ISSUE: Outer Continental Shelf Lands Act

Jack_crop 72dpiThe Outer Continental Shelf Lands Act (OCSLA) extends the provisions of the Longshore and Harbor Workers’ Compensation Act to disabilities or death resulting from any injury occurring as the result of operations “arising out of or in connection with any operations conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources … of the subsoil and seabed of the outer Continental Shelf ….”  It provides for criminal penalties and personal liability for corporate officers if the company does not comply with the requirement to maintain proper workers’ compensation insurance coverage. 

To be covered by the OCSLA, the claim for disability or death must arise from an injury “occurring as the result of operations” as described above.

If you are an employer with oil and gas operations on the OCS, do not overlook possible OCSLA exposure. It can be complicated sorting out the various exposures among the different workers’ compensation and liability laws that may apply on the OCS.  It is important to determine precisely where your employees are and what they are doing.  For example, are they working in state waters or on the OCS?  Are they engaged in oil and gas exploration, development, removal or transportation, or are they engaged in maritime employment?  Are they working on vessels, or on fixed platforms, or on objects whose vessel status is unclear?  Are they working on land in operations that have a “substantial nexus” with the employer’s on-OCS operation?

When injuries occur, there are possible remedies available under state workers’ compensation laws, the Longshore and Harbor Workers’ Compensation Act, the OCSLA, the Jones Act, the General Maritime law, section 905(b) of the Longshore Act, and state tort remedies.

Here are some general principles to help you be alert to possible OCSLA exposure.

There is a status test for OCSLA coverage.  The worker must be engaged in work integral to operations conducted on the OCS for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources of the subsoil and seabed of the OCS.

There is a situs of operations test.  The employer must be conducting oil and gas operations on the OCS of the United States.

The OCSLA is intended to provide uniform coverage for OCS workers, including work on platforms, in transit to and from platforms, on pipelines between platforms and shore, and at onshore facilities “integral” to the resource extraction processes on the OCS.

What does “integral” mean?  What does “substantial nexus” mean?  We don’t know yet, since “substantial nexus” is a recently formulated case by case test.  It does not mean merely connected with or peripheral to OCS operations.  The work must be a necessary part of furthering regular, ongoing OCS operations.  For example, constructing fixed offshore platforms on shore would be work covered by OCSLA. 

What are state waters?  For most states, state waters extend from the shoreline out to a distance of 3 nautical miles (a nautical mile equals 1.15 land miles).  In the cases of Florida and Texas, state waters extend out 9 nautical miles.  For the Great Lakes, state waters extend to the international boundary.  Beyond these limits for the coastal states, you are on the OCS.  The Supreme Court has defined the OCS as “The gently sloping plain which underlies the seas adjacent to most land masses, extending seaward from shore to the point at which there is a marked increase in the gradient of the decline and where the continental slope leading to the true ocean bottom begins….”

If you are an oil and gas worker working on a fixed platform in state waters, you are covered by state workers’ compensation laws.  You do not meet the Longshore Act “status” test, because oil and gas exploration is not maritime employment, and you fail the Longshore Act “situs” test because the fixed platform’s purpose is to further gas and oil production, a non-maritime activity, and the platform is considered to be an “artificial island”.

An injury does not have to occur on the OCS in order to be covered by the OCSLA.  Based on the U.S. Supreme Court’s recent decision in Pacific Operators Offshore LLP v. Valladolid, the injury may occur anywhere, but there must be “substantial nexus” between the injury and the employer’s extractive operations on the OCS.  There is a situs of operations test, but not a situs of injury test.

Longshore Act insurance coverage does not provide coverage for OCSLA exposure.  If you have a possible OCSLA exposure then you need the specific OCSLA endorsement on your standard workers’ compensation policy (the form of endorsement for OCSLA coverage is found at 20 C.F.R. 704.351).  You meet the OCSLA insurance requirement the same way that you meet the Longshore Act insurance requirement.  You buy coverage from an insurance company authorized by the U.S. Department of Labor, or you obtain the Department of Labor’s authorization to self insure (or you join a group self insured fund like ALMA).

To repeat, even if the employer has state workers’ compensation insurance coverage and USL&H insurance coverage, if an employee has an injury that is covered by the OCSLA, then the employer must have OCSLA coverage or it will be considered uninsured for that injury.     

ISSUE: Circuit Conflicts – Continued

Last time I listed my Top Ten Longshore Act issue conflicts among the federal circuit Courts of Appeal.Jack_crop 72dpi

This time I’d like to list my Top Three conflicts that have recently been resolved, or at least clarified.

