Exemption for Small Vessel Facilities

Exemption for Small Vessel Facilities
Based on telephone calls and e-mails that I’ve received, there has been renewed interest in a topic I discussed back in November 2013. This involves section 3(d) of the Longshore Act (33 U.S.C. 903(d)).

There is a provision in the Longshore Act that allows certain small vessel facilities to be certified by the U.S. Department of Labor as exempt from Longshore Act workers’ compensation coverage. Please read the AEU Longshore blog dated November 21, 2013 for a full discussion.

I would like to stress that this provision has been around since the 1984 amendments, and there are good reasons why certification has been sparingly requested and granted. Brokers and employers should understand the qualifications and conditions that attach to the small vessel facility exemption.

I don’t want to repeat the entire previous discussion, so I’ll just reiterate a few points that I think should be emphasized.

The facility must build, repair, or dismantle “exclusively” small vessels, as “small” is defined in section 3(d):

“3(d)(3) For purposes of this subsection, a small vessel means –

   (A) a commercial barge which is under 900 lightship displacement tons; or
   (B) a commercial tugboat, towboat, crew boat, supply boat, fishing vessel, or other work vessel which is under 1,600 tons gross.”

Exclusively means 100%, no exceptions.

If the facility works on any military or Coast Guard vessels then it does not meet the requirements for exemption.

The exemption does not cover injuries that occur over the navigable waters of the United States or upon any adjoining pier, wharf, dock facility over land for launching vessels, or facility over land for hauling, lifting, or drydocking vessels. So even in a section 3(d) certified facility there will be work that is covered by the Longshore Act.

The exemption does not apply to facilities that receive Federal maritime subsidies (the construction differential subsidy (CDS) or operating differential subsidy under the Merchant Marine Act of 1936, 46 U.S.C. section 1101 et seq.).

The facility’s employees must be covered by state workers’ compensation law as a condition of the exemption.

Most importantly, you should be aware of this language from the U.S. Department of Labor’s regulations implementing section 3(d), “When a vessel other than a small commercial vessel enters a facility which has been certified as exempt from coverage, the exemption shall automatically terminate as of the date such vessel enters the facility. The exemption shall also terminate on the date a contract for a Federal maritime subsidy is entered into, and in the situation where the facility undertakes to build a vessel other than a small vessel, when the construction first takes on the characteristics of a vessel, i.e., when the keel is laid. All duties, obligations, and requirements imposed by the Act, including the duty to secure compensation liability as required by sections 4 and 32 of the Act, and to keep records and forward reports, are effective immediately.” (20 C.F.R. 702.175)

An exempt facility can become an uninsured facility without the owners realizing it. Or if it has USL&H coverage in place based on the activities excluded by the terms of the exemption, then it still faces a serious situation. If the facility unknowingly loses its exemption, it can begin to accumulate penalties for failing to timely report injuries to the Department of Labor on Form LS-202. The penalty for failing to timely report injuries is up to $11,000 per occurrence.

Make sure that you are fully informed with regard to the requirements and conditions that apply to a section 3(d) small vessel facility exemption.


John A. (Jack) Martone served for 27 years in the U.S. Department of Labor, Office of Workers’ Compensation Programs, as the Chief, Branch of Insurance, Financial Management, and Assessments and Acting Director, Division of Longshore and Harbor Workers’ Compensation. Jack joined The American Equity Underwriters, Inc. (AEU) in 2006, where he serves as Senior Vice President, AEU Advisory Services and is the moderator of AEU's Longshore Insider.
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