NASA Issues Final Rule Clarifying A Contractor’s Resonsibility to Obtain and Maintain Longshore and Defense Base Act Insurance

The Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) recently issued a Final Rule discussing a contractor’s responsibility to maintain Longshore and Defense Base Act coverage.  This link will take you to a PDF of the Final Rule, which is reprinted below:

Summary:

DoD, GSA, and NASA are issuing a final rule amending the Federal Acquisition Regulation (FAR) to clarify contractor and subcontractor responsibilities to obtain workers’ compensation insurance or to qualify as a self-insurer, and other requirements, under the terms of the Longshore and Harbor Workers’ Compensation Act (LHWCA) as extended by the Defense Base Act (DBA).

DATES:

Effective: July 1, 2014.

FOR FURTHER INFORMATION CONTACT:

Mr. Edward N. Chambers, Procurement Analyst, at 202-501-3221 for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat at 202-501-4755. Please cite FAC 2005-74, FAR Case 2012-016.

SUPPLEMENTARY INFORMATION:

I. Background

DoD, GSA, and NASA published a proposed rule in the Federal Register at 78 FR 17176 on March 20, 2013, to make the necessary regulatory revisions to revise the FAR to clarify contractor and subcontractor responsibilities to obtain workers’ compensation insurance or to qualify as a self-insurer, and other requirements, under the terms of the LHWCA, 33 U.S.C. 901, et seq., as extended by the DBA, 42 U.S.C. 1651, et seq. Three respondents submitted comments on the proposed rule.

II. Discussion and Analysis

The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows:

A. Summary of Significant Changes

This final rule includes one change to align the FAR with Department of Labor’s (DOL) regulations and implementation of section 30(a) of the LHWCA. This change involves deleting proposed paragraph (b) of FAR clause 52.228-3, which stated that the actions set forth under paragraphs (a)(2) through (a)(8) may be performed by the contractor’s agent or insurance carrier. The DOL’s regulations place the responsibility for reporting injuries on the employer, see 20 CFR 703.115. The removal of proposed FAR 52.228-3 paragraph (b) also promotes consistency with the statutory requirements.

B. Analysis of Public Comments

1. Support of the Proposed Rule

Comment: Two respondents expressed support for the rule.

Response: The public’s support for this rule is acknowledged.

2. Clarify Term “Days”

Comment: One respondent recommends that the ten-day reporting period within the report of injury requirements set forth in proposed FAR 52.228-3 paragraph (a)(2) should be revised to read “ten business days.” The respondent asserts this modification will clarify the reporting period.

Response: The intent of this rule is to alert contractors to their obligations under the LHWCA, rather than to alter those obligations. The respondent’s suggested revisions could result in altering a contractor’s obligations and therefore are beyond the scope of the FAR rule. The DOL’s regulation interprets the ten-day injury reporting period set forth in LHWCA section 30(a), 33 U.S.C. 930(a), as ten calendar days. See 20 CFR 702.201(a) (using unqualified term “days” to describe reporting period). Thus, adding “business” days would alter the intent of the law.

3. Inclusion of “Work-Related” Terminology

Comment: The respondent states that the terms injury and death should be modified by adding the phrase “work-related” before both. The respondent asserts that this modification will serve to clarify a contractor’s obligation.

Response: The Councils do not recommend adding the phrase “work-related” to the terms “injury” and “death.” The added phrase is not necessary as the LHWCA defines an injury in 33 U.S.C. 902(2) and the concept of work-relatedness is subsumed in the term “injury.” Moreover, the question whether a particular injury is work-related is often a difficult issue to resolve, and a contractor may not be able to decide whether a particular injury arose out of and in the course of employment within the meaning of the statute. By leaving the terms “injury” and “death” unqualified, contractors will be encouraged to err on the side of reporting any incident that may be work-related.

4. Inclusion of “Actual” Terminology

Comment: One respondent suggests that the provision should specify that the contractor’s “actual/constructive” knowledge of the injury triggers the reporting period. The respondent recommends this revision to further clarify a contractor’s obligation.

