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AFTER INJURY, THE BATTLE BEGINS: EVALUATING

WORKERS’ COMPENSATION FOR CIVILIAN CONTRACTORS IN WAR ZONES

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JUNE 18, 2009

Serial No. 111–155

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 18, 2009 ............................................................................... 1

Statement of:

Harris, Seth D., Deputy Secretary, Department of Labor ............................ 18

Newman, Timothy D., former civilian contractor in Iraq; Kevin Smith,

former civilian contractor in Iraq; John Woodson, former civilian contractor in Iraq; Gary Pitts, Pitts and Mills Attorneys At-Law; Major

General George R. Fay, executive vice president, Worldwide Property

and Claim, CNA Financial; and Kristian P. Moor, president, AIU Holdings, Inc. ........................................................................................................ 39

Fay, Major General George R. .................................................................. 129

Moor, Kristian P. ....................................................................................... 155

Newman, Timothy D. ................................................................................ 39

Pitts, Gary .................................................................................................. 124

Smith, Kevin .............................................................................................. 60

Woodson, John ........................................................................................... 121

Letters, statements, etc., submitted for the record by:

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 11

Fay, Major General George R., executive vice president, Worldwide Property and Claim, CNA Financial, prepared statement of ............................ 131

Harris, Seth D., Deputy Secretary, Department of Labor, prepared statement of ........................................................................................................... 21

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Memo dated June 16, 2009 .............................................................................. 174

Prepared statement of ...................................................................................... 3

Moor, Kristian P., president, AIU Holdings, Inc., prepared statement

of ..................................................................................................................... 156

Newman, Timothy D., former civilian contractor in Iraq, prepared statement of ........................................................................................................... 42

Pitts, Gary, Pitts and Mills Attorneys At-Law, prepared statement of ....... 126

Sanders, Hon. Bernard, a Senator in Congress from the State of Vermont,

prepared statement of ................................................................................... 16

Schader, Charles R., president, Worldwide Claims, American International Group, prepared statement of ....................................................... 160

Smith, Kevin, former civilian contractor in Iraq, prepared statement of .... 62

Woodson, John, former civilian contractor in Iraq, prepared statement

of ..................................................................................................................... 122

(1)

AFTER INJURY, THE BATTLE BEGINS: EVALUATING WORKERS’ COMPENSATION FOR CIVILIAN CONTRACTORS IN WAR ZONES

THURSDAY, JUNE 18, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 6:45 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Cummings, Watson, and Jordan.

Also present: Senator Sanders.

Staff present: Jaron R. Bourke, staff director; Claire Coleman,

counsel; Jean Gosa, clerk; Charisma Williams, staff assistant; Ron

Stroman, chief of staff, full committee; Carla Hultberg, chief clerk,

full committee; Jenny Thalheimer Rosenberg, press secretary, full

committee; Adam Hodge, deputy press secretary, full committee;

Jennifer Safavian, minority chief counsel for oversight and investigations; Dan Blankenburg, minority director of outreach and senior adviser; Adam Fromm, minority chief clerk and Member liaison;

and Ashley Callen, minority counsel.

Mr. KUCINICH. The committee will come to order. First of all, I

want to begin by thanking all the witnesses for their patience. We

have had possibly an historic number of votes today, consecutively.

We have been voting pretty much for the better part of 81⁄2 hours.

When there is a vote on in the House, it takes precedence over

committee meetings.

As important as this committee meeting is, we wanted to come

back here to continue and not to ask you to try to make arrangements when many of you have already traveled a great distance.

I have talked to many Members and since every Member has had

a great deal of difficulty in their own schedules, we will have some

Members who are going to be coming in and out.

But in the interests of proceeding efficiently and getting to the

witnesses, I am going to ask those Members who are here to limit

their opening remarks, if they have any, to 21⁄2 minutes. So without objection, opening remarks will be limited to 21⁄2 minutes.

Without objection, we will be joined by Senator Sanders. Welcome Senator.

This is the Domestic Policy Subcommittee of Oversight and Government Reform. I am Dennis Kucinich, chairman of the commitVerDate 11-MAY-2000 13:48 Jul 07, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65546.TXT KATIE PsN: KATIE
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tee. The title of today’s hearing is, ‘‘After Injury, the Battle Begins:

Evaluating Workers’ Compensation for Civilian Contractors in War

Zones.’’

This hearing will evaluate workers’ compensation insurance for

Federal contractors working overseas under the Defense Base Act,

a little known law passed in 1941 requiring all U.S. Government

contractors and subcontractors to secure workers’ compensation insurance for their employees.

Today’s hearing focuses on why the men and women who support

our troops in Iraq and Afghanistan, many of whom are former

members of the military who reentered the war zone based on a

sense of patriotic duty or economic necessity, are coming home only

to battle insurers which deny them the medical care and benefits

that American taxpayers have paid for, and why the same system

richly rewards the insurance carriers for doing so.

Over 35,000 contractors have been killed or seriously wounded in

Iraq and Afghanistan since 2002. In this subcommittee’s investigation, we have heard story after story of injured workers coming

home minus a limb or traumatized by war zone experiences seared

into their psyche only to face the fight of their lives with their company’s insurance carrier.

AIG’s record is of particular concern given the enormous Federal

subsidies it receives. It is already well known that AIG awarded

hundreds of millions in bonuses to top executives who have led the

company over the abyss. What this hearing will establish is that

the same company has refused to pay the prescribed benefits to injured contractors without first putting them through a protracted

fight. CNA, which is a much smaller player in the Department of

Defense DBA market, nevertheless distinguishes itself for the

lengths to which it will go to deny injured contractors’ benefits and

to deny the existence of the phenomenon.

This hearing will also demand to know where the Department of

Labor has been since the start of the war to ensure injured workers

are obtaining the benefits they deserve. The Department of Labor’s

Office of Workers Compensation Programs, which oversees the program, is drastically underfunded and understaffed. Its ability to

oversee this exploding program has suffered as a result. But it is

also clear that under the previous administration the Department

of Labor took a hands-off approach to overseeing the DBA program.

We are going to look forward to hearing from Deputy Secretary

of Labor Harris on how the Department of Labor intends to increase its oversight role and help improve the delivery of benefits

to injured workers.

I hope this hearing will serve as an impetus for the reform of the

Defense Base Act. Now I am going to welcome and yield to our

ranking member. I would just like to say thank you for being here.

Before you arrived, Mr. Jordan, we did unanimous consent that

all Members would have 21⁄2 minutes, including us, in order to get

to the witnesses. We welcomed without objection and under unanimous consent for Senator Sanders to join us.

So we will go to you for 21⁄2 minutes, Ranking Member Jordan

from Ohio.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. JORDAN. Thank you, Mr. Chairman. I have a short statement

that I will read fast.

Thank you, Chairman Kucinich, for holding this hearing. I would

like to especially thank the contractors who are here with us today

for their service to our country. I look forward to their testimony.

As the battlefield has evolved, contractors are indispensable.

Without contractors in Iraq and Afghanistan our troops would not

have the food, shelter, supplies, or technology necessary to complete their 21st century missions.

Defense Base Act [DBA] insurance is statutorily mandated for

contractors working on U.S. Government contracts overseas. In recent years we have seen costs increase as claims have increased.

In a program as vast as DBA there are going to be failings. We

need to do everything we can to correct those failings.

I hope this hearing will provide us an opportunity to survey the

DBA program as a whole. It would be preferable to bring all parties, the Department of Labor, the employees, the contractors, and

the five insurance providers, to the table to discuss where reforms

are needed. Today, however, we will hear from only two of the five

providers and none of the employers.

It is Congress’s job to ensure the DOL has the resources and the

statutory authority to educate contractors about DBA, facilitate information sharing between the contractors and the insurance companies, answer questions of statutory interpretation, adjudicate disputes in a timely manner, and oversee employee rehabilitation programs. I look forward to hearing what initiatives DOL has in place

to make the DBA program more efficient.

Finally, I would like to express my disappointment that the investigation leading up to this hearing has not been completed in a

bipartisan manner. The Republicans on this committee were not included in any of the preparations or deliberations leading up to this

hearing. Consequently, as we sit here today, we are not as well positioned to educate our Members about this topic and not in a position to pass judgment on either the legitimacy of the contractors’

claims or the propriety of insurance providers’ decisions. I hope we

can work more closely together in the future.

Again, thank you, Mr. Chairman. I look forward to the testimony.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Mr.

Cummings for 21⁄2 minutes.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. Thank you

for holding this critically important hearing to examine workers’

compensation for civilian contractors in war zones.

I requested this hearing following the April 17th publication of

an extremely troubling report by the Los Angeles Times in conjunction with ABC News and ProPublica that the health insurance

claims of civilian contractors who participated in military operations in Iraq and Afghanistan are being consistently denied.

As you know, Mr. Chairman, civilian contractors, many of whom

are veterans themselves, are serving an increasingly important role

in achieving our mission in Iraq and Afghanistan. These brave men

and women were alongside our uniformed service members consistently displaying acts of heroism on behalf of the American people.

Tragically, recent news reports indicate that our commitment to

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them does not parallel their commitment to their country. Just as

there was public outrage over substandard conditions at the Walter

Reed Medical Center, so too should we be appalled by the stories

we hear today from civilian contractors who are injured on the battlefield and then abandoned here at home.

As you know, Mr. Chairman, the Defense Base Act [DBA], requires contractors and subcontractors to purchase workers’ compensation insurance for employees working overseas. The insurance

purchased must cover medical care and disability payments for

workers injured in the performance of job duties. It must also provide death benefits for the families of employees killed on the job.

The cost of insurance premiums paid by the contracting firms are

then built into the price of the contract between the contractor and

the Federal Government.

Right now, there are more than 31,000 current and continuing

civilian injury claims as well as more than 1,400 claims for death

benefits. The American International Group [AIG], and other insurers have received some $11⁄2 billion in premium payments while paying out $900 million in compensation and expenses. What a

deal. According to the April 17th article, AIG is a primary insurer

retained by contracting firms handling some 90 percent of civilian

claims filed in war zones in 2007.

I could go on but because of time, Mr. Chairman, I will submit

my entire statement for the record.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. KUCINICH. Without objection, the gentleman’s statement will

be submitted to the record. I will submit my entire statement for

the record as well.

The Chair recognizes Senator Sanders from Vermont for 21⁄2

minutes.

Senator SANDERS. Thank you very much, Chairman Kucinich and

Ranking Member Jordan. Thank you very much for the opportunity

to say a few words. What we are looking at is an horrendous situation in two regards:

Most importantly, men and women who have put their lives on

the line in Iraq and Afghanistan, civilians working for private contractors who have been wounded, came home with the expectation

that they would get the care and the benefits that they were entitled to. What we are seeing is time and time again large insurance

companies like AIG are denying them the benefits that we have

paid for as taxpayers. That is issue No. 1.

Issue No. 2 is that at a time when this country has record break- ing deficit and an $11 trillion national debt, it is our obligation to

make sure that taxpayers’ money is well spent. I think any serious

investigation of how money for workers’ compensation, in terms of

these private defense contractors, has been spent will indicate that

there has been huge wartime profiteering. That is an abuse of taxpayers’ money that is not acceptable.

Clearly, under the last administration there was virtually no

oversight in terms of the Department of Defense and the Department of Labor. So I think the time is long overdue for us to take

a very hard look at the Defense Base Act and to make sure that

all of those men and women who are hurting today get the care

that they need. And we have to make sure that we are not continuing to waste billions of dollars of taxpayer money.

Thank you, Mr. Chairman.

[The prepared statement of Hon. Bernard Sanders follows:]

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Mr. KUCINICH. Thank you very much, Senator Sanders.

We are now going to go to our witnesses since there are no further comments from Members. I want to start by introducing the

first panel. Seth Harris was sworn in as Deputy Secretary of Labor

on May 26, 2009. You have an extensive background, which we will

submit for the record, but in the interests of expediting this hearing we are going to go to your testimony.

It is the policy, Mr. Harris, of the Committee on Oversight and

Government Reform to swear in all witnesses before they testify.

I ask that you would please rise and that you would raise your

right hand.

[Witness sworn.]

Mr. KUCINICH. Thank you. Let the record reflect that the witness

answered in the affirmative.

Mr. Harris, all witnesses were invited to give a 5-minute statement. I think it is a good idea that we try to stick to that. So,

would you proceed with a 5-minute statement? In any event, your

entire statement will be included in the record.

We would like to hear from you and then we are going to immediately go to questions of you from the Members. Then after that

we will go to the next panel.

Thank you very much.

