ISSUE: Director, Division of Longshore and Harbor Workers’ Compensation Act

Congratulations to Miranda Chiu.  She has just been officially appointed the Director, Division of Longshore and Harbor Workers’ Compensation, Office of Workers’ Compensation Programs, in the U.S. Department of Labor.  Miranda has been serving as Acting Director since the retirement of Mike Niss, and this announcement makes it official.

I worked with Miranda at DOL for years.  She is a no nonsense hard worker, and DOL could not have done better.  Based on my personal experience, she is very well qualified for and very deserving of this appointment.

On the down side, Carl Abildso in the Longshore Division’s National Office has just retired.  Anyone who’s ever paid a Special Fund assessment bill or put a case into the Special Fund knows Carl.  He’ll be missed, and I wish Carl a long and happy retirement.

ISSUE: Individual Self-Insurance

Section 904(a) states, “Every employer shall be liable for and shall secure the payment to his employees of the compensation payable ….”

Section 932(a) states, “Every employer shall secure the payment of compensation under this Act –

(1)   By insuring and keeping insured the payment of such compensation with any stock company or mutual company or association, or with any other person or fund, while such person or fund is authorized (A) under the laws of the United States or of any State, to insure workmen’s compensation, and (B) by the Secretary, to insure payment of compensation under this Act; or

(2)   By furnishing satisfactory proof to the Secretary of his financial ability to pay such compensation and receiving an authorization from the Secretary to pay such compensation directly….  Any employer securing compensation in accordance with the provisions of this paragraph shall be known as a self-insurer.

You have two choices.  Buy insurance from an insurance carrier authorized by the Secretary of Labor to write Longshore Act coverage.  Or obtain authorization from the Secretary of Labor as a self-insurer.

How do you become self-insured?  You complete Form LS-271, Application for Self-Insurance, which, along with the supporting documentation, goes to the Division of Longshore and Harbor Workers’ Compensation’s National Office at the U.S. Department of Labor, 200 Constitution Ave., NW, Room C-4315, Washington, DC  20210.

What is the supporting documentation?

1. Audited financial statements for the most recent three years.  They must be audited, certified by a public accounting firm.  No exceptions.  If you don’t have audited financial statements, save yourself the trouble.  The financial statements will be evaluated using standard liquidity, profitability, and debt ratios.
2. Loss information for the most recent five years, showing paid and total incurred losses under the Longshore Act.
3. The identity of the carrier and the limits of your proposed excess insurance coverage, and a sample of the policy form if requested.
4. Statement of proposed claims administration.  If claims will be self administered, submit resumes of your claims people.  If you will use a third party administrator, submit sufficient information to demonstrate the organization’s experience with the Longshore Act.
5. Statement of annual Longshore Act payroll by classification code.
6. A corporate officer certification on a Longshore Division form committing the company to voluntary compliance with all statutory and regulatory requirements, and good faith participation in dispute resolution and self-policing.

That’s it.  There’s no filing or other fee associated with the application process.  You will have a decision in 30 – 60 days.

There are a number of other considerations, however, of which you should be aware.

Every self-insured employer must meet a security requirement.  The minimum security required is $400,000 for incidental Longshore exposure.  Otherwise, for a ballpark estimate take the last five years total incurred losses, increase the most recent two years by 35%, and obtain the five year average.  This will be your approximate starting point for the required collateral.

You have three ways to meet the security requirement:  1) deposit cash in a Federal Reserve Bank account in the name of the Office of Workers’ Compensation Programs, 2) obtain a letter of credit from an approved bank on the form supplied by the Longshore Division, or 3) obtain a surety bond on a form supplied by the Longshore Division issued by a surety company approved by the U.S. Treasury.

If a parent company and one or more separately incorporated subsidiaries are applying for self-insurance, a separate application will be required for each company.  A parent company guarantee will be required in the format provided by the Longshore Division.

The self-insurance authorization is non-transferable, so if ownership of the company changes, a new application will be required.  There is no expiration date or renewal date.  The authorization will continue until revoked by the Longshore Division for good cause.

There are annual reporting requirements.  Form LS-513, Report of Payments, will provide the basis of the self-insurer’s annual Special Fund Assessment.  Form LS-274, Report of Outstanding Liabilities, will measure the ongoing security requirement.  The self-insurer is also required to file an annual statement of its excess insurance coverage, and, if requested, an annual audited financial statement.  Also, any corporate name changes, significant changes in exposure, and new operations in previously unlisted locations should also be immediately reported.

Note:  There are currently about 209 authorized individual Longshore Act self-insurers.  If you go back about 25 five years, there were twice that many.

If you have any questions regarding Longshore Act self-insurance you can contact me at jack.martone@amequity.com.