Response: DOL’s governing rules use the unqualified term “knowledge of an employee’s injury or death” when describing the event that triggers the reporting period. This FAR rule simply tracks that language.

5. Conflicts With Current Practice

Comment: One respondent states that FAR 52.228-3 paragraph (b), which allows the contractor’s agent or insurance carrier to submit the first report of injury referenced in paragraph (a)(2), is inconsistent with section 30(a) of the LHWCA, 33 U.S.C. 930(a), as extended by the DBA, and the DOL’s current practice. The respondent argues that it is inappropriate to redefine this statutory provision through a FAR clause. The respondent recommends the proposed paragraph (b) should be amended to conform to current practice both under the DBA and LHWCA.

Response: The Councils concur with the respondent. The intent of this FAR rule is to clarify and inform contractors of their obligations under the DBA and the DOL’s regulations, not to alter those requirements. Section 30(a) of the LHWCA, as implemented by the DOL’s regulations, places the responsibility for reporting injuries on the employer. See 20 CFR 703.115. Accordingly, the Councils are removing the proposed FAR 52.228-3 paragraph (b) to promote consistency with the statutes referenced above.

6. Contractors Should Provide Insurance

Comment: One respondent states that the contractors should have sufficient insurance to be able to pay compensation if an employee is injured.

Response: The Councils concur that the views of this respondent are in accord with the intent of the law, this FAR rule, and the existing FAR clause 52.228-3.

III. Executive Orders 12866 and 13563

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

IV. Regulatory Flexibility Act

DoD, GSA, and NASA have prepared a Final Regulatory Flexibility Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:

DoD, GSA, and NASA do not expect this rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because this rule merely clarifies the existing prescriptions and clauses relating to contractor and subcontractor responsibilities to obtain workers’ compensation insurance or to qualify as a self-insurer, and other requirements, under the terms of the LHWCA as extended by the DBA, and implemented in DOL Regulations. No comments from small entities were submitted in reference to the Regulatory Flexibility Act request under the proposed rule.

The rule imposes no reporting, recordkeeping, or other information collection requirements. The rule does not duplicate, overlap, or conflict with any other Federal rules, and there are no known significant alternatives to the rule.

Interested parties may obtain a copy of the FRFA from the Regulatory Secretariat. The FAR Secretariat has submitted a copy of the FRFA to the Chief Counsel for Advocacy of the Small Business Administration.

What Happens if a Longshore Attorney Accepts Fees Without Receiving Prior Approval?

An award of attorney fees for Longshore and Harbor Workers’ Compensation Act (“Longshore Act”) and Defense Base Act claims must adhere to specific statutory requirements.  Section 28 of the Longshore Act controls.  In many cases, an injured worker’s employer or carrier pay attorney fees, provided that claimant is entitled to shift fees.  In a handful of cases, an attorney may ask the claimant to pay fees.  But, in all cases the attorney fees must be pre-approved by an appropriate agency or court before the attorney can actually accept the fees.  The statutory basis for the pre-approval requirement is found at Section 28(e), which states:

A person who receives a fee, gratuity, or other consideration, on account of services rendered as a representative of a claimant, unless the consideration is approved by the deputy commissioner, administrative law judge, Board, or court . . . shall, upon conviction thereof, for each offense be punished by a fine of not more than $1,000 or be imprisoned for not more than one year, or both.

See 33 U.S.C. § 928(e) (1984).

In other words, the Longshore Act makes it a crime to accept attorney fees without prior approval from the Division of Longshore and Harbor Workers’ Compensation (“DLHWC”), the judge, the Benefits Review Board, or the reviewing federal court.  Id.; see also Hensley v. Washington Metro. Area Transit Auth., 690 F.2d 1054 (D.C. Cir. 1982) (“Attorneys who receive unapproved fees are subject to criminal penalties.”).

Criminal penalties are not the only sanction for accepting unapproved fees.  The Secretary of Labor may also disqualify the attorney from representing Longshore or Defense Base Act claimants.  An attorney whose name is published on the Secretary’s list of disqualified individuals “shall not have their representation fee approved . . . .”  See 20 C.F.R. § 702.131 (2014).

