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Senator MORSE. This shows the increase in recovery. It flashes through my mind that your figures may simply show a tendency to give larger recoveries in accident cases in the maritime industry and that this differs from what might be the same tendency in automobile cases.
Mr. SCANLAN. I think this, Senator Morse, that what is happening here is this: That what these figures show, and these are the Government figures, is that now, today, with the right of the longshoremen to bring an action against the shipowner, instead of relying on his compensation benefits, that it shows that there are more of these cases that are happening today than happened 5 or 10 years ago, and that these costs are adding to the costs of the industry.
What these figures show is that the as I will point out later on in my statement—what this means in terms of the insurance cost to the industry.
I think we have to relate these figures to the insurance costs that are paid by the employers to take care of the compensation benefits, and I will follow that up in another minute or so, and tie that together.
These Government figures also show that there has been a steady decline in injury frequency rates. For example, the national injury frequency rate in 1960 was 131.8 while in 1964 it was reduced to 96.8. This refers to the average number of disabling work injuries for each million employee-hours worked.
Nevertheless, the cost of providing compensation and legal liability insurance has skyrocketed, and at this point, Senator Morse, I will try to tie in this question that you have raised.
According to testimony before the congressional committee considering the Bonner bill, in 1946 when the Sieracki case was decided, the standard rate for workmen's compensation insurance in New York was $8.53 per $100 of payroll. This resulted in a premium of $0.14 per man hour. In 1961, the rate was $19.30 per $100 of payroll—or a premium of $0.57 per man hour, and now I would like to discuss this and tie this into this whole question of compensation, and cost to the employers.
In Philadelphia, the basic rate for longshoremen's workmen's compensation and liability insurance-Coverage A and B under the standard policy, was $4.50 per $100 payroll in 1946. In 1958, the rate was increased to $7 and in 1959 to $8.15. I have listed the other rates from 1960 to 1965, and as you will see, in 1965, this rate was increased to $25.65.
I would like to point out, Senator Morse, that the above figures, for example, that figure of $25.65, in 1965, for $100 of payroll, that is just the basic rate, and most of this insurance is sold on a retrospective rating basis, the experience of the companies examined for the past 3 to 5 years and, depending upon that experience, the basic rate is either increased or decreased.
I am advised that based on such an experience rating, the actual rate in Philadelphia from 1965 to the present time has averaged around $30 for $100 of payroll. Outside of direct labor costs, this is the single most sensitive item of doing business. This tremendous cost must be included in the stevedoring rates which are paid by shipowners. It results in any unwarranted economic burden upon the entire maritime industry.
No claim is made that all of these increases were solely attributable to the third-party cases, but these cases, according to informed judgment, constituted a substantial factor in the increases.
Now, at this point, Senator Morse, I would like to go back to that question that you raised, and say this: That I think the reason why the Government figures show that there has been such an increase in the cost of compensation, whereas there has been decrease in the number of injuries, is for two reasons: One, that the liability has been so greatly expanded, here, under the cases that I have referred to, and th:en the longshoremen are recovering very substantial verdicts in many of these cases, so I think that those two items are very important, and they tie this in together, but there has been, in this industry, this great expansion of liability, which we feel was never contemplated when the act was enacted.
Senator MORSE. I am not qualified to pass judgment on this. I think what I am doing is being pretty close to the curbstone, which you and I never should do, as lawyers. Is there some basis for having the suspicion that it is difficult to compare the longshore cases with the automobile cases, because the rule of proximate cause is somewhat different between the two, due to the legislative factors in one, and different legislative factors in the other? Mr. SCANLAN. I would think that that would be so, Senator; yes.
Now, as to the total cost of these third-party cases, it is very difficult at this time to try to come up with any analysis, but I merely call your attention to according to testimony that is in the hearings in connection with the Bonner bill that there were estimates that range from a low of $10 million to a high of $10 million per year, as to these thirdparty cases. I would also like to call to your attention that in the 16year period from 1946 when Sieracki was decided to 1962, 45 American steamship companies had ceased to operate, or were in the process of withdrawal or liquidation.
In addition, intercoastal shipping had declined from 123 ships operated by 12 companies to 12 ships operated by two companies. This is the sad state of economic affairs in the maritime industry today.
