Flat Fees Are Not Reimbursed Under the War Hazards Compensation Act

Here’s a tip for carriers that plan to apply for reimbursement under the War Hazards Compensation Act: don’t let your vendors charge flat fees.  Why?  Because the Division of Federal Employees’ Compensation will not reimburse flat fee charges, no matter what.

What are Flat Fees?

A flat fee, or flat rate, is a pricing structure where a single fixed fee is charged for a service, regardless of usage.  These fees could arise for any number of services in Defense Base Act case.  For instance, vendors may change flat rates for medical repatriation to the United States following an injury in Afghanistan; for surveillance or overseas document retrieval services; or even for legal fees.

Why are Flat Fees Denied Reimbursement?

Flat fees are not addressed in the War Hazards Compensation Act statutes.  See 42 U.S.C. § 1701 et. seq.  The regulations, however, do address flat fees.  Specifically, 20 C.F.R. § 61.403, entitled “Approval of claims for legal and other services,” states:

(b) The Office shall not recognize a contract for a stipulated fee or for a fee on a contingent basis.  No fee for services shall be approved except upon application supported by a sufficient statement of the extent and character of the necessary work done on behalf of the claimant.  Except where the claimant was advised that the representation would be rendered on a gratuitous basis, the fee approved shall be reasonably commensurate with the actual necessary work performed by the representative, and with due regard to the capacity in which the representative appeared, the amount of compensation involved, and the circumstances of the claimant.

Based upon 20 C.F.R. § 61.403, the Division of Federal Employees’ Compensation takes the position that no flat fees are reimbursable, no matter whether the flat fee was charged by a lawyer or another vendor.

Should Flat Fees Be Reimbursed?

The Division of Federal Employees’ Compensation’s reference to 20 C.F.R. § 61.403 when denying reimbursement for flat fees begs the question whether flat fees are being improperly denied.  There are good arguments that flat fees should be reimbursed, so long as those fees are not charged by a claimant’s attorney under Section 101(a) or Section 101(b) of the War Hazards Compensation Act.

For instance, the WHCA regulations are divided into 5 sections, Subparts A through E.  Each Subpart has a specific purpose.  Subpart B “describes the procedure by which an insurance carrier . . . shall file a claim for reimbursement . . . and describes the procedures for processing a claim for reimbursement and transferring a case for direct payment by the Department of Labor.”  Subpart E, wherein 20 C.F.R. § 61.403 is found, “contains miscellaneous provisions concerning disclosure of program information, approval for claims for legal services, and assignment of claim.”  See 20 C.F.R. § 61.3.

Consider the language used in 20 C.F.R. § 61.3: “approval for claims for legal services.”  Id.  Also, consider the language used in 20 C.F.R. § 61.403, which focuses entirely on fees for legal services.  It appears that the regulations want to prohibit claimant’s attorneys from charging flat fees.

But not all claimant’s attorneys.  The regulation only applies to attorneys who help a claimant file a direct claim for War Hazards Compensation Act relief, see 42 U.S.C. § 1701(a), or a detention benefits claim, see 42 U.S.C. § 1701(b).  Claimant’s attorneys who are paid fees pursuant to Section 28 of the Longshore and Harbor Workers’ Compensation Act, as extended to the Defense Base Act, are not bound by the flat fee language contained in the War Hazards Compensation Act regulations.

Still, though, there is a problematic sentence in 20 C.F.R. § 61.403.  The first sentence of subsection (b) reads, “The Office shall not recognize a contract for a stipulated fee or for a fee on a contingent basis.”  The scope of this sentence has been extended beyond the regulation and Subpart in which it appears.  The Division of Federal Employees’ Compensation applies it to all costs associated with a claim.

What Can Carriers Do to Avoid Denials?

There are more arguments that carriers can lodge to obtain reimbursement for flat fees, but the best practice is to avoid the problem in its entirety.  Carriers should require their vendors to record task-specific and claim-specific charges instead of accepting invoices with flat fees.  Use 20 C.F.R. § 61.101(b) as a template.  Vendors should submit documentation that allows a carrier to “sufficient[ly] . . . establish the purpose of the payment, the name of the payee, the date(s) for which payment was made, and the amount of the payment.”

Defense Base Act Resolution and the Direct Payment of Future Benefits

When a Defense Base Act injury is caused by a “war-risk hazard,” then both the Defense Base Act and the War Hazards Compensation Act applies.  The application of both statutory schemes is important for all parties to a Defense Base Act claim because the War Hazards Compensation Act offers additional resolution options.  Specifically, employers and carriers may seek the direct payment of future Defense Base Act benefits if the underlying injury and disability was caused by a “war-risk hazard.”

