Page images
PDF
EPUB

I was wondering if you would prefer to have me summarize the statement, rather than read the full statement for the record, provided that the full statement is included in the record.

Senator MORSE. I will follow counsel's pleasure. I shall put the full statement in the record, in any event, at this point in the record, but counsel is welcome to read it, or to summarize it.

(The prepared statement referred to follows:)

PREPARED STATEMENT OF AMERICAN INSURANCE ASSOCIATION, BY ANDREW

KALMYKOW, COUNSEL, AMERICAN INSURANCE ASSOCIATION, NEW YORK American Insurance Association is a non-profit organization composed of 169 stock insurance companies most of which write workmen's compensation in. surance throughout the United States, including coverage under the Longshoremen's and Harbor Workers' Compensation Act. They are vitally interested in the satisfactory operation of such laws.

They believe that workmen's compensation laws should provide adequate compensation benefits and full medical care for employees injured at work, regardless of fault. There should be a simple administrative system which will keep controversy to a minimum and permit prompt payment of compensation. Unnecessary expenses in the operation of the system should be avoided. Workmen's compensation is intended to replace the uncertainties and inequities of employer's liability based on fault.

S. 2485 makes a number of changes in the Longshoremen's and Harbor Workers Act. One of these we believe would in particular seriously affect the satisfactory operation of that law and add very substantially to costs without commensurate benefit to the employee or his employer. This is the proposed amendment to section 28(a) of the Act (section 12 of the bill) which would newly provide that in cases where an award is made or increased after payment under the Act is resisted, a claim for legal service approved by the Deputy Commissioner or court shall be added to the compensation award.

At first glance some might think that there is some equity in this proposal. However, a more careful consideration reveals that it would actually operate to the detriment of the employee as well as his employer by encouraging needless controversy. I do not mean to imply necessarily that claimant's representatives would intentionally create litigation, although this might possibly occur. It is easy, however, to convince oneself that it would be helpful to make requests for formal hearings or rehearings, take appeals and invoke other procedures, when fees for the same would probably be chargeable to the employer and there might be no cost to the client. Increased litigation would justify a larger fee. Yet such litigation may very well delay the payment of compensation to the detriment of the injured man. Expenses would be substantially increased without commensurate benefit to the injured man.

Such a provision is contrary to the principles of American jurisprudence under which a plaintiff's attorneys' fees in actions at law are not recoverable as costs. Most state workmen's compensation laws also do not provide for payment of such fees in addition to the award. Florida is one of the relatively few states that has a provision similar to S. 2485. This has adversely affected the operation of the Compensation Act in that state. The Hon. T. W. Johnston, Chairman of the Florida Industrial Commission, is quoted in the Tampa Tribune of February 17, 1967 as follows:

"We don't believe that the original concept of workmen's compensation—the relief of the injured worker and the stability of an insured business-should be suffocated by extravagant legal fees and a smothering backlog of unresolved orders."

He indicates that in 1966 legal fees in compensation cases amounted to $4,000,000, even though 90% of the cases are settled without controversy. This sum amounts to 11.4% of incurred compensation indemnity payments for the year 1966–1967. Such fees have increased from $900,000 in 1960 to the current figure. This indicates how such fees tend to mount under such a provision. Once in the law, however, it is most difficult to obtain its repeal regardless of its undesirable effects. It has been our experience that making litigation profitable affects very adversely the operation of workmen's compensation laws.

Two other provisions of the bill would add considerably to the cost of compensation without providing additional benefits to the employee or his dependents. Section 45 of the Act (Section 15 of the Bill) would be amended by conferring upon the Secretary of Labor power to assess, in fact to impose, a gross premium tax upon insurance carriers and self-insurers, without any limitation as to the amount, at his complete discretion, for the purpose of defraying costs of administration.

The Congress performs a most valuable function in control over appropriations and revenue measures. It is one which should not lightly be relinquished. S. 2485 would delegate this important function to an administrative agency. This constitutes a far reaching precedent. No doubt many governmental agencies would welcome the opportunity of taxing at will a segment of industry, or the public, related to their activities, to support their operations.

