Division of Longshore and Harbor Workers' Compensation (DLHWC)

CHAPTER 8-201 — INTEREST

1. Purpose and Scope.This Chapter presents the policy, procedures, and criteria for assessing interest, which is to be applied to all compensation payments which are past due.

2. Policy.

a. Interest Allowed on Compensation Due Under the Act.It is the Director's policy to impose interest on all compensation payments which are past due. This policy is supported by longstanding case law recognizing the appropriateness of requiring the assessment of interest for failure to pay compensation when it becomes due and payable. The Board and courts have held that interest is appropriate despite the fact that the Longshore and Harbor Workers' Compensation Act and regulations are silent regarding interest.

b. Mandatory Application of Interest. The Board has long held that payment of interest is mandatory on past due compensation and runs from the date the compensation is owed. Ryan v. McKie Co., 1 BRBS 221, 229-30 (1974). The Board has recently reaffirmed the mandatory nature of interest holding that a claimant cannot waive the right to interest in an agreed compensation order, but may waive interest in a section 8(i) settlement. Aitmbarek v. L-3 Communications, 44 BRBS 115, 118-19 (2010). Even before the Board was created, the courts held that if payments were unjustly withheld (and under the law, payments are wrongfully withheld if it is eventually determined that they should have been paid), the party who withheld payment should be compelled to pay lawful interest from the date of the claimant's entitlement to the payment to the date the payment is actually made. Strachan Shipping Co. v. Wedemeyer, 452 F.2d 1225, 1229-30 (5th Cir. 1971). In Wedemeyer, the Fifth Circuit held that the deputy commissioner had authority to include interest on compensation not paid when due because a claimant is not made whole and does not receive the full amount of compensation due unless interest is added.

c. Procedure. As a matter of general procedure, entitlement to interest must be included in all compensation orders awarding benefits after specifying the amount of the award. Such an order must include the following language: “together with interest payable on each past due installment of compensation in accordance with the rate established under 28 U.S.C. Section 1961.”

d. A Timely Controversion Does Not Excuse Interest.An Employer/Carrier's timely controversion of the right to compensation under section 14(d), i.e., the filing of a Form LS-207 within fourteen days of the employer's knowledge of the injury, does not relieve the responsible party from paying interest on unpaid compensation later determined to be due.

3. Interest Applicable to Unpaid Balance Only. Interest Applies Only to Unpaid Compensation.If an EC has made partial payments, for example, in compliance with the terms of a state compensation law, or has made payments at a compensation rate less than that which is determined to be correct, interest applies only to the portion of the compensation which was not paid.

4. Rate of Interest - Title 28 U.S.C. Section 1961.Interest is to be paid at the rate determined under 28 U.S.C. Section 1961 as of the time an award is filed (or payment of past-due benefits without an award is made). It is a uniform rate based on the United States Treasury constant maturities (1 year) yield immediately prior to the date the compensation order is filed in the office of the District Director. The application of this interest rate was upheld in an en banc decision by the U.S. Court of Appeals for the Ninth Circuit in Price v. Stevedoring Services of America, Inc./Director, 697 F.3d 820, 836-39 (9 th Cir. 2012) (en banc), 46 BRBS 51 (CRT). Interest rates are available via links posted to the program web site.

5. Items on Which Interest is Payable.Interest is payable on all items that are included in the statutory definition of compensation under section 2(12). Thus, interest is due on all unpaid accrued disability and death compensation and also on funeral expenses if not timely paid. Adams v. Newport News Shipbuilding and Dry Dock Co., 22 BRBS 78, 84 (1989). Likewise, interest is payable on assessments of additional compensation under section 14(f) that are not timely paid. McKamie v. Transworld Drilling Co., 7 BRBS 315, 320 (1977). Interest is also payable on overdue medical expenses, whether reimbursement is owed to the claimant or the medical provider. Ion v. Duluth, Missabe & Iron Range Ry. Co., 31 BRBS 75, 80 (1997); Hunt v. Director, OWCP, 999 F.2d 419, 421-22 (9 th Cir. 1993), 27 BRBS 84 (CRT). It is also the Director's policy to impose interest on assessments of additional compensation under section 14(e), despite the fact that the Board long ago held that interest is not allowed on such assessments. Cox v. Army Times Publishing Co., 19 BRBS 195 (1987). The Director plans to challenge the Board's ruling on this issue in Wakeley v. Knutson Towboat Co., BRB Nos. 13-288/A, which is currently pending before the Board.

6. Uniform Method of Calculating Interest.In light of the reasoning set forth by the Ninth Circuit in Price v. Stevedoring Services of America, Inc./Director, 46 BRBS 51 (2012), the Director has adopted a new procedure for calculating interest on accrued unpaid compensation. Prior procedure involved using two formulas to calculate “sliding” and “straight” interest. Current procedure calls for a single calculation of “compound” interest (with an annual compounding interval). This compounding interest formula is to be used by all District Offices, both inside and outside the Ninth Circuit.

a. For purposes of illustration, assume an employee injured in July of 2010 is permanently partially disabled as of August 1, 2010 based on a loss in earning capacity, with a PPD rate of $1,000 per week. The case was controverted, and no benefits were paid by the EC. The employee then received an ALJ Decision and Order Awarding Benefits plus interest, served on December 1, 2012. Assume the interest rate is 0.18%.

The basic compound interest formula is:

A = P(1+r/n) nt

Where:

A = the amount accumulated after n years, including interest

P = the principal amount

r = rate of interest (as a decimal)

n = number of times interest is compounded per year

t = number of years the amount is overdue (number of days overdue ÷ 365)Because interest is compounded only once per year, the value of “n” will always be one. When the above example is placed in a spreadsheet with the formula, the table would appear like this (first four payments only):

Begin |
End |
Bi-Week |
Interest |
Total |

8/10/2010 |
8/14/2010 |
$2000.00 |
$8.40 |
$2008.40 |

8/15/2010 |
8/28/2010 |
$2000.00 |
$8.26 |
$2008.26 |

8/29/2010 |
9/11/2010 |
$2000.00 |
$8.11 |
$2008.11 |

9/12/2010 |
9/25/2010 |
$2000.00 |
$7.97 |
$2007.97 |

Note that the amount of interest due on each biweekly principal payment decreases; this is because the value of “t” decreases due to the reduced amount of time elapsed between when the compensation became due (10 days after the December 1, 2012 compensation order), and the end of the period for which the compensation was payable. Note also that the amount of the second, third and fourth principle payments do not increase by the amount previously paid in interest. This is because interest is calculated on each overdue principal payment individually, and interest is compounded only once per year for each payment.

b. For actual calculations, use the version contained in the LCMS interest calculator. Problems or discrepancies should be brought to the attention of the Director, DLHWC.

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^{1}Applying the formula to the first payment would yield: 2000(1 + .0018/1) 849/365 = 2000(1.0018) 2.33 = 2000(1.0042) = 2008.40.