STATEMENT OF SETH D. HARRIS, DEPUTY SECRETARY,

DEPARTMENT OF LABOR

Mr. HARRIS. Thank you, Mr. Chairman. Thank you, Congressman Jordan, Senator Sanders, Congressman Cummings, and the

other members of the subcommittee. As the chairman said, my

name is Seth Harris. I am the Deputy Secretary of Labor. As the

Labor Department’s Chief Operating Officer, I oversee the Office of

Workers’ Compensations Programs administration of the Defense

Base Act. I am grateful for this opportunity to discuss the Department’s role and responsibilities under the DBA and the values we

bring to the discussion of how we might reform this important program.

Let me begin by thanking Chairman Kucinich, Senator Sanders,

and the other members of the Domestic Policy Subcommittee who

played a leadership role on this issue. You have raised important

issues about the operation of the DBA program and put the program on the path toward reform. Through your efforts and the diligent work of your staff, the issues are being explored and the program’s problems are being brought to light.

The Defense Base Act needs significant reform. The Department

of Labor looks forward to working with you and other agencies of

Government to diagnose honestly the problems in the program and

to craft the right solutions to those problems.

I would also like to take a moment to recognize and express my

respect for the civilian contractors who will address you this

evening and in the process represent thousands of others who were

injured or killed while giving support to our armed services and civilian agencies. The Workers’ Compensation program they relied on

to care for them in their time of greatest need did not work as well

as it should have. They deserve better. Now, we must build a better system for them and for future claimants.

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Mr. Chairman, the Department’s goal is to reduce the consequences of work related injuries. Civilian contractors who work

overseas in support of our military and civilian agencies should receive prompt and appropriate benefits to remedy the physical, psychological, and financial effects of injuries that happen in the

course of their employment. Employees should know what benefits

they may be entitled to and how to get them. Employers and their

insurance carriers should have systems in place to respond to injury claims and voluntarily provide necessary medical benefits and

monetary compensation for disability or death as quickly as possible. I look forward to working with you to build a Defense Base

Act system that serves those values better than the system we

have today.

The Department of Labor recognizes that the DBA, under the extreme and evolving conditions in which it is now applied, is insufficient to meet the needs of its major participants. Written in 1941,

the DBA was designed to protect a small cadre of American workers primarily engaged in engineering and construction work in Europe and the Pacific. Now, the program serves an enormous international work force engaged in nearly every imaginable type of occupation.

They are employed by both American and foreign companies

large and small. There are multiple layers of subcontracting. And

to further complicate matters, contractors serve in distant countries with major language, culture, and infrastructure challenges.

In many cases, they serve in war zones and face the persistent

threat of grievous injury from new types of insidious attacks, sometimes with limited medical care availability and the added challenges of evacuation.

The Department of Labor knows about these difficulties but we

are trying to meet a complex 21st century challenge with a program from World War II. It simply isn’t up to the task. Fundamental reform is needed. The Department has made every effort to implement the DBA fairly and effectively. However, it is my sense

that even with additional resources, more modern technology, and

redoubled effort by all concerned the Department’s effort would be

insufficient to overcome the systemic challenges now facing the

DBA. We have already begun evaluating alternative approaches

with the contracting agencies.

The present structure of the DBA insurance program is characterized by severely limited competition in the insurance market,

varying premium rates, procurement of insurance through widely

divergent processes, and significant limitations on the ability to

track and account for the contractors, subcontractors, and contract

workers involved. These systemic problems raise serious questions

about a whole range of issues.

I have a long list of questions, Mr. Chairman, which we can come

back to if you would like in questioning but I don’t want to go over

my time.

The list of problems with the existing DBA program, along with

others that are not on my list, is extensive and troublesome. However, the list of options to address these issues provides various

paths to change and we believe improvement in the DBA program.

We see four basic options with flexibilities within each:

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First, Congress could decide to leave the basic structure as is but

revise specific sections of the law to clarify, strengthen, and reform

identified weaknesses and define what is not clear.

Second, Congress may decide to replace the existing system with

an option for the contracting agencies to self insure their contracts

instead of procuring private insurance or to remain in the private

insurance system that currently exists.

Third, Congress may decide that the entire Federal program

should be self insured under one entity with no option for private

insurance.

Fourth, Congress may decide to simply leave the DBA statute as

is but provide additional resources to strengthen the oversight, regulation, enforcement, and reporting processes.

The most important step the Labor Department can now take is

to work closely with this subcommittee and the contracting agencies to analyze these options and determine which will best serve

the civilian contractor work force. We are committed to taking that

step.

Mr. Chairman, I look forward to your questions and those of the

members of the panel.

[The prepared statement of Mr. Harris follows:]

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Mr. KUCINICH. I thank the gentleman. We are going to now move

to questions from Members.

I would just ask the witness and all other witnesses who will

come in other panels that when you are asked questions by Members, please answer the question directly. Be as succinct as you can

in the interest of trying to get as much of the information that you

have available to members of this committee.

I would like to begin by talking about the Office of Workers’

Compensation. I understand this Office has been underfunded for

the past 8 years. But does the Department of Labor really maintain

records showing insurance coverage with such advanced technology

as this 3x5 card? It says here this form was last updated in 1976.

Is this the way you keep records there?

Mr. HARRIS. Yes, Mr. Chairman. You are right that card dates

from the Ford administration.

Mr. KUCINICH. Is it time to upgrade the system?

Mr. HARRIS. It is time to upgrade that system and we are going

to fix that. We have a plan that we are ready to implement and

we are going to fix that system.

That is the card on which we receive information from the insurers about who they have covered. We have a long stack of those

cards that we use to get this information.

Mr. KUCINICH. Would you agree that if you have a lot of claims,

wouldn’t it be important to the claimants to be able to have their

data into a reliable and sophisticated data collection system?

Mr. HARRIS. I think that is right. But let me say, that card isn’t

for claimant data. That card is for insurers’ coverage of employers.

Mr. KUCINICH. So you are saying, you are committing that you

are going to update it?

Mr. HARRIS. We are going to fix it. Absolutely, yes.

Mr. KUCINICH. Now, I want to ask you also, your staff has made

some disconcerting statements about the Department of Labor’s authority to enforce DBA requirements. One staff member referred to

the Department of Labor in these terms, that you are ‘‘at best a

score keeper, not really a referee.’’ We know the difference between

a score keeper an a referee. Another staffer said that Congress intended the DBA program to be self executing where DOL only sits

back and watches and jumps in when something goes bad.

Do these comments represent accurately the current administration’s view about its responsibility for DBA workers’ compensation

insurance?

Mr. HARRIS. No.

Mr. KUCINICH. Will you change DOL’s policy and culture so that

the Department of Labor exercises more authority?

Mr. HARRIS. Well, the statute defines the scope of our authority.

The descriptions that you just repeated from members of my staff,

and I would be curious to know who they are, by the way, I don’t

think accurately capture what our statutory role is.

Mr. KUCINICH. But the Department of Labor has a poor record

of overseeing DBA insurance. That is a legacy you do not want to

repeat, I take it?

Mr. HARRIS. Well, I don’t want us to do a poor job. That is certainly true, Mr. Chairman.

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Mr. KUCINICH. Are you going to assure this subcommittee that

you are going to conduct a top to bottom review of the Department’s of Labor role in administering the DBA insurance?

Mr. HARRIS. Well, I think the most productive thing we can do,

Mr. Chairman, is to work with you to fundamentally change the

program. I think that there are a lot of administrative reforms we

could make and we should do those. But let me say, the program

is not designed for the circumstances that we are in right now.

What we need is fundamental reform.

I think more resources, better technology, better systems might

improve the circumstances somewhat. But let me say, for the folks

who are going to be testifying on your next panel, I am not sure

any of those processes would have changed the outcome in their

particular cases. It is the system that we have, a system that depends upon private insurance, that is an adversarial system, like

many workers’ compensation systems, unfortunately, and a system

that results too often in adjudication that takes months and

months and months and months.

Mr. KUCINICH. But it is true if you are working with old technology, that can slow down claims. If you have insurance companies that don’t want to pay the claims and a technology that slows

down the claims, you are going to have frustration in the first case

of people not getting their case in front quickly enough and in the

second case of just the insurers not wanting to pay. That is the concern that we have.

Mr. HARRIS. Well, I share the concern that the technological

problems or the systems that we are currently using result in some

delay. But let me say, I don’t think that is where the bulk of the

delay in this system comes in. It is when you end up in an adversarial relationship between the insurer and the claimant.

Mr. KUCINICH. Let me talk about that, if I may, because my time

is running out to ask you questions. What are the limitations in

the DBA that prevent the Department of Labor from playing an active watchdog role?

The act specifically states that the Department of Labor may

‘‘provide persons covered by this act with legal assistance in processing a claim.’’ On DOL’s Web site it states, ‘‘Department of Labor

administers the Defense Base Act ensuring that workers’ compensation benefits are provided for covered employees promptly

and correctly.’’ Please, if you could respond briefly?

Mr. HARRIS. Yes. The role of the Labor Department is to process

these claims; when there are disputes to mediate between the insurer and the claimant; to cajole, pressure, beg, or beat about the

head and neck the insurers who are denying claims; and to get to

settlement as quickly as possible.

We are not, however, an arbitrator or a judge. There is an adjudicative process that follows. When the Office of Workers’ Compensation Programs advocates on behalf of a claimant and the insurer still refuses to pay, we end up with a referral into adjudication. That is where I think the delays come in.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes the

Minority Leader, Mr. Jordan.

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Mr. JORDAN. Thank you, Mr. Chairman. Mr. Harris, did I get

that right when the chairman introduced you that you have been

on the job 3 weeks?

Mr. HARRIS. It seems a lot longer but yes. It has been about 3

weeks.

Mr. JORDAN. Well, Mr. Chairman, some of the line of your questioning I think was right on target. This is the second hearing I

think we have had in 6 weeks which dealt with a program at the

Department of Labor. Nothing against Mr. Harris, but he has been

on the job 3 weeks. I think 6 weeks ago when we had the hearing

on the H–2B Program we had no one from the Department of

Labor here to talk about what was going on there and the lack of

oversight that they had there. This is serious.

Mr. Harris, in your testimony you talked about four approaches

that would help improve this entire operation. I just jotted them

down because I didn’t have your testimony directly in front of me.

You said one was to kind of define, clarify, refine how the current

system works. I think the other one you said was to allow employers to self insure. The third option was to have the entire system

in some kind of self insurance. Then the fourth one was more dollars. More resources I think was your term. Walk me through those

real quickly. Which do you advocate and which do you think makes

the most sense? Give me your thoughts on those.

Mr. HARRIS. I thank you for that question. Let me just, if I could,

modify your description of the second option a little bit. It would

be the contracting agencies that would have the option of self insuring rather than employers. There is some self insurance by employers here that are not insured.

Each of these options serves different purposes and accomplishes

different results. So the question is what problems are we most interested in trying to solve. If the principal problem that we are trying to solve is that this is an insurance market that doesn’t have

enough participants, a uniform self insurance system might well be

the way to go.

But we need to engage with the contracting agencies. The Department of Defense is going to come forward with a report in July.

We need to engage with them to try and winnow down these four.

But I think that what we are trying to suggest to the committee

is that these are four options with variations within each of them

that I think that the committee should be thinking about as it considers legislation.

Mr. JORDAN. But the question, I guess, is which one do you advocate?

Mr. HARRIS. We are not advocating for any of the four just yet.

We need to engage the contracting agencies before we are prepared

to do that.

Mr. JORDAN. The study is coming back when, next month?

Mr. HARRIS. My understanding is that the Defense Department

is going to be reporting on July 13th about this program and about

the scope of contracting.

Mr. JORDAN. We will look forward to that study. When the

United States first went into Iraq and Afghanistan, many of the

defense contractors, especially subcontractors, were unaware of the

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requirement to get the DBA insurance. What is the Department

doing now to make sure they are aware of that requirement?

Mr. HARRIS. We are working with the contracting agencies. Let

me just say, the Defense Department, the State Department, and

USAID are right now working on trying to develop a comprehensive data base of contractors. One of the problems that we have

had is that we don’t know who all the contractors, subcontractors,

and sub-subcontractors are. All of them are supposed to be insured.

So we are working with them in trying to develop that data base.

But we are also working with them to try and get information

out to the contractors and subcontractors. That is a very, very difficult task because often you have foreign subcontractors working

for American contracting companies. Frankly, that has been one of

the biggest challenges. There are contractors in this system that

are not insured.

Mr. JORDAN. But I assume there is some kind of formal education process that takes place on the front end. How does it work?

Mr. HARRIS. That is a fair question. I am afraid I am not going

to be able to give you an answer that I don’t know. I will be able

to get you more information about that, but I can’t describe the

way in which we educate contractors as they enter the system. But

my staff will get you some more information about that.

Mr. JORDAN. Let me do a related question, then. DynCorp created what they refer to as the Civilian Police Employee Assistance

Program which informs employees about preparations they need to

make prior to going to Iraq and Afghanistan. Then, in the event

of injury, CPEAP officials act as an intermediary between the insurance company and the employee. Is this a good idea, this kind

of an approach? Do you think it is a good idea?

