There are significant consequences for any government contractor that does not secure Defense Base Act insurance. Any contractor that is awarded a U.S. government contract which requires them to perform employment activities outside the continental U.S. must secure Defense Base Act insurance.
Defense Base Act insurance is federally mandated workers compensation coverage for U.S. government contractors working outside the continental United States. Defense Base Act is known as the “sole remedy” because it protects the employer from certain liability claims while also protecting the employee from work-related injuries, disabilities, and even provides death benefits. These U.S. Government-funded contracts require employers to purchase Defense Base Act insurance for all U.S. civilian contractors, third-country nationals, and local national, whether they are considered primary contractors or subcontractors for the U.S. government.
The United States Department of labor was established in March of 1913 by President William Howard Taft. The department’s purpose was to promote and develop jobs, job safety, and enhance opportunities for the working American. As the Department of labor evolved over the years and the U.S. entered World War 1 in April of 1917, it was becoming apparent that in addition to all the other labor issues going on at that time, injured U.S. contractors working abroad were not covered under their state workers compensation program.
As time went on and as the United States was about to enter world war II, the 77th Congress enacted the Defense base Act on August 16, 1941. The Defense Base Act is an extension of the Longshore and Harbor Workers Compensation Act which also provides for Disability, death, rehabilitation, medical injuries, and funeral expenses are also covered under the Defense Base Act.
The United States Department of Labor oversees the Defense Base Act insurance program. However, the Longshore and Harbor Workers Compensation administrates the Defense Base Act, which is a division of The Office of Workers Compensation Program (OWCP). Congress enacted the Defense Base Act to provide workers compensation benefits to any U.S. government contractors working outside the continental United States. U.S. Federal Law mandates this coverage for any work being performed abroad regardless of whether the work is being performed on a U.S. military base of not.
There are four basic laws that define or influence the coverage required under the Defense Base Act. Below are descriptions of the laws, which we hope will adequately explain their relevance.
The law referred to as the Defense Base Act consists of only five sections, a mere five pages long. Most rules covering the administration of the act come from the Code of Federal Regulations, written regarding the Longshore and Harbor Workers’ Compensation Act.
Passed in 1927, the United States Longshore and Harbor Workers’ Compensation Act (LHWCA) was created to force the uniformity of benefits and remedies available to longshoremen & harbor workers throughout the country. The LHWCA came along with an addition to the Code of Federal Regulations (CFR) that laid out an infrastructure for administering the law. The rules of the LHWCA apply to the Defense Base Act in regard to:
Status and situs, which determine entitlement to benefits, are specifically outlined in the Defense Base Act.
The Department of Labor has a document that does an excellent job of explaining the benefits mandated by the LHWCA that apply to the Defense Base Act.
Mutual Security Act
The Mutual Security Act is a web of laws, treaties, executive orders, and directives. Its major influence on DBA Coverage is that it adds military or public works contracts with foreign governments which are deemed necessary to our national security or defense obligations to the list of situations requiring Defense Base Act insurance.
Dayton Peace Agreement
Is only really relevant to work in the Balkans, the Dayton Peace Agreement mandates that work for foreign governments under these agreements requires Defense Base Act coverage.
Failing to secure Defense Base Act insurance from an authorized insurance carrier or not receiving proper authorization from the United States Department of labor to be self-insured could result in serious legal problems for that organization or company. Any employer who chooses to not purchase this federally mandated insurance coverage may be subject to criminal prosecution, imprisonment, and/or hefty legal fines and restitution. Private contractors and corporations can encounter even more legal problems if Defense Base Act insurance is not secured. The executive management team (President, Secretary, and Treasurer) of the corporations can be prosecuted individually and could be held personally and severely responsible, jointly with the corporation, for any compensation that should have been paid under the act in addition to any other benefits that would normally be payable according to the Office of Workers Compensation Program (OWCP).
Employers that are not properly insured may find themselves in a precarious situation because an injured employee can also elect to either claim compensation under the Defense Base Act or file suit against the employer under general tort law for certain damages and injuries which occurred as a result of working for the corporation. If such as lawsuit is filed, the employer may not be able to rely on customary tort defenses that they would typically have when a lawsuit is filed against them mainly (A) the employees’ own contribution to the cause of the work-related injury or (B) negligence or dangerous activity that the employee engaged in which resulted or contributed to the employees’ injury.
Certain sections of the defense base act spell out who is responsible for purchasing the coverage and the ramifications for not securing this federally mandated coverage. Specifically, section 4(a) which addresses the employer’s potential liability if coverage is not secured and section 5(a) which speaks to the primary contractor relationship to any subcontractors and who is responsible for securing Defense Base Act insurance.
Section 38(a) covers specific charges if a contractor is found guilty of not securing Defense Base Act insurance and it also outlines the punishment, fines, and possible imprisonment for not complying with the act.
"Global Underwriters was extremely helpful in securing DBA insurance for our company. They took the time to explain the process and really helped us understand how to budget for additional OCONUS contracts and possible task orders."
- Daniel (Huntsville, AL)