Employees Fraud Bars Reimbursement for Medical Expenses

In re 4-K Marine, L.L.C., No. 18-30348, 2019 U.S. App. LEXIS 3095(5th Cir., Jan. 30, 2019)

By: Jacob Williams

After a seaman was injured during an allision in 2015, a tug boat operated by Central Boats Rental Inc. and owned by 4-K Marine (jointly referred to as CBR) jointly filed a petition under the Shipowner’s Limitation of Liability Act in the U.S. District Court for the Eastern District of Louisiana. CBR sought reimbursement for maintenance and cure paid to an injured seaman from Marine Services, LLC whose tug and flotilla of barges allided with CBR’s vessels.  Marine Services reimbursed CBR for certain expenses but refused to reimburse expenses for a back injury asserting that it was not caused by the incident.After a bench trial, the district court determined that only the knee injuries were caused by the allision and further found the injured seaman fraudulently withheld material issues about pre-existing medical conditions and medications both before and after the incident concerning his back. Therefore, the employer had no obligation to pay for the back surgery and cannot be reimbursed by the tortfeasor for those costs because the back injuries were not caused by the allision. CBR timely appealed this determination to Fifth Circuit.The Court of Appeals affirmed the district court’s finding. On appeal, CBR argued that maritime principles and a contract between the parties compel Enterprise Marine to reimburse them for the back surgery regardless of the employee’s fraud. The panel ultimately found this argument unpersuasive because maritime law holds Enterprise liable only for injuries it caused. CBR noted practical problems when deciding to cover its employee’s maintenance and cure claims. The panel dismissed this argument stating that the employer will only become liable for compensatory damages if it “unreasonably rejects the claim” after an investigation and for punitive damages and attorney’s fees only for egregious behavior.  The court went on to state that CBR had other options such as holding an investigation, or to withhold payment completely upon discovery of the employee’s fraud. These rights are unaffected just because the ultimate entity responsible is a third-party tortfeasor.While there was an agreement between the parties regarding reimbursement for maintenance and cure, there was no written contract addressing either party’s obligations if any medical expenses were found to be for injuries unrelated to the allision. The Court of Appeals found that Enterprise Marine made no such concessions to make payments for fraudulent claims. The district court’s ruling was affirmed.