Mr. HARRIS. Where the employer provides an intermediary with

the insurer? I don’t know. I am not familiar with that program so

I don’t know how well it works. I think anything that gets insurers

to respond more quickly and gets those benefits paid, the compensation and the medical benefits paid more quickly is a good

idea.

But let me just say, I think that sort of tinkering around the

edges is not going to work here. I think that we need to really look

at fundamentally changing this program. The system is certainly

not geared for the number of contractors that we have right now.

When this program was created we were talking in the numbers

of hundreds. Now we are talking in the thousands, 15,000 I believe

in the last fiscal year. That is a lot of claims for a system that is

not built to manage that quantity of claims. So individual programs

here and there may benefit but as I said before, I think we need

to look at fundamental reform.

Mr. JORDAN. Thank you, Mr. Chairman. Thank you.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Mr.

Cummings of Maryland.

Mr. CUMMINGS. Mr. Harris, let me ask you this: You said there

was limited competition. In other words, there were limited numbers of insurance companies doing this?

Mr. HARRIS. That is true. My understanding is that the three

large insurance companies have about 90 percent of this market:

AIG, CNA, and ACE. I believe that AIG has 80 percent of the DeVerDate 11-MAY-2000 13:48 Jul 07, 2011 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65546.TXT KATIE PsN: KATIE
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fense market. That is not very much competition. I believe the

State Department has a sole source relationship with CNA.

Mr. CUMMINGS. OK. All right, let me tell you where I am going.

Let me guide you to where I want you to go. They can’t lose with

these contracts, can they? They cannot lose. As I understand it, the

way this DBA is structured, they cannot lose. In other words, insurance companies cannot lose. Am I right? They are going to get

paid the big time.

Mr. HARRIS. I think that is right.

Mr. CUMMINGS. Then why is there limited competition? I don’t

understand that. Corporations usually operate based on profit. You

are telling me that three companies, they cannot lose. So why is

there limited competition? I am not knocking you; I am just curious.

Mr. HARRIS. I think that is an excellent question. I am not sure

I am the right person to answer it. We were actually talking about

this earlier today in preparation for the hearing. I think one part

of it is that the barriers to entry into the market are pretty high.

For example, AIG has a very extensive system of offices, and Arabic speaking folks in Kuwait and I believe in Iraq. In order to get

started up in this market and to be able to compete in the market,

I think it would cost a lot of money to get in. That may well be

it. But I don’t want to represent myself as an insurance market expert.

Mr. CUMMINGS. I understand, but you are going to have to do

that. You are going to have to become an expert because you are

sitting here telling us that you believe that reform is necessary. I

do appreciate you saying that. Thank you for coming in here and

not trying to snow us. But this is the key: If we are going to change

this system, we need to change it soon.

In a few minutes some people are going to come up here and they

are going to talk about their personal tragedies. The one thing that

Chairman Kucinich will tell you is that one of the things that we

try to do is get Government to work for the people. A commitment

made is a commitment that has to be kept. It is part of our responsibility, when you come in here and tell us that something is wrong

and needs to be corrected and then after you testify people who are

victims of the system come up and tell us how they have been victimized, then if it is not changed we become a part of the conspiracy of failure and mediocrity.

So now the question becomes what is the timetable on all of

these changes that you are talking about? You have been kind

enough to come in here and tell us that things are wrong. But

words don’t put one dime in the pockets of these people who have

suffered, whose families have suffered, and whose surviving loved

ones are suffering. Can you give us some timetables so we are not

doing this same thing next year at this time?

Mr. HARRIS. Well, let me say that I agree with everything you

just said. I hope that we are not here next year talking about this.

I hope we are here next year talking about how to implement a

new program.

Mr. CUMMINGS. The urgency of now.

Mr. HARRIS. I agree with you completely. But let me also say the

timing is up to you. Congress needs to reform this program. The

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Labor Department can’t do it. There are changes that we can make

but the fundamental reform that is needed is up to you.

Mr. CUMMINGS. Good. So, you are the one who is in the Department. What do you think would be the most effective way for us

to address what you have already seen in the Department? Will we

have the support, if we do what you suggest, of this administration? After all, the President is probably going to have to sign

whatever we do.

Mr. HARRIS. I don’t want to represent that the President is going

to sign whatever you do. But we need to have more discussion with

the contracting agencies. We are dedicated to doing that quickly.

We are going to get this report from the Defense Department next

month. Congress dictated that they do it and they are doing it.

Then we are going to hopefully come to you with a proposal.

I have tried to give you four ideas that you can begin working

on immediately to try and assess how they match up with solving

the problems that exist in this program. So I think we should get

started with that discussion right away about how to get to a bill.

But I must say, because we need to have some more discussion

within the administration about which of these choices we want

you to make, I want you to go ahead and get started.

We are going to come to you hopefully with an answer soon. But

I can’t tell you exactly when that is going to happen. Hopefully

soon.

Mr. CUMMINGS. Do you think this profit margin of 40 percent is

reasonable or do you think that is a bit high?

Mr. HARRIS. I am not an insurance regulator so I am not really

in a position to say.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Senator Sanders.

Senator SANDERS. Thank you, Mr. Chairman. As I understand it,

and you tell me if I am wrong, somewhere between 80 and 90 percent of the business that KBR let out for insurance seemed to go

to AIG. Does that sound right to you?

Mr. HARRIS. I don’t know the specifics of KBR’s business. I was

speaking with Congressman Cummings about the market as a

whole and the Defense Department market. But I can’t speak to

KBR.

Senator SANDERS. That is my understanding, that the overwhelming amount of business from KBR went to AIG. Picking up

on Mr. Cummings’s point, above and beyond the terrible treatment

that people who have put their lives on the line to defend this

country have received, it does seem to me at least a little bit

strange that workers’ compensation companies providing insurance

in Iraq and Afghanistan have made underwriting profits of $600

million on some $11⁄2 billion in premiums. I don’t think you have

to be an insurance expert to suggest that may be war profiteering.

Does that sound right to you?

Mr. HARRIS. It sounds like a lot of money to me. Again, just getting back to the Labor Department’s role here, we are not insurance regulators. That is not our role in this system. Congress didn’t

give us that authority, so I am just not in a position to say.

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Senator SANDERS. We are playing with American taxpayers’ dollars that in this case go from the taxpayers to the DOD, go from

the DOD to KBR, and go from KBR to AIG. What I think the taxpayers and the Government of the United States expect is that

when people in fact get hurt, they get justice. When they need

medical help, when their families need death benefits, they get it

and they get it in a prompt manner.

Now, in my view, and I don’t want to get into a partisan argument but I think the Bush administration will go down in history

as one of the most incompetent administrations. You guys are new

on the job but I hope very much, picking up from what Congressman Cummings just said, it is important that we turn the page on

this issue. It is important that you work with Congress to give us

your ideas so that No. 1, we have a cost effective program and are

not wasting billions of dollars, and No. 2, more importantly, that

when people get hurt on the job representing the needs of the

United States of America, they get prompt and just compensation.

Does that sound fair enough?

Mr. HARRIS. I agree with you. Let me go a little further. You

have my commitment that we are going to work with you to fix this

program.

Senator SANDERS. Thank you very much.

Mr. KUCINICH. I thank Senator Sanders. The Chair recognizes

the gentlelady from California, Congresswoman Watson.

Ms. WATSON OF CALIFORNIA. Thank you, Mr. Chairman, for holding this very significant hearing. I want to thank Mr. Harris for

waiting all these hours while we played in the sandbox on the floor.

I think it is very, very important that we hear from you, the Department of Labor.

We had no idea when this new administration group started that

we would have this kind of unemployment. But a good friend of the

people is now over there, Hilda Solis, and I know her staff will do

an excellent job in trying to straighten this out.

According to data from the Labor Department and anecdotal evidence from Federal contractors working overseas, the workers’ compensation system currently in place is characterized by a high denial rate. You probably talked about this before I came to the committee, but it is characterized by a high denial rate for those requesting compensation while the insurance providers have benefited from significantly higher profits than those typically earned

by conventional workers’ compensation insurers. This conflict is

perpetuated by a seeming lack of comprehensive oversight of the

system, and I hope that is something that we will try to iron out,

with oversight duties fragmented between the Department of

Labor, the Department of Defense, and the Department of Justice.

So what kind of communication has there been? I think you have

only been there on the job 2 weeks?

Mr. HARRIS. About 31⁄2 weeks, ma’am.

Ms. WATSON OF CALIFORNIA. About 31⁄2 weeks. You have picked

up a lot. So what kind of communication has there been between

the Department of Labor and the Department of Defense to control

the high premiums paid to insurance companies and to ensure Federal contractors are receiving adequate care?

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Mr. HARRIS. We have been in discussion with the Defense Department about reforming this program and the study that they

are undertaking.

The Labor Department has no authority over premiums in this

system. That is determined by the contracting agency that establishes the contracting relationship with the employer and establishes the relationship with the insurer. So we have no mechanism

by which we can control those costs or regulate those costs.

Ms. WATSON OF CALIFORNIA. But as long as you are talking to

each other, I would hope that you would mention that this is a serious problem, that our committee has questioned it, and to expect

more questions from us. Can you pass that on?

Mr. HARRIS. I will.

Ms. WATSON OF CALIFORNIA. Can you tell me why the Department of Labor only referred one case, and this is probably before

you arrived, one case to the Department of Justice for prosecution

of an insurance carrier knowingly making a false statement for the

purpose of reducing or denying benefits to an injured contractor despite evidence that such instances have occurred on numerous occasions? If you have not been there long enough to know about this

case, I wish you could get back to us and let us know what happened under the last administration to reduce the number of cases

that would go for prosecution. With that I will yield back my time,

Mr. Chairman.

Mr. KUCINICH. I thank the gentlelady. I want to thank Mr. Harris for his presence here. This committee is adamant about making

sure that the Department of Labor reforms its position on these

matters to make sure that those who were injured are able to receive the compensation that they are entitled to. The committee

thanks you. We will be in touch with you.

At this time we are going to call the second panel. We are combining the second and the third panel. I would like everyone to

come forward. While you are coming forward I would like to take

this opportunity, just to move expeditiously to put the witnesses in

place, while you are coming forward, I am going to read some of

the biographies because we are going to keep moving this along.

I also want to take the opportunity to thank those from the

media who are here for their patience in waiting, the reporters, the

cameramen, the technicians, and the producers, and for your role

in helping to communicate this hearing to the general public. So

thank you very much for your presence.

While the panel is getting into place, I want to talk about who

we are going to be hearing from.

Mr. Timothy Newman, welcome. He was a former civilian contractor in Iraq for DynCorp. In 2004 he joined the U.S. Department

of State CivPol mission to Iraq as part of the Global War on Terror.

He spent 15 months in greater Baghdad training the Iraqi police

forces and protecting fellow mission officers until on September 2,

2005 he was severely injured by a roadside bomb. Mr. Newman lost

his right leg and sustained several other major injuries. Upon returning home, he worked with DynCorp to develop a program to

better care for injured contractors.

Mr. Kevin Smith is a former civilian contractor who worked as

a truck driver for KBR in Iraq. Mr. Smith was severely injured

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when his supply convoy was ambushed by insurgents outside Baghdad in 2004.

John Woodson is also a former truck driver for KBR in Iraq.

Prior to going to Iraq he was a construction supervisor in Houston,

TX working with cranes in the rigging industry. He also worked in

aerospace, commercial, and petrochemical fields for 25 years. On

October 28, 2004 John Woodson was hit by an IED, losing his leg

and most of his eyesight.

Gary B. Pitts is an attorney who has been handling U.S. Department of Labor cases for the last 30 years. Since the war began 6

years ago, he has been representing more civilian contractors

wounded, injured, or ill from the war zone than any other attorney

in the country. He has had over 300 ongoing Defense Base Act

cases at all times for the last 4 years from all parts of our country.

He is the owner of Pitts and Mills in Houston, TX. He served in

the Army National Guard for 12 years and was a Captain.

General George Fay is executive vice president of Worldwide

Property and Claim of CNA. He is responsible for claims, strategies, and operations for CNA’s Property and Casualty Operations

worldwide. He is also a member of CNA’s Operating Committee.

Before joining CNA in July 2006, General Fay was executive vice

president and chief services officer at the Chubb Corp. where he

spent more than 30 years in claims, operations, and administration

holding positions of increasing responsibility. He is also a retired

Major General from the U.S. Army Reserves.

Kristian P. Moor is AIG’s executive vice president and president

of AIU Holdings, Inc. He is responsible for worldwide general insurance companies of AIU Holdings, Inc., a leading global property

and casualty holding company. He is also an executive vice president of American International Group, Inc. Prior to the formation

of AIU Holdings, Inc., Mr. Moor was president and chief executive

officer of AIG’s Property Casualty Group.

