B.S. Costello, Inc. v. Meagher

• Decision Date: 05 October 1988
• Docket Number: Nos. 88-1395,88-1557,s. 88-1395
• Citation: 867 F.2d 722
• Parties: B.S. COSTELLO, INC., Petitioner, v. Raymond MEAGHER and Director, Office of Workers' Compensation Programs, United States Department of Labor, Respondents. Doris KEOUGH, Plaintiff, Appellee, v. B.S. COSTELLO, INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 722

867 F.2d 722

57 USLW 2504

B.S. COSTELLO, INC., Petitioner, v. Raymond MEAGHER and Director, Office of Workers'

Compensation Programs, United States Department of

Labor, Respondents.

Doris KEOUGH, Plaintiff, Appellee, v. B.S. COSTELLO, INC., Defendant, Appellant.

Nos. 88-1395, 88-1557.

United States Court of Appeals First Circuit.

Heard Oct. 5, 1988.

Decided Feb. 17, 1989.

Richard N. Curtin with whom Andre A. Sansoucy and Parker, Coulter, Daley & White, Boston, Mass., were on briefs, for B.S. Costello, Inc.

Christopher N. Hug with whom Latti Associates, Boston, Mass., was on briefs, for Raymond Meagher and Doris Keough.

Marianne Demetral Smith with whom George R. Salem, Sol. of Labor, Randel K. Johnson, Acting Associate Sol. and J. Michael O'Neill, Washington, D.C., Counsel for Longshore, were on briefs, for Director, Office of Workers' Compensation Programs.

Before CAMPBELL, Chief Judge, BROWN, ^* Senior Circuit Judge, and COFFIN, Circuit Judge.

LEVIN H. CAMPBELL, Chief Judge.

These two cases, here consolidated, raise the question of an employer's own liability for employee disability payments which an insurer cannot meet under the Longshore and Harbor Workers' Compensation Act ("LHWCA"), 33 U.S.C. Secs. 901-950 (1982 & Supp. III 1985 & Supp. IV 1986). B.S. Costello, Inc. ("Costello"), an employer subject to the LHWCA, challenges orders that, because of the insolvency of its two workers' compensation insurers during the times at issue here, it must now assume the burden of making periodic disability payments due to an injured former employee and the family of a deceased employee. It was held below that the employer was liable under the LHWCA for the compensation required by the Act, and we affirm.

I. THE LONGSHORE AND HARBOR WORKERS' COMPENSATION ACT

Before turning to the specific facts of these cases we discuss the relevant statute. The LHWCA provides land-based maritime employees with a workers' compensation scheme similar to that provided by many states for non-maritime workers. See Longmire v. Sea Drilling Corp., 610 F.2d 1342, 1349 (5th Cir.1980). The Act establishes benefits to workers without regard to the employer's fault, but, at the same time, it eliminates common law tort liability and limits the employer's liability to predictable amounts. Congress's purpose in removing workers' benefits claims from common law litigation was to afford expeditious relief to injured workers while distributing their economic losses on to industry and the consuming public. United States v. Bender Welding & Machine Co., 558 F.2d 761, 763-64 (5th Cir.1977).

While structured so that an employer's liability typically will be underwritten by an insurance carrier selected by the employer, the LHWCA provides unequivocally that "every employer shall be liable for" payment of the benefits owed to his employees. Thus section 904(a) provides,

(a) Every employer shall be liable for and shall secure the payment to his employees of the compensation payable under [certain sections] of this title.

33 U.S.C. Sec. 904(a) (Supp. IV 1986). Except as an employer fails to "secure" payment of compensation as section 904 requires, the LHWCA limits employer liability for death or injury to the compensation payable under the Act's terms. ¹ An employer may "secure" payment to his employees by either insuring payment with an approved workers' compensation insurer, 33 U.S.C. Sec. 932(a) (Supp. IV 1986), or by satisfying the Secretary of Labor of the employer's own ability to pay any compensation which may potentially be due. 33 U.S.C. Sec. 932(b) (Supp. IV 1986). The requirement to "secure" compensation ensures that employers who fail to qualify as self-insurers will enlist the resources of an insurance carrier, so as to make augmented provision for the payment of any benefits which may be the employer's responsibility. H.R.Rep. No. 570, 98th Cong., 2d Sess. 19, reprinted in 1984 U.S.Code Cong. & Admin.News 2734, 2752. Since employees' claims will thus commonly be handled by an insurance carrier, the LHWCA facilitates claim administration by allowing the Secretary of Labor to substitute the carrier for the employer for purposes of administrative proceedings and orders. ² The legislative history indicates, however, that notwithstanding the important role carved out for insurance carriers, Congress had no intention of releasing employers from the basic liability clearly stated in section 904, supra. Id. Rather, the carriers were to be an additional but not the sole source of payment for injured workers and their families. See infra.