The “War-Risk Hazard” Definition:

Generally, a “war-risk hazard” includes any hazard arising from the use of weapons or explosives; an “action” of a hostile force or person; the discharge of munitions intended for use in war no matter whether a hostile force or person is involved; the collision of vessels or aircraft in a zone of hostilities; and any mishap arising during “the operation of vessels or aircraft in a zone of hostilities or engaged in war activities.”  See 42 U.S.C. § 1711(b).  If the Defense Base Act claimant’s injury was caused by any hazard identified as a “war-risk hazard,” then the War Hazards Compensation Act applies.

Three Ways to Resolve the Underlying Defense Base Act Claim:

Typically, Defense Base Act claims are resolved one of three ways: settlement, stipulations, or formal hearing.  If the claim is resolved by settlement, then the claimant receives a lump sum and the claim is over.  No one can force a party to settle a Defense Base Act lawsuit; the parties must jointly and voluntarily agree to resolve their differences amicably.  More information about settlements can be found in the Longshore and Harbor Workers’ Compensation Act (33 U.S.C. § 908(i)) and the associated implementing regulations (20 C.F.R. §§ 702.241, 702.242, and 702.243).

If the parties don’t want to settle, another option for amicably resolving the Defense Base Act claim is to enter into stipulations.  Through this process, the parties come to an agreement that appropriately and accurately describes the claimant’s injury, medical treatment, average weekly wage, ongoing compensation rate (if any), and ability to return to work or engage in suitable alternative employment.  For a great discussion about settlements and stipulations, read Yelena Zaslavskaya’s article entitled, “Resolving Longshore Claims Through Settlements and Stipulations,” which is available on LexisNexis’ Workers’ Compensation Law Community webpage.

The third option is a formal hearing before an administrative law judge (“ALJ”).  The parties engage in discovery, take depositions, consult evidence, put on their case, and ask an ALJ to issue a Decision and Order to resolve all disputed issues.

Resolution of the DBA Claim and the Subsequent Direct Payment of Benefits:

When the underlying parties to the Defense Base Act claim enter into a settlement, direct payment is not usually a concern because most settlements resolve all aspects of the DBA claim.  On the other hand, when a Defense Base Act claim is resolved via stipulations or formal hearing, the employer and carrier will likely want direct payment.  So…what is it?

The direct payment concept is simple: when certain criteria are met, the government will pay Defense Base Act (or other similar) benefits directly to the injured worker in the place of the carrier.  Indeed, the carrier stops paying benefits (indemnity and medical) altogether once the government takes over.

The statutory authority for direct payment is found in 42 U.S.C. § 1704(a)(3), which states in pertinent part that “[t]he Secretary may, under such regulations as he shall prescribe, pay such benefits, as they accrue and in lieu of reimbursement, directly pay any person entitled thereto . . . .”  The regulation referred to by the statute is 20 C.F.R. § 61.105.  Boiled down to its simplest form, the direct payment regulation requires: (1) an order establishing the injured worker’s right to benefits; (2) proof that the worker’s injury was caused by a “war-risk hazard;” (3) a “relatively fixed and known” compensation rate; and (4) that the injured worker reach maximum medical improvement (“MMI”).

Although an MMI assessment is not an absolute regulatory requirement, most carriers prefer MMI prior to applying for direct payment.  Further, a Defense Base Act claimant who has reached MMI is not precluded from receiving future palliative medical treatment via the direct payment regulation–which is why 20 C.F.R. § 61.105 specifically addresses how medical benefits are paid: “[M]edical care for the effects of a war-risk injury may be furnished in a manner consistent with the regulations governing the furnishing of medical care under the Federal Employees’ Compensation Act, as amended . . . .”   In other words, medical benefits don’t stop when direct payment is granted; they are just handled a little differently by a different payor.

An employer’s and carrier’s application for reimbursement and direct payment is made to the Division of Federal Employees’ Compensation (“DFEC”).  Once DFEC reviews the application and supporting documents, it will decide whether it will reimburse the carrier and accept the claim for direct payment.  When a claim is accepted, DFEC sends a letter to the carrier notifying them of the day when benefits will shift to DFEC.  Also, DFEC sends a letter to the injured worker, telling them to notify their doctors that bills must be submitted to DFEC.