1. OCSLA – The Outer Continental Shelf Lands Act is an extension of the Longshore Act, providing Longshore benefits “with respect to disability or death of an employee resulting from any injury occurring as the result of operations, conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing, or transporting by pipeline the natural resources, or involving rights to the natural resources, of the subsoil and seabed of the outer Continental Shelf ….” (43 U.S.C. Section 1333(b)).

The issue that had been the occasion of conflict among several circuit courts was whether OCSLA had a situs of injury requirement. In other words, did the injury have to occur on the outer continental shelf (ocs) in order to be covered.

The U.S. Supreme Court’s decision in Pacific Operators Offshore, LLP v. Valladolid on January 11, 2012, resolved the situs of injury issue.

According to the U.S. Supreme Court, an injury does not have to occur on the ocs in order to be covered by OCSLA. The injury can occur anywhere. The test for coverage under the “result of operations” phrase in 43 U.S.C. Section 1333(b) is that there must be a “substantial nexus” between the injury and the employer’s extractive operations on the OCS.

We still have to see how “substantial nexus” will be interpreted and applied going forward, but at least the situs issue has been resolved. And some employers may have picked up a new OCSLA exposure for their landside operations.

2. What Is a Vessel? – We also have a new test for addressing the issue of what constitutes a vessel that is so important in the areas of property and liability insurance coverage.

On January 15, 2013, the U.S. Supreme Court decided the case of Lozman v. City of Riviera Beach, Florida. The issue was whether Mr. Lozman’s floating house was a vessel, subject to Admiralty jurisdiction. The Eleventh Circuit Court of Appeals had ruled that it was a vessel, emphasizing a circuit conflict on the question of to what extent the owner’s subjective intent determined the status of the “watercraft”.

The Supreme Court looked at the language of 1 U.S.C. Section 3, which defines a vessel as including “every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water”, through the eyes of a “reasonable observer”, and this is our new test: “We believe that a reasonable observer, looking to the home’s physical characteristics and activities, would not consider it to be designed to any practical degree for carrying people or things on water.”

So, while the 2005 decision in Stewart v. Dutra seemed to broaden the definition of vessel along the lines of “anything that floats”, we now have what looks to be a narrower approach considering the transportation function of the contrivance, and whether it is used, or capable in a practical sense of being used, to transport people or things over water.

But we will all be using the “reasonable observer” test going forward.

3. Deference – In the same Price v. Stevedoring Services of America, Inc. decision in which the Ninth Circuit approved the use of compound (as opposed to simple) interest for past due compensation under the Longshore Act, the Ninth Circuit also joined the other circuits on the issue of the proper level of deference due the litigating position of the Director of the Office of Workers’ Compensation Programs.

Although it had previously accorded so-called “Chevron” level deference to the Director’s litigating positions, the Ninth Circuit overruled its precedents to that effect in Price. In the Ninth Circuit going forward, the Director will no longer be afforded “substantial” deference. The Court cited the fact that the Director does not adopt litigating positions through any “relatively formal administrative procedure”, but rather through internal decision making not open to public comment or determination.

It is possible that the Director may merit so-called Skidmore deference (generally, some added persuasive force) in particular cases going forward, although not in this case on the issue of simple versus compound interest. But there is no more Chevron deference for the Director.

Conclusion

So while tests such as “substantial nexus” and “reasonable observer” are essentially to be applied on a case by case basis, and the outcomes of the cases will be determined by the analysis and interpretation of the facts of each case, at least some elements of these issues have been resolved.

ISSUE: 2012 Was an Interesting Year – Part One

Jack_crop 72dpiWith regard to jurisprudence, 2012 was an interesting year for those who follow developments under the Longshore Act. Several cases were decided (or are in the process of being decided) at the U.S. Supreme Court, several old questions received presumably final answers, and several perennial issues received new attention. There was even some good news for maritime employers in the state of Virginia.

In fact, it was so full of interesting events that it has to be covered in two parts.

Here’s Part One of a brief review of what, in my opinion, were some of the Longshore Act high points of 2012. This Part will be devoted to just those cases that came out of the federal Ninth Circuit Court of Appeals.

Pacific Operators Offshore, LLP v. Valladolid

On January 11, 2012, the U.S. Supreme Court issued its decision in an Outer Continental Shelf Lands Act (OCSLA) case involving an issue about which there was disagreement among several federal courts of appeal.

