A “FAULT”-Y DECISION? The Twenty Per Cent Additional Compensation Denied

The Statute

Section 14(f) of the Longshore and Harbor Workers' Compensation Act provides that “If any compensation provided under the terms of an award is not paid within 10 days after it becomes due, there shall be added to such unpaid compensation an amount equal to 20 per cent thereof.” 

This provision dates back to the original statute of 1927.

The case

In Knox v ManTech International, USDC New Jersey, Civil No. 11-4974, a Petition For The Entry Of Judgment Pursuant To Section 18(A) Of The Longshore And Harbor Workers' Compensation Act was denied.  

The underlying Defense Base Act case was resolved through an 8(i) settlement filed with the Administrative Law Judge on Thursday January 20, and approved by him on Monday January 24, 2011 and the approval filed by the District Director on Wednesday, January 27, 2011.  Payment was required no later than Sunday, February 6, 2011.  The claims adjuster, who submitted an affidavit to the court, stated that the office was closed on February 1, due to snow.  The adjuster therefore first saw the approval to the settlement on Wednesday February 2, 2011.  The adjuster requested that the settlement check be ordered immediately, so that the check could be timely mailed via Federal Express to Mr. Knox on Friday, February 4.  “Unfortunately, on Friday, February 4^th, ice storms and serious weather conditions once again swept through Dallas. This storm prevented [the adjuster] from reaching [the] office.  In addition, on February 4, [the adjuster’s] office was closed.”  The next two days were the weekend.  On Monday, February 7, the insurer reopened for business, and the check was sent via Federal Express.  The check was delivered on February 8.  It was two days late.  The District Director, on April 11, 2011, issued the award required by §14(f).  The Director noted that neither the statute nor regulations make exceptions for the weather.  “Given the nature of the weather and the potential for more of the same in addition to the amount of possible additional compensation, your client should have been more diligent in its effort to process this payment.”  The amount went unpaid, (evidently not due to weather problems).  This enforcement action followed. 

The Decision

The judge noted that indeed there was no force majeure clause provision to lengthen the 10 days.  He cited Sea-land Service v James Barry, a 1994 decision of the Third Circuit, saying that employers are exposed “through absolutely no-fault of their own to additional liability”.  The Circuit “hoped that Congress would address the problems built into this statute”.  The judge remarked: “Unfortunately, nothing has happened.”  He went to say:

“Under the very limited circumstances presented herein, wherein an office is closed and traffic accidents are numerous due to ongoing snow conditions, the rigid statutory language must give some leeway.  Congress could not have intended that under such limited circumstances, a surcharge such as the $60,000 would be imposed upon the employer.  See, Connecticut National Bank v. Germain, 503 U.S. 249, 253 (1992). Moreover, as a judge, it is imprudent to establish a precedent where employers would require employees imperil themselves by requiring them to travel to work on a snowy day to issue a check when the length of delay (two days) and monetary loss is minimal. As noted, courts have found that time frames cannot be extended; but this provision has not been analyzed through the due process clause. That is whether the imposition of a $60,000 surcharge "is arbitrary and unreasonable and not proportionate to the actual damages sustained." St. Louis Ry Co. versus Williams, 251 U.S. 63, 64 (1919). See, Exxon Shipping Co. versus Baker, 554 U.S. 471, 501 (2008); Browning-Ferris Industries versus Kelco Disposal, 492 U.S. 257 (1989). In my view it is an unreasonable levy. Therefore, the motion to dismiss the petition for collection of the supplemental award is granted.”

Procedural Error

I am told that A Rule 59 Motion has been filed.  A judgment based on the unconstitutionality of §14(f) issued without notification to the Attorney General is reversible for that procedural error alone.  The judgment should be vacated, the Attorney General notified and given opportunity to defend the constitutionality of the statute.

Statutory Interpretation

Carriers normally favor strict interpretation of the statue.  “Thus the whirly-gig of time brings in his revenges”, and as with the recently argued Roberts case, (also about an “award”), this time they want some “leeway”.  That is flat out wrong.  The statute means what it says.  Further, “No fault” is not a defense and §4(b) specifically provides “Compensation is payable irrespective of fault as a cause for the injury”.  Of course, §4(b) is addressing the underlying injury; however,  §14(f) deals with the “injury” of non-payment of an award. 

The Connecticut National Bank case states:

“In any event, canons of construction are no more than rules of thumb that help courts determine the meaning of legislation, and in interpreting a statute, a court should always turn first to one cardinal canon before all others. We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then this first canon is also the last: "judicial inquiry is complete." This does not support the judge’s desire for “leeway”.

