Reimbursement from third-party settlements under the Longshore Act.

Under the Longshore and Harbor Workers’ Compensation Act (LHWCA), when an employee has a claim for damages against a third party (other than his employer) he may pursue both a civil remedy and collect benefits under the LHWCA. Section 33(a) of the LHWCA provides:

If on account of a disability or death for which compensation is payable under this Act the person entitled to such compensation determines that some person other than the employer or a person or persons in his employ is liable in damages, he need not elect whether to receive such compensation or to recover damages against such third person.

33 U.S.C. § 933(a).

It used to be the case that a claimant would have to “choose” ebtween collecting workers’ comepnsation benefits and maintaining control of their third-party case, under an “assignment” theory. That was changed, and Section 33(b) of the LHWCA provides:

Acceptance of compensation under an award in a compensation order filed by the deputy commissioner, an administrative law judge, or the Board shall operate as an assignment to the employer of all rights of the person entitled to compensation to recover damages against such third person unless such person shall commence an action against such third person within six months after such acceptance. If the employer fails to commence an action against such third person within ninety days after the cause of action is assigned under this section, the right to bring such an action shall revert to the person entitled to compensation. For the purposes of this subsection, the term “award” with respect to a compensation order means a formal order issued by the deputy commissioner, an administrative law judge, or the Board.

33 U.S.C. § 933(b).

The LHWCA is very clear about how the proceeds of a third-party recovery are to be used:

Section 33(e) of the LHWCA provides:
Any amount recovered by such employer on account of such assignment, whether or not as the result of a compromise, shall be distributed as follows:

  1. The employer shall retain an amount equal to
    1. the expenses incurred by him in respect to such proceedings or compromise (including a reasonable attorney’s fee as determined by the deputy commissioner or Board);
    2. the cost of all benefits actually furnished by him to the employee under Section 7;
    3. all amounts paid as compensation;
    4. the present value of all amounts thereafter payable as compensation, such present value to be computed as in accordance with a schedule prepared by the Secretary, and the present value of the cost of all benefits thereafter to be furnished by section 7, to be estimated by the deputy commissioner, and the amounts so computed and estimated to be retained by the employer as a trust fund to pay such compensation and the costs of such benefits as they become due, and to pay any sum finally remaining in excess thereof to the person entitled to compensation or to the representative.
  2. The employer shall pay any excess to the person entitled to compensation or to the representative.

33 U.S.C. § 933(e).

This is a straight-forward and dare I say “fair” way of dealing with a third-party recover in the context of simultaneous workers’ compensation benefits. The employer/insurer never is allowed to recover more than the benefits actually issued – even when the employer undertakes the entire cost of obtaining a third-party settlement. Any excess money recovered fromt he actual tortfeasor (in excess of the compensation issued by the employer/carrier) is paid directly to the claimant and/or serves as an offset against any future compensation which may be payable.

In order to calculate the Section 33(f) credit, one must break down a claimant’s recovery to its net amount. This amount is calculated by taking a claimant’s total recovery and subtracting the legal expenses incurred by the claimant. This net amount is then compared to the amount which is due as compensation. If the net amount of recovery exceeds the amount of compensation due, then the employer is not required to pay anything to the claimant. Any previous payments by the employer would be refunded from the claimant’s recovery. Bartholomew v. CNG Producing Co., 862 F.2d 555, 22 BRBS 42 (CRT) (5th Cir. 1989); see also Nacirema Operating Co. v. Oosting, 456 F.2d 956 (4th Cir.), cert. denied, 409 U.S. 980 (1972); 33 U.S.C. § 933(e).

If the claimant’s third-party recovery is less than what the employer would be required to pay, the employer only pays the difference between the third-party recovery and the compensation, see Inscoe v. Acton Corp., 19 BRBS 97 (1986), provide that the provisions of Section 33(g) are complied with. Regardless of whether the recovery is more than or less than the compensation due, the employer is entitled to set off any net recovery from a third party. Jackson v. Land & Offshore Servs., Inc., 855 F.2d 244, 21 BRBS 163 (CRT) (5th Cir. 1988).

In dealing with the Section 33(f) credit, the credit is not limited to the claimant’s economic loss. The credit is also applied to such items as pain and suffering and death benefits. The employer’s credit also includes payments for any future medical benefits for which the employer would be liable. Inscoe v. Acton Corp., 19 BRBS 97 (1986). As per 33 U.S.C. § 933(g), the claimant must obtain the employer/carrier’s permission to settle the third-party claim for less than the compensation would be entitled under the Act.

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Greg Lois is the managing partner of LOIS LLC, a 19-attorney law firm dedicated to defending employers and carriers in New York and New Jersey workers' compensation claims. Greg is the author of a popular series of "Handbooks" on workers' compensation, and is the co-author of the 2016 Lexis-Nexis New Jersey Workers' Compensation Practice Guide. Greg can be reached at 201-880-7213 or glois@lois-llc.com