Likewise, we do not believe that your Subcommittee can look for a norm as to the maximum and minimum levels of weekly compensation benefits by turning to the Federal Employees' Compensation Act, as Mr. McQuillan of the AFLCIO apparently wished you to do in his testimony before you.

As this Subcommittee has in mind by the recent amendments to the Federal Employees' Compensation Act, the maximum weekly payment of $332 is based upon grade 15 of the General Schedule Clasisfication Act or a salary of $23,013, while the minimum of $56.62 per week is based upon the grade 2 salary of $3,925.

This is hardly the time or place to do other than point out that the many differences between the wages, fringe benefits and working conditions of those maritime employees subject to the Longshoremen's Act and salaried employees of the United States subject to the General Classification Act, are such that one cannot look to either statute as setting the level of what compensaion benefits should be for the other statute.

The only meaningful comparison which this Subcommittee should and, we believe, must make is the relationship of the benefits applicable under workmen's compensation statutes of the 50 states (particularly those bordering navigable waters of the United States) and those under the Longshoremen's Act.

The very nature of the maritime employment is such that the individual employee is constantly moving between land and the vessel on navigable water. If injured on land, he comes under the applicable state workmen's compensation statute; if injured on water, he comes under the Longshoremen's Act. The true comparison, therefore, to be made between the Longshoremen's Act and other applicable legislation is with the benefits payable under the workmen's compensation laws of our 50 states, each of whom are constantly reviewing and revising, where necessary, the level of maximum and minimum weekly compensation benefits.

We call to the Subcommittee's attention, if it does not already have it, an excellent analysis of the workmen's compensation laws of the 50 states and the District of Columbia which has been published by the Chamber of Commerce of the United States. For your convenience, there is attached to this statement, as Exhibit A, a chart which has been taken from this publication which sets forth the maximum weekly compensation benefits. From this you will note that the proposed $105 maximum weekly benefits in S. 2485 exceeds by far the maximum of any state workmen's compensation law of the 48 mainland states (except for Arizona). In particular, you will notice that on the Pacific Coast the maximum weekly payments are $70 for California, $73.85 for Oregon (with diminishing amounts for less than six children), $81.23 for Washington (with diminishing amounts for less than five children).

In this connection, one point that continually comes up in the matter of establishing a compensation rate is that it should not be set so high as to be attractive for an employee to consider compensation as against working for his money. This is particularly true in the case of back injuries with subjective complaints which are so difficult to disprove. As an example, assume a maximum compensation rate of $105. This would mean on the familiar two-thirds formula, an average weekly wage of $157.50. However, if one further considers the fact that from this average weekly wage deductions would be made for federal and state withholding taxes and for social security taxes, amounting to approximately 30 per cent, the individual employee would retain a net of approximately $110.25. Hence, if the employee could get $105 in compensation, which is tax free, he may very well ask himself why should he work all week and only get $5.25 more in money. It is for this reason that all persons in this field recognize that compensation rates must not be pegged so high that it becomes more attractive to stay on compensation than to go back to work.

What we have said with respect to the comparison between the workmen's compensation laws of the states and the Longshoremen's Act is equally applicable to the proposed maximum death benefit increases. There is attached to this statement, as Exhibit B, another chart which summarizes the death benefits of the 50 states. Again it will be readily apparent that the proposed increases and the proposed maximum of $140 per week far exceed that of any of the states. So, for instance, on the Pacific Coast, the maximum death weekly benefits for a widow with children are $70 in California, $53.08 in Oregon, and $63.80 in Washington.

The other part of the direct cost package which S. 2485 would have the industry assume (and which has contributed to the National Council's proposed

39.3 per cent insurance rate increase) is the removal of the $24,000 limit on maximum compensation benefits payable other than for death and for cases of permanent or total disability. We believe that Mr. Vickery in his prepared statement, as well as in his testimony before this Subcommittee on November 29, 1967, has pointed out many of the problems connected with removing this limitation. On the basis of my personal experience in this field, I would suggest to this Subcommittee that, as long as the Longshoremen's Act utilizes the concept of unscheduled disabilities, it is almost mandatory for the practical and effective administration of the Act that a limitation be placed upon the total compensation benefits which an individual may receive for temporary total and permanent partial disabilities.

I would ask that your staff verify this statement with any of the Deputy Commissioners in the field of the Bureau of Employees' Compensation who are daily involved with administration of the Act. There has to be an end to the road somewhere and this limitation has proved to be an effective means of administering the Act, resolving claims and getting men back to work.