Once DFEC takes over, the carrier no longer pays benefits.  The Defense Base Act claimant will deal directly with DFEC and not the employer or carrier.  DFEC will ask the claimant to confirm continuing disability status–or widow/widower status if the claim is one for death benefits.  The Defense Base Act claimant is absolutely required to comply with DFEC’s requests.  Further, to my knowledge, DFEC does not enter into lump sum settlements with direct payment claimants.

Why Is This Important?:

In my opinion, every party should administer or litigate claims with an eye towards their preferred result.  Does the Defense Base Act claimant want to resolve the claim, accept a lump sum settlement, and move on with their life?  Or does the claimant want weekly benefits ultimately paid by the government?  On the other end of the spectrum, are the employer and carrier willing to pay a lump sum settlement?  Or would they rather seek direct payment, thus capping the amount of benefits they pay?  Each party must determine how they want to resolve the claim; but all parties should work together to move the claim towards resolution.

What is the Scope of a War Hazards Compensation Act Appeal?

When an insurance carrier believes that it was improperly denied reimbursement for a War Hazards Compensation Act (“WHCA”) claim or expense, what can it do?  It can appeal…but not to a court.  The appeal is “in-house” at the Division of Federal Employees Compensation (“DFEC”).  Essentially, the higher-ups in the same agency that denied the initial request for reimbursement will review the evidence and determine whether the denial was appropriate.  The regulatory authority for a WHCA appeal is at 20 C.F.R. § 61.102(d), which states:

The Office shall advise the carrier of the amount approved for reimbursement.  If the reimbursement request has been denied in whole or in part, the Office shall provide the carrier an explanation of the action taken and the reasons for the action.  A carrier within the United States may file objections with the Associate Director for Federal Employees’ Compensation to the disallowance or reduction of a claim within 60 days of the Office’s decision.  A carrier outside the United States has six months within which to file objections with the Associate Director.  The Office may consider objections filed beyond the time limits under unusual circumstances or when reasonable cause has been shown for the delay.  A determination by the Office is final.

Recently, I was asked about the scope of a WHCA appeal.  Are appeals available only when DFEC disapproves a claim for reimbursement–such as when DFEC determines that a particular injurious event was not a “war-risk hazard” and that the WHCA does not apply?  Or, can a carrier also appeal specific line-item deductions–like a deduction of a particular payment to a doctor or an expert?

I think the answer is clear: carriers can appeal any denial, even small line-item deductions.  The regulation allows an appeal when a “reimbursement request has been denied in whole or in part.”  Further, the regulation allows carriers to file objections to the “disallowance or reduction of a claim” for War Hazards Compensation Act reimbursement.

If appeals were only allowed for denials that focused on the applicability of the WHCA (i.e., denials of an entire reimbursement request), then there would not have been a need for the Secretary of Labor to promulgate a regulation referencing partially reduced reimbursement requests or reductions.  The fact that the Secretary included language addressing reductions and denials in part confirms that a WHCA appeal can be taken from specific line-item deductions.

Jumping from a Helicopter Can Be a War-Risk Hazard

A Defense Base Act claimant injured his ankle when he jumped a few inches from a helicopter to the ground below.  The injury occurred at Abu Ghraib prison when, in accordance with custom, the helicopter in which he was traveling “landed” at the prison by hovering a few inches above the ground.  As the helicopter hovered, the occupants exited the aircraft by jumping down to the gravel-covered ground below.  Once all occupants were removed, the helicopter took off again.  This “landing” procedure was commonplace at Abu Ghraib because of the threat of enemy fire.

The issue is whether Claimant’s ankle injury was caused by a ”war-risk hazard.”  The answer is, “Yes,” because the injured worker suffered injuries as a direct result of the operation of an aircraft engaged in war activities operating in a zone of hostility.

Under the War Hazards Compensation Act, a “war-risk hazard” includes “any hazard arising during a war in which the United States is engaged . . . from . . . (5) the operation of vessels or aircraft in a zone of hostilities or engaged in war activities.”  See 42 U.S.C. § 1711(b).  The operation of an aircraft involves (at least) take off, flight, and landing procedures.  Whether the aircraft in the hypothetical presented above had landed or hovered above the ground is immaterial.  The engine of the helicopter was not turned off and the rotary wings were moving just enough to not create any lift on the helicopter, which remained in operation during this “landing” procedure.  Further, this “landing” procedure occurred at Abu Ghraib prison which was located in a zone of hostility.  Because all the criteria of 42 U.S.C. § 1711(b)(5) were satisfied, the employer and carrier were entitled to reimbursement of the benefits paid for the injured worker’s Defense Base Act claim.