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Longshore Insider
Special Fund
Oct 27, 2010 - Jack Martone, The American Equity Underwriters, Inc.
1927 – The Special Fund was established by section 944 (33 U.S.C. 944) when the Longshore and Harbor Workers’ Compensation Act was enacted in 1927.  It was originally funded by Congressional appropriation and through payments into the Fund by insurance carriers and self-insurers in death cases with no eligible survivors.

There are actually two Special Funds.  When the District of Columbia Workmen’s Compensation Act was enacted in 1928 as an extension of the Longshore and Harbor Workers’ Compensation Act, a separate Special Fund was created and is still being administered for District of Columbia cases with dates of injury prior to July 27, 1982, when the original District of Columbia Act was repealed.

Cases under subsequent extensions of the Longshore Act (Defense Base Act, Outer Continental Shelf Lands Act, and Nonappropriated Fund Instrumentalities Act) are all included in the Longshore Special Fund.

The Special Fund is administered by the Secretary of Labor, and the custodian is the U.S. Treasury.  The Fund is not property of the U.S. Government.  Disbursements can only be made as specified in Section 944(i).  The purpose of the Fund is to spread certain costs across the industry, such as vocational rehabilitation training and maintenance, insolvency, and indemnity benefits in second injury cases.

The original version of the second injury provision, section 908(f), was little used compared to today, when payments in second injury cases account for nearly 90% of Fund expenditures.  As originally enacted, section 908(f) provided that if an employer hired a worker with a pre-existing disability (due to an injury, not just a pre-existing impairment) then in the event of a subsequent injury the employer would be liable only for the disability caused by the subsequent injury.

1972 – The 1972 amendments to the Longshore Act made significant changes.  The amendments provided for the funding of the Special Fund by creating the annual assessment of authorized insurance carriers and self-insurers.  Each assessment was determined by the ratio of each carrier and self-insurer’s indemnity and medical payments in the preceding calendar year to the total of all payments during that year.

Section 908(f) was changed by the 1972 amendments to provide that pre-existing disability could be any impairment or defect and the employer’s liability in a qualifying case in most instances would be limited to 104 weeks of permanency plus medical costs.

The 1972 amendments created the conditions which led to huge growth of the Special Fund during the 1970s and early 1980s.  In fiscal year 1976 the Special Fund paid $80,000 in 19 second injury cases.  By 1993 this annual expenditure had grown to over $90 million in about 4,500 section 908(f) cases.  In 1993 the assessment exceeded $100 million for the first time.

1984 – The 1984 amendments again made significant changes.  The assessment formula was changed to incorporate a second injury fund usage factor, due to concerns about the growth of the Fund and the apparent inequitable distribution of the assessment.  Prior to the 1984 amendments a carrier or self-insurer could place a case in the Special Fund for payment under section 908(f) and there would be no direct consequence to its assessment in subsequent years.  The 1984 amendments changed the assessment formula to what we have today.

The old formula was based on total compensation and medical payments for each carrier/self-insurer during the preceding calendar year divided by the total of all compensation and medical payments, multiplied by the estimated needs of the Fund for the current year.

The new formula added a factor in the calculation to take into account usage of the Fund under section 908(f).  Medical payments were also dropped from the calculation.

OLD FORMULA (using prior calendar year numbers):

First, calculate each individual insurance carrier’s and self-insurer’s ratio by dividing the individual indemnity and medical payments during the prior calendar year by the total of all indemnity and medical payments during the prior calendar year;

Second, multiply each carrier’s and self-insured’s ratio by the needs of the Special Fund for the current calendar year.

The result is each carrier’s or self-insured’s assessment.

NEW FORMULA (using prior calendar year numbers):

First, calculate ratio number one by dividing each carrier’s and self-insured’s indemnity payments during the prior calendar year by the total of all indemnity payments during the calendar year;

Second, calculate ratio number two by dividing each carrier’s and self-insured’s attributable Special Fund payments under section 908(f) (second injury cases that each carrier or self-insurer have placed into the Fund) by the total Special Fund payments under section 908(f) during the prior calendar year;

Third, add the two ratios;

Fourth, divide the sum of the two ratios by 2;

Fifth, multiply this result by the needs of the Special Fund for the current calendar year.

The result is each carrier’s or self-insured’s assessment.

The assessment is billed in two parts each year; an advance billing in January for an estimated one-half of the total, and a final billing in July for the balance.

The 1984 amendments also added an “absolute defense” on behalf of the Special Fund to enforce the requirement that all applications for section 908(f) relief be presented to the DOLs District Directors as soon as permanency becomes an issue in each case.

Today, the Special Fund makes payments under section 908(f) for second injury cases (about 89% of Fund expenditures), under section 910(h) for one half of the annual cost of living adjustments in pre-1972 amendment cases, under section 908(g) for maintenance allowances to persons undergoing vocational rehabilitation training, under section 918(b) in insolvency cases, under section 907(e) for impartial medical examinations, and under section 939(c) for vocational rehabilitation training services.

Funding for the Special Fund comes from the annual assessment (99%), from fines and penalties, from interest earned on Special Fund balances, and from $5,000 payments into the Fund in death cases where there are no eligible survivors.


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.

The opinions and comments expressed in this article are those of the authors and do not reflect the opinion of ALMA, AEU or Amwins. None of ALMA, AEU, Amwins or the authors are responsible for any inaccuracy of content or for any loss or damages incurred by any party as a result of reliance on information contained in this article. Content may not be published or reproduced without the written consent of the authors. Prior articles may not be updated for accuracy as pertinent information changes over time. The Longshore Insider is intended to provide general information about the industry and should not be construed as legal advice under any circumstances. For legal advice, please consult a licensed attorney.
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