Finally, Charles R. Schader is going to be joining Mr. Moor for

questions from Members. He is president of Worldwide Claims,

American International Group. As president of AIG’s Worldwide

Claims operation, Mr. Schader has substantial experience in addressing claims under the Defense Base Act and War Hazards

Compensation Act.

I would like all of the witnesses who are either going to be making a statement, answering questions, or both to rise. It is the policy of our Committee on Oversight and Government Reform to

swear all witnesses in before they testify. I would ask that each of

you raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

answered in the affirmative. You may be seated.

As with the first panel, I ask that each witness give an oral summary of his testimony and to keep this summary under 5 minutes

in duration. Your entire testimony will be included in the record

of this hearing.

I would like to begin with Mr. Newman. Thank you very much

for being here.

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To those who are here as contractors and have served, I think

it is appropriate on behalf of the subcommittee to also say thank

you for serving the United States of America.

You may continue.

STATEMENTS OF TIMOTHY D. NEWMAN, FORMER CIVILIAN

CONTRACTOR IN IRAQ; KEVIN SMITH, FORMER CIVILIAN

CONTRACTOR IN IRAQ; JOHN WOODSON, FORMER CIVILIAN

CONTRACTOR IN IRAQ; GARY PITTS, PITTS AND MILLS ATTORNEYS AT-LAW; MAJOR GENERAL GEORGE R. FAY, EXECUTIVE VICE PRESIDENT, WORLDWIDE PROPERTY AND CLAIM,

CNA FINANCIAL; AND KRISTIAN P. MOOR, PRESIDENT, AIU

HOLDINGS, INC.

STATEMENT OF TIMOTHY D. NEWMAN

Mr. NEWMAN. Thank you. My name is Timothy Newman. I was

injured in Iraq in 2005 while working for DynCorp as a civilian

contractor. Since my injury, I have personally endured the effects

of an outdated Defense Base Act and also advocated for other injured contractors through their ordeals.

I grew up in Charleston, South Carolina. I joined the Marine

Corps at 17 and became a South Carolina Police Officer at 22.

After September 11th, I volunteered for the Civilian Policing Mission through DynCorp International with the State Department.

I landed in Iraq on July 4, 2004 and hit the ground running, literally. I served with the State Department training unit that

worked to train the existing Iraqi forces. We traveled the BIAP

highway several times per day and my unit actually moved over

3,000 passengers without any injuries until September 2, 2005.

Just after leaving our compound, my vehicle was hit by a roadside bomb. The blast completely blew through the driver section of

my vehicle. My navigator and friend of 20 years, Leon Vince

Kimbrell, was killed instantly. The shrapnel and the blast tore off

my right leg, shattered my left leg, almost severed my left wrist,

and sent shrapnel through my lungs, intestines, and chest. I was

blown completely out of the vehicle and found myself with a useless

body on a dirty Baghdad street. I dragged myself down the street

until my team rescued me and delivered me to the Combat Surgical

Hospital in the International Zone within 20 minutes of the attack.

I spent the next 22 days in a medically induced coma and woke

up in the U.S. Military Hospital in Landshul, Germany. This is

where my personal story with the DBA begins. My initial care was

amazing and my treatment by CNA was good. I was appointed a

local case manager who expedited my care and worked with the

hospital. My care did not begin to fail until I left the hospital.

In February 2006 I was ready to start walking on a prosthetic

leg. By October I was disillusioned with the absence and lack of

communication by my former employer, DynCorp, so I wrote a letter to the CEO. In a few weeks I received a phone call inviting me

to Texas to talk about my complaint. I went to Texas with a shiny

new leg and met my former bosses. The meeting ended with a decision to start a program of employee care. I also left with a part

time job to start the new program.

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We made great headway in caring for our employees and started

associations and programs to help them. We had far less success

with our insurance carriers. The actions that we received from the

insurance carriers and companies were simply lip service. Other

than limited support for some of our programs, they did nothing to

make the process easier on our side or theirs. It was typical double

talk and empty promises. After 2 years of fighting, I left the program late last year.

In 2007, my treating physician recommended I get a Power Knee

system, a true bionic leg that acts in place and supplements the

muscles that I lost. The legal battle for this leg took over a year

and a half and resulted in me getting the system 557 days after

it was initially requested. The Administrative Law Judge that concluded the Power Knee was both reasonable and medically necessary found or CNA’s experts, that ‘‘neither physicians have

opined with any degree of certainty that the Power Knee prosthetic

will not address the claimant’s need’’ and that both ‘‘have little

knowledge regarding the claimant’s medical status and regular

daily activities and have no firsthand knowledge of the Power Knee

prosthetic.’’

In October 2008, 1 month after leaving Dyncorp, my biweekly

compensation checks began arriving but were only half of what the

amount should be. After weeks of no communication, CNA claimed

that while I was employed by Dyncorp I was overpaid. So without

warning or discussion, they cut my compensation to recoup their

funds. Of course, their assumption of what I made was baseless. At

the time they did not even have my pay records from Dyncorp. I

suffered through financial hardships for no real reason. My legal

counsel requested a hearing on this dispute. It is now June and our

hearing is set for August, almost a full year after the problem

started.

In the 31⁄2 years since my injury, I have met and tried to help

so many people who were damaged in our national defense. I have

personally talked three friends out of suicide. Each of them suffered greatly from Post-Traumatic Stress Disorder but their biggest

battle was the one they were having with their insurance carrier

to get real care for their problems. I know of more than one friend

that did take his own life.

I have helped and supported a friend facing double amputation

for war injuries while the carrier said it was not medically necessary. I have helped a man who had an RPG go straight through

him twice who was denied help, support, or communication from

his insurance carrier. I have seen friends with blast related hearing loss be denied help and be forced to buy their own hearing aids

while their cases went to court. I can continue on and on.

I am not an expert but I am a victim with common sense who

has seen failures of our current system. In my experience, the single biggest cause of these failures is the insurance carriers’ practice

of seeking profit in every way possible from our fight for national

survival instead of becoming part of the forces united against our

enemies. When this act was written by Congress, they sought to

provide an expedited workers’ compensation system for war effort

workers. Once the DBA carriers hijacked the system and saw it as

a source of profit, the program was lost.

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I would like to personally thank you for your interest in this

issue. Thank you for your commitment to making a difference and

your service to all of us. I am happy to answer your questions.

[The prepared statement of Mr. Newman follows:]

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Mr. KUCINICH. Thank you, Mr. Newman. Mr. Smith, you may

proceed. I would ask that you hold the mic close enough so we can

hear your testimony. Thank you, sir.

STATEMENT OF KEVIN SMITH

Mr. SMITH. Thank you, Mr. Chairman. Gentlemen and women of

the committee, I appreciate you all having me here today. This has

been a long time coming and I am proud to be here.

My experience with AIG has been traumatic at best. I thought

everything was fine at first. Then, as I needed more treatment,

things began to get tougher. I couldn’t get treatments my doctor

recommended like medication and sleep studies so I did without or

I paid for myself. This has greatly hindered my continuity of care,

thereby increasing the time it has taken me to achieve the goals

dictated by my medical providers.

The trauma associated with the PTSD is nothing, I mean nothing, compared to the trauma myself and my family has had to cope

with because of AIG’s blatant incompetence and egregious behavior.

In two separate instances AIG has stopped paying my indemnity.

The first time was in November 2005 and then again in November

2007. In November 2005, the benefits were reinstated but it took

several months before I started receiving my checks again. Then I

had to fight to get the checks I had missed.

I started investigating and was alarmed to find out that my doctor had not been paid for procedures or office visits from 2004. Although AIG would approve the treatment, they would not pay. So

the doctor that saved my leg and possibly my life was considering

not treating me any longer.

In November 2007, AIG completely stopped paying all benefits,

including medical, that I am supposed to receive for life according

to the DBA. They refused to pay for another surgery needed on my

knee or any other doctor’s care. They would not even pay for medication I was taking for the PTSD. Basically, they completely ignored the fact that I had been diagnosed with PTSD as a result of

my experience in Iraq. They have used some of the most ridiculous

excuses trying to defend their position. To top it all off, they tried

to say they had overpaid me by $23,406.60.

I had to endure a long, grueling battle to reinstate the benefits

that should have never been stopped. During this time, my family

and I still had to live so I was forced to return to work in a job

that exacerbated my injuries to my leg and the PTSD.

They stopped benefits based solely on the fact that the schedule

on my leg was paid out without considering that I was still being

seen by a psychologist which, I might add, they approved. They obviously knew they had no legal grounds to drop me but I guess that

is part of the game they play in order to wear people down so they

will no longer have the will to fight.

My attorney put in a request for an informal hearing with the

DOL, the Department of Labor, which was denied. We appealed

that and got our hearing in which the hearing officer found in favor

of me and ordered that the benefits be reinstated. But in AIG’s normal fashion, they acted with impunity and continued to deny benefits.

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We then requested a formal hearing with an Administrative Law

Judge and were heard on July 30, 2007. Judge C. Richard Avery

found that I should in fact receive all benefits and back pay with

interest plus all out of pocket expenses and that all the doctors be

paid. AIG has still failed to comply with this order entirely. They

have not called and approved my treatment for PTSD. They have

denied payment for medications. They have just now made a partial payment to my doctor for services rendered back in 2004. I

want to point out the partial payments, ladies and gentlemen. They

only paid less than half in most cases and never, I repeat never,

have they paid in full.

In summary, I have provided this committee with facts that I

have backed up with evidence of AIG’s downright criminal handling of cases of American men and women who put their lives in

peril for this great country. All personnel serving in a hostile foreign land must be taken care of when they return home, whether

they served in the military or as a civilian contractor. We did what

most people would not do. Therefore, we should all be considered

by our country as the heroes we are. A large portion of the contractors, like myself, were veterans of numerous hostile engagements

and volunteered to go to Iraq for the chance to once again serve

their country. We demand that we receive the care that was promised us and that we deserve.

Listen, we are not asking for millions of dollars in bonuses. We

are not asking for lavish parties or even parades. We want what

we are entitled to under the Defense Base Act like medical care,

disability pay, and retraining if necessary.

Thank you.

[The prepared statement of Mr. Smith follows:]

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Mr. KUCINICH. I thank Mr. Smith. The Chair recognizes Mr.

Woodson for 5 minutes. I would just ask you to make sure that mic

is close to you so we can hear your testimony.

STATEMENT OF JOHN WOODSON

Mr. WOODSON. My two colleagues here have covered quite a bit

here and said a lot. Thank you all for having me here, having all

of us here. I would like to thank each and every one of you for inviting me today to share my experiences with you.

My name is John Woodson. Prior to going to Iraq, I was a construction supervisor in Houston, TX working with cranes in the rigging industry. I worked in the aerospace, commercial, and petrochemical fields, investing 25 years of my life.

In late 2003, KBR representatives contacted me asking if I had

thoughts about going to Iraq and helping to rebuild the country. To

me, that was a great opportunity to provide my contribution to this

country so I left in June 2004 to go to Iraq. Unfortunately, I was

blown up by an IED blast on October 28, 2004. Now, here we are

in June 2009, 5 years later, and I am still wondering why events

have happened the way they have.

After waking up from a medically induced coma at the Methodist

Hospital in Houston, TX, I was sent to a rehabilitation facility

called TIRR. There I was visited by James Hile from AIG. He was

a representative, adjuster, and investigator working for AIG Insurance. After seeing my condition, he stated that there wouldn’t be

any problem because AIG was going to take care of my life and everything involved. That statement shortly turned out to be untrue

because the first problem quickly arose.

The first problem was my money. Nothing was being deposited

into my account. My wife, brother, and daughter then spoke with

Mr. Hile about the issue. He told them that the situation would be

looked into. Several weeks later, I did receive a deposit but the

weekly average was lower than what had been spoken about.

At that point I called AIG Insurance and spoke to Jim McIntire,

who refused to talk to me. He flatly said to me, ‘‘hire an attorney

and AIG will discuss the issue with them.’’ At first, I wanted to believe that it was just a small misunderstanding because it was a

new account. But the reality soon sank in.

The result would be larger than I could even imagine. The conflict that started then is still going on today. Every aspect is a disagreement, a complex and infinite process from medical, money,

pharmaceuticals, and transportation standpoints. Even the Department of Labor in Houston has not been any help. I am just naming

a few on the list. It is really too long to write.

Ladies and gentlemen, due to my vision impairment, speaking

about this matter would be much easier on me. It would be much

more conducive.

As of April 24, 2009, my case has been turned over to the U.S.

Government. I still haven’t noticed much of an improvement. In

conclusion, I ask why. Where has the oversight been? Who is in

charge of this operation?

