ISSUE: Insurance Requirement

Here’s a subject that apparently cannot be emphasized often enough.  It concerns information that every employer and broker should know.

With regard to insurance coverage under the Longshore and Harbor Workers’ Compensation Act, there are three related questions that we’ve dealt with on several prior occasions that we’ll review once again. 

  1. When do I need Longshore Act insurance?
  2. Where can I get Longshore Act insurance?
  3. What happens if I need Longshore Act insurance and I don’t have it?

First, what does the Longshore Act say:

33 U.S.C. Section 904(a) – “Every employer shall be liable for and shall secure the payment to his employees of the compensation payable under Sections 907, 908, and 909.  In the case of an employer who is a subcontractor, only if such subcontractor fails to secure the payment of compensation shall the contractor be liable for and be required to secure the payment of compensation.”

33 U.S.C. Section 905(a) – “… if an employer fails to secure payment of compensation as required by this Act, an injured employee, or his legal representative in case death results from the injury, may elect to claim compensation under the Act, or to  maintain an action at law or in admiralty for damages on account of such injury or death.  In such action the defendant may not plead as a defense that the injury was caused by the negligence of a fellow servant, or that the employee assumed the risk of his employment, or that the injury was due to the contributory negligence of the employee.”

33 U.S.C. Section 938(a) – “Any employer required to secure the payment of compensation under this Act who fails to secure such compensation shall be guilty of a misdemeanor and, upon conviction thereof, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than one year, or by both such fine and imprisonment; and in any case where such employer is a corporation, the President, Secretary, and Treasurer thereof shall be also severally liable to such fine and imprisonment as herein provided for the failure of such corporation to secure the payment of compensation, and such President, Secretary, and Treasurer shall be severally personally liable, jointly with such corporation, for any compensation or other benefit which may accrue under the said Act in respect to any injury which may occur to any employee of such corporation while it shall so fail to secure the payment of compensation as required by Section 932 of the Act.”

33 U.S.C Section 932 – “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 workers’ 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.”

Question Number 1.  When do I need Longshore Act insurance? 

Answer.  You need Longshore Act insurance if you are a maritime employer.  You are a maritime employer if you employ maritime workers.  If you employ maritime workers then you need workers’ compensation coverage under the Longshore and Harbor Workers’ Compensation Act.  Yes, it goes in a circle.  Whether or not you employ maritime workers depends on whether the workers meet the status (33 U.S.C. 902(3)) and situs (33 U.S.C. 903(a)) provisions of the Longshore Act. 

We’ve discussed the coverage provisions in many previous postings.

Very briefly, “status” is an occupational concept and encompasses many jobs in addition to the traditional maritime occupations of longshoreman, shipbuilder, ship repair worker, ship breaker, etc.  It includes not only workers who handle cargo and build/repair ships, but also all workers who build, maintain, and repair the tools, buildings and equipment necessary to the handling of cargo and the building/repairing of ships.  There is no “moment of injury test” for status.  Even a small percentage of regularly assigned maritime duties produce a full time maritime worker for purposes of Longshore Act coverage.  Rule of thumb:  If you have to ask about status, then you very likely need Longshore Act coverage.  Reread Section 938 above.

Very briefly, “situs” is a geographic and functional concept that is determined by location as of the time of an injury.  You meet situs by being injured over navigable waters, by being injured on an enumerated location such as a dry dock, pier, wharf, terminal, building way, or marine railway, or in an other adjoining area customarily used by an employer for maritime work.  Rule of thumb:  If you have to ask about situs, then you very likely need Longshore Act coverage.  Reread Section 938 above.

So, very generally, a worker is a maritime worker if he does maritime work in a maritime area.  The status and situs concepts are liberally interpreted in favor of injured workers.

Question Number 2.  Where Can I Get Longshore Act Insurance?

Section 932 gives the maritime employer two choices.  Buy insurance from an insurance carrier authorized by the U.S. Department of Labor, or obtain the U.S. Department of Labor’s authorization to self-insure.

Question Number 3.  What Happens If I Need Longshore Act Insurance and I Don’t Have It?

In the case of an uninsured employer the company and its corporate officers are in a very vulnerable situation.  Reread Sections 905(a) and 938(a) above.  The injured worker has an election of remedies that can be very costly for the employer.  A $100,000 workers’ compensation liability can become a $1,000,000 liability judgment very easily.  There is potential criminal liability, and most importantly, the corporate officers have personal liability, jointly and severally, with the corporation.  The President, Secretary, and Treasurer of an uninsured employer are in a very bad place.

As I’ve said on numerous occasions, if there is any doubt at all, get Longshore Act coverage.

One thought on “ISSUE: Insurance Requirement

  1. Brandon Miller

    Jack, this is a timely article with great information. As current Branch Chief of the Finance, INSURANCE and Assessment Branch of the Longshore program, I get the same calls you used to get when you held the chair. Bottom line, when in doubt, buy a Longshore policy or endorsement if offered by your domestic WC carrier. The upside risk and cost (not to mention our penalties) from even one Longshore claim is much more expensive than any premium you may pay.

    Recent calls have exposed what I think are a couple trends by USL&H carriers 1) Carrers are underwriting very conservatively and closely, looking at payroll exposure (situs and status) if there is risk of loss to them, they are calculating premium against the entire payroll, not just an apportioned amount. 2) Exec Officer exclusion (refer back to one of your 2009 blog topics) – Carriers who may have looked the other way in the past, are now bringing corporate officer and owner payroll into premium calculations.

    State Funds and Residual market carriers are leading the way on this and with recent changes such as Virginia repealing their State Act, and the Recreational Vessel Exemption regulations, carriers are taking a closer look at their exposure.

    All this makes sense when considering not only the expansion of the Act by case law, the generous benefit levels, rising medical costs and increasing attorney fees, but the assessment and secuirty posting requirements we impose on carriers. This is a costly line of insurance to write, and carriers will be collecting adequate premium to cover losses.

    Brandon Miller

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