Similarly section 41 (a) would be added to the Act (Section 14 of the Bill) to grant additional powers to the Secretary to impose a tax on carriers based on compensation paid "during the fiscal year," again without limitation as to amount, to defray the cost of safety activities. These activities apparently are not limited to the Labor Department for the Secretary has the power to utilize the services of any agency of the United States or any State engaged in similar work. Po tentially such expenditures could be large.

Insurance carriers presently perform most valuable safety service for their policyholders. Under the bill they would be required in addition to pay for safety activities of the Labor Department even though these may not directly benefit their individual policyholders. Some duplication is bound to result. States generally do not charge against compensation costs safety activities conducted by their Labor Departments, neither should the Federal government.

Compensation premiums are already heavily taxed. Taxes on such premiums must be paid to the various states where stevedoring operations are located at the rates specified by the law of that state. Allowance in insurance rates for taxes is generally set at 242% but reaches as high as 5.2%. Federal income taxes must also be paid. This tax burden should not be increased.

The expenses of administering the Longshoremen's Act should be defrayed in the same manner as that of the federal courts through general revenue. The Bureau of Employees' Compensation to a large extent exercises what amount to judicial functions. The cost of maintaining many other federal bureaus is borne by general taxation. This should continue to be true with respect to the Bureau of Employees' Compensation. Compensation is most inappropriate as a source of federal revenue.

We have a very high regard for the Secretary of Labor. We believe that he would exercise these powers with discretion. However, it has been our experience that where costs of administration have been placed exclusively on employers and insurance carriers without fiscal restraint they have tended to be very high.

It may be noted that in the memorandum in support of this legislation it is stated that a “saving" of $142 million to the federal government would result. This presumably represents current expenditures. S. 2485 contains an appropriation in approximately that amount, which apparently would have to be repaid under the provisions of the bill by employers and their insurance carriers. At the same time another bill, H.R. 12883, which similarly would tax employers and insurance carriers for the expenses of administration, contains an appropriaition of two million dollars. This presumably indicates expected expenditures for the immediate future. Safety activities may add to the figure.

This total may be compared to the total compensation payments, exclusive of medical costs, for the year 1966 under the Longshoremen's Act amounting to $16,739,778 and $3,014,099 under the District of Columbia Compensation Act, to which the Longshoremen's Act is also applicable (54th Annual Report, U.S. Department of Labor, Fiscal Year 1966, page 118). Two million dollars constitutes 1042% of this total. If attorney's fees are added, these two provisions would cost more than 20% of compensation payments presently being made for benefits under Longshoremen's and Harbor Workers' and District of Columbia Acts.

It is to be stressed that these additional items would add substantially to the cost of compensation but would not inure to the benefit of the injured employee or his dependents. It would seem far preferable, if such increased costs are contemplated, to channel them into benefits.

It may also be noted that the administration tax is based on gross premiums collected by the carrier during the fiscal year, and the safety tax is based on total compensation paid" during the immediately preceding fiscal year. Presumably, the term fiscal year has reference to that of the federal government. No

[ocr errors]

such figures are presently kept for this period. Considerable additional work would be needed to maintain them.

If any such taxes should be imposed they ought to be predicated on the same base. We recommend that this base be compensation, that is the money allowance paid to the employee and his dependents under the Act, during the preceding calendar year, excluding medical expenses, but including funeral benefits.

Contributions to the Second Injury Fund provided for in Section 44 (c) of the Act, as amended by this Bill, (Section 13 of the Bill) should likewise be based on compensation payments rather than premiums. The latter would be very difficult to obtain on a countrywide basis since these are frequently combined with premiums for protection to stevedores under state workmen's compensation acts.

There is an additional point we wish to stress. Because of the far reaching amendments provided in S. 2485, including the extensive liberalization of benefits, we deem it most important to call your attention to a very inequitable and wasteful situation that has developed for which legislative remedy is imperative. At the beginning of this statement we pointed out that workmen's compensation laws were intended to replace the old employer's liability system. This is recognized in Section 5 of the Longshoremen's Act in which it is clearly stated that the liability of an employer thereunder shall be exclusive. Yet by gradual erosion of fundamental principles, the courts have placed an employer and his insurance carrier in the anomalous position of paying compensation to one of his own employees and at the same time being subject to action in the courts for the same injury and having to pay unlimited damages, either directly or indirectly, in addition to very substantial legal expenses. It appears very doubtful that the courts would have reached these results if the question had been initially presented to them. This is how this has happened.

