Longshoremen silk unload

By Amanda Howard

In Chenevert v. Travelers Indemnity Co., No. 13-60119 (5th Cir. March 7, 2014), the Fifth Circuit formally recognized that an insurer providing and making voluntary payments to an injured employee under the Longshore and Harbor Workers’ Compensation Act 33 U.S.C.A. § 901 et seq (“LHWCA”), specifically 905(b), is entitled to a subrogation lien against the settlement recovery by the employee of Jones Act damages obtained for the same injuries for which the insurer has already compensated the employee.

Mr. Chenevert filed a personal injury lawsuit against his former employer, GC Constructors (“GC”), after he allegedly sustained injuries while working as a crane operator on the deck of a barge owned by GC in May of 2007. At the time of his injury, Travelers Indemnity Co. (“Travelers”) provided coverage to GC for Mr. Chenevert’s injuries under the LHWCA. The Travelers policy specifically excluded coverage for bodily injuries to a master or a member of the crew of any vessel. Between May 2007 and May 2010, Travelers paid benefits under the LHWCA in excess of $275,000, but discontinued those benefits in May of 2010, when Mr. Chenevert sued GC in federal court alleging negligence under the Jones Act and “seaman” status. Travelers then put Mr. Chenevert and GC on notice that it would seek reimbursement of the amounts paid under the LHWCA from any recovery Chenevert received in his Jones Act lawsuit.

After Chenevert and GC reached a settlement in the Jones Act case, Travelers sought and was granted leave to file a motion to intervene for the first time. Travelers filed its motion to intervene wherein it asserted its right to subrogation as a result of its payments of LHWCA indemnity and medical benefits made to Chenevert prior to the filing of his Jones Act lawsuit. As part of their final resolution, the parties agreed to interplead $277,728.72 into the court’s registry pending resolution of the dispute between Chenevert and Travelers. The Magistrate to whom this issue was assigned ultimately denied Travelers right to recoup its payments basing his decision on the legal tenant that no right of subrogation can arise in favor of an insurer against its own insured. The Magistrate also found that Travelers had not demonstrated an interest relating to the subject property or transaction and that Travelers had untimely moved to intervene in the case. Travelers appealed the decision to the United States Fifth Circuit.

On appeal to the U.S. Fifth Circuit, the court felt that the rule of law relied upon by the Magistrate would not apply in this factual setting as Travelers did not insure GC against Jones Act liability. Moreover, the court noted that the LHWCA itself grants subrogation liens to the employer’s insurers when compensation benefits are paid. The panel cited its previous holdings in Peters v. North River Ins. Co., 764 F.2d 306 (5th Cir. 1985) (recognizing the employer/insurer’s compensation lien in a third party suit), Taylor v. Bunge Corp., 845 F.2d 1323 (5th Cir. 1988) (recognizing insurer’s right to recovery in 905(b) claim against the employer as a vessel owner) and Massey v. William-McWilliams, Inc.. 414 F.2d 675 (5th Cir. 1969), which recognized a ship owner-employer’s right to a credit for amounts paid under the LHWCA that bear reasonable relation to the items of loss compensated under a Jones Act claim. The court felt the right to assert a subrogation lien by Travelers as a logical extension of this line of cases and it saw no difference between the insurer in the Massey case and Travelers in the instant case asserting a lien against a 905(b) recovery as opposed to a lien against a Jones Act recovery.

In answering this question, the U.S. Fifth Circuit specifically stated, “we perceive no sound reason why an insurer’s right of reimbursement against a Jones Act recovery should be different from its right of reimbursement against a 905(b) recovery. Arguably, an insurer has an even stronger equitable claim to repayment from a Jones Act recovery.” The court further acknowledged that “a worker who succeeds in a Jones Act claim is necessarily a seaman, and therefore not entitled to LHWCA benefits. It would be particularly unfair to deny the insurer the right to recover the benefits it has paid in such a situation.” The court reasoned that “by paying LHWCA benefits on behalf of GC, Travelers acquired a repayment lien that is independent of, and cannot be nullified by, GC. If this were not so, an employer and employee could easily settle around the insurer’s lien and prevent any possibility of recovery by the insurer.” The U.S. Fifth Circuit thus reversed the district court and remanded.