Today we’re going to run the numbers on a claim involving both DBA-only and DBA-WHCA injuries. By “DBA-only,” I mean that the claimant’s injury was not caused by a war event (like a rocket, mortar, or terrorist attack). And by “DBA-WHCA,” I mean that the claimant’s injury was caused by a war event. Knowing how to handle this type of case can result in massive savings for an insurance company and quicker benefits payment to an injured worker.
The Defense Base Act Vs. The War Hazards Compensation Act:
First, let’s discuss the Defense Base Act and its interplay with the War Hazards Compensation Act. The Defense Base Act is a system of federal workers’ compensation that applies to injured contractors working abroad. The DBA covers everything from slips-and-falls to the contraction of serious viruses to injuries caused by the actions of terrorists. The injured worker is compensated and receives medical benefits pursuant to the Defense Base Act.
The War Hazards Compensation Act is a completely separate statutory scheme. Among other things, the WHCA allows an insurance carrier to request reimbursement for all of the Defense Base Act benefits paid to the injured worker…but only when the DBA benefits were paid because of a “war-risk hazard.” In my experience, the WHCA is only useful for insurance carriers, which may seek reimbursement of the benefits paid.
It is important to be clear about the interplay between the DBA and the WHCA. In all situations, DBA benefits are paid first. If, and only if, the claimant’s injury was caused by the “war-risk hazard,” then the WHCA applies to a claim too.
What is Reimbursable Under the WHCA?
So, what will the government reimburse under the WHCA? Nearly everything. It will reimburse the carrier for all benefits paid to the injured worker. This means that the government will cut a check to the carrier for all weekly compensation and medical benefits paid to the injured worker, no matter whether the benefits were paid out over time or in a settlement. See 42 U.S.C. § 1704.
For example, if the injured worker and his doctors received $50,000 while the DBA-WHCA claim was ongoing and then the worker received a $300,000 settlement for future indemnity and medical benefits, then the insurance company will receive $350,000 in the form of a government reimbursement.
But that’s not all. There is also a provision in the WHCA that allows for reimbursement of expenses. See 42 U.S.C. § 1704. Expenses are divided into two camps: allocated and unallocated. See 20 C.F.R. § 61.104. Allocated expenses include “payments made for reasonable attorneys’ fees, court and litigation costs, expenses of witnesses and expert testimony, examinations, autopsies and other items of expense that were reasonably incurred in determining liability nuder the Defense Base Act . . . .” Id. at 61.104(a). So, this means that the insurance carrier will receive reimbursement for the fees it pays its own lawyers, its own experts, and the claimant’s lawyer too. All those deposition fees from experts and the costs associated with records requests are reimbursable.
Unallocated expenses are a different category. In addition to receiving reimbursement for all money paid in a settlement and all identifiable expenses associated with the underlying Defense Base Act claim, the carrier also receives a 15% sum equal to the “reimbursement payments made under the Defense Base Act.” See 20 C.F.R. § 61.104(b). It used to be that the 15% was applied to all benefits paid–even settlement benefits. After the issuance of FECA Bulletins 12-01 and 13-01, the 15% only applies to indemnity and medical benefits paid before settlement or commutation.
Running the Numbers:
So what happens when one claim has both DBA-only and DBA-WHCA injuries? In those cases, the carrier pays DBA benefits to the injured worker. Then, pursuant to OWCP Bulletin No. 12-01, it can apply for reimbursement of a portion of the benefits paid. The benefits that were paid for the DBA-WHCA claim must be separated from the benefits paid for the DBA-only claim.
Case become interesting at the intersection between DBA-only and DBA-WHCA claims. Why? Because it makes better financial sense for an insurance carrier to lose the DBA-WHCA claim.
To explain this strange phenomenon, I want you to assume that a claimant with both a DBA-only unscheduled injury/disability and a DBA-WHCA unscheduled injury/disability has the chance to recover the following:
- $500,000 for indemnity benefits;
- $50,000 for DBA-only related medical benefits;
- $50,000 for DBA-WHCA benefits;
- $50,000 for defense attorneys fees and expenses; and
- $50,000 for claimant attorney fees and expenses.
With those variables in mind, consider the following scenarios:
- Scenario #1: The insurance carrier completely “zeroes” the claimant. All benefits are denied. the insurance carrier does not have to pay indemnity benefits, medical benefits, or the claimant’s attorney’s fees. However, they do have to pay their own attorneys $50,000. This money is not reimbursable. Consequently, at the end of the case, the carrier has lost $50,000.
- Scenario #2: The insurance carrier is found liable for benefits for the DBA-only claim, but the DBA-WHCA claim is denied. Here, the carrier would not be reimbursed for any indemnity benefits, DBA-only medical benefits, or attorney’s fees. Total amount lost: $650,000.
- Scenario #3: The insurance carrier is found liable for continuing benefits for both the DBA-only and the DBA-WHCA claim. Pursuant to OWCP Bulletin No. 12-01, the carrier can apply for reimbursement of a percentage of the total claim amount–the portion related to the DBA-WHCA claim. With the variables presented above, the carrier would like receive reimbursement for 50% of the benefits plus expenses related to the DBA-WHCA injury. Initial amount lost: $350,000 (apportioned as $250,000 for indemnity, $50,000 for DBA-only medical expenses, $25,000 for defense attorneys fees and expenses, and $25,000 for claimant attorney fees and expenses). But, we can’t forget the unallocated expense reimbursement–that extra 15% the insurance company can get during reimbursement. Once that is applied to the reimbursable amount of the claim ($350,000), then the carrier will get a $52,500 kicker. Total amount lost: $297,500.
- Scenario #4: The insurance company is found liable for the DBA-WHCA claim but not the DBA-only claim. This is the best position for mitigation via the War Hazards Compensation Act. Even though the injured worker would receive the same amount of DBA indemnity benefits, the carrier would be reimbursed for all amounts paid. The total amount paid per the variables presented above: $650,000. The total amount reimbursed, with the unallocated expense added: $747,500. The carrier has not lost any money. In fact, it gained $97,500.
- Scenario #5: The carrier settles the claim, apportioning the lion’s share of benefits on the DBA-WHCA claim as opposed to the DBA-only claim. In this scenario, it is impossible to determine the total amount that the insurance company will lose. But, if the carrier receives reimbursement for 85.1% or more of the benefits, fees, and expenses paid, then it will make a profit because of the unallocated expense provision.
What Makes More Sense:
When there is a DBA-only claim combined with a DBA-WHCA claim, then the parties should discuss how they want to proceed. They need to think about the endgame. In these types of cases, the game does not stop when a judge issues a DBA decision. Instead, it ends when the carrier receives WHCA reimbursement. Mitigation must be judged against the entire timeline of a claim, and the entire timeline considers both the DBA and the WHCA.