Defense Base Act Resolution and the Direct Payment of Future Benefits

When a Defense Base Act (DBA) injury is caused by a “war-risk hazard,” then both the Defense Base Act and the War Hazards Compensation Act applies. The application of both statutory schemes is important for all parties to a Defense Base Act claim because the War Hazards Compensation Act offers additional resolution options. Specifically, employers and carriers may seek the direct payment of future Defense Base Act benefits if the underlying injury and disability was caused by a “war-risk hazard.”

The “War-Risk Hazard” Definition:

Generally, a “war-risk hazard” includes any hazard arising from the use of weapons or explosives; an “action” of a hostile force or person; the discharge of munitions intended for use in war no matter whether a hostile force or person is involved; the collision of vessels or aircraft in a zone of hostilities; and any mishap arising during “the operation of vessels or aircraft in a zone of hostilities or engaged in war activities.”  See 42 U.S.C. § 1711(b).  If the Defense Base Act claimant’s injury was caused by any hazard identified as a “war-risk hazard,” then the War Hazards Compensation Act applies.

Three Ways to Resolve the Underlying Defense Base Act Claim:

Typically, Defense Base Act claims are resolved one of three ways: settlement, stipulations, or formal hearing.  If the claim is resolved by settlement, then the claimant receives a lump sum and the claim is over.  No one can force a party to settle a Defense Base Act lawsuit; the parties must jointly and voluntarily agree to resolve their differences amicably.  More information about settlements can be found in the Longshore and Harbor Workers’ Compensation Act (33 U.S.C. § 908(i)) and the associated implementing regulations (20 C.F.R. §§ 702.241, 702.242, and 702.243).

If the parties don’t want to settle, another option for amicably resolving the Defense Base Act claim is to enter into stipulations.  Through this process, the parties come to an agreement that appropriately and accurately describes the claimant’s injury, medical treatment, average weekly wage, ongoing compensation rate (if any), and ability to return to work or engage in suitable alternative employment.  For a great discussion about settlements and stipulations, read Yelena Zaslavskaya’s article entitled, “Resolving Longshore Claims Through Settlements and Stipulations,” which is available on LexisNexis’ Workers’ Compensation Law Community webpage.

The third option is a formal hearing before an administrative law judge (“ALJ”).  The parties engage in discovery, take depositions, consult evidence, put on their case, and ask an ALJ to issue a Decision and Order to resolve all disputed issues.

Resolution of the DBA Claim and the Subsequent Direct Payment of Benefits:

When the underlying parties to the Defense Base Act claim enter into a settlement, direct payment is not usually a concern because most settlements resolve all aspects of the DBA claim.  On the other hand, when a Defense Base Act claim is resolved via stipulations or formal hearing, the employer and carrier will likely want direct payment.  So…what is it?

The direct payment concept is simple: when certain criteria are met, the government will pay Defense Base Act (or other similar) benefits directly to the injured worker in the place of the carrier.  Indeed, the carrier stops paying benefits (indemnity and medical) altogether once the government takes over.

The statutory authority for direct payment is found in 42 U.S.C. § 1704(a)(3), which states in pertinent part that “[t]he Secretary may, under such regulations as he shall prescribe, pay such benefits, as they accrue and in lieu of reimbursement, directly pay any person entitled thereto . . . .”  The regulation referred to by the statute is 20 C.F.R. § 61.105.  Boiled down to its simplest form, the direct payment regulation requires: (1) an order establishing the injured worker’s right to benefits; (2) proof that the worker’s injury was caused by a “war-risk hazard;” (3) a “relatively fixed and known” compensation rate; and (4) that the injured worker reach maximum medical improvement (“MMI”).

Although an MMI assessment is not an absolute regulatory requirement, most carriers prefer MMI prior to applying for direct payment.  Further, a Defense Base Act claimant who has reached MMI is not precluded from receiving future palliative medical treatment via the direct payment regulation–which is why 20 C.F.R. § 61.105 specifically addresses how medical benefits are paid: “[M]edical care for the effects of a war-risk injury may be furnished in a manner consistent with the regulations governing the furnishing of medical care under the Federal Employees’ Compensation Act, as amended . . . .”   In other words, medical benefits don’t stop when direct payment is granted; they are just handled a little differently by a different payor.

An employer’s and carrier’s application for reimbursement and direct payment is made to the Division of Federal Employees’ Compensation (“DFEC”).  Once DFEC reviews the application and supporting documents, it will decide whether it will reimburse the carrier and accept the claim for direct payment.  When a claim is accepted, DFEC sends a letter to the carrier notifying them of the day when benefits will shift to DFEC.  Also, DFEC sends a letter to the injured worker, telling them to notify their doctors that bills must be submitted to DFEC.

Once DFEC takes over, the carrier no longer pays benefits.  The Defense Base Act claimant will deal directly with DFEC and not the employer or carrier.  DFEC will ask the claimant to confirm continuing disability status–or widow/widower status if the claim is one for death benefits.  The Defense Base Act claimant is absolutely required to comply with DFEC’s requests.  Further, to my knowledge, DFEC does not enter into lump sum settlements with direct payment claimants.

Why Is This Important?:

In my opinion, every party should administer or litigate claims with an eye towards their preferred result.  Does the Defense Base Act claimant want to resolve the claim, accept a lump sum settlement, and move on with their life?  Or does the claimant want weekly benefits ultimately paid by the government?  On the other end of the spectrum, are the employer and carrier willing to pay a lump sum settlement?  Or would they rather seek direct payment, thus capping the amount of benefits they pay?  Each party must determine how they want to resolve the claim; but all parties should work together to move the claim towards resolution.