Further, accepting attorney fees without the appropriate approval can land the attorney in hot water with their bar association. Attorneys are subject to Rules of Professional Conduct.  All state bar associations consider it professional misconduct for an attorney to commit a criminal act that adversely reflects on the attorney’s honesty, trustworthiness or fitness as a lawyer.  Consequently, if the attorney accepts a fee without first receiving the appropriate approval, they may face bar sanctions in addition to criminal charges and Longshore representation disqualification.

That is exactly what happened in Attorney Grievance Comm’n of Maryland v. Eisenstein, 635 A.2d 1327 (Md. 1994).  There, the Court of Appeals of Maryland thoroughly dissected Section 28(e) and determined that accepting fees without prior approval constituted “criminal conduct” for purposes of the Rules of Professional Conduct.  The court suspended the offending attorney from the practice of law for two years.

In conclusion, stiff penalties await an attorney who accepts fees without first seeking the appropriate approval from the DLHWC, administrative law judge, Benefits Review Board, or federal court.  The attorney may face imprisonment, disqualification, and bar sanctions.

OSHA’s Proposed Electronic Recordkeeping Proposal

In November, 2013 the Occupational Safety Health Administration issued a proposed rule to improve workplace safety and health through improved tracking of workplace injuries and illnesses.  The announcement followed the Bureau of Labor Statistics’ release of its annual Occupational Injuries and Illnesses report, which estimates that three million workers were injured on the job in 2012.  The proposal is currently under review by the public.  Public comments were recently taken.

“Three million injuries are three million too many,” said Assistant Secretary of Labor for Occupational Safety and Health Dr. David Michaels.  “With the changes being proposed in this rule, employers, employees, the government and researchers will have better access to data that will encourage earlier abatement of hazards and result in improved programs to reduce workplace hazards and prevent injuries, illnesses and fatalities.  The proposal does not add any new requirement to keep records; it only modifies an employer’s obligation to transmit these records to OSHA.”

As stated by OSHA, the proposed rule was developed following a series of stakeholder meetings in 2010 to help OSHA gather information about electronic submission of establishment-specific injury and illness data.  OSHA is proposing to amend its current record-keeping regulations to add requirements for the electronic submission of injury and illness information employers are already required to keep under existing standards, Part 1904.  The first proposed new requirement is for establishments with more than 250 employees (and who are already required to keep records) to electronically submit the records on a quarterly basis to OSHA.

OSHA is also proposing that establishments with 20 or more employees, in certain industries with high injury and illness rates, be required to submit electronically only their summary of work-related injuries and illnesses to OSHA once a year.  Currently, many such firms report this information to OSHA under OSHA’s Data Initiative (ODI).

OSHA plans to eventually post the data online, as encouraged by President Obama’s Open Government Initiative.  Timely, establishment-specific injury and illness data will help OSHA target its compliance assistance and enforcement resources more effectively by identifying workplaces where workers are at greater risk, and enable employers to compare their injury rates with others in the same industry.  Additional information on the proposed rule can be found at https://www.osha.gov/pls/oshaweb/owadisp.show_document?p_table=FEDERAL_REGISTER&p_id=24002 and www.osha.gov/recordkeeping/proposed_data_form.html.

Under current OSHA regulations, construction industry employers with more than ten employees must record work-related injuries and illnesses using specific OSHA forms.  These employers are required to keep an injury and illness log and post a summary of work-related injuries and illnesses in the workplace for all employees to review (former employees also have the right to access these records upon request).  Currently, OSHA only collects this information if a facility is inspected, or a workplace is part of the OSHA Data Initiative.  In these instances, OSHA accepts the documents electronically or in paper format.

OSHA’s proposal would alter current practice by making submission of these forms mandatory and exclusively electronic for most employers, regardless of whether they have been inspected.  The agency intends for the first time to make this information publicly available on the internet through a new, searchable online database.  OSHA has indicated it will also for the first time use the data for enforcement purposes.

