Contributed by Diamond Law Practice, PLLC
In the old days of Defense Base Act insurance sales, there were only three major players with very limited competition. The big three insurance companies, namely AIG, CNA, and ACE, paved the way into the Defense Base Actrealm, and set early case law concerning emerging issues in Defense Base Act litigation. Since then, the market for Defense Base Act insurance has expanded, resulting in new Carriers and third party administrators boosting quarterly profits. These include Zurich American, Allied World National Assurance Company, Broadspire Services, Liberty Mutual Insurance Company, STARR Indemnity, and Gallagher Bassett.
With the emergence of new Defense Base Act carriers, came new challenges in underwriting risks inclusive of “old” liability through judicial expansion of the doctrine known as the last responsible employer and carrier rule. New carriers such as STARR Indemnity and Allied World National Assurance Company must now underwrite coverage for both new risks, and old risks inherited under newly issued policies to Employers who have changed insurance companies seeking lower premiums.
The classic fact pattern regarding the last responsible carrier goes as follows. Mr. Jones is a Protective Security Specialist in Iraq with Employer X, who purchased Defense Base Act insurance coverage through Original Insurance Company. In January 2015, Mr. Jones injures his shoulder, and is sent home to for further medical treatment by on base medics. Upon repatriation, the Original Insurance Carrier baselessly denies his claim knowing that the insured Employer X intends to change insurance carriers. After experiencing the financial hardships of a denied claim, and baseless denial of simple medical treatment, Mr. Jones is forced to return to overseas work in order to support his family in June 2015. In May 2015, Employer X changed Defense Base Act insurance companies to New Insurance Company. After returning to heavy duty work overseas, Mr. Jones’ condition worsens, and his pain becomes significantly worse causing him to again return stateside to treat. New Insurance Company says the Original Insurance Company is liable, and denies his claim. The Original Insurance Company says the New Insurance Company is liable, and denies his claim. Mr. Jones finds himself the middle of two multi-billion-dollar insurance carriers who both profited off the sale of multimillion dollar Defense Base Act insurance policies, and pitched their comprehensive and responsive adjuster services to obtain the sale. However, when it really matters, neither insurance carrier wants to make good on their promises. Who is liable?
The short answer is that the New Insurance Company is liable for the entire disability no matter how zealously they defend against the claim.
The law governing the last responsible employer/carrier under the Defense Base Act is as follows:
[I]f the disability resulted from the natural progression of a prior injury and would have occurred notwithstanding the subsequent injury, then the prior injury is compensable and accordingly, the prior employer is responsible. If, on the other hand, the subsequent injury aggravated, accelerated or combined with claimant’s prior injury, thus resulting in claimant’s disability, then the subsequent injury is the compensable injury, and the subsequent employer is responsible.
Constructors, Inc. v. Dir., Office of Workers’ Comp. Programs, 950 F.2d 621, 624 (9th Cir. 1991) (emphasis added; quoting Kelaita v. Dir., Office of Workers’ Comp. Programs, 799 F.2d 1308, 1311 (9th Cir. 1986)). The last employer rule dictates that "the employer during the last employment in which the claimant was exposed to injurious stimuli . . . should be liable for the full amount of the award." Travelers Ins. Co. v. Cardillo, 225 F.2d 137, 145 (2d Cir. 1955).