RECREATIONAL VESSEL REGULATIONS – PART TWO

The final regulations promulgated by the Department of Labor nearly two years after the passage of the ARRA omitted an earlier proposed section, §701.303.  This dealt with walking in and out of cover, and read:-

§ 701.303 Is a worker who engages in both qualifying ‘‘maritime employment’’ and nonqualifying duties in the course of employment an ‘‘employee’’ covered by the LHWCA?

(a) An individual is a covered ‘‘employee’’ if he or she performs at least

some work in the course of employment that qualifies as ‘‘maritime employment’’ and that work is not—

(1) Infrequent, episodic, or too minimal to be a regular part of his or her overall employment; or

(2) Otherwise excluded from coverage under § 701.302.

(b) The individual’s status as a covered ‘‘employee’’ does not depend on

whether he or she was engaged in qualifying maritime employment or

non-qualifying work when injured.

Obviously a yard which only repairs recreational vessels – and we will leave the problem of defining them until later – will have no problem, since there is no Longshore cover for the workers to walk into.  But if a yard does both recreational and other repair work, then there is a question as to whether the worker is covered by state or by longshore or by both.  In stating the proposed rule, the Department tried to mirror the existing case law;  but they reaped the whirlwind in comments.  Many commenters believed that the rule would expand rather than merely clarify the extent of cover.  They also sought to have a bright line rule based on a percentage of the employees work.  The authors of the amendment were insistent that they sought to reduce costs in order to encourage jobs.

Faced with the barrage, the Department has withdrawn the rule.  They stated “further investigation into the industry’s needs is warranted.  Moreover, even though this rule would have an impact on the entire longshoring industry, the Department received only a few comments from individuals or groups with interests extending beyond the recreational-vessel segment of that industry….. Given the rule’s broad application, however, the Department is reluctant to promulgate the rule without input from the greater longshoring community”. 

There are various locutions that one never wishes to hear from government.  The words “Needs more study” is one.  No time frame is mentioned for this study;  and it is to be feared that it will be buried in the bonfire of good intentions for last year.  This would be a pity.  The Department was quite correct in raising the issue.  Two commenters questioned the formulation as an accurate statement of current law, from opposing viewpoints.  When the issue comes to trial, (death and taxes are not, contrary to popular uninformed opinion, the only certainties), the solicitor’s office will present the Director’s position.  If the Director supports “303”, he will be in a quandary.  The position has been subject to “notice and comment” and has been withdrawn as a result.  Since it has been withdrawn, it is hard to see how it can be entitled to deference;  even the Director does not defer to it.

Of course, part of the hidden problem arises from the difference between cover under the Act;  and the way that the cover is insured, which is not addressed in the Act.  The Longshore and Harbor Workers' Compensation Act was passed in 1927, before the onset of the New Deal legislation, the passage of the Administrative Procedure Act and the 1944 decision of the Supreme Court in United States v. South-Eastern Underwriters Ass’n.  The Act simply required the employer to insure with an insurer authorized by a state to write workers’ compensation insurance.  The federal government was to authorize such insurers to cover longshore risks;  and an endorsement was used to extend the state insurance policy to cover the risks.  Nothing was said about premiums, nor how they were to be computed. 

For a self-insured employer, (and about half of all longshore payments are made by self-insurers), there is no problem since there is no premium.  A worker who walks in and out of cover is no doubt a problem; but merely a claims problem.

State workers compensation premiums are generated by classifying employees into groups presenting similar risks;  welders, drivers and so on.  These classes are subdivided, so that stevedoring on container vessels is covered by one class, and break bulk stevedoring by another.  Rates are generated by actuarial calculations based on reported claim payments.  For many states an independent corporation, the National Council for Compensation Insurance acts as the point of contract for reporting claims and for much of the actuarial work.  An employer will forecast his expected payroll, by class, and will pay premiums based on the rate times the payroll for the class.  At the end of the policy period, there can be an audit to ensure that both the amounts and the classifications have been correctly declared.

Because the premiums are based on actual claims experience, the price should roughly reflect the cost.  For this reason rates are routinely reviewed and employers whose experience is better or worse than the usual rates will have an experience modification factor applied to their premium, to bring it better in line with their actual costs.  The Department of Labor has no part in this.

The employer whose workforce is sometimes covered by Longshore and sometimes by state will be paying different rates, so predicting which employees are which, and for how long, becomes vital to the premium for the cover.  In some states, either the state act or the longshore act will apply to a claim.  In others, both apply concurrently, subject to credit between the two.

The authors of the amendment seek to justify the removal of longshore cover on grounds of price;  that is, that the cost is duplicative, and the benefits are not significantly different.

In the final regulations, discussing the IRFA, at page 82127, the Department tells us that Longshore insurance costs 50 – 100% more than the cost of state workers’ compensation.  For example, the Commonwealth of Virginia imposes a factor of 1.77 on workers subject to the longshore act.

If the benefits are not significantly different, then the price of insurance should not be significantly different.  If the benefits are different, then workers are being penalized under ARRA: which was not supposed to be the intent.  Therefore, as the Department tell us, further study is warranted:  and it should include a study of why the rates are so different; and how much is due to genuine differences between the state and LHWCA statutes and how much is due to account or actuarial variations.

Seeking to cure the apparently high price of insurance by eliminating the benefits, without a careful study, would be like curing speeding on interstate highways by eliminating speed limits.