A recent Longshore case, Homeport Ins. v. McRae, is a cautionary tale for Employers and Carriers to conduct the necessary background checks to verify the relationships of death benefits claimants prior to settlement.

Homeport Ins. v. McRae – Background

Homeport Insurance filed suit against Veronica McRae and her attorneys claiming that the settlement of her claim for death benefits under the Longshore & Harbor Workers’ Compensation Act (“LHWCA”) was obtained by fraud.

Veronica McRae alleged that she was married to the decedent, Anthony McRae, at the time of his death. Anthony McRae died following a slip and fall injury, lumbar surgery, and finally a stroke. The settlement was approved by the Office of Workers’ Compensation Programs (“OWCP”) and Homeport paid $425,000 in death and funeral benefits and $30,000 in attorney’s fees.

The decedent’s daughter subsequently came forward claiming that the Claimant, Veronica McRae, was not married to the decedent at the time of his death. A default judgment of marriage dissolution had been entered in February 2010 and Veronica McRae had unsuccessfully attempted to set aside that default judgment in September 2022.

The LHWCA does not provide any mechanism for Employers and Carriers to recoup mistakenly paid funds either before OWCP or the Office of Administrative Law Judges. They can claim a credit against future benefits due, but in a situation as existed here where no future benefits are due, the Longshore Act does not provide a statutory remedy. Homeport therefore filed suit in state court alleging fraud, deceit, conversion and unjust enrichment. They alleged that McRae’s efforts to set aside the marriage dissolution order show that she knowingly misrepresented her relationship to the decedent throughout the prosecution, mediation and settlement of her LHWCA death benefit claim.

The suit was removed by consent to federal district court. Homeport then filed a Motion to Dismiss and a Motion to Remand. McRae asserted that the LHWCA had preemptive force over the state law claims asserted by Homeport to create federal question jurisdiction.

To determine whether a claim is completely preempted, the court looks to whether Congress: (1) intended to displace a state-law cause of action and (2) provided a substitute cause of action. To date, the Supreme Court has identified only three complete preemption statutes: (1) § 301 of the Labor Management Relations Act, (2) § 502(a) of the Employee Retirement Income Security Act of 1974 (ERISA), and (3) §§ 85 and 86 of the National Bank Act. See, Saldana v. Glenhaven Healthcare LLC, 27 F.4th 679 (9th Cir. 2022).

The trial judge noted that only the Fifth Circuit has addressed whether the LHWCA has the preemptive force requisite for removal. Aaron v. Nat’l Union Fire Ins. Co. of Pittsburg, Pa., 876 F.2d 1157 (5th Cir. 1989), held that the LHWCA does not have preemptive effect over state law claims because the LHWCA contains no civil enforcement provision. The court rejected the suggestion that an “express denial” of a state-law cause of action was sufficient to grant removal. The Court further opined that the removing party had not met its burden of showing that the LHWCA exerts “unusually powerful” preemptive force capable of converting state law fraud, deceit, conversion, and unjust enrichment claims into federal causes of action.

Declining to stray from precedent, the Court stated that “[t]he LHWCA is, in this case, nothing more than a statutory defense to a state-court cause of action” and therefore presents a “classic circumstance of non-removability.” The district court in McRae granted the Motion to Remand the matter to state Court.

Conclusion

While the facts that lead to this dispute are unique, Employers and Carriers should heed the cautionary tale of Homeport Ins. v. McRae. Employers and Carriers should conduct the necessary background checks to verify the relationships of death benefits claimants prior to settlement. Armed with hindsight, a civil records check of the decedent in the local court records prior to settlement would have revealed that claimant and the decedent were no longer married. For claimed beneficiaries who are alleged spouses, a marriage license or certificate should be obtained. For beneficiaries who are children, a birth certificate or other proof of filiation should be obtained. The cost of a detailed background investigation will be relatively low when compared to the costs of the claim or, at worst, trying to recoup funds spent on a fraudulent claim. In addition, in this case the carrier could still be liable for benefits to any true statutory beneficiary recognized by the LHWCA.

Homeport Insurance v. McRae, 2024 WL 3842578 (N.D. Cal. Aug. 16, 2024)