Month: August 2011

Longshore and Harbor Workers’ Compensation Act: What Is It – and Do I Need Insurance Coverage for It?

As an employer in Virginia, you no doubt carry state workers’ compensation insurance coverage in the event one of your employees is injured while working within the course and scope of his or her employment.  But did you know that you could also be subject to the Longshore and Harbor Workers’ Compensation Act (“LHWCA”)?  There is concurrent jurisdiction in Virginia; thus, an eligible employee may be able to recover benefits under both the state and federal laws.
LHWCA is a federal act designed to provide compensation and medical care to employees disabled from injuries that occur on the navigable waters of the United States, and certain areas adjoining the water customarily used for loading, unloading, repairing, or building vessels.  In addition to longshore and other maritime workers, the LHWCA covers a variety of other employees through several extensions to the law.  For example, employees of U.S. contractors outside the continental U.S., Alaska and Hawaii are covered, as are civilian employees of post exchanges, service clubs, etc. of the Armed Forces, and employees of private industry conducting certain operations on the Outer Continental Shelf of the U.S.
This law was originally enacted to protect workers engaged in stevedoring and ship building operations, but through lawsuits and congressional amendment, has been expanded to encompass nearly any employee whose work takes him on or near “navigable waters,” including, for example, construction workers on barges and those that supply equipment or services “on the water.”  Longshore claims provide a higher benefits schedule and more severe penalties for noncompliance; thus, this law has extreme ramifications for companies who are not considered traditional “maritime” employers, but nevertheless have “incidental LHWCA” exposure.
An employer who may have Longshore exposure must have Longshore insurance coverage.  Failure to secure coverage is against the law, and carries serious consequences.  An employer who fails to satisfy the insurance requirement is subject, upon conviction, to a fine of not more than $10,000, or by imprisonment for not more than one year, or both; and where the employer is a corporation, the President, Secretary and Treasurer may be individually liable for the compensation due.  In addition, failure to properly insure may provide the injured worker the opportunity to maintain an action at law or in admiralty for damages on account of the injury.  In such action, the employer’s defenses are severely limited and damages may greatly exceed those available in a workers’ compensation claim.
LHWCA insurance coverage is expensive – generally two to three times the cost of state workers’ compensation coverage.  However, not having it could turn out to be more expensive than merely paying the insurance premiums.  Therefore, if your business operations take your employees on or near the water, you are well-advised to consult with your insurance broke or attorney to determine if you may be subject to the LHWCA, and if so, to secure proper LHWCA insurance coverage – lest you find yourself and your company in “deep water.”

Chinese Drywall Excluded from Insurance Coverage

If you have a possible Chinese Drywall claim against you insurance carrier, and you have a pollution exclusion provision in your policy, you don’t want to litigation in the Norfolk Division of the United States District Court for the Eastern District of Virginia. In a recent decision, Judge Smith ruled in Dragas Management Corp. v. Hanover Insurance Co., No. 2:10cv547, Aug. 8, 2011, that Dragas’ pollution exclusion was unambiguous and so barred coverage.

Judge Smith found that the focus should be on the sulfur gases that came from the drywall and caused the damages, and that since they were pollutants, they therefore came within the exclusion. So she granted judgment for the insurance carriers. This probably isn’t good news for anyone. Without insurance coverage, this leaves monetary responsibility with developers, contractors, and suppliers, who may not be able to sustain those losses. This in turn could leave injured parties without a remedy. We’ll have to see how it continues to shake out.

Injured at Work during an Earthquake? But this is Virginia . . .