Again we ask you to keep in mind that our complete opposition is to a removal of the limitation, not to an increase in it, for fairness would again indicate that if average weekly compensation benefits are to be increased, then an increase in the maximum limitation is in order if the existing scheme of the Act is to be maintained.

NEW PROVISIONS IN S. 2485

The second broad category of provisions in S. 2485 are those where new benefits are to be added. Here the questions before you, as we see them, are whether any of these new changes are desirable or feasible and projecting their anticipated cost.

As we in the West Coast stevedoring industry view them, four of these new provisions appear to be particularly objectional. They not only pose problems in the practical administration of the Act, but seem to offer questionable benefits to the employee as compared with the costs to be imposed upon the industry. The most potentially troublesome new provision is Section 12 with its proposal to add an attorney's fee to a compensation award "in cases where an award is made or increased after payment under the Act is resisted." This section is patently unfair on its face and will clearly result in a whole new layer of unnecessary cost by the way of attorneys' fees.

The reason lies in the manner in which most compensation proceedings under the Act are presently handled today. The Bureau of Employees' Compensation will tell you (and their statistical data will confirm) that almost all compensation claims are disposed of by agreement between the injured party and the insurance carrier or the employer. However, if you enact this attorney's fee provision, we can guarantee you that this will no longer be true and instead you will clog up the administrative process with a rash of cases proceeding to formal award.

Under the proposal in Section 12, whatever the medical rating obtained by the insurance carrier or the employer, the attorney for the injured workman has only to demand more. If he doesn't obtain it, all he has to do is go through a formal award proceeding and then be awarded an attorney's fee, because under the language of Section 12, the two conditions precedent to the granting of an attorney's fee have occured: (1) the carrier of employer has "resisted.” i.e. he has refused to pay whatever the claimant's attorney demanded; and (2) an award is thereafter "made or increased."

We therefore, seriously question the necessity or desirability of adding such an attorney's fee provision to the statute which already in Section 28 of the Act deals with the matter of legal fees and provides that such fees must be approved by the Deputy Commissioner or by a court. However, the stevedoring industry's attitude on this matter, on the West Coast at leas, is not a closed one. It may well be that if third party actions are limited, as we say needs to be done, there may be situations justifying the imposition of attorneys' fees where there is no real justification for not paying required compensation benefits under the Act. Another new provision we find highly objectionable by reason of the practical difficulties of administration, as well as the unknown expense involved, in Seetion 6 which would authorize compensation benefits to be recommenced and paid after a scheduled injury award has been paid off. Such a proposal negates the present scheme of the Act of providing for scheduled and unscheduled injuries with different compensation benefits payable for each. It would permit, in effect,

an injured employee with a rated disability to secure what amounts to a double recovery: He first gets paid for the rated injury of his arm, for example, and after this has been paid off, he thereafter could claim unscheduled disability benefits by reason of the loss of wage earning capacity for which he has already theoretically been paid once. We are aware of the fact that a provision comparable to Section 6 was included in the 1966 amendments to the Federal Employee's Compensation Act (see 5 USCA Secs. 8106 and 8107); but for the problems involved in administering any such program, we suggest that your staff consult with any of the local Deputy Commissioners around the country.

We also object to Section 8 proposing an additional 8.3 per cent of compensation benefits when an injured employees has one or more dependents. This would appear to be merely a device for getting away from the 66% per cent ratio of compensation to wages (which the Act has been based upon since its enactment) and replacing it with a 75 per cent ratio. After all, almost all employees in our industry appear to have one or more dependents. If one is going to tinker with numbers, then it would appear to us to be more honest as well as sensible to change the maximum and minimum weekly compensation benefits rather than to adopt some new theoretical ratio of compensation to wages.

We also believe that Section 11 as presently drafted, would, in effect, eliminate the existing one year statute of limitations for filing claims, and is objectional for the reasons which were well stated by Mr. Vickery. If, in fact, the one year statute of limitations has been producing hardship cases, then surely the approach to solving the problem is in extending the period of the statute of limitations rather than the proposed providing for a one-year statute with an uncertain time from which it begins to run.

In passing, we must also be frank to confess that we do not understand the new provisions contained in Section 7 of S. 2485 which seeks to revise existing Section 8(f) with respect to the liability of the employer where an employee already has an existing disability. Whatever the draftsman may have had in mind, we have not been able to follow it. Moreover, we have not even been aware of the necessity for revising or changing Section 8(f) of the Act. As to how much will be the cost of all of these new provisions we object to, we cannot tell you. As I stated earlier, the National Council of Compensation Insurance has advised us that it does not have sufficient data in order to project the insurance rate increases which would be occasioned by these provisions were they to be enacted into law.