The OCSLA extends Longshore Act benefits, “with respect to disability or death of an employee resulting from any injury occurring as the result of operations, conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing, or transporting by pipeline the natural resources, or involving rights to the natural resources, of the subsoil and seabed of the outer Continental Shelf ….” (43 U.S.C. Section 1333(b))

The OCSLA was passed in 1953, but it wasn’t until 2012 that the U.S. Supreme Court interpreted the “occurring as the result of operations” language in Section 1333(b) quoted above. In affirming the opinion of the Ninth Circuit Court of Appeals, the Supreme Court ruled that an injury does not have to actually occur on the outer Continental Shelf (OCS) of the United States to be covered by OCSLA. The injury can occur anywhere. The test for coverage under the “result of operations” phrase is that there must be a substantial nexus” between the injury and the employer’s extractive operations on the OCS. The Court noted that, “the test may not be the easiest to administer”, but that it (the Court) was “confident that ALJs and courts will be able to determine whether an injured employee has established a significant causal link between the injury … and the employer’s on-OCS extractive operations.”

The “substantial nexus” test will be clarified going forward as it is applied in different cases – beginning with Valladolid, which has been returned to the U.S. Department of Labor’s Benefits Review Board to apply the new test to the facts of the case.

NOTE: This result means that some employers now have an OCSLA exposure that they may be unaware of. Also, insurance coverage under the OCSLA is separate from insurance coverage under the Longshore Act. Your Longshore Act policy or endorsement does not insure you for any operations that may come under the expanded OCSLA coverage. Make sure that you have proper coverage. (Hint: check with AEU)

Dana Roberts v. Sea-Land Services, Inc.; Kemper Insurance Co.; and Director, Office of Workers’ Compensation Programs, U.S. Department of Labor

Also on January 11, 2012, the Supreme Court heard oral arguments in the case of Roberts v. Sea-Land Services, Inc., et al. The decision in the case was issued on March 20, 2012.

“Cost of living” provisions were added to the Longshore Act in 1972 to adjust the maximum and minimum weekly benefit rates each October 1 by reference to the new fiscal year’s National Average Weekly Wage. In the Roberts case we have finally confirmed the correct interpretation of ambiguous language in Section 906(c) (33 U.S.C. 906(c)) of the Longshore Act, as another Ninth Circuit ruling was affirmed by the Supreme Court.

Under the Longshore Act, the weekly rate at which a disabled worker is paid a Permanent Total Disability (PTD) benefit is increased each October 1 based on the new NAWW. Also, the weekly rate is capped at 200% of the NAWW in effect during the period he is “newly awarded” benefits.

The issue in Roberts was the timing of what maximum weekly rate applies to compensation for PTD benefits – is it the maximum in effect as of the date of first entitlement to PTD benefits, or is it the (usually) higher later maximum as of the date of an ALJ’s compensation order? When are the benefits considered to have been “newly awarded”?

Petitioner Roberts argued that an injured worker is “newly awarded compensation” as that phrase is used in Section 906(c) at the time that a formal compensation order (award) is issued in his case.

The employer and the U.S. Department of Labor argued that “newly awarded compensation” means first entitled to disability benefits under the self-executing provisions of the Act.

Remember, the distinction is important because the date that benefits are “newly awarded” determines the applicable maximum weekly benefit rate. The maximum rate increases each October 1 – the later that PTD are “newly awarded” then the higher the weekly rate will be.

Fun fact: The amount at stake in the Roberts case at the U.S. Supreme Court was only $830.99, since Mr. Roberts’ entitlement changed from permanent total disability (PTD) to permanent partial disability (PPD) after only 3 months of PTD (PPD benefits based on a Loss of Wage Earning Capacity are paid at two-thirds of the difference between the worker’s Average Weekly Wage and his residual wage earning capacity after the injury and are capped at the maximum on the date of injury. PPD benefits are not increased annually.) In the typical case, however, PTD benefits are paid for life, and the difference per week based on a higher maximum rate for each affected disabled worker multiplied in each case by life expectancy would add up significantly for maritime employers.

Keller Foundation/Case Foundation, et al. v. Joseph Tracy, et al.

Joseph Tracy, Jr. v. Director, Office of Workers’ Compensation Programs, U.S. Department of Labor

In September 2012 we see another Ninth Circuit case. Cases before the Court involving numerous parties included consideration of whether Section 903(a)’s situs provision’s reference to the “navigable waters of the United States” includes foreign territorial waters.

The Benefits Review Board has held that navigable waters of the United States include the “high seas” and also the territorial waters of other nations. Other federal circuits, including the Ninth, have also found Longshore coverage on the high seas, but no federal circuit had yet found the coverage to extend to other nation’s waters.

