Department of Labor

OWCP

Defense Base Act/ 

War Hazards Compensation Act Seminar

February 23, 2006

Settlements and Commutations

Miranda Chiu
Settlements and Commutations

1. Concluding a Claim by Settlement – the 

Basics

2. Settlements Involving Foreign National

3.Commutations – the Basics

4.Difference Between Settlement and 

Commutation
Section 8(i) Settlement

References

1. 33 U.S.C. 908(i)(1) – (4), 

http://www.dol.gov/owcp/dlhwc/lhwca.htm#908.

2. 20 CFR 702.241 – 243, 

http://www.dol.gov/dol/cfr/Title_20/Chapter_VI.htm.

3. Longshore Procedure Manual, Chapter 3-501, 

http://www.dol.gov/owcp/dlhwc/lspm/lspm3-501.htm.

4. OALJ Judges’ Bench Book, Topic 8, 

http://www.oalj.dol.gov/PUBLIC/LONGSHORE/REF

ERENCES/REFERENCE_WORKS/2002_LHWCA_TO

PIC_810.HTM.
Settlement Basics

 Criteria for approval: settlement must be adequate 

and not obtained under duress. See 33 USC 

8(i)(1) and 20 CFR 702.243(f).

 May include compensation or medical benefit or 

both.

 Settlements are limited to claims then in existence.

 Settlement application must be a stand-alone 

document and contain the information set out in 

20 CFR 702.242(b).
Settlement Basics

Continued

 Settlements are final and not subject to change 30 

days after the Order is filed.

 Structured settlements are permitted.

 The lump sum payment must be paid (received by 

the claimant) within 10 days of the filing of the 

Order Approving Settlement. 

 Late payments are subject to an additional 20% 

compensation per 14(f) of the LHWCA.
Commutations

References

 The Defense Base Act, at 42 USC 1652 (b),

http://www.dol.gov/owcp/dlhwc/dba.htm.

...the Secretary of Labor may, at his option or upon the 

application of the insurance carrier shall, commute all 

future installments of compensation to be paid to them 

one-half of the commuted amount of such future 

installments of compensation as determined by the 

Secretary. 
Commutations

References, cont’d

 Federal Code of Regulations, 20 CFR 702.142, 

http://www.dol.gov/dol/cfr/Title_20/Chapter_

VI.htm.

 Longshore Procedure Manual, Chapter 3-502, 

http://www.dol.gov/owcp/dlhwc/lspm/lspm3- 502.htm.
Commutation Basics

 Only permanent disability (partial or total) and death 

benefits may be commuted.

 Only benefits payable to aliens and non-nationals of the 

U.S. not residing in the U.S. or Canada may be commuted.

 Only future installments of compensation may be 

commuted, not benefits already accrued.

 Medical benefits may not be commuted. 
Commutation Basics

Continued

 The commutation must be based on a 

compensation order that has fixed the right of the 

beneficiaries to compensation. 

 The claimant does not have the option to reject a 

commuted sum in lieu of a continuing award.
Calculation of commuted payments

1. To determine the beneficiary’s life expectancy, use the 

U.S. Life Tables published by the National Center for 

Health Statistics, available at 

http://www.cdc.gov/nchs/products/pubs/pubd/lftbls/

life/1966.htm. 

2. If the beneficiary is a minor, use the number of years 

until the 18th birthday.

3. To determine the present value discount rate, use the US 

Treasury one year constant maturity rate, published by 

the Federal Reserve at 

http://www.federalreserve.gov/releases/h15/current/h1

5.htm.
Calculation of commuted payments

continued

4. For PTD and death benefits, determine the current percentage of 

increase of the NAWW used to calculate 10(f) adjustments under 

the LHWCA. http://www.dol.gov/owcp/dlhwc/NAWWinfo.htm. 

Subtract this rate from the Treasury one year constant maturity rate 

to arrive at the commutation discount rate.

5. Determine the present value of future compensation using the above 

steps. Divide the sum by 2, to arrive at the commuted payment.

6. If there are multiple beneficiaries, the commuted payment must be 

separately calculated for each beneficiary.
Settlement vs. Commutation

Settlement

 Settlement is a 

compromise to resolve a 

claim with bona fide 

disputes of entitlement, 

which if fully litigated, 

may result in the 

claimant taking less than 

the settlement sum.

Commutation

 Commutation is used 

when there are no 

entitlement issues and 

the benefits payable are 

based on the maximum 

allowed by statute.
Settlement vs. Commutation

continued

Settlement

 Medical benefits may be 

settled.

 Settlements may be 

structured, with future 

payments made at 

specified intervals.

 Settlements may be 

approved by the District 

Director or the 

Administrative Law Judge.

Commutation

 Medical benefits may not 

be commuted.

 Commuted payment must 

be made in one lump sum.

 Commutations may only 

be approved by the District 

Director.
Settlement vs. Commutation

continued

Settlement

 Settlements may not be 

further reduced by 

commutation.

 Settlements are 

reimbursable under the 

WHCA.

Commutation

 Compensation awards 

are reduced by 50% 

when commuted.

 Commutations are 

reimbursable under the 

WHCA.
Settlement and Commutation

For Foreign Nationals

 Language and cultural barriers.

 Adequacy of settlement – proving entitlement and 

adequacy.

 Documentation of earnings, extent of disability, 

relationship of survivors in death claims, financial 

support in dependency claims.

 “Under duress”.

 Benefit delivery mechanism.