USER CHARGES

The third broad category of provisions in S. 2485 relates to proposed user taxes, whereby the industry is by Section 13 supposed to maintain the second injury fund at not less than $300,000 and by Sections 14 and 15 required to pay for the costs of the Safety Program of the Bureau of Labor Standards and of administering the Longshoremen's Act itself.

In the published Budget of the United States of America for the fiscal year July 1, 1967 to June 30, 1968, we note that the costs of the Safey Program were estimated at $2.137.000 and the costs of administering the Act at $1,183,000 or a total of $3,320,000. By letter, dated November 13, 1967, the Bureau of Employees' Compensation has advised that the anticipated cost for the fiscal year ending June 30, 1968, for the Safety Program and for administering the Act would be approximately $2,000,000 and $1,300,000, respectively, or a total of 3.3 million dollars.

Initially, therefore, all employers subject to the Act would be expected to fund an expenditure of at least 3.3 million dollars; and it can be anticipated with a reasonable degree of confidence that these costs would steadily climb.

The statutory authority for attempting to impose such user charges is said to be originally provided by Title V of the Independent Offices Appropriations Act of 1952 (65 Stat. 290) providing as follows:

"It is the sense of the Congress that any work, service, publication, report. document, benefit, privilege, authority, use, franchise, license, permit, certificate, registration, or similar thing of value or utility performed, furnished, provided, granted, prepared, or issued by any federal agency (including wholly owned government corporations as defined in the Government Corporation Control Act of 1945) to or for any person (including groups, associations, organizations, partnerships, corporations, or businesses), except those engaged in the transaction of official business of the government, shall be self-sustaining to the full extent possible, and the head of each federal agency is authorized by regulation (which, in the case of agencies in the executive branch, shall be as uniform

as practicable and subject to such policies as the President may prescribe) to prescribe therefor such fee, charge, or price, if any, as he shall determine, in case none exists, or redetermine, in case of an existing one, to be fair and equitable taking into consideration direct and indirect cost to the government, value to the recipient, public policy or interest served, and other pertinent facts, and any amount so determined or redeermined shall be colleced and paid into the Treasury as miscellaneous receipts * * *"

The rationale of such user charges (which the members of this Subcommittee are far more familiar with than we are) appears to be that where special services are being provided to identifiable individuals, the government should endeavor to recover the cost of providing such special services. The essential justification for such user charges is said to be that special benefits are being conferred on recipients above and beyond those accruing to the public at large. Viewed in this light, you will perhaps understand why the stevedoring industry strenuously objects to the imposition of such proposed user taxes on it. In a nutshell, our people find it difficult to accept the notion that they must pay for a program for which they did not ask, over which they have no control and from which they have never been considered the beneficiaries of any special privileges or advantages.

THE INDUSTRY'S NO. 1 PROBLEM

While other witnesses have and will discuss with you in more detail the economic impact of the proposed legislation and the feasibility of some of the suggested new provisions to be added to the Longshoremen's Act, our members have asked me to review with you what they view as their number one problem under the Longshoremen's Act-a problem which is not even remotely treated in the proposed legislation.

I refer, of course, to third party actions by injured longshoremen or harbor workers against vessel owners or operators and the resulting and subsequent indemnity actions by the vessel against the stevedore or ship repair employer. You have, of course, heard about this number one problem before (and will again) during these hearings, but our member firms, who you will recall, operate in all ports on the Pacific Coast, want to bring home to you the predicament they are in and why they are looking to you to rectify this situation so as to make the Longshoremen's Act once again into a meaningful one.

Anyone, be he legislator, lawyer, or layman, would believe on reading the Longshoremen's Act that an employer would not be subject to or involved in any third party actions which the injured employee is authorized, by Section 33(a) of the Act, to bring against "some person other than his employer."

In return for providing the injured employee with medical care and compensation benefits, even though the employee himself is at fault for the accident involved, a stevedore employer was guaranteed by Section 5 of the Act that it would be his "exclusive" liability and "in place of all other liability of such employer to the employee . . . and anyone otherwise entitled to recover damages from such employer at law or in admiralty on account of such injury or death..." In other words, once having paid for medical care and compensation benefits, the employer was to be insulated and freed from any other liability in connection with his employee's liability.

