Mitigating the Risk of Defense Base Act Insurance
By John G. Stafford and Caitlin S. Kaprove
The Defense Base Act (DBA) requires many U.S. government contractors and subcontractors to provide workers’ compensation insurance to their overseas-based employees working on U.S. military bases and government projects.
DBA insurance provides benefits to employees for injury or death when working overseas, and limits contractor liability for employee injuries or death while employed overseas. Understanding the Defense Base Act is therefore not only an important part of any robust compliance program, but also an important step in mitigating potential liability arising from covered employee activities.
This World War II-era law requires federal contractors and subcontractors to provide workers’ compensation insurance to: employees engaged in employment on overseas U.S. military bases or land otherwise used for U.S. military purposes; on a “public work” contract overseas; on a contract performed overseas funded by the Foreign Assistance Act; or providing morale or welfare services to the U.S. armed forces overseas. Employees injured or killed during such employment are entitled to disability compensation and medical benefits, entitled to death benefits, and are not permitted to sue employers or the U.S. government.
DBA coverage is broader than the act’s title suggests, extending to any U.S. contract for overseas “public work” that is a government-related construction project or connected to national defense, or any service contract employment that supports these activities. The Defense Base Act also covers foreign nationals, though the amount and type of benefits available is more limited for employees who are not U.S. or Canadian residents. Work for private employers on U.S. military bases outside the United States is covered, as is U.S.-funded overseas work on foreign government contracts under the Foreign Assistance Act, which provides for the sale of military equipment, materials and services to U.S. allies. The DBA also covers employees during transport to or from covered overseas employment, including such travel in the United States.
As one example of the breadth of the act, the Department of Labor benefits review board reversed an administrative law judge’s denial of DBA coverage for an employee teaching Asian history to Navy personnel on Navy ships. A claimant must show involvement with a “public work,” i.e., that his work is related to national defense, war activity or construction. In that case, the claimant furthered national defense by educating Navy personnel as to the history and customs of the local population, and translated and lectured on diplomacy.
Prime contractors and subcontractors must obtain and maintain coverage throughout the performance of a covered contract. If a subcontractor does not obtain the insurance, its prime contractor is considered the “employer” of its employees and is liable for their coverage. Prime contractors therefore should take care to flow down the insurance coverage requirements to their subcontractors and confirm that such coverage is in full force and in effect throughout the subcontract.
Failure to obtain Defense Base Act insurance for all covered employees not only subjects a company to the risk of potential lawsuits by its employees, it also exposes the company and its officers individually to possible Labor Department fines and criminal actions, as the company and its officers all “shall also be severally liable [for fines] or imprisonment.”
Labor’s division of longshore and harbor workers’ compensation administers DBA claims. The insurance, however, is provided by private insurers, not by the department. Unlike the Defense Department and its contractors, who negotiate separately with DBA insurance providers, some agencies such as the Department of State and U.S. Agency for International Development have blanket agreements with individual providers.
Defense Base Act claims have increased dramatically in recent years, with over 55,000 cases of covered injuries or deaths between September 2001 and December 2009. U.S. military operations in Iraq and Afghanistan during this time and the large number of civilians employed to support those operations, both U.S. and foreign nationals, explain this increase. More claims have meant more enforcement. In 2007, the U.S. Army Audit Agency looked at the program with in-depth investigations of individual contractors. The Defense Contract Audit Agency has also become more heavily involved in auditing costs billed to the Defense Department for DBA insurance premiums. Because the premiums can be substantial — as much as $10 to $20 per $100 of a covered employee’s pay — contractors also should ensure that relevant cost records are complete and current so that premiums are treated as an allowable cost.
DBA-covered solicitations and prime contracts should include FAR Clause 52.228-3 (Workers’ Compensation Insurance—Defense Base Act). This FAR clause merely states that the contractor shall provide workers’ compensation insurance “as the Defense Base Act requires,” without elaborating on what those circumstances may be. All contractors with employees engaged in overseas activities, therefore, should carefully review those activities and engage their Defense Base Act insurance provider to determine whether it applies. In deciding this, it helps to remember that the Defense Base Act: is not limited to “Defense” or “Bases;” applies to all employees both foreign and U.S. nationals engaged in covered employment; applies to subcontracts at every tier, including subcontracts with foreign companies, administered and performed entirely by foreign nationals.
It applies regardless of a written employment contract or length of employment, and to contracts administered by foreign governments.
It also applies regardless of DBA insurance premium costs, and to injuries sustained during covered employment and not just on the job, including certain injuries sustained within the United States.
It requires timely reporting to the Department of Labor of covered injuries and deaths. It is also the employee’s exclusive remedy and the employer’s exclusive liability.
John G. Stafford, Jr. (email@example.com) is a shareholder and Caitlin S. Kaprove is an associate in Greenberg Traurig LLP’s government contracts practice group. The views expressed are solely those of the authors.