The Townsend Decision: Should Vessel Owners Deny Maintenance and Cure?

Tuesday, June 15, 2010
Lawrence R. DeMarcay, III is a partner at Fowler Rodriguez Valdes-Fauli in the firm’s New Orleans, La. office. He can be reached at ldemarcay@frvf-law.com or 504-595-5122.

Unfortunately, as a vessel owner or operator, you have probably been faced with a situation where one of your crew members have allegedly become sick or injured while in the service of the vessel.  As you are aware, once this injury or illness is reported to the company, the duties of providing maintenance and cure under the Jones Act begin. Unfortunately, instances of fraud where the employee may not have suffered the injury or illness that he or she is complaining of seem to be common. In these situations where the alleged injury may not be legitimate, vessel owners have been wrestling with the dilemma as to whether or not to provide the employee with maintenance and cure benefits.
Prior to the summer of 2009, the courts did not allow injured seamen to recover punitive damage awards in cases where a vessel owner refused to provide an injured seaman with maintenance and cure benefits. As such, in cases where there may have been issues relating to the veracity of the seaman’s complaint, there was no real penalty for the vessel owner denying such benefits. Although there were several strategic reasons for paying, or not paying, these benefits, punitive damages were not part of the decision making process. 
However, the United States Supreme Court, in June of 2009, ruled in Atlantic Sounding Company v. Townsend that a ship owner who willfully or wantonly refuses to provide medical care to a seaman who was injured while in the service of the vessel could be subjected to punitive damages. This Supreme Court ruling has drastically changed the strategies associated with the decision to pay, or not pay, maintenance and cure benefits.
To better understand the issues presented to vessel owners by this recent Supreme Court ruling, it is important to provide a brief analysis of a vessel owner’s maintenance and cure obligation. A vessel owner’s liability for maintenance and cure is similar to a shore based employer’s requirement to supply workers compensation benefits. Essentially, a seaman has a right to recover maintenance and cure as a result of injuries or sickness accruing while he is in the service of the vessel. The right does not depend upon the seaman proving that the vessel owner was negligent or that the vessel was unseaworthy. As such, maintenance and cure should be provided until the employee reaches maximum medical improvement from his illness or injury. The cure obligation includes all nursing, medicines, doctor and hospitalization related to the illness. The maintenance obligation includes the provision of a per diem to compensate the seaman for the room and board that he or she received while aboard the vessel. 
The standard of proving a case that a seaman is entitled to maintenance and cure benefits is easy. The employee only has to show that an injury or illness occurred while the employee was in the service of the vessel. It is very difficult for a vessel owner to win a maintenance and cure claim unless it is a clear case of fraud on behalf of the employee.
Although the injured seaman’s case is very easy to make, prior to Townsend, there was no real penalty for a vessel owner refusing maintenance and cure. Vessel owners have pursued two different strategies for defending these claims. One, the vessel owner could deny maintenance and cure benefits to the injured seaman and, if it believed that the seaman would retain an attorney and file suit, file a pre-emptive declaratory judgment action in federal court seeking an order from the court stating that the payment of maintenance and cure benefits is not necessary. However, sending this clear message to the employee that the company does not believe that he or she sustained a compensable injury almost always prompts the employee to retain an attorney who will file suit on the worker’s behalf. The other option is to pay the costs associated with maintenance and cure while reserving the right to defend any liability based lawsuit filed by the injured worker. Although the second option is far less aggressive with regard to the maintenance and cure claim, it is a much better strategy in the long term when it comes to defending a negligence or unseaworthiness claim brought by the injured worker against the vessel owner. One, a seaman that is receiving benefits is less likely to file suit. Two, courts usually award maintenance and cure to injured workers during trial if the employer is unable to show conclusively that there was no injury or that fraud was involved. Thus, employers taking the high road and paying maintenance and cure, which is usually not very expensive, can minimize the chance of a larger judgment being rendered against the company later.
However, the Supreme Court’s ruling in Townsend changed the analysis that vessel owners must make in this situation. Now that the courts can award punitive damages and attorneys’ fees against vessel owners for the willful denial of maintenance and cure benefits, injured workers now have leverage that they can use to obtain benefits. It is important to note that the Supreme Court did not rule that vessel owners should be subject to punitive damages, they only ruled that they could be subjected to punitive damages. This leaves a considerable amount of discretion to the trial courts in determining which situations warrant such an award. 
The Townsend court reached its conclusion based upon three theories of admiralty and common law. First, punitive damages have long been available at common law as a remedy for willful or outrageous conduct. Second, the general rule that punitive damages were available at common law extends to claims arising under federal maritime law. Finally, nothing in the Jones Act or general maritime law undermines the applicability of punitive damages to the maintenance and cure concepts. As such, a fact finder, whether it be a judge or a jury, can evaluate the facts of each situation and determine (1) whether an employee is entitled to maintenance and cure benefits, (2) whether the employer’s denial of benefits was willful, and (3) whether punitive damages and attorneys’ fees should be awarded to the seaman for the denial of such benefits.
Furthermore, the Townsend court did not rule as to the amount of punitive damages that could be awarded. As such, substantive due process rules apply and the court should look to easily calculable formulas to determine punitive damages. The Supreme Court, in previous cases, has stated that very few punitive damage awards that exceed a single digit ratio between the punitive and compensatory damages will satisfy substantive due process requirements. Thus, as the courts work out the details surrounding the award of punitive damages for the denial of maintenance and cure benefits, they will probably be limited to punitive awards that are no more than ten times the compensatory damage award. Although this limit on the size of the award will keep judges or juries from issuing awards that are beyond the scope of reason, these awards will still be significant. For example, if a court awards an injured seaman a $300,000 compensatory damage award for serious personal injuries that he suffered, the court could award a punitive damage award of $3 million dollars.
In addition to evaluating the likelihood and amount of a potential punitive damage award, it is also important to consider that most insurance policies do not provide a vessel owner insurance coverage for a punitive damage award. By nature, punitive damage awards are meant to punish the offender. It is against public policy to have insurance policies that provide coverage for punitive damages. If covered, the award would no longer serve as a deterrent from the unwanted conduct.
As the courts continue to grapple with the issue of whether to award punitive damages or not, vessel owners are left in a position of uncertainty. Although no appellate level decisions have been rendered, several district courts have evaluated the Townsend language and reached different conclusions. Although all of the courts that have cited Townsend have noted that punitive damages could be awarded, not all of them have decided to do so with others making such an award.
Considering the Supreme Court’s ruling in Townsend, it would be prudent for all vessel owners to review their pending personal injury files to determine if proper maintenance and cure has been provided. Furthermore, as new claims are administered, it makes sense to provide maintenance and cure benefits to all employees that suffer an illness or injury while in the service of the ship unless there is some clear indication of fraud. Even if you are able to avoid punitive damages for the denial of such benefits, the easy standard applicable to a maintenance and cure claim virtually guarantees that such claims will be paid in the end. As such, there is no need to risk a punitive or attorney’s fee award for the denial of benefits that you will ultimately pay in the end.

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