Proposals due July 6 to become sole provider for Defense BaseAct claims

By Daniel Hays

Despite major insurer opposition, the Army Corps of Engineers ismoving ahead with a pilot program to have carriers bid to be thesole provider of death and injury coverage for contractors in Iraqand elsewhere overseas.

As the Corps envisions it, the program would create a new systemfor providing the workers' compensation coverage that contractorsmust carry under the Defense Base Act (DBA). That program requiresthe government to reimburse insurers for death or injury claimsthat are the result of war hazards and not work-related.

A representative for the Corps, Gene Pawlick, said the piloteffort–with request-for-bid proposals due on July 6–was developedbecause there were “questions of overall program costs,” which havebeen soaring.

He said that before putting out the request for bids to be thesole-source supplier, Corps representatives had met withinsurers.

“We weren't going to assume we knew everything aboutinsurance…We took time to learn from the industry,” he noted.

Under the pilot program, he said, the Corps believes insurancecosts–which are a factor in construction contract prices–will bereduced and save the government money.

The Corps explained in a contract request document it providedto insurers that the pilot will test the concept that a broadpooling of the risks, rather than “looking at a particularsituation, can make a difference in the rates.”

Insurers' negative outlook and predictions that direconsequences will result from the program are reflected in oneunidentified carrier's statement listed as a “question” that theCorps included in a contract request-for-proposal document.

“A single insurance provider for USACE [U.S. Army Corps ofEngineers] DBA coverage will greatly increase the risk of poorservice to USACE contractor workers and employers,” the carrierforecasted.

“The successful bidder will be under intense pressure to provide'lowball' initial insurance rates. To keep its subsequent expensesunder the agreed price, there will be strong economic incentive tolimit service to workers who have claims and to employers,” thecarrier added.

“Denial of valid claims and late payments to workers for theirinjuries will inevitably result in increased workload for theDepartment of Labor. More disputes over claims will translate intomore hearings and appeals, and there will be increased unknownexposure of the U.S. government for future liabilities,” thecarrier said.

How, the insurer wanted to know, would the Corps “respond tothis situation it has created?”

The Corps responded that the request for a single providercontract “does not change any provision of the Defense Base Act orimplementing regulations governing the handling of claims. Theexpectation is that all requirements will be met. Before award ofany contract, the contracting officer shall affirmatively proveresponsibility and price reasonableness. Additionally, under thisprogram, any proposed insurance rates will be analyzed for pricereasonableness.”

The Corps document advises that it is looking for insurers toprovide “innovative procedures” to deal with claims administrationin a war zone and reduce costs through value-added claimsmanagement techniques and the best assured protection to theclaimants.

One insurer asked about the handling of brokerage fees in thewake of the New York attorney general's investigation that found aconflict of interest in carriers' payment of contingent payments tointermediaries. The government, in response, said it will be up tothe insurance contract supplier to make sure that the governmentgets “best value” for its money.

The primary suppliers of DBA insurance are AIG, ACE Ltd., CNAand Chubb Corp.

According to the Corps contract advice, under the program: “Itwill be mandatory that all contracts awarded by the U.S. Army Corpsof Engineers for work outside [the continental United States]contain a provision that all successful contractors and theirsubsequent subcontractors acquire their DBA insurance needs fromthe single centrally-managed insurance carrier during the contractduration, unless a waiver has been obtained from the U.S.Department of Labor.”

Caption For Picture:

The Army Corps of Engineers wants one company to insure allclaims for contracted workers whose death or injuries are theresult of war hazards and not work-related.