Or so it was thought, until clever plaintiffs' attorneys and the United States Supreme Court delivered the one-two-three punch in the Sieracki (328 US 85), Ryan (350 US 124), and Yaka (373 US 410) cases and knocked Section 5 out of the Act as the guard against the stevedore employer being involved in third party actions. Mr. Scanlan has previously, in these hearings, furnished you with a legal analysis of these cases; and your staff can readily gain further access to more detailed legal analysis by reviewing the testimony of Thomas E. Byrne, J. Stewart Harrison, Edward D. Vickery in the hearings before the Committee on Merchant Marine and Fisheries on H. R. 207, 87th Con., First Session.

For the purposes of your present hearing on S. 2485, a fair summarization of current decisions (and, of more significance, of settlements daily being made in current litigation all over the country on the basis of these decisions) is that an injured longshoreman can almost always bring a successful third party damage action against the vessel predicated on a constantly expanding doctrine of seaworthiness, which has been called a humanitarian theory of liability.

In turn, the vessel can almost always obtain a full recovery over against the stevedore employer of the injured longshoreman on an expanding doctrine of indemnity (i.e. the legal theory established by the Supreme Court decisions that

the stevedore employer has an implied, in fact, obligation to do its work in a safe and workmanlike manner and any so-called "breach" of this obligation results in the vessel obtaining "indemnity"). The all-important point to keep in mind about "indemnity" is that it means that the stevedore employer must reimburse the vessel on which the accident occurred for (1) the judgment obtained by the injured longshoreman in his third party action, or for the settlement which he received, (2) the vessel's costs of defense, and (3) the vessel's attorney's fees. This, then, brings us to the unenviable predicament in which the stevedore finds himself today under the Act. Instead of only paying for medical care and compensation benefits and having no further liability, as the Act so clearly states, the stevedore ends up, not only first having to pay for the medical care and compensation benefits, but then he has to pick up the entire tab of the third party damage action, not to mention his own defense costs and attorney's fees in resisting the vessel's indemnity claim against him.

So you can see, Mr. Chairman, why the stevedore firms in our Association believe that the intent and purpose of the Longshoremen's Act has been completely nullified by third party actions filed under Section 33 of the Act with respect to injuries occurring on board vessels where the longshoremen were employed to work.

Instead, the Act has, in fact, been used as a vehicle to finance damage lawsuits against themselves. The injured longshoreman almost always first takes advantage of the medical care and the compensation benefits afforded by his employer under the Act. When his medical condition has stabilized and he is back to work, he files his third party damage action against the vessel. This brings on the vessel's indemnity action against the stevedore. Thus, the stevedore employer ends up as the unwilling recipient of a damage action, while at the same time he has been furnishing his own employee with medical care and money so that the employee may, in effect, sue him.

In fact, the problem is somewhat worse than this because the vessel operators and ship repair firms which act as direct employers of longshoremen or harbor workers (and hence believed until the Yaka decision that they were if nothing else, at least exempt from a direct lawsuit against themselves by their own employees) now find themselves subject to direct damage actions against themselves by their injured employees. They, too, are now having the Longshoremen's Act used as a means of financing and furthering damage actions against themselves by their own employees, which surely must abrogate the fundamental purpose of Congress in enacting the Longshoremen's Act in the first instance.

JUDICIAL CONDEMNATION

The artificial nature of court-fashioned rules to affix ultimate damage lawsuit liability on stevedores (following in the wake of the Supreme Court decisions with their ever expanding seaworthiness and indemnity doctrines) has been repugnant to many jurists, no matter how commendable the purpose. Judge Friendly for the Court of Appeals for the Second Circuit has stated his criticism squarely:

"This is one more case where the unloading of a vessel was turned over to the stevedore whose negligence injured a longshoreman, and a court goes to unrealistic lengths to find unseaworthiness, knowing full well that the ship will escape scotfree and that, as is strikingly illustrated by the final point in the opinion, her only role is as a conduit to impose on the stevedore a liability exceeding what Congress made exclusive by S.5 of the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. S905. If compensation to longshoremen needs to be liberalized, Congress should say so; in the absence of controlling Supreme Court decisions, not present here, inferior federal courts should bend their efforts to effectuating the Congressional purpose rather than to its further erosion." (Emphasis added) Reid V. Quebec Paper Company., 340 F2d 34, 39 (1965) (dissent).

Likewise, Circuit Judge Irving Kaufman has pointed out that all the myriad of third party decisions in this field are, in fact, only designed to get around the provisions of the Longshoremen's Act:

"* * * I cannot, in good conscience, become a party to simply and exercise in skillful rhetoric-and inflict on the district court the impossible task of dealing with words and phrases that are like beads of quicksilver. Moreover, toiling to impose liability on a shipowner really free from blame because that is the only route to recover a substantial sum from the stevedoring company in light of the