ISSUE: U.S. Department of Labor, Notice of Proposed Rule Making

Remember when we found out that the Stimulus Bill (American Reinvestment and Recovery Act of 2009) had amended Section 902(3)(F) of the Longshore Act, changing the exclusion for recreational vessel workers?

Well, on August 17, 2010, the U.S. Department of Labor (DOL), Office of Workers’ Compensation Programs, finally published a Notice of Proposed Rule Making and Request for Comments in the Federal Register regarding this amendment.

The Notice contains proposed new regulations implementing the recreational vessel amendment to section 902(3)(F). 

A quick way to access the Notice is to go to www.regulations.gov, click on Proposed Rules, and enter key word “recreational vessel”.  If you have any interest or concerns with regard to this amendment I urge you to review the DOL’s comprehensive Notice. 

Review of Amendment

OLD LAW – The following employees are excluded from Longshore Act coverage:  “individuals employed to build, repair or dismantle any recreational vessel under sixty-five feet in length.”

NEW LAW  - The following employees are excluded from coverage:  “individuals employed to build any recreational vessel under sixty-five feet in length or individuals employed to repair any recreational vessel or to dismantle any part of a recreational vessel in connection with the repair of such vessel.”

The Amendment leaves in place the sixty-five foot limit for employees who build recreational vessels.  It removes the limit only for those employees who are employed to repair recreational vessels or to dismantle recreational vessels in connection with repair.  It also leaves in place the condition that the excluded employees have coverage under a state workers’ compensation law.

The Notice of Proposed Rulemaking contains several noteworthy points:

1)      The effective date of the amendment is February 17, 2009, so it affects injuries occurring on or after that date.

2)      The Notice creates a “general reference” to Coast Guard statutes for the purpose of defining recreational vessels.

3)      The Notice draws a distinction between workers employed to “dismantle” a recreational vessel and workers employed to “dismantle in connection with repair” a recreational vessel.  In DOL’s view, “dismantle” outside of the repair context is the equivalent of ship breaking, an enumerated occupation in section 902(3).  In DOL’s view section 902(3)(F) no longer excludes workers who dismantle recreational vessels except when the dismantling is in connection with repair.

4)      Workers employed to transform a recreational vessel into a commercial vessel, or a commercial vessel into a recreational vessel, are engaged in ship conversion, and in DOL’s view these workers are covered by the Longshore Act.

5)      The Notice clarifies how to measure the length of a recreational vessel (again, by reference to Coast Guard regulations).

6)      The Notice also addresses the issue of workers who walk in and out of coverage by doing both excluded and non-excluded work during their employment.  The Notice codifies DOL’s long standing position that employees whose employment requires them to spend at least some of their time in indisputably longshoring operations are covered by the Longshore Act even if injured while performing non-maritime work.  For example, a worker who is injured while repairing a recreational vessel but who also as part of his regular duties works on commercial vessels or builds recreational vessels over 65 feet in length is covered by the Longshore Act for his entire employment. 

Comments are due by October 18, 2010.  The Notice explains the various ways that comments can be filed with DOL.

Longshore Act Question Number 2 – Where Can I Buy Longshore Act Insurance?

This is an important question, because there are serious consequences in the law if the maritime employer fails to meet the insurance requirement in section 932 of the Longshore and Harbor Workers’ Compensation Act.   Fortunately, there’s a straightforward, uncomplicated answer.

Question:  Where can I buy the coverage?

Answer:  The American Equity Underwriters, Inc. (AEU), RSA Battle House Tower, 11 North Water Street, 32^nd Floor, Mobile, AL  36602.  AEU manages a large group self-insured trust fund, the American Longshore Mutual Association (ALMA).

And, before I forget to mention it, there are also at present 348 insurance carriers authorized to write Longshore Act coverage by the U.S. Department of Labor.

Once again, it’s important to make sure that your carrier is authorized by DOL under section 932 of the Longshore Act.  We’ve previously discussed corporate officer joint and several liability, election of remedies available to the injured worker if the employer is uninsured, and possible criminal prosecution for the uninsured employer.  And if your insurance carrier is unauthorized, then you are an uninsured employer.

So, the first step is to be sure that you are dealing with an organization that is licensed by DOL.

Then, make sure that insurance coverage is in the proper form.  Your Longshore coverage will either be in the form of the regulatory required (20 C.F.R. Ch. 703) or otherwise DOL approved Longshore Act endorsement affixed to a standard state act workers’ compensation policy, or a DOL approved stand alone Longshore Act policy.  If your form of policy or endorsement does not conform to the regulatory language, or has not been approved by DOL, then you have raised an unnecessary question about your coverage.

Be sure that your insurance agent is aware of these considerations or have him call me if there are any doubts whatever. It’s very important.

Shameless self promotion alert:  In my opinion, The American Equity Underwriters, Inc., offers the best claims and loss control services in the maritime insurance market.