Supreme Court Establishes Clear Forfeiture Rule under LHWCA in Cowart v. Nicklos Drilling Co.

1. Introduction

The case of Estate of Floyd Cowart, Petitioner v. Nicklos Drilling Company et al., decided by the U.S. Supreme Court on June 22, 1992, addresses significant issues under the Longshore and Harbor Workers' Compensation Act (LHWCA). This landmark decision clarifies the circumstances under which an injured worker forfeits the right to compensation due to failure to obtain written approval for third-party settlements. The parties involved include the estate of Floyd Cowart, an injured worker, and Nicklos Drilling Company alongside its insurer, Compass Insurance Co., who are the respondents.

2. Summary of the Judgment

The Supreme Court affirmed the decision of the Court of Appeals for the Fifth Circuit, holding that under § 33(g) of the LHWCA, an injured worker forfeits the right to further benefits if they fail to obtain prior written approval from their employer or the employer's insurer before settling a third-party negligence claim. In this case, Floyd Cowart had settled a negligence action with Transco Exploration Company without securing the required written approval from his employer, Nicklos Drilling Company, or Compass Insurance. The Court concluded that Cowart was a "person entitled to compensation" at the time of settlement, thus making his failure to obtain written approval sufficient to bar his claim for permanent disability benefits under the Act.

3. Analysis

3.1 Precedents Cited

The judgment heavily relied on prior interpretations by the Benefits Review Board (BRB), particularly the cases of O'Leary v. Southeast Stevedoring Co. (1977) and Dorsey v. Cooper Stevedoring Co. (1986). In O'Leary, the BRB held that "person entitled to compensation" referred only to those employees currently receiving benefits or subject to an award, excluding those not yet receiving compensation. Dorsey reaffirmed this interpretation despite congressional amendments in 1984, suggesting a legislative intent to maintain the BRB's restrictive definition.

3.2 Legal Reasoning

Justice Kennedy, writing for the majority, emphasized the importance of adhering to the plain language of the statute. The Court determined that the phrase "person entitled to compensation" naturally includes anyone who qualifies for benefits under the Act, irrespective of whether the benefits have been formally acknowledged or disbursed. The addition of § 33(g)(2) in 1984, which unequivocally states that forfeiture occurs "regardless of whether the employer...has made payments or acknowledged entitlement to benefits," reinforced this interpretation. The Court rejected the BRB's narrower reading, asserting that consistency across different provisions of the Act necessitates a broader interpretation.

3.3 Impact

The decision sets a clear precedent that injured workers under the LHWCA must secure written approval from their employers or insurers before settling third-party claims to retain eligibility for ongoing benefits. This ruling potentially affects a vast number of claimants who may inadvertently forfeit their rights by not obtaining the necessary approvals. It also empowers employers with greater control over settlements, potentially discouraging frivolous or insufficient claims but raising concerns about workers being trapped in forfeiture situations.

4. Complex Concepts Simplified

4.1 Longshore and Harbor Workers' Compensation Act (LHWCA)

The LHWCA is a federal statute providing compensation to maritime workers injured on navigable waters or in adjoining areas. It operates similarly to workers' compensation laws but covers a specific category of employers and workers.

4.2 § 33(g) - Forfeiture Provision

§ 33(g) establishes that injured workers who settle negligence claims for less than what they would receive under the LHWCA must obtain written approval from their employer or insurer. Failure to do so results in forfeiture of all future benefits under the Act.

4.3 "Person Entitled to Compensation"

This term refers to any worker who meets the qualifications for benefits under the LHWCA. The Court interpreted it broadly to include workers who are eligible for benefits, regardless of whether those benefits have been formally granted or currently being paid.

5. Conclusion

The Supreme Court's decision in Estate of Floyd Cowart v. Nicklos Drilling Co. reinforces the importance of adhering to statutory requirements for injury compensation claims. By interpreting "person entitled to compensation" broadly, the Court ensures that the LHWCA's mechanisms for obtaining approval before settling third-party claims are firmly established, thereby protecting both employer interests and the integrity of the compensation system. However, this ruling also underscores the necessity for injured workers to be vigilant in understanding and complying with procedural requirements to safeguard their entitlement to benefits.