And this hasn’t changed. Based primarily on what it termed as the strong presumption against extraterritoriality in U.S. statutes, the Ninth Circuit refused to extend Longshore coverage to foreign territorial waters, or for that matter, to a foreign sovereign’s lands.

The BRB had reached the same conclusion on the facts of this case, but without disturbing its own precedent that, under certain circumstances, the Longshore Act could apply to the territorial waters of other countries. The BRB focused on the prolonged nature of the claimant’s overseas work assignments to distinguish the Tracy case from Weber v. S.C. Loveland Co. where the Board applied the Longshore Act to work performed in the port of Jamaica. So, presumably, in certain circumstances the BRB (outside of the Ninth Circuit) could still hold that the Longshore Act applies in foreign territorial waters.

But at least we now know that in the Ninth Circuit foreign territorial waters and their adjoining ports and shore based areas are not the “navigable waters of the United States” as the term is used in the Longshore Act.

Clearly this is not the last word on this issue. In fact, there is a petition for rehearing pending at the Ninth Circuit.

Price v. Stevedoring Services of America, Inc.

Guess which federal circuit court of appeals checked in again in September 2012 in the continuing inquiry into longstanding issues? This time, the issue in this Ninth Circuit case involved interest on past due compensation. The Longshore Act has no provision regarding interest, nor any standard for how to calculate the amount of interest due, but it’s long been settled that interest is mandatory on past due compensation from the date that an injured worker becomes entitled to compensation. In the latest installment of Price v. Stevedoring Services of America, Inc. the Ninth Circuit considered whether a claimant should receive interest on past due compensation at the rate defined in 28 U.S.C. Section 1961 (weekly average 1 year constant maturity Treasury Bill yield) or 26 U.S.C. Section 6621 (the rate that the IRS uses for overpayments and underpayments of taxes), and whether the interest should be calculated on a simple or compound basis.

The Ninth Circuit found that Section 1961 is permissible and appropriate in the maritime context (this is the rate that the U.S. Department of Labor already uses to calculate interest, and also the rate applied to federal district court judgments), and that interest on past due compensation should be compound and not simple interest. The Court states, “The growing recognition that compound interest can be necessary to compensate plaintiffs fully is justified by changing economic realities.” The Court noted the general movement of case law toward compound interest and its common use in the financial world.

So, in the Ninth Circuit we have compound interest on past due compensation, and I think it is likely that this will become the standard in the other circuits in time. The last time I checked, the Department of Labor was working on developing a compound interest calculator.

This latest Price decision is also noteworthy because in it the Ninth Circuit overruled its own precedents and has joined the other circuits that have ruled on the issue in holding that it will no longer grant Chevron level deference to the litigating position of the Director, Office of Workers’ Compensation Programs. The Director’s litigating positions may however still be entitled to Skidmore level deference, although in this case it did not qualify for any deference at all on the issue of simple versus compound interest. The difference between Chevron and Skidmore is essentially the difference between “deference” and simply acknowledging some additional persuasive authority.

It was truly a busy year for the Ninth Circuit with regard to the Longshore Act.

ISSUE: Outer Continental Shelf Lands Act

I will now attempt to discuss workers’ compensation coverage under the Outer Continental Shelf Lands Act (OCSLA). 

Let’s start in 1953.  Oil and gas exploration off the coasts of the United States was beginning to become very big business.  The question arose as to who owned the rights to the natural resources, the states or the federal government.  The states asserted claims, the federal government went to court and won, and then they compromised.

In the Submerged Lands Act, Congress gave the states control over the natural resources out to three nautical miles from the coastline, defined as “the line of ordinary low water along the portion of the coast which is in direct contact with the open sea and the line marking the seaward limit of inland waters”.  Exceptions were made for the Gulf of Mexico coasts of Florida and Texas, where state control was extended for 9 nautical miles, and the Great Lakes, where state control extended to the international boundary.  (A nautical mile equals 1.15 land miles.)

Next, Congress passed the Outer Continental Shelf Lands Act.

Section 1333(a)(1) of OCSLA extends the “Constitution and laws and civil and political jurisdiction of the United States to the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and to all installations and other devices permanently or temporarily attached to the seabed, which  may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom, or any such installation or other device (other than a ship or vessel) for the purpose of transporting such resources to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction located within a State…”  Federal law governs activities on the outer continental shelf (OCS), or as provided elsewhere in the OCSLA, the law of the adjacent state as surrogate federal law when necessary to the extent that state law is not inconsistent with federal law.

