Source: http://www.eps-law.com/publications/treading-unfamiliar-waters-special-fund-relief-within-longshore-harbor-workers-compensation-act/
Timestamp: 2019-04-23 04:15:46+00:00

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Those unfamiliar with the Longshore and Harbor Workers’ Compensation Act (LHWCA) may be surprised to learn that the doctrine of apportionment is unavailable in the longshore forum. Unlike the state workers’ compensation system wherein an employer/carrier may rely upon apportionment to divide permanent disability between the industrial injury and the pre‑existing disability, a similar fate does not await employers/carriers in the longshore arena. Rather, Congress has established the “Special Fund” designed to limit an employer/carrier’s liability for permanent disability resulting from a combination of a pre‑existing disability and subsequent work injury, pursuant to guidelines codified in Section 908(f) of the LHWCA.
Also known as the “Subsequent Injuries Fund,” the Special Fund has originally intended to encourage employers to hire disabled workers. The incentive provided by the Special Fund was that of reduced employer/carrier (hereinafter “respondent”) liability wherein an already disabled worker sustained further disability in the course of employment. (With the enactment of the Americans with Disabilities Act, which itself prohibits discrimination based on disability, the underlying purpose of the Special Fund would appear outdated.) Nonetheless, the Special Fund remains as the only recourse when faced with an injured worker with pre‑existing disability.
Even when Special Fund relief is granted, the ultimate source of the funding rests with employers and carriers. There are three primary sources for Special Fund monies: (1) death benefit payments; (2) assessments against employers and carriers; and (3) fines and penalties.
For example, when a worker dies without survivors, $5,000.00 is payable by the respondent to the Special Fund. Additionally, respondents contribute to the Special Fund by way of an annual assessment. The amount of the assessment varies and is determined on a percentage basis by comparing the individual respondent’s workers’ compensation payments during the preceding year to the total of all such payments made by all respondents during the same time frame. The Special Fund may also receive fines and penalties to support its funding.
In general, the Special Fund limits the respondent’s liability to the first 104 weeks. After 104 weeks, the Special Fund continues payments of permanent disability to the injured worker or dependents. Similar to the state workers’ compensation system, however, other expenditures, including temporary disability, medical benefits, penalties, interest and attorneys’ fees are not “apportionable” to the Special Fund and thus must be paid directly the respondent. See generally, Sizemore v. Coseal and Co. (1989) 23 BRBS 101.
In order to qualify for Special Fund relief, the respondent must establish the following three criteria: (1) the existence of pre‑existing permanent partial disability; (2) the manifestation of the pre‑existing disability to the employer; and (3) the combined effect of the pre‑existing disability and present disability.
In order to assist the employers, adjusters and counsel in navigating the somewhat muddied waters of Special Fund relief, each of these problems will be addressed in detail below.
Two theories have developed to define permanent partial disability under Section 908(f). The first is the “economic disability theory.” Under the “economic disability theory,” pre‑existing permanent partial disability is defined in accordance with Section 902(10) of the LHWCA, such that an incapacity to earn wages must be demonstrated. The second theory is the “cautious employer” test. Pursuant to the “cautious employer” test, the respondent may establish his employee’s permanent partial disability by showing that the employee had such a serious physical disability in fact, that a conscientious employer would have been motivated to discharge the handicapped employee because of a greatly increased risk of employment-related accident and compensation liability. See C & P Telephone Co. v. Director, OWCP (D.C. Cir. 1977) 564 F.2d 503, 513.
The Ninth Circuit has embraced the “cautious employer test” in assessing pre‑existing partial disability. Todd Pacific Shipyards v. Director, OWCP (8th Cir. 1990) 913 F.2d 1426, 1430. For example, in Lockheed Shipbuilding v. Director, OWCP (9th Cir. 1991) 951 F.2d 1143, the Ninth Circuit granted Section 8(f) relief, finding that a seven-year history of ongoing back problems was sufficient to motivate a cautious employer to discharge the worker. Also within the Ninth Circuit, where psychological testing revealed that the worker suffered from borderline retardation, this mental limitation was sufficient to establish pre‑existing permanent partial disability pursuant to the “cautious employer test.” Todd Pacific Shipyards Corp. v. Director, OWCP (Mayes) (9th Cir. 1990) 913 F.2d 1426, 24 BRBS 25 (CRT).
Other conditions which have met judicial approval as pre‑existing permanent partial disability include arthritis, cervical sprain, alcoholism, diabetes, drug addiction, low IQ, bulging discs, heart disease, and degenerative changes. It should be noted, however, that the mere fact of a past injury or ailment is not alone sufficient to establish “disability.” Rather, as a result of the past injury or ailment, a serious, lasting physical problem must persist. Director, OWCP v. Campbell Industries, Inc. (9th Cir. 1982) 678 F.2d 836, 14 BRBS 974, rev’g Lostaunau v. Campbell Industries, Inc. (1981) 13 BRBS 227.
