounts when you consider the amounts of attorney’s fees and expenses that combine with the “net” amount to become the “gross” amount..
Section 33(g) does not specify “net” or “gross”.
Note: the offset provision in section 33(f) does specify that the “net” amount of the third party settlement is used to determine the amount of the employer’s credit or lien. But what about section 33(g)(1)?
NOTE: medical benefits are not included in the comparison between the amount of compensation entitlement and the amount of the 3d party settlement or judgment.
A recent case from the U.S. Department of Labor’s Benefits Review Board explains the current interpretation of section 33(g)(1).
In this case the injured worker settled a third party lawsuit for the gross amount of $650,000 without his employer/carrier’s written authorization. The net amount of the settlement to the injured worker was $375,000. The proposed valuation of the injured worker’s lifetime compensation entitlement was estimated at $524,960, less than the gross amount of the settlement but more than the net amount. The employer/carrier had been aware of the lawsuit and the negotiations but did not give written approval of the settlement as required.
So if you use the gross amount of the settlement ($650,000) then the injured worker did not need his employer/carrier’s written approval since the gross amount was for more than the worker’s estimated compensation entitlement ($524,960). But if you use the net amount of the settlement ($375,000) then the worker’s Longshore claim would be barred under section 33(g)(1) in the absence of written approval.
The Department of Labor’s Administrative Law Judge (ALJ) used the net figure and barred the injured worker’s Longshore Act claim under section 33(g)(1).
The Benefits Review Board (BRB) reversed the ALJ on this issue. The BRB held that the gross amount of the third party settlement is the relevant figure for purposes of the section 33(g)(1) comparison. Since the gross amount of the settlement ($650,000) was for more than the worker’s compensation entitlement ($524,960), his claim was not barred by section 33(g)(1).
It is understandable that the employer in this case thought that it had a good argument for using the net amount of the settlement. In the landmark case of Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469 (1992) the U.S. Supreme Court, in the process of deciding the proper interpretation of the phrase “person entitled to compensation” in section 33(g)(1) seemed to assume that the “net” figure was the relevant number in determining whether the employee settled for an amount less than his compensation entitlement.
While the Supreme Court assumed that the net amount of the third party settlement was the relevant figure, this was not an issue in the case and thus no precedent was created.
NOTE: The sole issue before the Supreme Court in Cowart was whether the section 33(g)(1) forfeiture provision applies when the employer is neither paying compensation or subject to an Order to pay. The Court found that an employee becomes a “person entitled to compensation” and thus subject to the section 33(g) requirements at the moment his right to recovery vests, not when, or if, the employer admits liability. Refer to the AEU’s blog entry dated 10/29/2015 for a discussion of the Cowart decision.
So it’s a straightforward interpretation of an important provision that can cost an injured worker his compensation entitlement. Use the net amount of the third party settlement to compare to the worker’s compensation entitlement under section 33(g)(1) to determine whether the employer’s and carrier’s prior written approval is required.
I’ll discuss whether this claimant had a problem with the section 33(g)(2) requirement of notice to the employer of any judgment or settlement in a third party action regardless of amount in a follow up discussion.
John A. (Jack) Martone served for 27 years in the U.S. Department of Labor, Office of Workers Compensation Programs, as the Chief, Branch of Insurance, Financial Management, and Assessments and Acting Director, Division of Longshore and Harbor Workers’ Compensation. Jack joined The American Equity Underwriters, Inc. (AEU) in 2006, where he serves as Senior Vice President, AEU Advisory Services and is the moderator of the AEU Longshore Blog