[The prepared statement of Mr. Woodson follows:]

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Mr. KUCINICH. Mr. Woodson, thank you very much for your testimony. The Chair recognizes Mr. Pitts.

STATEMENT OF GARY PITTS

Mr. PITTS. Thank you, Chairman Kucinich, Ranking Member

Jordan, Congresswoman Watson, and Congressman Cummings.

Thank you for starting this process. I thank you for your interest

and attention to these brave men and women who go over there

and fill in for what the Army used to do.

I have had the opportunity, the privilege, of representing hundreds of them. Based on that experience and on 30 years of operating before the Department of Labor, here are my five recommendations to make this system work more quickly and better:

First of all, there hasn’t been any additional funding since the

war began for the Office of Workers’ Compensation Programs or

the Office of Administrative Law Judges. Whereas AIG, for example, had three adjustors in 2004 in Dallas that handle these cases,

now they have about 30. That is a tenfold increase. There has been

no increase at the Department of Labor.

For example, OALJ could use some video conferencing equipment. That sounds pretty mundane but that could help a lot. It

would maybe cost $200,000 to outfit all of them with video conferencing equipment. Right now we have to do a circuit. We are

like the old West. We go to the claimant. The judge does, I go, and

the defense attorney goes. If we had video conferencing equipment

outfitted with the judges, we could have those conferences done

more quickly. We could move this process along. It would save

money from having to send the judge there and back, and it would

save his time.

The second thing I would suggest is that on PTSD, it is taking

about a year or a year and a half to work through the system before somebody can get treatment. The Army, in contrast, they tell

people what the symptoms are before they leave the theater. They

check back up on them 2 or 3 months later. Contractors don’t have

any of that. They get back, they start having symptoms, their family sends them to get some help, and they enter the process of litigating their case. This is a wasteful system like it is because the

litigation costs are eventually going to get put off on the taxpayer.

I am trying to work myself out of some work here.

All these people should immediately be able to go to the VA.

They are coming out of the war zone. They should just go to the

VA. The VA is set up for taking care of PTSD. Just let them go

there and get in line with everybody else for the group therapy.

There is less chance of them hurting themselves or hurting people

around them. That is economical, it is efficient, and it is an exception. There will be some people who say well, they are not in the

military so they shouldn’t be able to go to the VA. This is an exception. They are right there next to our soldiers. The enemy doesn’t

distinguish them from our soldiers. If they have PTSD uniquely situated coming from the war zone, just let them go to the VA.

The third thing is there is presently no requirement that, if one

of these men is killed over there, that the widow acknowledge that

there is such a thing as death benefits or that there is a possibility

of death benefits under the act. This applies to the surviving

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spouse since there are also ladies over there. That could be easily

remedied. Just basically the employer would have the obligation to

get a one page acknowledgment from the widow saying I understand there is the possibility that I may be entitled to death benefits under the Defense Base Act. They ought to be able to attach

that to their paperwork in order to get paid or they don’t get paid

by the Government or they don’t get a new contract.

This should be able to be enforced quickly so we don’t have the

anomaly of some lady in a small part of the country with a house

full of children and her breadwinner is dead going on Government

relief because she hasn’t figured out what the Defense Base Act is

and how to fill out the right form to file it with a New York office

within a year, the statute of limitations. So that is a little gap that

could be taken care of.

The fourth thing I would suggest is there is now really no stick

for the Administrative Law Judge. Let me point out and make this

clear, nobody can make the insurance company do anything except

the judge. The Department of Labor has no power to make them

do anything. They can give informal recommendations, which we

have to have in order to have the case come up to be assigned to

one of the 40 or so Administrative Law Judges that hear these

cases. But we have to go through this process and litigate these

issues in order to get resolution.

Now they will do what the judge tells them to. They have to.

Well, we have some problems sometimes even with that. However,

the judge is really the only one who can make them do things.

So we can beef up the OALJ. They used to have like 100 judges

to do the Black Lung docket. They need some extra ones. You can

see from my paper, the trials have gone from 95 in 2005 to about

578 scheduled this year. It is a fivefold increase. They need some

help and additional funding.

Anyway, what I am suggesting is the judge needs a stick. At this

point, all he can do is make them do what they should have done

to begin with, plus they have to pay my time for having held them

down and making them do something and they have to pay interest. But it is at short term Treasury rates. So these gentlemen, if

they go through litigation and the judge says, like Judge Avery did

in Mr. Smith’s case, you have to pay this, they also only have to

pay like half of 1 percent. That is the interest they have to pay.

So the judge should be able assess a 15 percent penalty, a 10 percent penalty, or whatever for a frivolous defense.

In addition, they can profit by 20 C.F.R. 61.104. They can add

a 15 percent handling fee for litigating a War Hazards Act claim.

So if they are hurt from enemy action, they can profit by litigating

it. That needs to change.

[The prepared statement of Mr. Pitts follows:]

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Mr. KUCINICH. Thank you very much, Mr. Pitts. We now hear

from General Fay. You may proceed.

STATEMENT OF MAJOR GENERAL GEORGE R. FAY

General FAY. Thank you, Mr. Chairman. Thank you, Ranking

Member Jordan and distinguished members of the subcommittee.

Thank you for the opportunity to appear before you today on behalf

of CNA Insurance. I am George Fay, Executive Vice President of

Worldwide Property and Claim for CNA Financial Corp. I have

more than 30 years of experience in the insurance industry.

I retired from the U.S. Army Reserves as a major general in May

2008 after 38 years of service, including almost 4 years on active

duty in support of the Global War on Terrorism and Operation

Iraqi Freedom. During those 4 years, I served in many parts of the

world, including Iraq and Afghanistan, side by side with defense

contractors in every location.

I share the subcommittee’s view that civilian workers in Afghanistan, Iraq, and elsewhere around the world are performing a crucial service for this country and that they deserve fair treatment

in the administration of insurance claims. I understand well the

sacrifices being made by the men and women who support our military operations abroad. I am pleased to be part of the CNA family

that takes great pride in supporting those that make such great

sacrifices.

CNA understands that this hearing focuses on two categories of

concern under the Defense Base Act, claims handling and underwriting gains.

With regard to claims handling, I would like to address some errors that were made in the majority staff’s June 16, 2009 memorandum addressed to the subcommittee. The memorandum implies

that CNA has a record of unnecessarily pushing claims to administrative rulings. This is misleading. In fact, of the approximately

5,500 claims that have been filed, CNA believes that fewer than 20

of those claims, less than 0.4 percent, have gone to administrative

rulings. Of those cases, CNA has lost only a handful. Even in the

cases that CNA has lost, there was never a finding that CNA acted

in bad faith or advocated frivolous positions.

CNA’s experience is consistent with the written statement of

Seth Harris, who you just heard from before as the Deputy Secretary of the Department of Labor. It noted that the DOL has

found no deliberate intent to delay claims handling. His statement

is borne out by the numbers I have set forth in my written statement.

We are contacting insured workers and their companies within

24 hours 86 percent of the time. Despite the strict, we believe too

strict, requirement to make a compensability determination within

14 days, we have been able to make that determination within

those 14 days 75 percent of the time.

Related to the underwriting concern, it should be noted that the

overall CNA DBA underwriting gain from 2002 to 2008 was only

14 percent. Moreover, CNA’s role in the at large part of the business on which the subcommittee is focusing today has been minuscule since 2006 with only about 3 percent of the market share.

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In contrast, CNA is currently the only provider of the widely

praised program contracts which are awarded through a bidding

process. In 2008, Chairman Waxman lauded this process and highlighted CNA’s presence in the market. We concur with those who

suggest that the program contracts are the solution to the DBA underwriting concerns.

CNA would be happy to work with the subcommittee to improve

the process governing DBA contracts. Therefore, Mr. Chairman, I

thank you for the opportunity to discuss these issues today. I would

be pleased to answer any questions that the subcommittee has.

[The prepared statement of General Fay follows:]

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Mr. KUCINICH. I thank the gentleman. Mr. Moor, you may proceed. Please bring that mic close so every member of the committee

can hear your testimony. Thank you.

STATEMENT OF KRISTIAN P. MOOR

Mr. MOOR. Mr. Chairman, Ranking Member Jordan, and members of the subcommittee, thank you for the invitation to appear

before you today. AIG is pleased to participate in this hearing examining Defense Base Act [DBA], insurance for Federal contractors

working overseas. Given the importance of this issue, AIG looks

forward to working with the subcommittee on ways to improve the

DBA program to ensure proper coverage for contractors.

The DBA program is one of the many lines of coverage offered

by AIG’s General Insurance. In order to provide the subcommittee

with a better understanding of AIG’s participation in the DBA program, I am joined today by Charles Schader, President of AIG’s

Worldwide Claims. Mr. Schader has 25 years of experience in insurance claims management, including extensive experience with

the DBA program. He has provided testimony for the record that

outlines AIG’s participation in the program and identifies several

areas where we think the program can be improved.

AIG has had a long and proud history of providing DBA coverage. While other insurers participate in the DBA program, no

other insurer has created a center of excellence for the care of injured workers comparable to ours. AIG has also made significant

investments in our claims management process to facilitate our

participation in the DBA program.

AIG now has claims professionals located in six global offices

that are equipped to handle unique regional and local needs. As

but one example, the Dubai office staff is fluent in four languages.

It has developed expertise in overcoming geographic and cultural

obstacles, paying benefits in country in local currencies, and conducting investigations in the Middle East to locate claimants while

obtaining witness statements and verifying dependency.

As Mr. Schader has identified in his written statement, AIG believes that there are three key areas where the DBA program can

be improved through a combination of legislative and regulatory reform. The first would be providing detailed, accurate status reports

to claimants instead of the LS 207 Contraversion Notice. The second would be rationalizing and simplifying the calculation of average weekly wage. The third and final area would be interagency cooperation on the diagnosis, prognosis, and treatment of Post-Traumatic Stress Disorder.

Thank you again for the opportunity to participate in today’s

hearing. We look forward to answering any questions the subcommittee may have. In particular, Mr. Schader will be able to

speak in greater detail regarding the DBA practices.

[The prepared statement of Mr. Moor follows:]

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[The prepared statement of Mr. Schader follows:]

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Mr. KUCINICH. I thank the gentleman for his testimony.

General Fay, I was interested in your testimony. There seems to

be a variance, according to staff, from your prepared testimony to

what you presented to this committee in that you quoted from an

internal committee document that hadn’t been released. That was

really the property of this committee. I just wondered where did

you get your information from?

General FAY. I was given that by a member of our staff, sir, but

I don’t know where exactly they——

Mr. KUCINICH. What was the name of the member of your staff

that gave that to you? You remember you are under oath. Who

gave it to you?

General FAY. Yes. I got it from our Head of Legislative Affairs.

Mr. KUCINICH. Is your Head of Legislative Affairs here right

now?

General FAY. Yes, she is.

Mr. KUCINICH. Who is that? Would they identify themselves?

Would you like to come to the committee table? Do you want to

identify yourself?

Ms. DAVIS. My name is Heather Davis.

Mr. KUCINICH. Would you like to be sworn? Do you have an attorney here?

Ms. DAVIS. No. I mean, we have several attorneys on staff. I am

not an attorney.

Mr. KUCINICH. OK. Would you raise your right hand?

[Witness sworn.]

Mr. KUCINICH. I was referencing an internal document that had

not been released that was quoted by General Fay. He said that

you gave him that information. Is that correct?

Ms. DAVIS. To be completely honest, I was working with our parent company lobbyist, Loews Corp., Mr. Watson. It was either he

or I that gave it to him.

Mr. KUCINICH. Where did the document come from? Mr. Fay said

he got it from you. Where did you get it from?

Ms. DAVIS. I want to make sure I am clear. We were doing a lot

of visits on the Hill. Steve, do you recall where it came from?

Mr. WATSON. It came from a committee staff member.

Mr. KUCINICH. Committee staff? Which committee staff, the

Democratic committee staff?

Mr. WATSON. I don’t believe so.

Mr. KUCINICH. This is tangential to the purpose of this hearing.

But you are going to be subject to further questions from our attorneys where that document came from. It is really somewhat unprecedented for information that has not been released to the public to be in the hands of a witness who then uses it to criticize a

committee report. This is something that we are going to find out,

who gave you that. Then we will deal with that as an internal committee matter.

Yes, Mr. Jordan.

Mr. JORDAN. Mr. Chairman, I have just checked with the staff

that is present here. They indicated that they did not give that document out. I certainly didn’t and don’t know of anyone on our staff

that did.

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This is highly unusual, too, that we are bringing in people from

the audience who haven’t been cleared and who we didn’t know

were going to be witnesses.

Mr. KUCINICH. No, I didn’t expect that General Fay would be giving testimony that would reference an internal report, and then say

that he himself did not know where that came from and refer to

someone else. That is why we did it.

Now, we are not going to change the subject of this questioning.

