Opinion ID: 687605
Heading Depth: 2
Heading Rank: 2

Heading: Applicability of Sec. 903(e) and Sec. 933(f)

Text: 31 The ALJ reasoned that the only way to ascertain if the Sec. 903(e) exemption applied was to first determine if the settlement funds were paid to settle a Jones Act claim or a Sec. 905(b) negligence claim under the LHWCA. He determined that if the monies were paid to settle a Jones Act claim, then Brenneman would be entitled to statutory credit under Sec. 903(e). He further concluded that if the monies were paid to settle a LHWCA negligence claim under Sec. 905(b), then Brenneman would not be entitled to a credit under Sec. 903(e). The ALJ assumed that since it was the intention of all the parties in the settlement agreement to allow Bundens to pursue her LHWCA claim, it was clear that the payment was not a settlement of the Jones Act claim. On appeal, the Board held that when the record is unclear as to how the settlement fund is apportioned among the various claims being settled, the employer is entitled to offset the net amount against its liability under the LHWCA. Bundens argues that the wording of the Release clearly indicated that no one intended to foreclose her rights to collect benefits under the LHWCA. 21 32 Additionally, Bundens argues that since the Sec. 903(e) credit is an affirmative defense, the burden of proof is not on her to prove that the settlement fund was allocated to the LHWCA claim, but rather it is the burden of Brenneman to show that the settlement monies were allocated to the Jones Act claim. 22 33 We believe the correct approach in addressing the credit issue is the view espoused by the Director of the Office of Workers' Compensation Programs (Director). The Director argues that it is unnecessary to determine how the settlement funds were apportioned between the Jones Act claim and the Sec. 905(b) claim under the LHWCA because the combination of the credit and offset provisions of Sec. 903(e) and Sec. 933(f) would provide a full credit to the employer for amounts it actually paid. 23 34 Before explaining how the combined application of Sec. 903(e) and Sec. 933(f) works to provide the employer with a credit for funds already paid in the tort settlement, we must first address Bundens' contention that Sec. 933(f) does not apply in these proceedings. Bundens argues that Sec. 933(f) was never properly raised by Brenneman in the proceedings before the ALJ or the Board and thus Brenneman has waived its right to assert Sec. 933(f). Bundens thus contends it was error for the Board to raise this offset provision, sua sponte. We conclude that a Sec. 933(f) defense was raised. 35 Initially, we observe that Brenneman explicitly raised a Sec. 933(g) defense. Since Sec. 933(f) governs the offset of third-party settlements in the event that the requirements of Sec. 933(g) have been met, the Board's consideration of Brenneman's Sec. 933(g)(1) defense fairly included consideration of Sec. 933(f). Next, even Bundens concedes that Sec. 933(g)(1) refers to the employer's compensation liability under 33 U.S.C. Sec. 933(f). Bundens' answering brief at 19. Additionally, we observe that in the settlement agreement signed by Bundens, the following language was present: 36 Nothing herein shall be construed as preventing the compensation carrier from defending the compensation claim on the basis that its liability is discharged because this Agreement constitutes settlement of a third party claim, or as preventing the Releasor from contending that such defense is inapplicable. 37 App. at 94a. While this language has no bearing on the credit issues that were actually raised by Brenneman in the LHWCA proceedings, we observe that the third party claim language explicitly refers to Sec. 933(f). The combination of the fact that Brenneman actually raised Sec. 933(g) with the explicit reservation of its right to raise the Sec. 933(f) defense suffices to put Bundens on notice. We also note that the failure of Brenneman to exhaust its administrative remedies is not so troubling here because all of the findings necessary to apply Sec. 933(f) are included in the findings for either Sec. 903(e) or Sec. 933(g). 