Traditionally admiralty law has given to seamen, because of the special relationship between member of the crew and the ship and its owners, rights which do not exist with respect to other types of employment. Among these, for example, is the doctrine of maintenance and cure, whereby a seaman is entitled to medical care and maintenance for injury or disease suffered while a member of such crew even though it is completely unrelated to his work. Similarly, members of the crew were permitted to recover for injuries suffered as a result of unseaworthiness of a vessel even though such unseaworthiness was not in any way due to the fault of the owner of the ship or his agents. As the U.S. Supreme Court has said, this doctrine “is essentially a species of liability without fault”.

In the case of Seas Shipping Co. Inc. v. Sieracki (1946, 328 U.S. 85, 66 S. Ct. 872), from which this quote is taken, this doctrine was extended to longshoremen and others who may perform service on board the ship even though they are not members of the crew and did not have that special relationship to the vessel and its owners which originally gave rise to this doctrine.

Subsequently, in the case of Ryan Stevedoring Co. v. Pan-Atlantic S. S. Corp. (1956, 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133) the U.S. Supreme Court held, under a theory of implied contract, that a stevedore had to indemnify the owner of a ship for damages recovered by an employee of the stevedore, together with attorney's fees incurred in such litigation, where the unseaworthiness was allegedly due to the stevedore. Thus the stevedore and his insurance carrier were made liable indirectly to the employee for unlimited damages even though such employee had already received workmen's compensation, and where no fault has been shown either on the part of his employer or the shipping company. This has led to some very inequitable situations and a great multipilicity of suits.

This very inequitable situation is illustrated by the case of Holley v. The lanfred Stansfield (1960) 186 F. Supp. 212, see also prior litigation in this case 269 F. 2d 317, certiorari denied 261 U.S. 883, (1959), reversing 165 F. Supp. 660, (1958). In this case the alleged unseaworthiness was caused by the employee himself contrary to the instructions of his superior. In unloading a cargo of potash through the use of a mechanical "payloader" he had hollowed out a cave and created an overhang. In an effort to loosen a cargo of solidified potash by striking it with the payloader a block of the same fell upon the employee causing his death. The Court found that this overhang, created by the employee, made the vessel unseaworthy and therefore the owners of the vessel liable for such death. However, because of the employee's contributory negligence recovery was limited to $12,500 which was less than the widow was entitled to under the Longshoremen's Act. Thus, she received nothing in addition to what she would have been entitled to without this litigation. Attorneys' fees and expenses in this case, however, amounted to $22,000.

Then the courts went even further. They permitted an action against a ship in rem, even though the stevedore was the charter of the ship. This meant that the employee was in effect given the right to maintain an action in the courts against his own employer even though he was being paid workmen's compensation by him. Justice Harlan in dissenting stated "This decision goes further than anything yet done by the Court in F.E.L.A. and admiralty cases ...". He went on further in discussing the Ryan case, to say: "I believe that any anomaly between that case and this one should be left to Congress to remedy, for it may be that it would choose means wholly different from those chosen by the Court. There is an outer limit beyond which judicial construction of the language of a statute ought not go, and I respectfully submit that that limit has been exceeded here.” Reed v. Steamship Yaka (1963, 273 U.S. 410, 83 S. Ct. 1349.)

This year in the case of Jackson v. Lykes Bros. Steamship Company Inc. (May 8, 1967, 87 Supreme Court, 1419) an action against a stevedore was permitted directly, where he was the owner of the ship. Thus an action against the employer has been permitted contrary to the exact wording of the Longshoremen's Act.

It has been estimated that cases based on the Ryan and Yaka doctrines represent 30% of payments in longshoremen's cases. The Jackson decision is likely to increase this total. Yet many longshoremen are injured under circumstances which do not come within the scope of such cases.

Even if suit is brought recovery is by no means assured and certainly delayed. Such litigation is bound to delay compensation payments as well.