Now let us consider what benefits the employees covered by this act have derived from these third-party cases. Voluminous testimony was presented in connection with the Bonner bill, H.R. 207 in 1961, pointing out that in many cases the employees covered by the act were better off financially accepting the benefits under the act.
I would like to cite one case, which I handled personally, which illustrates this point. In this case, a longshoreman was working in the lower hold of a vessel loading steel beams when he sustained a serious injury to his back. It was contended that this injury triggered a dormant psychiatric problem. An operation was performed on his back in addition to which he underwent extensive psychiatric treatment. As a result of both conditions, there was no doubt that he was permanently disabled. He was receiving compensation benefits at the rate of $54 per week which he was entitled to for the balance of his life because of his permanent disability in addition to the necessary medical expenses.
However, he instituted a third-party case against the shipowner and the shipowner impleaded the stevedore for indemnity. The case was finally settled for $136,971.94. I understand that his attorney took a legal fee of approximately $50,000, leaving a balance of $86,971. The subrogation lien covering compensation benefits and medical expenses amounted to $37,079, so that when this was deducted, there remained $19,892. However, of that amount, $20,000 was set aside to cover future medical expenses, particularly for providing psychiatric treatment, thereby leaving a net amount of $29,892 to the employee involved.
At the time of this settlement, he was 49 years old and had a life expectancy of 16 to 20 years. If he had remained on compensation for the balance of his life expectancy, he would have received $56,160 for compensation benefits alone which would have been in excess of $6,000 over and above what he received by way of his third-party case.
In addition, he also would have received payment for future medical expenses which in this case would have been substantial. Undoubtedly, there are many other cases similar to this one which demonstrates that an employee's best interests would best be served under the Compensation Act rather than by third-party cases. These cases only add an unnecessary cost to the industry by pyramiding legal costs and expenses in addition to the overall costs to the national economy which must pay for the court costs for trials and appeals.
If employees go back on compensation, as they are permitted to do, after they have used up their proceeds of their third-party cases, all that has been accomplished by such cases is a shocking waste of money to the entire industry in addition to the waste of the court's time and expenses and the only beneficiaries are the plaintiffs attorneys and the attorneys who represent the ship and the stevedore who collects their counsel fees. On the other hand, if employees receive a third-party award in excess of compensation benefits, they are placed in a preferred position over all other industrial workers for which the maritime industry must pay the exorbitant costs involved.
Now we come to the point of what can be done to correct this situation. It is crystal clear that if something is not done soon, there are going to be many companies who are going to be driven out of business or into bankruptcy. When insurance costs amount to 30 percent of a company's payrolì, it is elementary that something is radically wrong and that corrective action is mandatory.
As you know, the industry has tried to obtain some rel through remedial legislation—the most notable of which was the Bonner bill, H.R. 207 in 1961. This act would have eliminated the longshoremen's right to recover against the ship on the basis of unseaworthiness. However, that bill was never enacted.
In my opinion, the Bonner bill did not go far enough in attempting to solve this problem. It did not eliminate the longshoremen's right to bring an action against the ship based on negligence and, consequently, would not have abolished the third-party cases as some people erroneously thought it would. While it is more difficult to recover under an action based on negligence than on unseaworthiness, nevertheless, recovery is possible and because of the myriad decisions which have been handed down since Sieracki and Ryan covering "unsafe” conditions based on negligence as opposed to "unsea worthy" conditions (without fault) it would appear that the whole concept of admiralty negligence has been greatly expanded.
Consequently, in order to correct this problem and alleviate the serious financial burden imposed upon the entire maritime industry, it is our opinion that all third-party actions against the shipowner should be abolished. This approach may seem to be startling to some but it is not novel or unique. It was suggested sometime ago by very learned authors in the field, Professors Gilmore and Black in their treatise: "The Law of Admiralty” published in 1957 wherein at page 373 they stated that:
Whatever may be thought of the policy which lead the draftsmen of the compensation acts to preserve the third party damage action in the ordinary industrial situation, it may well be asked whether its maintenance in the peculiar situation of the harbor workers is consonant with the basic theory of compensation. If it is maintained, the employer's payment of compensation (without formal award) becomes merely a temporary advance while the employee is waiting for the jury to assess his damages.