38 Next, Bundens argues that even if Sec. 933(f) has not been waived by Brenneman, this provision does not apply here because an employer cannot be a third person within the meaning of Sec. 933(f). The question before the Court is whether an employer who settles a negligence suit under Sec. 905(b), when it is acting in its capacity as a vessel owner, is considered a third person under Sec. 933(f). We believe that the only meaningful interpretation of Sec. 933(f) is to treat the employer as a third party whenever the employee recovers funds from the employer in other legal proceedings. Section 933(f), as set forth above, indicates that an employer only has to pay compensation benefits to the person entitled to compensation (PETC) when the amount of the benefits to which the PETC is entitled under the LHWCA exceeds the net amount of money that the PETC has recovered from a third party. If the employer/vessel owner is a third party, then any monies paid by the employer in the negligence suit can be used to offset the monies owed the PETC under the LHWCA. If the employer/vessel owner is not considered to be a third party under Sec. 933(f), then the employer is prohibited from deducting monies already paid. 39 It seems clear that if an employer is able to offset his liability under the LHWCA with monies previously paid by others under a tort settlement, then there is even stronger reason to allow the employer to offset monies paid in a tort settlement when the employer is the one who previously paid the monies. Under Sec. 933(f), an employer who settles a tort suit as a vessel owner must be construed as a third party. To hold otherwise would create a perverse result: an employer would have to pay a double recovery simply because he is the owner of the vessel, whereas if another party is the owner of the vessel and the employee settles with that third party for a net sum which exceeds the amount to which he is entitled under the LHWCA, the employer would pay nothing. Thus, the net amount of $646,078 that Bundens received for settling the suit can be said to be an amount recovered against a third person and can be used by Brenneman to offset its liability under the LHWCA. 40 After concluding that Sec. 933(f) was properly raised and that its third person setoff provision applies to Brenneman as the employer/vessel owner, we now turn to the discussion of how Secs. 903(e) and 933(f), taken together, allow Brenneman a credit for the net amount of its tort settlement. Section Sec. 903(e) provides an employer with a credit for payments made under the Jones Act. 24 Section Sec. 933(f) states that an employer is required to pay under the LHWCA only the difference between its LHWCA liability and the net amount recovered by the employee in suits against third parties for damages. Whatever amount of the settlement is attributable to settlement of the Jones Act claim will be credited against Brenneman's LHWCA liability under Sec. 903(e). Whatever amount of the settlement is attributable to settlement of the Sec. 905(b) claim offsets Brenneman's liability in accordance with Sec. 933(f). Thus, no matter how the parties could have apportioned the settlement between the claims under the Jones Act and under Sec. 905(b), and no matter who bears the burden of proving apportionment, 25 Brenneman is entitled to a credit for the net settlement amount by virtue of the combined application of Secs. 903(e) and 933(f). 26 41 Notwithstanding the applicability of Secs. 903(e) and 933(f), these provisions must be applied to Barbara and Gregory, separately, since Barbara and Gregory are both PETC under Sec. 905(a) which lists separately wife and dependents. In analyzing the tort award, we note that $1,000,000 was recovered and was to be divided 70% to Barbara and 30% to Gregory. After costs and attorneys' fees, the net amount awarded to Barbara and Gregory, respectively, was $452,255 and $193,823. 42 Under Sec. 933(f), the employer is to pay a sum equal to the excess of the amount which the Secretary determines is payable on account of such injury or death over the net amount recovered against such third person. 33 U.S.C. Sec. 933(f) (emphasis added). Likewise, to the extent that the employer does not receive a credit under Sec. 903(e), it is required to make up the deficiency. Under the LHWCA, Barbara and Gregory are entitled to $335,754--Barbara's share was $100,628 and Gregory's share was $235,126. 43 Thus, applying Secs. 903(e) and 933(f) together to each of these separate claims, we note that Barbara received $452,255 from her tort settlement and would be entitled to $100,628 from the LHWCA. Since her recovery under the LHWCA does not exceed her net recovery from the third party suit, she is entitled to no additional funds under the LHWCA. Gregory, on the other hand, received $193,823 from the tort settlement and is entitled to $235,126 from the LHWCA. Since his recovery under the LHWCA exceeds his net recovery from the third party suit, he is entitled to an additional $41,303 from Brenneman under the LHWCA, barring any termination of benefits under Sec. 933(g)(2). 27