But I just want you to know, General Fay, and I want the

gentlelady to know and the people in the audience who are involved, that you are going to be subject to further questioning

about this. Thank you very much. You are dismissed.

[The information referred to follows:]

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Mr. KUCINICH. General Fay, we have heard from these witnesses,

from Mr. Newman, Mr. Smith, and Mr. Woodson, all about their

problems in getting paid by various people. Mr. Newman is the one

that had the experience directly with CNA. Would you provide for

this committee your internal documents with respect to what your

strategies are for denial to increase your corporate profits?

General FAY. We have no such documents that have that kind

of a strategy. I wouldn’t be associated with a company that had

such a strategy.

Mr. KUCINICH. So you are saying that you don’t make money denying claims?

General FAY. That is not exactly what I said. I said, Mr.

Chairman——

Mr. KUCINICH. Do you agree with that statement? Does CNA

make money denying claims?

General FAY. That is not what we are in the business to do. We

are in the business to insure people for the risks that we are insuring. When the claims are legitimate claims according to whatever

the insurance policy is that we issued to them, then we pay them.

We pay them promptly. We pay them according to the law. And we

take great pride in doing that.

Mr. KUCINICH. We have testimony that contradicts that. My time

has expired but I want to indicate we are going to have a second

round. We are going to come back to General Fay and Mr. Moor

about the testimony that we are hearing about your claim denials

and whether or not you have a conscious strategy as a business to

deny claims to people who have been injured or killed in a war.

The Chair recognizes the gentleman, Mr. Jordan.

Mr. JORDAN. I thank the chairman. Let me just begin by thanking all our witnesses, in particular those of you who have been

serving our country in a war zone. We certainly appreciate your

sacrifice.

Mr. Pitts, you talked about in your testimony problems both with

insurers and with the Department of Labor. You had, I thought,

some good, practical recommendations in your testimony. Put families on notice that there would be a death benefit in the event that

tragedy took place. I think in point No. 4 you talk about frivolous

claims.

Mr. PITTS. Actually frivolous defenses. We have always heard

about frivolous claims for 10 years but this is a frivolous defense.

Mr. JORDAN. The claimant brings a frivolous case but you also

have bad behavior on the part of insurers.

Mr. PITTS. Yes.

Mr. JORDAN. Just as a general question, where is the bigger

problem? Is it the lack of oversight? Is it the Government or is it

the insurers? You have brought I think you said hundreds of cases.

Where do you see the real concern?

Mr. PITTS. There is a defect in the law that needs to be changed.

It wouldn’t be difficult. Here is what it is: Under the present Code

of Federal Regulations, and this is my fifth point, an insurance carrier, not necessarily these gentlemen, but any insurance carrier is

in a position where amorally, whatever, it is in their interest to litigate a War Hazards Act case. Under 20 C.F.R. 61.104 they get

their litigation costs back. They get their attorneys’ fees back and

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they get to add 15 percent. You can’t get 15 percent in a CD now.

You can’t get 15 percent assured in the stock market. It is a great

deal.

So let us say we have a PTSD case. This has happened, where

the claimant’s doctor said he has PTSD from the war zone and the

insurance company doctor agreed he has PTSD from the war zone.

Nonetheless, the case was litigated all the way to completion.

There was a judicial finding that yes, this guy has PTSD from the

war zone. Within 6 weeks, the War Hazards Act bureaucracy had

picked it up and said OK, now you are going to get all your money

back. All those litigation costs that the defense had plus they get

to add 15 percent. So if it costs $20,000, they get how much? So

not only do they have the opportunity to defeat the claim, they

drag it out. Who is suffering in this is the guy with PTSD or other

kinds of injuries.

So about half of these cases are because of enemy action. They

are probably going to get picked up by the War Hazards Act eventually. So if that was modified so they get a handling fee of short

term interest rates, which is what these men get, they get about

a half of 1 percent. So if that is what they got, and it would fluctuate with times, that would be more appropriate. But as it is,

there is a built in incentive for the carrier to profit from litigation.

Mr. JORDAN. How many cases did you say you had handled? I

think you said 100?

Mr. PITTS. Well, I have more than 300 going on at any one time

over the last 4 years.

Mr. JORDAN. How many of those cases are PTSD?

Mr. PITTS. About 20 percent, which is about the same ratio as

the soldiers coming out of the war zone. My most frequent demographic is a truck driver hit by a roadside bomb.

Mr. JORDAN. You were critical in your testimony of the Department of Labor. As I said in my first round with Mr. Harris, this

is the second hearing that has dealt with the Department of Labor.

This is the first time we have had someone from the Department

of Labor come and testify and the person they send has been on

the job 3 weeks. With something this important, you would think

they would send someone, nothing against Mr. Harris, but send

someone who has been on the job a little longer and had a little

bit more experience with the critical program. So tell me about

your concerns with how the Department of Labor has failed to handle their responsibility.

Mr. PITTS. I think both the Department of Labor Office of Workers’ Compensation Program, which is only about, I don’t know, 200

or 250 people or so in the country that do this stuff, and the Office

of Administrative Law Judges, which is about 40 judges and their

staff, have done a great job with the resources they have. The system is not set up so that the OWCP gets to tell anybody anything.

They can give recommendations. But if a carrier can litigate and

profit off of it, it doesn’t do anything.

They give the recommendations; they are ignored. We go into litigation and it takes about a year or so to finally get a judicial decision to enforce. During that time, they are hanging onto the money.

And if it is a War Hazards Act claim, they get to get some money,

plus the 15 percent. So I think that has been the problem.

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If you take that profit motive out of it, that incentive psychologically, subconsciously, or whatever, if you take that out of it and

if they can get hit for some penalty of 10 percent or 15 percent for

a frivolous defense, found by a judge that this is a frivolous defense, if they can get hit by 10 or 15 percent, it hits their pocketbook. I think that would be reasonable.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Mr.

Cummings from Maryland. You may proceed for 5 minutes.

Mr. CUMMINGS. Thank you very much, Mr. Chairman. As I sit

here and I listen to all of this, it seems that we are talking in two

different universes. We have one with these gentlemen who have

been harmed and who continue to suffer. Then we have the insurance companies that sound as if they are operating the greatest operation in the world and doing every single thing that they can for

these gentlemen. It is a sharp contrast.

To Mr. Moor, according to Los Angeles Times ProPublica story,

AIG stopped paying disability benefits to a civilian contractor

whose leg was shattered by an insurgent ambush in Baghdad and

who suffered from PTSD even though some of your own experts diagnosed him as partially disabled. Further, some 41⁄2 years later in

2008, an Administrative Law Judge ruled that AIG had failed to

offer medical evidence to support its position that the contractor’s

PTSD was not caused by the convoy attack. The article, which was

published in April of this year, states that AIG has still not paid

Mr. Smith’s outstanding medical bills as ordered, I suppose pending AIG’s appeal.

My question is this: On what basis is such a determination

made? If not on the opinion of AIG’s own medical experts, how is

the legitimacy of a claim determined? How many claims has AIG

denied in which your own expert has sided with the insured?

Mr. MOOR. Congressman Cummings, Mr. Schader would be much

more qualified.

Mr. CUMMINGS. We want to hear what he has to say. Nice and

loud, please, sir. I want to hear you and these gentlemen want to

hear you, too.

Mr. SCHADER. We do agree that there are many changes in this

system that would help in its administration and provide a better

product faster and quicker. There should be clearer rules for those

people who have been hurt overseas as severely as these individuals have been.

I want to make it very clear on behalf of myself as well as of my

company that we really do owe them a debt. This is not anything

vindictive nor a corporate policy of denial. It is a question of administering programs under an act that is ill-suited.

I have in my written statement submitted at least three fairly

detailed areas of reform that would help. I think increasing Labor

Department oversight and administration would be of great assistance. Making it more like a State workman’s compensation agency

would help.

There are some claims that are very, very complex here. We have

provided some files to the committee. It is hard almost to the point

of impossibility in the few minutes we have to go through the steps

of Mr. Smith’s claim piece by piece to show why what we did was

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right under the benefit levels and the rules that we have to deal

with. I have offered to meet with the committee or the staff of the

committee. I will bring in any member of my staff to go through

those with you and I would be more than happy to do so. If it

would aid in the reform of the system and how the benefit levels

are calculated, I would be more than happy to do that.

Mr. CUMMINGS. Let me ask you this, the aim of workman’s compensation is basically no fault. Is that right? In other words, it is

so that the worker can recover once they have an accident or a

problem, is that right?

Mr. SCHADER. I absolutely agree with that.

Mr. CUMMINGS. So basically what is happening here is that the

insurance is for the purpose of moving a claimant along so that

they may be compensated quickly so that the claimant doesn’t have

to end up having to file suit. That is what workman’s compensation

was all about. When I was in the State legislature, I was an expert

on workman’s compensation. I know the Federal may be a little bit

different. It seems to me as if AIG is doing just the very opposite

of what workman’s compensation was supposed to do. It was supposed to expedite claims. It was supposed to give people like Mr.

Smith an opportunity to be able to get well and to move forward.

But before you go on and since I have Mr. Smith here, Mr.

Smith, what do you think of this testimony? I am just curious. This

is your case.

Mr. SMITH. Thank you, sir.

Mr. KUCINICH. The time has expired but the gentleman may respond to the question. Take the time that you need.

Mr. CUMMINGS. Thank you very much, Mr. Chairman.

Mr. SMITH. Thank you, Mr. Chairman and Mr. Cummings. AIG

pointed out increasing the funding for the Department of Labor, increasing that area. My question to you, sir, is what good would that

do? You don’t listen to what they say anyway. I have documented

proof where AIG has ignored the recommendations of the Department of Labor. Then we have to continue to go through litigation

again and again and again and again. So the Department of Labor

is fine, sir. Your company is not.

Mr. CUMMINGS. Thank you, Mr. Chairman.

Mr. KUCINICH. We will permit AIG to respond briefly.

Mr. SCHADER. We have not been sitting on Mr. Smith’s claim, refusing to pay, and making arbitrary decisions.

Mr. KUCINICH. Mr. Smith.

Mr. SMITH. Sir, I have documentation otherwise.

Mr. KUCINICH. Do you want to submit documentation to this

committee?

Mr. SMITH. It is in my statement.

Mr. KUCINICH. OK. Mr. Schader.

Mr. SCHADER. I would like to add that we have paid over

$500,000 on Mr. Smith’s case in medical and indemnity to date.

There are no medical bills outstanding today.

Mr. KUCINICH. Was that the total of your bills, Mr. Smith?

Mr. SCHADER. That is indemnity as well.

Mr. SMITH. So, sir. That was not the total. That is a falsification.

They have not paid my doctors in full. They have paid what they

thought was acceptable. I have proof, I have documentation where

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they paid for services on a particular date. When they cut the

check to the doctor, it was less than half and in some cases just

a small percentage of what was actually owed. If he wants to ask

me about it, I have that documentation and I will provide that to

the committee.

Mr. KUCINICH. Now, do you have that documentation, Mr.

Schader?

Mr. SCHADER. I don’t have it and I would be more than happy

arrange a meeting with Mr. Smith.

Mr. KUCINICH. Do you want to give it to him right now? Do you

have copies of that? If that is in the record, since Mr. Smith is referencing it, Mr. Schader is entitled to copies of it.

Mr. SMITH. I would like to add in addition——

Mr. KUCINICH. If you want to examine those, examine them and

if you want to comment on them later you will be permitted to do

that.

Mr. SCHADER. Thank you.

Mr. KUCINICH. OK, so we are going to move on. You will get a

chance to respond. But I think you ought to examine the documents that he gives you and then you can respond. We will make

sure you get the chance to do that. We are going to go to the second

round of questions, here.

Mr. SMITH. Mr. Chairman, I apologize to the committee. I will

make that available within the next 24 hours.

Mr. KUCINICH. You are saying you don’t have it with you right

now?

Mr. SMITH. No, sir. I left it in the hotel room.

Mr. KUCINICH. Please make it available and then we will get it

to Mr. Schader. Then we will send further questions from the subcommittee to you so that you have a chance to answer them in

light of what Mr. Smith has said. Is that fair?

Mr. SCHADER. We would be more than happy to do that. Yes, absolutely.

Mr. SMITH. Thank you.

Mr. KUCINICH. OK, I want to get back to the line of questioning

that I was working on. General Fay, you testified that CNA’s average yearly profits for all of its Defense Base Act insurance from

2002 to 2007 was——

Excuse me and I apologize. The gentlelady from California, Ms.

Watson, is entitled to 5 minutes of questions. I want to thank the

gentlelady. Please proceed.

Ms. WATSON OF CALIFORNIA. Thank you so much, Mr. Chairman.

I know you are on a roll here.

Mr. KUCINICH. No, the gentlelady is entitled to 5 minutes. Go

ahead, please go ahead.