We submit that a liberal workmen's compensation system is far preferable from the viewpoint of both employee and employer. It is essential, however, that this system be exclusive. We respectfully urge that an appropriate amendment to this effect be added to S. 2485.

Mr. KALMYKOW. Thank you, sir.

The American Insurance Association is a nonprofit organization composed of 169 stock insurance companies most of which write workmen's compensation insurance throughout the United States, including coverage under the Longshoremen's and Harbor Workers' Compensation Act. They are vitally interested in the satisfactory operation of such laws.

They believe that workmen's compensation laws should provide adequate compensation benefits and full medical care for employees injured at work, regardless of fault. There should be a simple administrative system which will keep controversy to a minimum and permit prompt payment of compensation. Unnecessary expenses in the operation of the system should be avoided. Workmen's compensation is intended to replace the uncertainties and inequities of employer's liability based on fault.

s. 2485 makes a number of changes in the Longshormen's and Harbor Worker's Act. However, I would like to take at this time the opportunity to stress certain features of that act which we feel will very substantially increase the operational costs of providing benefits under that act, without any commensurate benefit to the employee, or any of the other interested parties.

Most important is the provision that would newly provide that in cases where an award is made or increased, if the payment under the act is resisted, a claim for legal services approved by the deputy commissioner or court, shall be added to the compensation award.

At first glance, some might think that there is some inequity in this proposal. However, a more careful consideration reveals that it would actually operate to the detriment of the employee, as well as his employer, by encouraging needless controversy,

I think that Florida is one of the very few States that has a provision of that type. I want to illustrate my point by quoting from the chairman of the Industrial Commission of that State who is the chief

a

[ocr errors]

administrator of that act. He was quoted in a Tampa newspaper of February 17, 1967 as follows:

We don't believe that the original concept of workmen's compensation-the relief of the injured worker and the stability of an insured business-should be suffocated by extravagant legal fees and a smothering backlog of unresolved orders.

This, Mr. Chairman, I submit, is the effect of a provision of that type on the compensation system, and I would urge most careful consideration of this particular provision to you and the committee, with the hope that it can be eliminated, or at least modified.

There is, as a previous witness testified, very little controversy in the field of longshoremen's cases. There were, for the year 1966, 127,972 injuries reported, under the Longshoremen's Act and other acts over which the Bureau of Employees' Compensation has jurisdiction, other than the Federal Employees' Compensation Act, and there were only 371 formal hearings held. That indicates how little actual controversy there is in this area; but this, I am afraid, would be greatly increased if a provision such as this were put into the act.

It has been our experience that making litigation profitable affects very adversely the operation of workmen's compensation laws.

I would like to call your attention also to two other provisions that we feel add very considerably to the cost of compensation without benefiting the employee in any way whatsoever as far as increasing the amount of benefits that they get.

One is the provision which would confer upon the Secretary of Labor the sole power to assess, in fact to impose, a gross premium tax on insurance carriers and self-insurers, without any limitations as to amount, for the purposes of defraying the costs of administration.

The Congress performs a most valuable function in its control over appropriations and revenue measures. It is one which should not be lightly relinquished. This constitutes a far-reaching precedent. No doubt many government agencies would welcome the opportunity of taxing a segment of industry or the public to support their operations.

Similarly, there is another section, section 41 (a), which would grant additional powers to the Secretary to impose a tax on insurance carriers based on compensation paid during the fiscal year," again without limitation, to defray the cost of safety activities. These activities apparently are not limited to the Department of Labor, for the Secretary has the power to utilize the services of any agency of the United States or any State engaged in similar work.

Potentially, such expenditures could be large. I have tried to determine how much those figures would amount to, and I note that Assistant Secretary of Labor Peterson, in testifying before this committee earlier, indicated that the cost would be $3.4 million, under current expenditures.

This, I would like to call to your attention, is 15.23 percent of the total amount of compensation paid by employers and their insurance carriers to beneficiaries under the Longshoremen's Act, the District of Columbia Act, and the other acts which are administered by this Bureau. This is a very substantial proportion of the total costs involved.

If you add attorneys' fees to this provision, it would constitute a good deal more than 20 percent of all compensation payments in this area, and I think that is a very conservative estimate. It probably would add very considerably more than the figure I have indicated.

« PreviousContinue »