• The Fifth Circuit Extends an Insurer's Right to Reimbursement for Voluntary LHWCA Benefit Payments to Jones Act Settlements
  • April 23, 2014
  • Law Firm: Jones Walker LLP - New Orleans Office
  • In Chenevert v. Travelers Indemnity Co., -- F.3d --, 2014 WL 902873 (5th Cir. Mar. 7, 2014), the United States Fifth Circuit Court of Appeals overturned the decision of the United States District Court for the Northern District of Mississippi and held that an insurer who voluntarily makes Longshore & Harbor Workers Compensation Act ("LHWCA") payments to an employee on behalf of his employer acquires a subrogation lien on any recovery made by that employee in a subsequent Jones Act suit. The Fifth Circuit's decision prevents plaintiffs from settling around the insurer's lien in an effort to obtain a double recovery.

    In Chenevert, a crane operator was injured when he fell while working on a crane barge. The employer's insurance policy with Travelers covered workers compensation claims for longshore and harbor workers under the LHWCA, but expressly excluded injuries to the master or crew of a vessel, i.e. Jones Act seamen. Travelers voluntarily paid Chenevert LHWCA benefits under the policy until he filed a Jones Act suit against his employer and claimed that he was a Jones Act seaman.

    Travelers filed a motion to intervene in the Jones Act suit in order to assert its subrogation rights against any recovery made by Chenevert. Travelers contended that it was entitled to reimbursement for the LHWCA payments it made to Chenevert, who was not entitled to such payments if he was a Jones Act seaman. Chenevert and his employer settled the Jones Act suit and deposited a portion of the settlement proceeds into the court's registry pending the outcome of Traveler's subrogation claim. The district court then denied Traveler's motion to intervene, holding that Travelers had no right to subrogation against the settlement funds.

    On appeal, the Fifth Circuit reversed the district court's denial of Traveler's motion, reasoning that the district court erroneously concluded that Travelers was attempting to subrogate against its own insured. The Fifth Circuit held that Travelers was not attempting to subrogate against its own insured because the subrogation claim is not related to a risk insured by the policy; the policy did not cover Jones Act claims. The Fifth Circuit also held that an insurer who makes voluntary LHWCA payments to an injured employee on behalf of the employer is entitled to reimbursement from any recovery made by the employee in a Jones Act case against the employer for the same injuries, even if the recovery is in the form of a settlement. In reaching its holding, the Fifth Circuit analogized its precedent on employers' and insurers' subrogation rights to the context of Jones Act settlements.

    For example, courts have consistently held that an employer acquires a right to reimbursement when it pays LHWCA benefits to an injured employee who later recovers from a third party for the same injury under § 905(b) of the LHWCA. Additionally, employers acquire a subrogation right to reimbursement for payments voluntarily made under the LHWCA when the employee later recovers under the Jones Act because the two workers compensation remedies are mutually exclusive. An employee may either be a Jones Act seaman under the Jones Act or a longshoreman or harbor worker under the LHWCA.

    The Fifth Circuit also noted that the insurer's right to reimbursement from an employee's recovery is derived from that of the employer when the insurer voluntarily pays compensation to the employee on behalf of the employer. Courts have consistently held that an insurer who voluntarily compensated an injured worker is subrogated to an employer's right to be reimbursed for the amount of compensation when the employee recovers from a third party for the same injury. Moreover, the employer does not have the ability to nullify the insurer's right to repayment for compensation paid by the insurer. In Taylor v. Bunge Corp., 845 F.2d 1323, 1324 (5th Cir. 1988), the Fifth Circuit held that an injured employee and a third party defendant may not settle around the employer's lien by settling for an amount "over and above" the LHWCA compensation payments made by the employer.

    The Fifth Circuit applied the aforementioned principles to the case at hand in holding that an insurer who voluntarily pays LHWCA benefits acquires a subrogation lien against a settlement reached in favor of the injured employee in a subsequent Jones Act suit. The Fifth Circuit correctly reasoned that it would be nonsensical to deny the insurer reimbursement for LHWCA payments that constitute double recovery for the employee, especially when the employee was never entitled to the payments based on his qualification as a Jones Act seaman and Jones Act claims are not covered by the policy. The Fifth Circuit's ruling in Chenevert encourages insurers to promptly and voluntarily make benefit payments because the insurers will be able to recover any amount paid but subsequently determined to not have been owed.