The St. Louis Ry Co. case dealt with a penalty clause in a railroad case.  A 66-cent overcharge was subject to a penalty of $75 plus costs and attorney fee of $25.   The court stated:

“The ultimate question is whether a penalty of not less than fifty dollars and not more than three hundred dollars for the offense in question can be said to bring the provision prescribing it into conflict with the due process of law clause of the Fourteenth Amendment…Of this penalty and the need for it the Supreme Court of the State says: 'It is commonly known that carriers are not prone to adhere uniformly to rates lawfully prescribed and it is necessary that deviation from such rates be discouraged and prohibited by adequate liabilities and penalties, and we regard the penalties prescribed as no more than reasonable and adequate to accomplish the purpose of the law and remedy the evil intended to be reached.' When the penalty is contrasted with the overcharge possible in any instance it of course seems large, but, as we have said, its validity is not to be tested in that way. When it is considered with due regard for the interests of the public, the numberless opportunities for committing the offense, and the need for securing uniform adherence to established passenger rates, we think it properly cannot be said to be so severe and oppressive as to be wholly disproportioned to the offense or obviously unreasonable. Judgment affirmed.”

So the penalty was upheld as to the amount.

The Exxon and the Browning-Ferris cases each deal with jury awards of punitive damages.  Since restrictions on punitive damages are generally reckoned in multiples rather than factors of the original award.  They hardly support the view that a 20% addition to an award is “unreasonable”.

The Judge does no more than announce that a provision that has stood for over 70 years is “an unreasonable levy”, with no reasoning.   As we shall see, his assumption that the failure was due to force majeure was mistaken also.  

An Ithacan lawyer tells me that the provision in the Act is “Draconian”.  This man of many devices knows, of course, that Draco was an Athenian, who prescribed death for even minor offenses.  (The Athenians soon adopted the less rigorous laws of Solon.) Carriers need not fear; they have not been condemned to death, nor even to punitive damages, merely to a modest percentage, for failure to do the right thing.

The “Oh Dear, Its snowing in Dallas” Defense

The judge remarked:  “Moreover, as a judge, it is imprudent to establish a precedent where employers would require employees imperil themselves by requiring them to travel to work on a snowy day to issue a check when the length of delay (two days) and monetary loss is minimal.” This is, of course, quite correct.  But, the judge would be setting no such precedent.  The cause of the failure to deliver the check was not the bad weather, but the failure of the employer to set up a system for the delivery of payments on time without imperiling their employees, given the possibility even in Dallas, of bad weather.   The District Director pointed out in his award that the employer “should have been more diligent” in its efforts to process this payment.  His mastery of understatement is to be admired; but he correctly identified the problem.  The Judge did not address it.

The Insurance Company of the State of Pennsylvania was founded in 1794.  It is no novice in the handling of claims.  It was authorized to write business under the Longshore and Harbor Workers' Compensation Act and its extensions on May 16, 1957.  Chartis handled the claim on behalf of its subsidiary or affiliate.  Chartis, if not the largest insurer in the world, is certainly up there.  They have a worldwide presence.  They created a “center of excellence” in Dallas to handle their claims.   Under the Defense Base Act, Chartis covers workers from all over the globe, from the foothills of Everest in Nepal, the war torn deserts of Iraq, to the remote snowy hills of Afghanistan.  The problems of delivery in those countries are of a different order of magnitude from getting a payment sent out from a multi-office corporation in the continental United States.   That they cannot get a payment from their own chosen center because bad weather shut down the office on two separate days would seem to be something they would wish to hush up as fast as possible.  “Tell it not in Chicago, publish it not in the streets of Philadelphia” lest competitors rejoice.   

It is known to every competent carrier that there is a deadline of ten calendar days for payment of settlements.  It is known that once the settlement application is delivered, the Administrative Law Judge or District Director has thirty days to approve or deny the claim.  In this case, the settlement application includes an agreement as to the address to which payment must be sent, obviously to avoid any mistake in delivery.  The carrier had clearly covered that possibility.  It might have also tried for an electronic transfer or direct debit, which is quick and avoids the risks of traffic accidents, destruction of checks in transit and so forth.  Assuming the claimant would not agree to that procedure, the obvious course of action is to requisition the check when the settlement agreement is sent to the judge.  It is highly unlikely that the judge will reject a settlement supported by counsel.  If he does, void the check.  If not, mail it at once.  In this case, the check should have been sent via Federal Express on Wednesday evening, February 2.  It could then have been delivered on February 3, well in time to beat the deadline.

It is therefore clear that this is not a case of a misfortune for a single adjuster, whose workplace was rendered suddenly inaccessible.  It is a case of the failure of an authorized insurance company,  over two hundred years old, with over forty years experience of the statute, whose obligation is to pay claims within the dates prescribed by statute, failing to implement a system to ensure that this happens; and failing to provide for an emergency plan if it doesn’t. 

Had they spent half the additional compensation implement a system that worked, it would have been well spent.   The administration of claims under the Defense Base Act by AIG, as it then was, was subject to severe criticism at a congressional hearing, not least because of the high premiums charged.  And the accounts of lavish spending on entertainment were widely circulated at the time that the financial crisis broke.  The problem is not lack of money.  In this case, elementary precautions were simply not in place.  No force majeure, no isolated event caused this failure to pay on time, and to put a front line adjuster up to present a sob story irrelevant to the matter in hand, simply adds to the managerial failure to take responsibility for its procedures or lack of them. 

As you will recognize, the above is not a legal opinion, but my own take on a situation.  If you want legal advice you should hire an attorney licensed to practice law.