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AIG in financial crisis, will this effect my Workers’ Compensation benefits under the Defense Base Act? – Part 2 September 17, 2008

Posted by Herb Chestnut in Uncategorized.
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We have been receiving numerous emails in response to our previous posting on the AIG crisis and its effect on Defense Base Act claims. While it appears that a potential government bailout will keep AIG’s daily operations and claims management moving normally, we have been asked a lot of “What ifs?”

What if AIG Worldsource, the DBA insurance arm of AIG, declared bankruptcy? Who would pay for claimant’s medical care? Who would pay their weekly benefits?

Under the Defense Base Act extension to the Longshore and Harbor Workers’ Compensation Act (LHWCA), if the insurer is insolvent, the employer would then be responsible for paying these claims. Obviously, that would be a huge and otherwise unexpected financial responsibility for the employer. A small contractor, with many claims against could be pushed into financial ruin.

A larger, more sophisticated, company like Kellog, Root & Brown (KBR) who was either devious enough or clever enough to employ its personnel in Iraq and Afghanistan through a Caymon Islands corporation (Service Employers International) might opt to bankrupt that corporation and protect KBR from claims directly against that parent company.  There is no telling if that would work, but in the worst case scenario of a complete meltdown by AIG, the rats will certainly look for every way to flee from the sinking ship.

Lets assume for a moment that both the insurer and the employer end up insolvent or bankrupt. Who then will pay these claims?  The answer is the “Special Fund,” established by 33 U.S.C. section 944 of the LHWCA.  Every DBA insurer is required to pay an amount into the fund each year based on a formula.  The problem with the special fund is that it has nowhere near the resources to pay the hundreds or thousands of DBA claims that AIG insures. The 2008 audit of the Special Fund by the Office of Inspector General reveals that in 2006 and 2007 the fund paid out only $1.4 and 1.7 million in compensation for bankrupt self-insured employers. In a few years AIG has paid out over $70 million in benefits to its DBA claimants and has plently of pending claims. It is hard to see how the fund could absorb those claims without intervention.

In conclusion, since AIG Worldsource is a relatively small piece of the entire AIG company (and a profitable one at that), we would anticipate that it would be “business as usual” for DBA claimants, especially after the bail out.  However, after the horror stories we have heard from some of our readers, I am sure some of you are expecting the worst.  To many people, “Murphy’s Law” has applied to each and every step of their experience with KBR and/or SEI.  This is just one more thing that has gone wrong, simply because it could.

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Comments»

1. William Reese - June 29, 2009

How can I find out if AIG handles Longshore accident claims( or who ever handles injury claims) in regards to my accident nearly 5 years ago in Savannah at Colonial Oil dock. The state (Ga.) has refused to pay anything since my accident and I am trying to get help. I was an
OGC inspector, just finishing up with the ship, stepped on the near verticle gangway to exit the boat. The gangway shifted and down I went. Spent nearly six months in hospital then developed DVT’s in both legs and am now disabled. I just need to find out who is the insurance company. Thanks for any help.

Aaron Walter - July 1, 2009

William,

To find the insurer, I would advise contacting the Department of Labor office in New York to see if they have “insurance cards” on that individual employer. Unfortunately, there is no online reference, rather there are paper references to each company’s insurance. For Defense Base Act cases, the inurance listings are in the New York office. I am not sure if this might be different for regular Longshore claims. If you continue to have difficulty finding this information, let me know I would be happy to help.

2. Herb Chestnut - July 1, 2009

William,

Have you been paid any benefits under either state or federal comp? Also, did you ever file a claim or have anyone file one for you?

Feel free to call us to discuss.

Herb Chestnut


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