At first glance, this proposal appears to be of little consequence as it only requires reporting of data electronically.  However, OSHA’s plan to make this data available online has garnered considerable response, favorable, but mostly unfavorable.  For instance, Associated Builders & Contractors, Inc., a national trade association, opposed the proposal for a number of reasons.  It fears that OSHA’s announced intention to collect and publicize confidential business information—including but not limited to employer-, location-, and incident-specific injury and illness data—will lead to misuse and abuse by the agency itself, and by those outside the agency (including labor unions, competitors, plaintiff’s attorneys, etc.);  the injury and illness data that OSHA is planning to post on the internet is an unreliable measure of any individual employer’s safety record;  OSHA’s proposed database will likely be misused by those aiming to threaten or disrupt the security and overall operations of merit shop employers, resulting in improper assumptions and conclusions;  OSHA’s proposed rule does nothing to achieve the agency’s stated goal of reducing injuries, illnesses and fatalities; OSHA’s proposal reverses the agency’s commitment to a “no-fault” recordkeeping system; and once recordkeeping data is used against employers (by the agency or other entities), many companies will rethink how (and to what extent) injuries and illnesses should be recorded.  Even if employers are fully compliant with OSHA’s recordkeeping and reporting requirements, the agency’s proposal could lead to widespread underreporting of injuries and illnesses.

On the other hand, the American Industrial Hygiene Association President Barbara J. Dawson, CIH, CSP, released a statement supporting the proposal: “While much depends on the details of the proposed rule, AIHA supports OSHA’s efforts to protect workers by making employee injury and illness records public, as this will more effectively prevent workplace accidents and illnesses.  The proposal will increase the focus of senior managers on injury and illness data and encourage employers to do the right thing for their workers.  We will closely review the proposed rule and seek input from our members and other stakeholders as we put together formal comments on the proposal.”

However, my research appears to show that more oppose the proposal.  Sheena Harrison, writing for Business Insurance (www.businessinsurance.com/article/20140706) noted, “While OSHA thinks the reporting requirement would improve corporate safety information tracking, groups such as the American Society of Safety Engineers, the Risk & Insurance Management Society Inc. and the U.S. Chamber of Commerce say they want OSHA to scrap the proposal—or at least eliminate the plan to post employer safety data online.

“‘This isn’t about trying to abrogate requirements by OSHA or anyone else,’ said Richard Rabs, chairman of RIMS’ external affairs committee.  ‘This is really just saying when you’re going to put information out there in the public domain, we need to make sure that everyone’s playing with the same rules and everyone interprets things the same way.’”

The most prevalent concern is the public access to such data.  As noted by Ms. Harrison, “RIMS, the U.S. Chamber and ASSE submitted comments to OSHA earlier this year requesting that the agency withdraw or revise the rule.  They cited concerns over potential underreporting of injuries and illnesses; the possibility that OSHA, unions or other groups could target companies based on their public safety data; and worries that the new reporting standard would increase costs for employers.

“In particular, Des Plaines, Illinois-based ASSE is concerned that requiring companies to submit public data to OSHA will cause many firms to focus only on OSHA compliance rather than being proactive in trying to reduce workplace safety hazards, said Dave Heidorn, ASSE’s manager of government affairs and policy.  While companies with strong safety programs probably would report accurate injury and illness data to OSHA, Mr. Heidorn said companies with weak safety track records likely would underreport accidents to avoid appearing unsafe.  ‘It’s going to incentivize not reporting, which is not good safety at all,’ Mr. Heidorn said.

“Marc Freedman, executive director of labor policy at the U.S. Chamber of Commerce in Washington, said OSHA’s proposal would make companies susceptible to harassment by unions and ‘activist groups.’  In comments to OSHA, the chamber argued that OSHA’s rule would lead to ‘unjustified shaming of employers’ rather than increased safety.

“‘We see it as putting out information that doesn’t accurately reflect the employers’ safety program and safety record,’ Mr. Freedman said.

