What Happens When An Uninsured Employer Goes Bankrupt?

What Happens When An Uninsured Employer Goes Bankrupt?


We’ve previously looked at what happens when an insurance carrier defaults on the payment of benefits due to insolvency (Part One) and what happens when both the insurance carrier and the insured employer default due to insolvency (Part Two).

Now it’s time to discuss uninsured employers.  What happens if the insolvent, defaulting employer has failed to meet the Longshore Act’s insurance requirement as spelled out in Sections 904(a) and 932 and thus is an uninsured employer?

A maritime employer without required Longshore Act insurance means problems for everyone.  (We are assuming that the uninsured employer has been making voluntary payments up until default and the issue of its insurance status has not come up earlier.)

The injured worker has a remedy under Section 918 of the Longshore Act, which we looked at in Part Two.  The injured worker will inevitably encounter delays while the investigation of the employer’s status is undertaken, until the case is in posture for the issuance of a Compensation Order, and finally, while the Default Order makes its way through the U.S. District Court.  Eventually, when all requirements are met, the Special Fund will pick up payments in the case under Section 918.

The annual Special Fund assessment process spreads these defaulted liabilities and payments to beneficiaries across the industry through the provisions of Section 944(c).  Each authorized insurance carrier and self-insured employer’s assessment will go up a bit to reflect the Fund’s payments to the worker under Section 918.

If the uninsured employer was a subcontractor then the general contractor will end up with the claim under the Section 905(a) statutory employer provision.

Probably the worst news is for the corporate officers of the uninsured employer.  Section 938(a) makes the president, treasurer, and secretary severally liable along with the corporation for criminal misdemeanor charges.  And even worse, it makes those officers personally jointly and severally liable, along with the corporation, to the injured worker.  (We discussed the meaning of “joint and several liability” under the Longshore Act in Question #8 – 11/12/09).

I can tell you from personal experience that before accepting a case for payment under Section 918, the Special Fund will require the injured worker to add the corporate officers of an uninsured employer as parties to his claim. 

If you are the president, secretary, or treasurer of an uninsured employer under the Longshore Act you will be held personally responsible in the event that one of your employees is injured on the job and the company defaults on the payment of benefits. 

Next will be Part Four – Bankruptcy of an authorized self-insured employer.


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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