But we are concerned with Section 1333(b) of OCSLA, which deals with workers’ compensation benefits.  “With respect to disability or death of an employee resulting from any injury occurring as the result of any operations ‘conducted on the outer Continental Shelf for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources …’ of the OCS, compensation shall be payable under the provisions of the Longshore and Harbor Workers’ Compensation Act.”

So, OCSLA extends Longshore Act benefits to the OCS.  Exactly what is the OCS?

Congress – “All submerged lands lying seaward and outside of the area of lands beneath navigable waters, as defined in Section 1301 of the Submerged Lands Act, and of which the subsoil and seabed appertain to the United States and are subject to its jurisdiction and control.”  

U.S. Supreme Court – “The gently sloping plain which underlies the seas adjacent to most land masses, extending seaward from shore to the point at which there is a marked increase in the gradient of the decline and where the continental slope leading to the true ocean bottom begins.  In the Gulf of Mexico, the edge of the Continental Shelf, as so defined, lies as much as 200 miles from shore in some places.”

The OCSLA makes Longshore Act benefits payable in the event of injuries occurring as a result of operations on the OCS.

NOTE:  Longshore Act insurance does not provide coverage for OCSLA exposure.  If you have exposure under the OCSLA then you need a specific OCSLA endorsement on your workers’ compensation policy.  You meet the OCSLA insurance requirement the same way that you meet the Longshore Act insurance requirement.  You buy coverage from an insurance carrier authorized by the U.S. Department of Labor, or you obtain the U.S. Department of Labor’s authorization to self-insure.  OCSLA exposure requires OCSLA insurance.

The Longshore Act has a status test and a situs test for coverage.  What about OCSLA?

It has its own status test.  As noted above, the worker must be engaged in operations conducted on the OCS for the purpose of exploring for, developing, removing or transporting by pipeline the natural resources of the subsoil and seabed of the OCS.   Longshore Act benefits are payable under OCSLA to workers in this status.

But it can get complicated out there depending on where you are and what you’re doing, occupationally and at the time of an injury.

Does OCSLA have a situs of injury requirement?  Must the injury occur on the OCS?  Now that the U.S. Supreme Court has affirmed the Ninth Circuit Court of Appeals’ decision in Pacific Operators Offshore, LLP v. Valladolid (January 2012) and resolved the conflict among the federal Circuit Courts of Appeal, we know that there is no situs of injury requirement in OCSLA for workers’ compensation benefits.  The injury may occur anywhere, but there must be “substantial nexus” between the injury and the employer’s extractive operations on the OCS.  So there is a situs of operations test, but not a situs of injury test.

You’ve got to sort out a variety of remedies when something goes wrong on the OCS.  There are state act workers’ compensation laws, the Longshore Act, the OCSLA, the General Maritime Law, as well as liability remedies such as the Jones Act, the Death On the High Seas Act, and tort remedies under either state law or federal admiralty law.

If you’re an oil and gas worker (not a crewmember of a vessel) working on a platform, fixed or floating, on the OCS, you’re covered by OCSLA.  You are also covered by the OCSLA if you are working elsewhere but there is a “substantial nexus” between your injury and your employer’s OCS operations.

If you’re an oil and gas worker working on a fixed platform in state waters, you’re covered by state act workers’ compensation.  You fail to meet Longshore Act status because oil and gas work is not maritime employment, and you fail to meet Longshore Act situs because the platform’s sole purpose is to further gas and oil production, a non-maritime activity, and the platform is an artificial island, not an “other adjoining area” under Section 3(a) of the Longshore Act.

If you’re working on a vessel, either in state waters or on the OCS, you may qualify as a crewmember and not be covered by workers’ compensation laws at all.  Your remedies may be under the Jones Act and General Maritime Law, and/or state liability laws.

But be aware that there may be Longshore Act exposure in and around the oil and gas platforms, whether fixed or temporary, both in state waters and on the OCS.

A recent case from the federal Fifth Circuit Court of Appeals indicates that it may be difficult to draw a line between oil and gas production on one part of an interconnected, multi-purpose facility and Longshore Act covered loading operations on to barges in another part of the facility.  The question with regard to interconnected facilities either in state waters or on the OCS is how the courts will separate different functional areas into Longshore Act covered and non-covered areas or how a maritime loading operation on one part of a facility may convert extended, connected parts of the entire facility into “other adjoining areas” under Longshore Act situs considerations.

So anywhere in state waters or on the OCS where you have transportation and loading of oil and gas products (other than by pipeline) taking place you have to be alert to possible Longshore Act exposure.  Remember that OCSLA and Longshore Act exposures are separate and must be separately insured.