“Experts say they think much of the opposition to OSHA’s proposed rule would lessen if the agency agreed to remove the portion that would make safety data publicly available online.

“RIMS noted that making OSHA data public would fail to include how accidents occurred or who was at fault.  For example, a fatal vehicle accident involving workers from two companies would be reported as a fatality for both companies, no matter which one was at fault, it said.  ‘Your record may not really reflect your safety standard,’ said Mr.  Rabs, who also is vice president of insurance and risk management at Veolia Environment North Carolina in Chicago.”

OSHA has responded stating that it will take into consideration these concerns as it works preparation of the final rule.

Fifth Circuit Addresses Bailment and Eroding Policy Limits After Vessel Sank

 National Liability & Fire Ins. Co. v. R&R Marine, Inc., — F.3d —- (5th Cir. 2014):

This case arises after the sinking, and subsequent salvage, of a vessel owned by Hornbeck Offshore Services. Hornbeck Offshore owned the M/V Erie Service, which was in need of repairs.  Hornbeck entered into a Shipyard Repair and Drydock Agreement with R&R Marine for the repair and refit of two of Hornbeck’s vessels, one being the M/V Erie Service, at R&R Marine’s shipyard.  Per this Agreement, Hornbeck retained access to its vessel and reserved its authority over the vessel with the use of two on-site managers.  Despite Hornbeck’s oversight, it was undisputed that the Erie Service was in the custody of R&R Marine upon delivery.

On September 12, 2007, the National Weather Hurricane Center issued a tropical storm warning which included an area in which R&R Marine’s shipyard was located.  R&R Marine ensured Hornbeck pumps were available should water entry become an issue.  R&R Marine also ensured Hornbeck the shipyard docks were monitored “around the clock.”  However, in anticipation of the weather advisory, R&R personnel evacuated the shipyard and failed to take any precautions, apparently underestimating the severity of the storm.  The following morning, the M/V Erie Service sank.

Hornbeck entered into a time-and-materials salvage bid which totaled $627,324.64.  Hornbeck and R&R Marine demanded National, R&R Marine’s insurer, pay the salvage costs directly.

National sought a declaratory judgment that it was not required to pay the salvage cost.  Hornbeck counterclaimed asserting National’s policy required them to pay for damage to the M/V Erie Service since it was in the custody of R&R Marine, its insured, at the time of loss.  Hornbeck filed a cross-claim asserting R&R Marine’s negligence proximately caused the sinking of the M/V Erie Service.

The district court held R&R Marine was negligent in failing to secure the M/V Erie and that National was required to pay Hornbeck salvage costs, and interest and attorney’s fees associated with said costs.  Both National and R&R appealed.

The Fifth Circuit concluded the district court did not clearly err in finding R&R Marine to be negligent.  Hornbeck had established a prima facie case of negligence, as the M/V Erie Service was delivered to R&R Marine afloat and R&R Marine had full custody of the vessel.  The Court did not agree with R&R Marine that only a limited bailment was created due to the presence of Hornbeck’s on-site managers; to the contrary, the Court determined the district court was not clearly erroneous in finding that neither the presence nor authority of Hornbeck’s personnel affected R&R Marine’s exclusive control and full custody.

R&R Marine next argued Hornbeck was unreasonable in choosing a time-and-materials salvage contract, as opposed to a less expensive, “no cure, no pay” agreement.  Again, the Court determined the district court’s determination of Hornbeck’s reasonableness was not clearly erroneous and therefore upheld its determination.

The district court determined National was liable for the salvage costs associated with the sinking of the M/V Erie Service, as provided by its policy with R&R Marine.  National argued Hornbeck lacked standing as a third-party claimant to bring its counterclaim.  The Court of Appeals, reviewing the district court’s decision de novo, looked to Texas law to determine the parties’ substantive rights.  The Court engaged in an analysis of procedural law application and determined Hornbeck had standing to assert its counterclaim but agreed with National that the district court erred in the total amount of damages awarded in excess of National’s policy limits.  Accordingly, the award to Hornbeck was reduced to $1,000,000.00 plus reasonable attorney’s fees.