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Department of Labor OWCP Defense Base Act/ War Hazards
Compensation Act Seminar February 23, 2006
Settlements and Commutations
Miranda Chiu
Settlements and Commutations
- Concluding a Claim by Settlement - the Basics
- Settlements Involving Foreign National
- Commutations - the Basics
- Difference Between Settlement and Commutation.
Section 8(i) Settlement
References
Settlement Basics
- Criteria for approval: settlement must be adequate and not obtained
under duress. See 33 USC § 8(i)(1) and 20 CFR § 702.243(f).
- May include compensation or medical benefit or both..
- Settlements are limited to claims then in existence.
- Settlement application must be a stand-alone document and contain the
information set out in 20 CFR § 702.242(b).
- Settlements are final and not subject to change 30 days after the
Order is filed.
- Structured settlements are permitted.
- The lump sum payment must be paid (received by the claimant) within
10 days of the filing of the Order Approving Settlement.
- Late payments are subject to an additional 20% compensation per
§ 14(f) of the LHWCA.
Settlements Involving Foreign Nationals
- Language and cultural barriers.
- Adequacy of settlement - proving entitlement and adequacy.
- Documentation of earnings, extent of disability, relationship of
survivors in death claims, financial support in dependency claims.
- "Under duress".
- Benefit delivery mechanism
Commutations
References
The
Defense Base Act, at 42 USC § 1652 (b)
the Secretary of Labor may, at his option or upon the
application of the insurance carrier shall, commute all future installments of
compensation to be paid to them one-half of the commuted amount of such future
installments of compensation as determined by the Secretary.
Federal Code of
Regulations, 20 CFR § 702.142
Longshore Procedure
Manual, Chapter 3-502
Commutation Basics
- Only permanent disability (partial or total) and death benefits may
be commuted.
- Only benefits payable to aliens and non-nationals of the U.S. not
residing in the U.S. or Canada may be commuted.
- Only future installments of compensation may be commuted, not
benefits already accrued.
- Medical benefits may not be commuted.
- The commutation must be based on a compensation order that has fixed
the right of the beneficiaries to compensation.
- The claimant does not have the option to reject a commuted sum in
lieu of a continuing award.
Calculation of commuted payments
- To determine the beneficiary's life expectancy, use the
U.S.
Life Tables published by the National Center for Health Statistics.
- If the beneficiary is a minor, use the number of years until the 18th
birthday.
- To determine the present value discount rate, use the
US
Treasury one year constant maturity rate, published by the Federal
Reserve.
- For PTD and death benefits, determine the current percentage of
increase of the NAWW
used to calculate § 10(f) adjustments under the LHWCA.
Subtract this
rate from the Treasury one year constant maturity rate to arrive at the
commutation discount rate
- Determine the present value of future compensation using the above
steps. Divide the sum by 2, to arrive at the commuted payment
- If there are multiple beneficiaries, the commuted payment must be
separately calculated for each beneficiary
Settlement vs. Commutation
Settlement
Settlement is a compromise to resolve a claim with bona fide disputes of
entitlement, which if fully litigated, may result in the claimant taking less
than the settlement sum.
Commutation
Commutation is used when there are no entitlement issues and the
benefits payable are based on the maximum allowed by statute.
Settlement
Medical benefits may be settled. Settlements may be structured, with
future payments made at specified intervals. Settlements may be approved by the
District Director or the Administrative Law Judge.
Commutation
Medical benefits may not be commuted. Commuted payment must be made in
one lump sum. Commutations may only be approved by the District Director.
Settlement
Settlements may not be further reduced by commutation. Settlements are
reimbursable under the WHCA.
Commutation
Compensation awards are reduced by 50% when commuted. Commutations are
reimbursable under the WHCA.
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