It should be noted that this approach which we are suggesting would not eliminate all third-party cases. The longshoremen would still be free to sue all parties who are typical strangers to the shipownerstevedore employer relationship such as the manufacturers or suppliers of defective equipment, and so forth.
We would, therefore, recommend to this committee that appropriate amendments be added to this bill to accomplish this result. I have attached to this statement proposed amendments to the act which are submitted by the organizations which I represent. Briefly, these amendments would include the shipowner as a joint employer of the employees covered by this act. These amendments also reaffirm the original intent of Congress that the payment of compensation is the exclusive remedy and that actions against the shipowner and the stevedore as the employers of the employees involved are prohibited.
Senator MORSE. The draft of the amendments referred to by counsel will be inserted in the record at the close of counsel's statement.
Mr. SCANLAN. Thank you very much, Senator.
If these amendments are adopted, consideration properly could be given to increasing the benefits under the act. Without such amendments, any additional costs imposed upon the maritime industry would be catastrophic.
Other witnesses will speak in detail regarding the proposed user charges. On behalf of the organizations which I represent here today, I merely want to go on record as being opposed to these charges. In our judgment, they should not be approved since they would impose an additional economic burden on a heavily burdened industry. User charges are unwarranted and, in our judgment, would establish a frightful precedent that the costs of administering any act must be borne by the industry which is being regulated. These user charges have broad ramifications far beyond the maritime industry. It appears to us that they are totally unnecessary in addition to being of questionable constitutionality.
For the foregoing reasons, it is our opinion that the user charges should be deleted from this bill and that no further action should be taken with respect to any increase in benefits until amendments are included in the bill to eliminate the third-party cases and make the Longshoremen's and Harbor Workers' Compensation Act a true compensation act as was originally intended by Congress.
(The amendment follows:)
PROPOSED CHANGES TO THE LONGSHOREMEN'S AND HARBOR WORKERS' COMPENSA
TION ACT To BAB THIRD PARTY ACTIONS AGAINST THE VESSEL BY LONGSHOREMEN BASED ON INJURY OCCURRING ON OR AT THE VESSEL 8 902 (4) Amend. Italic words added :
(4) The term "employer" means an employer any of whose employees are employed in maritime employment, in whole or in part, upon the navigable waters of the United States (including any drydock). and includes any employer who is also an owner, owner pro hac vice, operator, or bare boat charter, and such employer's vessels.
§ 902 (5) Add new subdivision (5); renumber present (5) to (6) et seq:
(5) The term “vessel” means a vessel, its owner, owner pro hac vice, operator, bare boat charter, master, officer or crew member.
$ 904 Add new subsection (b); change present (b) to (c):
(b) Before any employees covered by this Act shall perform any work or services aboard or in connection with a vessel, said vessel shall be liable for and shall secure the payment of such compensation to such employees unless their employer has secured such payment.
$ 905 Amend. Italicized words added :
The liability prescribed in section 904 of this title of an employer or vessel upon which or in connection with which injury occurs, shall be exclusive and in place of any and all other liability of such employer or vessel to the employee, his legal representative, husband or wife, parents, children, dependents, nextof-kin, and anyone otherwise entitled to recover damages from any such em. ployer or vessel at law or in admiralty on account of such injury, death or disability, except that if the employer or vessel fails to secure payment of the compensation as provided by this chapter, etc.
8 933(a) Amend. Italicized words added :
(a) If on acount of injury, disability, or death for which compensation is payable under this chapter the person entitled to such compensation determines that some person other than the employer or vessel upon which or in connection with which injury occurs, or a person or persons in their employ, is liable in damages, etc.
Senator MORSE. Thank you very much, Mr. Scanlan. That is a viable statement. It will provide hard work for the members of the committee and counsel for the committee.
We are grateful to you for having this analysis.
SUPPLEMENTAL STATEMENT FRANK A. SCANLAN ESQ., COUNSEL FOR
PHILADELPHIA MARINE TRADE ASSOCIATION AND AMERICAN MERCHANT MARINE INSTITUTE
FEBRUARY 26, 1968. ROBERT O. HARRIS, Subcommittee on Labor, U.S. Senate, Committee on Labor and Public Welfare, Washington, D.O.
DEAR BOB: Last week, our Federal District Court handed down a decision in William Turner v. Transporation Maritima Mexicana S. A. et al which is very pertinent and indeed quite significant in connection with our proposal regarding