Virginia was rocked by a 5.9 magnitude earthquake this afternoon. I was in my office, diligently working to zealously defend my clients, when the windows that overlook the Battleship Wisconsin and Nauticus on the Elizabeth River in Norfolk, VA began to shake; the blinds began to bang against the windows; my desk began to rumble.
Yes, we had experienced an earthquake – in Virginia.
I quickly checked the Internet and found that the preliminary reports were of a 5.9 magnitude (thereafter downgraded to 5.8) earthquake centered west of Richmond that was felt as far south as North Carolina, and as far north as New York. I quickly made calls to ensure the safety of my family, and once I knew that all was well, I returned to work.
However, my thoughts soon turned the effect of a ‘natural disaster’ on the compensability of a work injury in Virginia. Although Virginia is not the first, or even the 45th state, that comes to mind when you think ‘earthquake,’ we do experience our share of natural disasters, most notably nor’easters and hurricanes. In fact, Hurricane Irene is expected to make landfall in the next few days. Mother Nature can be fierce. And what happens if you have an employee who sustains an injury as a result of, or even during, one of these phenomena of nature?
The Virginia Workers’ Compensation Commission has in fact addressed this concern, albeit more often as a result of a hurricane or lightning strike, but the same holds true for earthquakes. The general rule regarding natural disasters has been stated as follows:
“If an employee is injured by some natural force . . . the event does not in and of itself fasten liability on the employer. The theory is that death or any incapacity to work resulting from some natural force operating directly upon the victim without the intervention of any other agency or instrumentality arises not out of the employment but is due solely to an act of God. However, when the nature of the employment, or some condition, or environment therein, brings into existence a special or peculiar risk to the disastrous forces of nature, the injury or death of an employee may be compensated as a risk of the employment. The applicable test seems to be not whether the injury was caused by an act of God, but whether the employment collaborated in causing the injury or death.”
Simply put, sustaining injury while at work because of a hurricane, earthquake, lightning strike, is not sufficient, in and of itself, to render the injury compensable. The injured worker must still make that necessary causal connection between his working conditions and his injury. The question becomes whether the conditions of the employment put the employee at a greater risk of injury due to an act of God than the general public.
This is not always an easy question to answer, but it should always be asked and investigated. So, in the next day or two, or next week, if you have an employee reporting an injury related to our recent earthquake, or the impending hurricane, make sure you ask the right questions before accepting or denying the claim.

Corporate Protection: Henrico Court pierces the veil of contractor

Corporations are often principally set up to shield individuals from liability. Court generally accept the corporate veil absent proof of “sham” corporations. As a result, the assets of individual officers, directors, shareholders or employees of corporations remains personally protected, absent proof of activity outside of the scope of their authority, intentional negligence, or other limited theories. But when corporations do not have sufficient assets to cover losses, such exceptions may get litigated to establish a recovery pot, and similar facts gave rise to the recently decided case in Henrico Circuit Court by Judge Hicks in Ace Electric Co., Inc. v. Advance Technologies, Inc., et al., Civil Case No. CL09-971, 14 Cir. CL09971 (2011) (April 29, 2011).

In the Spring of 2007, Trent Construction Company subcontracted with Ace Electric Company for boiler work on a project at the University of Richmond. Ace sub-subcontracted work to Advance Technologies, Inc. by written purchase order. Ace later terminated Advance, which had ceased operations. Ace brought suit against Advance and received a default judgment against Advance. After being unable to collect the judgment amount, Ace brought suit against Ace’s sole shareholder, officer and director, Erik Butler, his wife, and ADVTEC, Inc., a later created company claimed to have been fraudulently created to avoid Advance’s debts.

The Court noted that piercing a “corporate veil is an extraordinary remedy that is infrequently granted.” But the court found the evidence sufficient in that case to do so against Mr. Butler because it found that he had failed to uphold corporate formalities, such as conducting annual meetings and maintaining corporate records, and because the company was “grossly undercapitalized” at the time it entered into the contract with Ace. While the court found the facts relating to Mrs. Butler and ADVTEC suspicious, it held Ace had not met the required burden to get to them.

The key lesson learned from this case is the importance of maintaining corporate formalities. They may seem like impositions, but failing to maintain those formalities can have drastic implications, including this type of corporate piercing, and as a result the advantages of corporate protection are lost. It certainly was an important, and expensive, lesson learned to Mr. Butler in this case.

