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Marine & Energy News Alert: Fifth Circuit Ruling on LHWCA Insurer's Ability to Recover Payments from Jones Act Settlement

March 13, 2014

The United States Court of Appeals for the Fifth Circuit recently ruled on the issue of whether an insurer who makes voluntary payments under the Longshore and Harbor Workers Compensation Act (LHWCA) to an injured employee on behalf of the employer is entitled to recover these payments from the employee’s settlement of a Jones Act claim against the employer based on the same injuries for which the insurer has already compensated him.

The case came to the Fifth Circuit on appeal of a decision from the U.S.D.C. for the Northern District of Mississippi.

Gary Chenevert was employed by GC Constructors when he was inured as a result of a fall while working as a crane operator on a deck barge. GC’s insurer, Travelers, voluntarily paid Chenevert $277,728.72 in indemnity and medical benefits under the LHWCA. Subsequently, Chenevert filed suit in the District Court against GC alleging seaman status and seeking damages under the Jones Act. As a result, Travelers' stopped the LHWCA payments and filed a motion to intervene in the Jones Act suit. Chenevert and GC eventually agreed upon a settlement of $1,750,000 and requested that the amount paid by Travelers ($277,728.72) be held in the Court’s registry pending the motion to intervene. The District Court denied Travelers' motion to intervene holding that they had no right to subrogation as to the settlement proceeds, and therefore, no interest in the property. The Court also found that Travelers' interest had been adequately represented by GC.

On appeal, the Fifth Circuit held that an insurer acquires a subrogation right on an employee’s Jones Act recovery for the amount of the LHWCA benefits paid, and reversed and remand for purposes of distributing the disputed funds to the insurer.

In reaching its decision, the Fifth Circuit noted precedent giving an employer who paid compensation benefits a subrogation lien to be reimbursed from the worker’s net recovery from a third-party tortfeasor (Peters v. North River Ins. Co., 764 F.2d 306, 312 (5th Cir. 1985). Going further, the Fifth Circuit recognized that the same principle applies when the employer wears two hats as employer and as vessel owner in a 905(b) case (Taylor v. Bunge Corp., 845 F.2d 1323, 1324 (5th Cir. 1988). The Court then analyzed whether the principles of Peters and Taylor are applicable in the context of a Jones Act settlement.

Finding that the insurer enjoys the same right to subrogation, the Court stated that: “We perceive no sound reason why an insurer’s right of reimbursement against a Jones Act recovery should be different from its right of reimbursement against a 905(b) recovery. A worker who recovers against a third party under 905(b) is necessarily covered by the LHWCA and therefore entitled to compensation benefits; nevertheless, the worker must still use the proceeds of the recovery to repay the employer or insurer for the benefits. On the other hand, a worker who succeeds in a Jones Act claim is necessarily a seaman, and therefore not entitled to LHWCA benefits. It would be particularly unfair to deny the insurer the right to recover the benefits it has paid in such a situation.”

The case is Chenevert v. Travelers Indemnity Company, No. 13-60119.  Click to view the decision