Ms. WATSON OF CALIFORNIA. You are going down the same line

I would go down. But I want to thank the gentleman who had been

out protecting our country for coming here in such a civil way and

explaining what has happened to you. I think it is reprehensible

that the insurance companies would hold up or delay. I think your

kinds of cases should be No. 1. To have to come here and testify

in public to get the insurance company to take a deeper look at

your request I think is just an injustice to those of you who have

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been securing our own country. So thank you for being here. Thank

you for your patience.

Listening to your testimony, if you cannot be compensated for

your wounds both emotional and physical, I don’t suspect contractors’ families get any compensation for what they have suffered. I

will direct this to Mr. Pitts. I know that in our U.S. Government

contractors and subcontractors law there was no reference to a contractor’s family members or dependents except for the instance of

compensation benefits for survivors of covered workers who were

killed on the job. Is there any way to assist the families and the

loved ones of these victims?

Mr. PITTS. Beyond the death benefits, Congresswoman?

Ms. WATSON OF CALIFORNIA. Yes, beyond the death benefits.

Those that are alive.

Mr. PITTS. Well, I think if their husbands were taken care of correctly, that would be the best benefit.

Ms. WATSON OF CALIFORNIA. But there is no benefit?

Mr. PITTS. No, there is no benefit. Unless a contractor dies as a

result of his work over there, there are no benefits that go to the

surviving spouse or the minor children.

Ms. WATSON OF CALIFORNIA. So they would have to seek private

insurance. When these gentlemen come home, there is care that

has to be given. There are services that have to be given, food,

clothing, and shelter. So there is no way for them to be covered for

these expenses?

Mr. PITTS. In rare instances there have been cases where I have

been able to get some compensation for, let us say, a wife that has

to leave her job to come home to take care of her husband because

he is so badly injured he can’t take care of himself. So there have

been cases where we have been able to get compensation through

the judges to do that.

Ms. WATSON OF CALIFORNIA. I was listening very closely to your

recommendations of how we should close these gaps. Mr. Chairman, we might from this subcommittee and our hearings want to

recommend legislation and policy that will not only cover the victims themselves but their families as well. I don’t care whether

they have to work and come home, it still is a burden on them to

have someone who has not been compensated for their illnesses.

Their providers have not been compensated fully yet. So I think

that this is something, Mr. Chairman, that could grow out of the

testimony here.

I would think that all of those recommendations that you made

should include compensation. I think they were in your testimony,

the recommendations, Mr. Pitts?

Mr. PITTS. Yes, it is the second one about making sure the widow

knows that there is such a thing as the Defense Base Act and that

she may have a claim for her family. I am afraid otherwise there

are going to be some real injustices out there because they just

don’t know any better.

If you are in a small town in Texas, your husband is a truck

driver. He goes to work to support the troops over there. He dies.

So what is the chance that you are going to figure out there is such

a thing as the Defense Base Act and to fill out the right death

claim to file it with the New York office in a timely way?

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That is just a gap that shouldn’t be. The employer should have

some obligation to get her acknowledgment she has been told about

this. I think that is reasonable.

Ms. WATSON OF CALIFORNIA. The gentlemen to your left, are they

your clients?

Mr. PITTS. No. Toby Cole, who is an attorney in Houston also.

Ms. WATSON OF CALIFORNIA. What I would like to see you do,

and you gentlemen, too, is recommend to us how we can better the

system so that benefits can reach out to the people they are intended to. These are contractors. They might not have been fighting but they were in theater. We owe them that.

I have been with insurance companies and there is a point at

which they just kick you out because your claims have been too

large. I have been through that myself. But we want to improve

the system. Particularly with this bogus war that we fought over

in Iraq, these gentlemen went over to assist. They shouldn’t be

treated like this after their severe injuries.

So this hearing is to collect the information. I hope, Mr. Chairman, that we will end up with some recommendations to put into

a policy. With that, I yield back. I already have the red light.

Thank you, Mr. Chairman.

Mr. KUCINICH. The Chair will begin the second round of questioning for 5 minutes.

Ms. WATSON OF CALIFORNIA. Would you yield for just a second?

Mr. KUCINICH. I yield to the gentlelady.

Ms. WATSON OF CALIFORNIA. You were consulting with staff. I

would hope that out of our hearings would grow some policy that

we can give to the full committee dealing with insurance and insurance claims and so on.

Mr. KUCINICH. Our role as a Committee on Oversight and Government Reform, we do oversight and reform. So we will work with

the gentlelady, with the Ranking Member Jordan, with Mr.

Cummings, and with every member of this committee because we

do want to change this. There is no question about it. But before

you change it, so that you know the direction you are going, you

have to find out what happened. We have to do some forensics here

and the forensics may not be pretty.

General Fay, you have testified that CNA’s average yearly profits

for all its Defense Base Act insurance from 2002 to 2007 was 14.6

percent and only 9 percent from 2009. Isn’t it true, however, that

you have failed to mention that CNA’s profits for all of its Department of Defense Defense Base Act business, where CNA contracts

directly with Defense contractors, the business under scrutiny

today, that those profits are over 50 percent per year? That is

based on documents that were produced for this committee and I

believe were obtained from you.

General FAY. Yes, chairman. The truth of the matter, the facts

are that on non-program business, we at CNA agree with all the

recommendations that is the line of business that should be

changed. In fact, the DBA program should be written under a program business.

Mr. KUCINICH. But when you said 14 percent, I just want to clarify the record here because it is about numbers. You gave some

numbers in your testimony. You said it is only 14 percent. Isn’t

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that the profit number for all of your DBA business including the

single risk pool programs with agencies other than DOD?

General FAY. Yes, that is correct. It is all of them taken together.

Mr. KUCINICH. Thank you. OK. I just want to make sure that we

put that in the record. Without objection, we will enter the record

statement and the records from CNA which state that a projected

combined ratio for profit was 50 percent.

General FAY. That is on the non-program business only. That is

only 3 percent of the market.

Mr. KUCINICH. Thank you. That is the subject of this hearing.

You are getting 50 percent profit. We are hearing some witnesses

who may give us an idea why you have 50 percent profit.

General FAY. We agree it should be changed.

Mr. KUCINICH. Now with AIG, Mr. Schader, you have touted

AIG’s handling of your PTSD claims in your testimony and in documents provided to the subcommittee. Yet are you aware that AIG

has repeatedly utilized the expert testimony of a psychiatrist to review and ultimately reject PTSD claims of insured civilian contractors who were injured who freely and repeatedly admits both under

oath and to reporters that he is neither an expert on PTSD nor on

MMPI–2?

Mr. SCHADER. No, I am not sure who you are referring to.

Mr. KUCINICH. Actually, are you an expert on PTSD?

Mr. SCHADER. No, I am not. As a matter of fact, there is one

thing I do want to say about that. I had talked to the Labor Department about 21⁄2 years ago about sharing and reaching out for

expert assistance from the VA, who I think does have the best

cadre of experts. I do want to say, it may surprise Mr. Pitts, but

I actually endorse completely his recommendation on the handling

of PTSD cases.

Mr. KUCINICH. Mr. Pitts, have you had experience with Dr. Griffith?

Mr. PITTS. Yes.

Mr. KUCINICH. Do you want to tell us about that experience?

Mr. PITTS. Basically, the vast majority of people that he has seen

he says don’t have PTSD. He has reservations about whether there

is such a thing.

Mr. KUCINICH. Did he repeatedly find, in your experience, that

claimants were malingerers?

Mr. PITTS. Normally.

Mr. KUCINICH. Do they use real experts in evaluating PTSD?

Mr. PITTS. Dr. Griffith has said that he is not an expert in the

MMPI–2, which is the Minnesota Multiphasic Personality Inventory. It is sort of a psychological battery that the courts are relying

on.

Mr. KUCINICH. Do you employ Dr. Griffith, Mr. Schader?

Mr. SCHADER. Yes, we do.

Mr. KUCINICH. Don’t you think you should be employing a real

expert in this illness rather than a self described non-expert?

Mr. SCHADER. I would like the opportunity to send to the committee Dr. Griffith’s credentials. I don’t agree that he is not an expert in this area.

Mr. KUCINICH. Is he a skeptic of mental illness?

Mr. SCHADER. I don’t believe so.

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Mr. KUCINICH. Then how do you explain the number of denials

that you have had in claims for PTSD?

Mr. SCHADER. PTSD is a very difficult phenomenon to diagnose

and prescribe treatment for. Even when it exists, it doesn’t always

prohibit or inhibit somebody from holding gainful employment.

Mr. KUCINICH. This subcommittee, if it hasn’t already, will ask

AIG for its records on the rate of denials of claims for PTSD. We

will also ask both CNA and AIG for information, internal documents, memoranda, and emails relating to the relationship between your claim denials and your profits. So you will be getting

a formal letter from the committee. I just want to let you know

right now that will be coming.

The Chair recognizes the gentleman from Ohio, Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman. Mr. Moor or Mr.

Schader, what percentage of the claims that you receive are PTSD

claims?

Mr. SCHADER. We don’t have precise numbers on that because we

don’t track that as a characteristic. I would estimate it at about 20

percent of the serious cases.

Mr. JORDAN. The same percent that Mr. Pitts said for the type

of cases he brings. So is that consistent with you, too, Mr. Fay?

General FAY. I am sorry but I really do not know what the percentage is. I just know that on those very few cases that went to

Administrative Law Judges only two of them were PTSD. We prevailed in one and the claimant prevailed in one.

Mr. JORDAN. OK. Let me change gears here. One of the questions

I have in front of me, it has been alleged that companies are denying claims for fear that they will not be reimbursed under the War

Hazards Compensation Act. Is there any truth to that? Have you

had any situations where the Government hasn’t reimbursed you

for a war related injury?

Mr. SCHADER. We have submitted about $42 million of claims

that we had paid before certification under the War Hazards Compensation Act. To this date we have only received $3 million.

Mr. JORDAN. Wow. Has that impacted your decision in how you

have handled the claims that come in front of you?

Mr. SCHADER. No.

Mr. JORDAN. Mr. Pitts.

Mr. PITTS. The War Hazards Act people are actually a small

group. We are talking four or five people in Ohio. Their job is basically to protect the taxpayer from bad War Hazards Act claims. So

they are sort of skeptics. If there is a gray area, they are going to

deny the claim, or there is an impetus to. That makes sense; that

is their job.

However, PTSD by its nature you could say is fuzzy. So it is

something that would make sense if you were an insurance company. You have this fuzzy claim and you want to get your money

back. Drag it out. Litigate it. If you lose, there is going to be a judicial holding that this is from the war. Then you know you are going

to get your money back. Then you also get to turn in your attorneys’ fees and get the 15 percent. So that is what is going on, I

mean from my point of view. That is my opinion.

Mr. JORDAN. Mr. Pitts, let me stick with you on an issue that I

brought up earlier and that I think coincides with your testimony.

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You suggest employers get a signed, written statement and put

families on notice about DBA benefits. Dyncorp has this Civilian

Police Employee Assistance Program. What are your thoughts on

that kind of a program? Is that something we should encourage

and the Department of Labor should encourage with contractors

the Government is doing business with?

Mr. PITTS. KBR also has the Employee Assistance Program to

some part of the war, I think, where they were paying for like eight

visits or something to a psychologist. I am not sure if they are still

doing that. I see so many people. OK, so in some instances they

were doing something like that. Dyncorp, I have to say, was

proactive about PTSD and some of the other things. I really think

they deserve some credit for that.

Mr. JORDAN. Mr. Newman, would you like to comment?

Mr. NEWMAN. Yes, sir. We started a simple Employee Assistance

Program for several reasons. It was to bridge the gap with the insurance carriers because we thought the gap was bridgeable. In reality, even the requests that we would make of the insurance carriers oftentimes were totally ignored.

But I was discussing with a colleague, actually from Dyncorp—

he was here earlier today—about that issue of almost a national

Employee Assistance Program or something to that effect or of encouraging the employers, not the insurance companies, to have that

type of program.

At Dyncorp we have a psychological staff that, regardless of

whether it is a covered claim or what, they still provide some psychological services for Post-Traumatic Stress.

I do want to comment on Post-Traumatic Stress. I disagree that

it is fuzzy. It is pretty clear when you actually see it.

Mr. PITTS. Can I clarify that on the fuzzy? What I mean is legally fuzzy in the sense that the insurance company can always say

well, it is personal problems. How do we know it comes from the

war? They are afraid that the War Hazards people are going to see

it as fuzzy and deny their claim. So it hedges their bets tremendously to just go ahead and litigate all that stuff out, which is bad

on the country. It increases costs. It is just wrong. But that is why

structurally it is happening.

Mr. NEWMAN. Yes, sir. I want to apologize to Mr. Pitts for referring you to his comment of fuzzy. I was more referring to the comments of malingering, etc.