Known as the manifestation program of Section 8(f), this judicially created requirement for obtaining Special Fund relief requires the worker’s pre‑existing permanent partial disability to be “manifest” to the employer. This prong can be met with either actual or constructive knowledge of a pre‑existing disability.
For example, the mere existence of medical records, from which a pre‑existing condition is objectively determinable, has been deemed sufficient to meet the manifestation prong, whether or not the employer was aware of the records at the time of injury. See C & P Telephone v. Director, OWCP (D.C. Cir. 1977) 564 F.2d 503, 6 BRBS 399.
Once pre‑existing permanent partial disability is identified, the respondent must then establish that the worker’s current level of disability is the combined result of pre‑existing disability and the current work injury. In essence, the respondent must demonstrate that the worker’s only permanent disability is “materially and substantially” greater than the disability that would have resulted from the work-related injury alone. If the worker is permanently, totally disabled as a sole result of the work injury, Section 8(f) will not apply.
As was discussed briefly in a previous issue For The Defense, the contribution prong of Section 8(f) may be established in one of two ways. First, medical evidence may be procured speaking to the combined result of the pre‑existent disability and current work injury. In the alternative, vocational evidence may be obtained addressing the economic impact of the pre‑existent disability alone as compared to the economic impact of the pre‑existent disability combined with the work-related disability. Quan v. Marine Power & Equipment Co. (1997) 31 BRBS 178, aff’g (1996) 30 BRBS 124 (ALJ); Newport News v. Director, OWCP (Harcum II) (4th Cir. 1997), 131 F.3d 1079.
In assessing the viability of pursuing Special Fund relief and the potential benefit thereof, respondents must consider whether the subject industrial injury is to a scheduled or unscheduled part of the body.
The benefit garnered by way of Section 8(f) varies depending on the nature of the industrial injury. The general rule, which is applicable to unscheduled injuries (back, neck, shoulder, hip, etc.), limits respondent’s liability to the first 104 weeks of permanent disability. In the case of a scheduled injury (arm, leg, eye, fingers, foot, etc.), respondent is liable for the greater of 104 weeks or the number of weeks due for the subsequent injury. As such, where scheduled compensation is less than 104 weeks, 8(f) would not be beneficial. In scheduled hearing loss cases, respondent is liable for the lesser of the number of weeks provided for the subsequent loss, or 104 weeks. See generally, Reggiannini v. General Dynamics Corp. (1985) 17 BRBS 254.
In addition to seeking 8(f) relief for scheduled injuries, respondent should not overlook the possibility of credit where the claimant was previously compensated for disability to the same scheduled body part. For example, in Brown v, Bethlehem Steel (1987); 20 BRBS 26 (BARB) by application of Section 8(f), the employer’s liability was reduced from 144 weeks to 104 weeks for a scheduled leg injury. By application of credit for 57.6 weeks previously compensated, the employer’s liability was reduced again, resulting in only 46.4 weeks of compensation. In support of its Opinion, the BRB stated: “Our decision in this case serves the dual purpose of avoiding a double recovery to claimant while rewarding employer for continuing to employ claimant.” Brown at page 29.
The respondent’s road to limiting liability may be an arduous one. In order to garner the information necessary to establish 8(f) relief, well-honed discovery tools will be needed.
For example, review of personnel records, both past and present, may reveal the existence of prior work injuries or ailments. Similarly, a thorough deposition, identifying prior employers, prior medical providers, and prior injuries or illnesses should be undertaken. Moreover, the scope of deposition questioning should be broad, encompassing all potential pre‑existing disabilities.
Once pre‑existing disability is established and quantified by way of medical records, a well-crafted letter to a medical or vocational expert may serve to elicit the necessary evidence to establish the contribution prong of Section 8(f). Physicians should be asked to identify the worker’s level of impairment both with and without the pre‑existing disability. Similarly, vocational experts can be asked to opine on the economic impact of the work injury, both with and without the pre‑existing disability.
While a thorough case workup may be necessary to satisfy the three prongs of Special Fund relief, it should not be forgotten that time is of the essence. As discussed in a previous issue of For the Defense, an absolute defense to Special Fund relief exists for an untimely Application. As such, at the point in which permanency becomes an issue in the case, a precautionary Section 8(f) petition should at least be filed with the District Director to preserve the respondent’s right to pursue Section 8(f) relief and avoid the absolute bar.
While the above is intended to serve as a general overview of the Special Fund, it should not be forgotten that numerous nuances exist which may alter the application of Section 908(f) depending upon the type of work-related injury, i.e., scheduled injuries, unscheduled earnings, and hearing loss cases. Section 908(f) has been subject to judicial interpretation, sometimes resulting in divergent opinions throughout the judicial circuits. As such, the skilled practitioner would be wise to stay abreast of the ever-developing case law surrounding Section 908(f) and resolving intricacies which may alter the ultimate burden borne by the respondent in seeking a limitation of liability.

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