CAS Board is Eliminating Overseas Exemption

For those doing overseas work, the Office of Federal Procurement Policy’s Cost Accounting Standards (CAS) Board has finalized a proposed rule that eliminates the CAS exemption for contracts executed and performed outside of the US. The Board says it concluded that eliminating the exemption would not create any hardships and that the Board, among other things, did not believe the exemption had any accounting basis.

The final rule takes effect Oct. 11 (76 Fed. Reg. 49,365, 8/10/11), and is available by Clicking Here.

Mediation vs. Arbitration: What’s the difference anyway?

Many construction contracts have mandatory mediation and arbitration provisions. So what’s the difference? The key difference is purpose. Mediation involved a third-party facilitator, who tries facilitate a resolution between the parties.

Most mediators use one of two styles; facilitative or evaluative. With facilitative style the mediator does not express opinion on the merits of the dispute, but with evaluative style opinion is given. While parties often want an evaluation, often mediators are loath to do so because they feel it hinders compromise by “picking a side.” So, typically mediators will resort to evaluation as a last resort when it’s apparent the parties would otherwise impasse. But many mediators use variations on both styles, or combinations of them.

For example, a mediator might be evaluative, but keep the evaluation confidential so that it does not taint the other side’s views. In contrast, arbitration is intended to be a decision making process, whereby the arbitrator finds for one side or the other, without concern for possible settlement. I’ll discuss these and other alternative dispute resolution processes in follow on blogs.

Are You Ready for Some Football? . . . What About Workers’ Comp Claims from Football Players?

Thank the heavens, the lawyers, the love of football, or of money – whatever the case may be – it just doesn’t matter, because football is back baby! After months of difficult, and often infuriating, contract negotiations football is set to return, on schedule – well, almost. And no worries, both the owners and the players will continue to get paid the big bucks. You can read more about the negotiations leading up to the new collective bargaining agreement by Clicking Here.


So, other than the fact that I am a huge football fan, why am I writing about the NFL in a workers’ compensation blog? Well, it should come as no surprise that playing football in the NFL is tantamount to “heavy labor.” Players can suffer serious injuries while working within the course and scope of their employment. But what you may not know is, although the ‘headline issues’ during the lock-out included salaries for draft picks, division of league revenues, practice and game schedules, another issue during negotiations of the collective bargaining agreement was workers’ compensation. Basically, the league wanted to require players to file claims within their “home” state – the state in which their team, i.e, their employer, is based. Seems reasonable, right?
Workers’ compensation is largely a creature of state law. Each state has its own statutes and regulations regarding the amount and duration of benefits an injured worker is entitled to receive. And each state has its own statutes and regulations regarding the requirements an injury or injured worker must meet in order to receive benefits in a particular state – a.k.a. ‘jurisdiction.’ The U.S. Supreme Court has ruled that an individual can file for workers compensation benefits in any state that has jurisdiction. Thus, it is important to know the jurisdictional requirements of the states in which you operate so as to avoid unlawful “jurisdiction shopping,” which is when injured workers “shop” for the state with the most generous benefits. And this is exactly what the NFL players have been doing, and what the league was trying to curtail.
The loophole, which the league tried, unsuccessfully, to close during this past lock out, allows players to file workers’ compensation claims in states where their teams are not based, so long as the particular state’s jurisdictional requirements are satisfied. The resulting problem is that many retired NFL players file claims in California, which has among the most generous benefits provisions in the country, because they only need to have played one game in the state to qualify for benefits. Some of these players have received awards or settlements worth more than $100,000.00; whereas, it is likely that they would not have received such generous compensation in their home states. And this is continuing to cost the teams in inflated insurance premiums, and the insurance companies in inflated benefits.
The moral of this story? For employers, contact us or your broker to ensure that you have proper workers’ compensation insurance coverage in every state in which your employees could legally file a claim. And for carriers and adjusters, contact us anytime you have a “foreign” injury to ensure that claims are filed in appropriate jurisdictions.
To read more about the impact of workers’ compensation in the recent NFL lock out, see Business Insurance, “NFL players’ deal will allow workers compensation claims in other states,” Jeff Casale, 26 July 2011.
Pre-Season begins August 11, 2011 7:30 p.m. Are you ready?!
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