Mr. JORDAN. I knew what you meant. It is just the lawyers who

get nervous. I knew what you meant. [Laughter.]

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes Mr.

Cummings for 5 minutes.

Mr. CUMMINGS. Mr. Chairman, I don’t think I am going to use

all my time. I just want to say to you, Mr. Newman, Mr. Smith,

and Mr. Woodson, I want to thank you for your service. Sometimes

I think people can get confused and not do everything that they are

supposed to do for people who give so much. We have to straighten

out this mess. You heard Mr. Seth Harris say that we have major

problems and that they need to be corrected. You even heard some

of these witnesses imply that, at least.

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I know how you feel, Mr. Pitts, but I know how some of my other

witnesses feel, too. We have to straighten this out. We are going

to do that. Because we can’t be in a situation where you continue

to suffer and get no real relief and the beat goes on. The AIGs of

the world continue to get their bonuses and go on their junkets.

The CNAs, no matter what the General may say, goes on doing

their thing. But then you are left to suffer. We can do better than

that.

We are a better country than that, particularly when you consider the fact that the hard earned dollars of our constituents are

paying into these insurance companies and they cannot lose. You

understand that. The way this thing is structured, they can’t lose.

It makes it almost criminal, the idea that get our money. That is

No. 1. Then they are supposed to take care of you and if they don’t

then they don’t. Then you suffer and they get rich. Boy, what a

game. What a game.

So in some kind of way, we have to turn this around. We have

a very committed chairman of our full committee, Mr. Towns. We

have a very dedicated and hard working and just a strong chairman of this subcommittee, Mr. Kucinich. I know we will have our

rankings hopefully joining in. Because this is an American problem. This is not Republican and Democrat. This is American.

I mean, if you are talking about being patriotic, this country

takes care of its own. We have become the great country that we

are because of our moral authority, not so much the military authority. It may back up the moral, but it is the moral authority.

One part of moral authority is that you take care of your own, period.

So I want to thank you for your testimony. Mr. Chairman, I will

yield back on that.

Mr. KUCINICH. I thank the gentleman. The Chair recognizes the

gentlelady.

Ms. WATSON OF CALIFORNIA. Mr. Chairman, I just have to read

part of my opening statement because I think it goes right to the

reason why we had this hearing.

In 2008, there were 200,000 civilian contractors in Iraq and Afghanistan. There were more civilian contractors than there were

U.S. troops in both combat theaters combined. The contractors’

presence in these combat zones goes primarily under the radar.

Very little is reported on the number of injuries they sustain due

to the service they provide in aiding the Federal Government in its

mission. As of June 2008, more than 1,350 contractors have died

in Iraq and Afghanistan. There were another 29,000 injured. More

than 8,300 of those were serious, permanent injuries.

So as the number of Defense Base Act claims for compensation

due to injury of death of a contractor rises, the payments on the

amount of compensation, the benefits paid per claim have dropped

to their lowest level since 2003. I am wondering how this can be

with the high levels of injuries that are being sustained by contractors themselves.

Mr. Smith, I don’t understand ‘‘ignored.’’ How could they ignore

the claim? Could you explain what you mean by ‘‘ignored?’’

Mr. SMITH. Yes, ma’am. The Department of Labor would make

a finding at an informal hearing. That is the first step in the procVerDate 11-MAY-2000 13:48 Jul 07, 2011 Jkt 000000 PO 00000 Frm 00189 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65546.TXT KATIE PsN: KATIE
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ess of litigation. I am sorry, ma’am, but I don’t know any other way

to put it. They absolutely ignore the Department of Labor findings.

Ms. WATSON OF CALIFORNIA. The Department of Labor then?

Mr. SMITH. Yes, ma’am.

Ms. WATSON OF CALIFORNIA. I want you to know Secretary Solis

said there is a new sheriff in town.

Mr. SMITH. Yes, ma’am. I understand that and I am proud to

hear that. I thank this committee for stepping up and taking the

ball. But in my case, that is exactly what has happened. In my

opening statement, I have the proof in the documentation.

Ms. WATSON OF CALIFORNIA. Yes, well I hope that you will share

those papers and your documentation with Mr. Schader and Mr.

Moor.

Mr. SMITH. Yes, ma’am. I will provide that to this committee.

Ms. WATSON OF CALIFORNIA. Thank you. As soon as possible.

Mr. SMITH. Within 24 hours, ma’am.

Ms. WATSON OF CALIFORNIA. Thank you. With that, I will defer

the rest of my time, Mr. Chairman, to you.

Mr. KUCINICH. I thank the gentlelady. The committee has submitted for the record information that AIG had a net earned premium from the Government of $1.3 billion from 2002 to 2007 and

underwriting gains of $500 million, a 38 percent gain.

Now, Mr. Woodson, you lost a leg and you lost almost all of your

eyesight?

Mr. WOODSON. I lost the sight of my left eye, three fourths of my

right, and I lost my left leg. At the present time, I am using a magnifier to try to read. AIG will not even pay for the glasses that the

doctor ordered back in April.

Mr. KUCINICH. Net earned premium of $1.3 billion and under- writing gains of $500 million, a 38 percent gain. Mr. Moor, when

you hear this, do you feel any sense of regret or concern about

what Mr. Woodson has gone through? How does this make you

feel?

Mr. MOOR. Mr. Chairman, there is no doubt that when you hear

something like this, with any of these gentlemen, and know what

they have done in serving the country that you do have a feeling

toward them. My job is to make sure that we are doing everything

that we possibly should do and that we are obligated to do under

the current regulations in the laws to provide the right care for

these individuals. That is what Mr. Schader——

Mr. KUCINICH. You are telling Mr. Woodson that you did everything you could for him. Is that what you are telling him? Is that

your testimony?

Mr. MOOR. I haven’t personally done everything I can for him.

I don’t know.

Mr. KUCINICH. Has your company, AIG, done everything it could?

Is that your testimony?

Mr. SCHADER. The answer is yes. It is everything that we could

have done. Just as an example, and I don’t know where the communication is failing, but on the glasses prescription that was written and submitted to us on April 28, 2009, it was approved the

same day.

Mr. WOODSON. They have never paid for it. They still have the

glasses.

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Mr. KUCINICH. Mr. Woodson, you say they never paid for it?

Mr. WOODSON. They never have paid for it.

Mr. KUCINICH. See, this is the reason why we brought these witnesses here. These are people who are part of the hundreds of

thousands of contractors who are insured through a variety of companies with the Government making sure that you get money to

pay claims. What happens when insurance companies don’t pay

claims? Typically, their profits are higher. That is our concern here.

Our concern as a committee is Mr. Newman, who lost a leg; Mr.

Smith, who suffers from PTSD; and Mr. Woodson, who lost most

of his eyesight and has a prosthetic leg. Each and every one of

them represents not just the three of them but stands for many

more who served America as private contractors, who were injured

and sometimes killed, and who cannot get any justice. Look, if you

are the insurance company and you deny a claim, they are already

at a disadvantage to fight you. If you defer paying a claim, you can

drag it out.

How long did it take you, Mr. Newman, to get your new prosthetic leg?

Mr. NEWMAN. The newest one, it took over 550 days.

Mr. KUCINICH. Over 550 days. Is that acceptable? It can’t be acceptable.

The committee is going to go further into this, I just want you

to know. We are going to have to move on to votes here. Every person here who was asked to testify will be continuing to stay in

touch with the committee and the committee with you. You all will

be given a chance to get your testimony into the record of this

hearing. But we are going to pursue this more.

These three gentlemen, with the grievous injuries that they have

suffered, came here in front of a congressional committee and took

an oath to their testimony. Then we find out that there is this disconnect between payment of their claims and satisfying them so

their lives can be made whole.

Let me just tell you something, you gentlemen, General Fay, Mr.

Moor, and Mr. Schader, you are going to walk out of here with your

two natural legs. You are going to walk out of here not needing assistance to see where you are going. You are going to go home and

you won’t be troubled by flashbacks about combat. You don’t have

to contend with what these gentlemen have had to contend with

and what many others who served the country as contractors have

had to contend with. So that is why we are holding these hearings.

This isn’t about you personally, but you stand for institutions that

we have to find a way to make more responsive.

The gentlelady’s time has expired. I am going to just wrap this

committee meeting up, putting into the record that CNA’s net

earned premiums from 2002 to 2007 were $110,722,000. Their underwriting claims were $58 million. Their percent of gain was 53

percent. We have others that are involved, too.

I want to put into the record this memorandum from staff. It is

an exchange regarding the source of a majority memorandum that

was referenced by Mr. Fay in his testimony. This committee operates under rules of the House and the rules are pretty strict with

respect to the gathering of information and the production of

records.

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Major General Fay, a witness for CNA, made explicit reference

to the majority staff’s memorandum to Members, which is a nonpublic document prepared for subcommittee members in advance of

a hearing. Chairman Kucinich, and this was prepared by the staff

here just now, asked General Fay how he obtained a copy of the

committee memorandum. General Fay responded that a member of

his legislative staff provided it to him. She and a colleague were

identified and approached the witness table. Heather Davis was

sworn in.

When asked how she obtained the majority’s memorandum, Ms.

Davis said that General Fay may have been in error and that the

source to him of the memorandum was either herself or her male

colleague. She said that she obtained the memorandum from committee staff. She was asked if it was a Democratic committee staff

member who provided the memo. The male colleague responded

that it was not a Democratic committee staff member who gave the

committee memorandum to CNA.

While this is essentially an internal matter, it was made external

because of the fact that you, General Fay, received information

that rightfully should not have been in your possession. We will investigate that further. Our attorneys will be in touch with you and

your staff regarding this matter.

I also want to say that in response, and by the way, I want the

majority staff to know that I showed Mr. Jordan these remarks

that I am about to read into the record, in response to the comment

of the ranking member, I would like to correct the record. The majority has extended the customary accommodations to the minority

including the subject of the hearing, a detailed briefing memorandum on the subject matter, the contact information of all witnesses,

and the right to invite a witness.

If the minority had difficulty preparing its Members for this

hearing in spite of this considerable assistance, then we look forward to working with you to try to find out how we can make this

work for you. We value your cooperation and we want to make sure

that you have every opportunity to prepare for these hearings in

a way that you feel is important for those that you serve. I value

you greatly, the work of the staff on both sides.

I want to thank each and every witness here. As difficult as it

was for CNA and for AIG to be here, we do need your help in trying to straighten this out.

This is not simply a private sector matter. I just spent the last

6 years trying to get the Defense Finance and Accounting Service

from a privatization program that Lockheed Martin had that was

similarly denying people their claims for whatever reason. So this

is something that we see some systemic problems with. In our detailed conversations with Lockheed Martin, we found that the best

solution for them was simply to give the business back to the Government, which I think they were glad to do because they weren’t

making money on it. At least, they weren’t making as much money

as you are.

I want to thank again Mr. Newman, Mr. Smith, and Mr. Woodson for your service to the country. Your presence here represents

a lot of people who were private contractors who served. I think

that everyone here, whatever their position on this dais and whatVerDate 11-MAY-2000 13:48 Jul 07, 2011 Jkt 000000 PO 00000 Frm 00192 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65546.TXT KATIE PsN: KATIE
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ever their position in the audience, appreciates that you served and

appreciates the price that you paid. I think everybody is going to

take a renewed interest. I would hope that a renewed interest is

going to be taken in your situation but then expands to the larger

question. Mr. Pitts, thank you for your service as well.

Again, I want to thank the witnesses. We will be in touch with

all of you.

Ms. WATSON OF CALIFORNIA. Would you yield for a second?

Mr. KUCINICH. I will yield to the gentlelady, of course.

Ms. WATSON OF CALIFORNIA. The reason why I read some paragraphs from my opening statement is because I stated some of the

numbers. We will submit that, too, to go along with the report so

we will have the numbers.

Mr. KUCINICH. The record of this hearing will remain open for

five legislative days. The gentlelady’s submission will be valued

and gratefully received. I just want to make sure that I submitted

this for the record, this calculation of profits that is from CNA.

Ms. WATSON OF CALIFORNIA. Thank you. I yield back.

Mr. KUCINICH. I thank the gentlelady. I also thank her for her

willingness to work with us in crafting a legislative solution. The

representative from the Department of Labor said it is really up to

us. We really do have a responsibility here to look at this legislatively. We are going to.

This is the Domestic Policy Subcommittee. I am Dennis Kucinich,

chairman of the subcommittee. It is a Subcommittee of Oversight

and Government Reform. This has been a hearing that has dealt

with the issues of claims not being paid, the reasons why that

could happen, and what could be done in the future to rectify that.

I want to once again thank all the witnesses for their appearance.

We will continue to be in touch with you.

This committee stands adjourned. Thank you.

[Whereupon, at 9 p.m., the subcommittee was adjourned.]

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