The LHWCA also established a Special Fund, administered by the Secretary of Labor. The fund is maintained by assessments on employers and insurers who participate in the LHWCA's compensation scheme, amounts collected as fines and penalties under the Act, and death benefit payments by employers where the employee had no survivors. 33 U.S.C. Sec. 944(c) (1982 & Supp. IV 1986). The fund provides certain benefits to employees that otherwise are unavailable from employers. Primarily, the fund pays compensation for "second injuries," where it would be unfair to require the employer to absorb the entire cost of a disability which ensued from a previous injury combined with a work-related injury. See 33 U.S.C. Sec. 908(f) (Supp. IV 1986). The Secretary also uses the Special Fund to provide workers with information and legal assistance regarding their rights under the Act. 33 U.S.C. Sec. 939(c)(1) (1982 & Supp. III 1985); id. at Sec. 944 (Supp. IV 1986).

The LHWCA also permits the Secretary, in her discretion, to use the Special Fund if an employer's insolvency or other circumstances preclude payment of compensation due an employee. 33 U.S.C. Sec. 918 (1982 & Supp. IV 1986). This relief is available only to employees who first have obtained a federal district court judgment compelling an employer to comply with a compensation order. Further, the LHWCA authorizes the Secretary to award such payment only if money remains after she has paid all the fund's current commitments. Id. at Sec. 918(b). Even if the Secretary opts to grant an employee relief, the employer remains liable to the Special Fund for the amount paid to the employee. Id.

II. THE CASES BELOW

The employer in these cases, B.S. Costello, Inc., provides administrative and supervisory stevedoring services to the Massachusetts Port Authority at the Moran Terminal in Charlestown, Massachusetts. Although Costello is a small business concern, having approximately seven employees, the nature of Costello's business subjects it to the LHWCA's provisions. At all times relevant, Costello provided workers' compensation insurance for its employees.

Claimant in the first of these two cases is Doris Keough, the widow of Leonard Keough, a Costello employee who died as the result of an injury sustained while in Costello's employ. At the time of Keough's death, Midland Insurance Company ("Midland") provided insurance for Costello employees. In 1981, an administrative law judge ("ALJ") ordered Midland to provide benefits to Keough in accordance with the LHWCA. Midland made monthly payments until 1986, when a New York court ordered it into liquidation. Keough brought an action against Costello to enforce the ALJ's order in the United States District Court for the District of Massachusetts. ³ The district court granted summary judgment to Keough. Costello appeals pursuant to 28 U.S.C. Sec. 1291 (1982).

The second case involves a petition to review a decision of the Benefits Review Board ("BRB"), which heard Costello's appeal from the order of an administrative law judge. Raymond Meagher suffered an injury on March 5, 1984, while working for Costello. Costello's insurance carrier at that time, Transit Casualty Company ("Transit"), voluntarily paid disability benefits to Meagher until November 1985. Soon thereafter, a Missouri court adjudged Transit insolvent. Upon Transit's insolvency, an ALJ ordered Costello to provide disability compensation to Meagher. Costello appealed from the ALJ's order to the BRB, which affirmed the ALJ's decision in all respects. In this court, Costello petitions for review of the BRB's affirmance of the ALJ's order.

III. COSTELLO'S LIABILITY UNDER THE LHWCA

A. Employers' Liability under the Act

In spite of having insured against its employees' compensation claims as the LHWCA requires, Costello now finds itself faced with paying those claims from its own pockets because of its insurers' insolvency. We do not minimize Costello's predicament, especially in light of its small size and limited resources. The seeming injustice has inspired Costello to urge upon us a "non-literal" interpretation of the LHWCA's provisions, ⁴ namely, that an employer fully discharges its statutory liability once it has secured insurance. Costello asks us to view the statute as meaning to provide for employees by distributing the risk of injuries across the land-based maritime industry, not by bankrupting individual employers. Costello urges that a comprehensive insurance scheme is the best method for spreading costs over the industry, because employers can predict insurance costs and recoup them from customers. Insurance companies, not employers, have the resources to anticipate the actual costs of injuries, and can adjust their rates accordingly. The LHWCA, Costello argues, contemplates a network of insurance companies liable for injuries. In Costello's vision for the LHWCA, employers who choose to take advantage of the network would be liable only for providing insurance.

Costello finds support for its position in the LHWCA provisions which refer, often indirectly, to insurance. Section 904, for example, requires employers to secure insurance. Section 905 limits employer liability only for those employers who satisfy this obligation to secure insurance. Section 935 substitutes insurance companies for employers where an insurance policy covers an...