Longshore and Harbor Workers Compensation Act Preemption Dispute
November 2, 2015
The employee filed an action against his former employer, the workers comp insurance carrier, and his insurance adjuster, alleging breach of contract, breach of fiduciary duty, fraud, and conspiracy to defraud. This case is Nadheer v. The Insurance Company of the State of Pennsylvania, 506 Fed.Appx. 297 (2013).
Nadheer was hired as an interpreter in Iraq in 2006. With respect to his employment, Nadheer was subject to the Defense Base Act (DBA) that extends the workers compensation scheme set out in the Longshore and Harbor Workers Compensation Act (L&HWCA) to cover employees injured or killed outside the continental United States by an American employer providing welfare or similar services for the benefit of the armed forces.
In 2007, Nadheer was seriously injured in a bomb attack. His medical care was covered by the workers comp insurance. After returning to the United States, Nadheer sued, asserting common law claims for breach of contract, breach of fiduciary duty, fraud, and conspiracy to defraud. The U.S. District Court for the Western District of Texas dismissed the action by asserting that the claims are preempted by the DBA and the L&HWCA. This appeal followed.
The United States Court of Appeals, Fifth Circuit, noted three arguments put forth by Nadheer as to why his claims are not preempted. First, he argued that the exclusivity provisions of the DBA and the L&HWCA do not apply because they do not immunize insurers from damages caused by intentional misrepresentations to insured employees that cause injury outside the scope of the DBS and damages not recoverable under the DBA. Second, Nadheer asserted that the exclusivity provisions do not immunize insurers from breach of contract claims for breaches that occur during the adjustment of a DBA claim when the breach causes consequential damages not recoverable under the DBA. Third, he contended that the court should revisit the long line of cases holding that the exclusivity provision applies to insurers as well as employers.
The court dismissed the first claim and said it saw no meaningful distinction between torts arising from bad faith withholding of benefits and those from the alleged bad faith misadministration of benefits at issue in this case; both are preempted by the comprehensive statutory scheme of the L&HWCA.
As for the second argument advanced by Nadheer, the court disagreed with is logic and said that under Nadheer's theory, contracting to provide benefits under a comprehensive scheme would itself create civil liability in excess of that provided for by the scheme. The court stated that the whole theory of the L&HWCA is to provide the injured worker with certain and absolute benefits in lieu of all common law damages. Allowing plaintiffs to recover separately for breach of contractual provisions invoking the L&HWCA would subvert the very purpose of the act. Therefore, Nadheer's breach of contract claims are preempted by the L&HWCA.
Finally, as to insurers, the court noted that it has long held that claims against insurers, in addition to claims against employers, are implicitly preempted by the exclusivity provisions of the L&HWCA. Numerous provisions of the act and the spirit of the act as a whole, equating the insurer with the employer, negate any intent to hold the insurer liable to lawsuit for damages as a third person.
The decision of the district court was affirmed.
Editor's Note: The U.S. Fifth Circuit Court of Appeals held that both the DBA and the L&HWCA state that the various remedies they provide to injured employees are exclusive of other legal remedies. Claims against employers and insurers are therefore preempted by the provisions in these acts.