Labor Dept.’s Botched Oversight of Injured War Contractors

Civilian workers injured in war zones are routinely neglected at home.

Photo: Wikimedia Commons

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This story first appeared on the ProPublica website, and was co-published with Salon.

WASHINGTON–In her first public address after taking office, Labor Secretary Hilda Solis promised to increase enforcement of laws designed to protect workers.

“You can rest assured that there is a new sheriff in town,” she told union members at a gathering in Miami Beach shortly after her confirmation in February.

Ten months later, Solis’ Labor Department has failed to crack down on one of the agency’s fastest growing and most expensive programs—a system designed to ensure medical care for civilian workers injured in war zones.

The department is responsible for overseeing a workers compensation system in which insurance carriers provide coverage to civilians working on overseas federal contracts. Such policies are funded by taxpayers.

But the department has failed to pursue sanctions against corporations accused of ignoring federal requirements to purchase such insurance, according to a ProPublica review of court cases, federal records and interviews with worker advocates.

The department has also taken no action in cases where insurance carriers allegedly provided false or misleading information to the federal government to terminate medical benefits for injured civilians—another potential crime under the law, known as the Defense Base Act.

The lack of enforcement has allowed carriers and contract companies to abuse the system by avoiding or blocking payments, forcing contractors to spend months and sometimes years battling carriers in court for benefits, claimants and their attorneys said.

“No one has ever been prosecuted for anything,” said Dennis Nalick, a veteran claimant’s attorney. “It’s like having a bank robber who gets caught, apologizes and then is let go.”

The department’s internal regulations call the detection of fraud and abuse the “highest priority” for officials overseeing the insurance program. Labor Department “personnel are responsible for reporting actual or suspected fraud or abuse, through appropriate channels to the Department of Labor,” the department’s procedural manual states.

But the ProPublica examination shows that the department has rarely deployed the tools available under the law to crack down on fraud and abuse–a record that extends back through Democratic and Republican administrations. Labor officials can recommend cases for prosecution to the Justice Department–but have only done so once in the past two decades, according to Labor officials.

They can directly levy civil penalties, but have done so sparingly. As of June, Labor officials have imposed fines in only about 50 of more than 36,000 cases processed by the two largest insurance carriers, according to an internal Congressional memo obtained by ProPublica.

In private conversations, Labor officials have told Congressional staff that they are not an enforcement agency, despite the agency’s internal regulations and federal laws.

One Labor official told Congressional investigators the agency was “at best a score keeper, not a referee,” according to Rep. Dennis Kucinich, D-Ohio, who conducted a hearing into the program earlier this year. (The hearing came after a joint investigation by ProPublica, ABC News and the Los Angeles Times, which found that civilian contractors had routinely been denied basic medical care.) Foreign-born civilian contractors often had received no benefits at all, despite law requiring the delivery of payments within 14 days of an injury, the investigation found.

Sen. Bernie Sanders, I-Vt., said Labor officials have the power to enforce the law, but have ignored their responsibilities.

“Under the last administration, there was virtually no oversight,” said Sanders, who serves on the Senate’s Health, Education and Labor Committee. “Obviously, this whole thing has been a fiasco.”

In a statement, the Labor Department said it had recently imposed a series of fines on corporations that failed to report worker injuries as required by law.

The department indicated that it had fined Blackwater, the private security company now known as Xe, $11,000 for failing to report a worker injury for more than two years. KBR, Armor Group and insurance carriers AIG and CNA have also been fined in recent months.

“We are taking a stronger approach with respect to penalizing the failure to meet the requirements of the law and regulations,” said Shelby Hallmark, the senior Labor official overseeing the program. “We’re upping the ante.”

Nobody’s in charge

Passed in 1941, the Defense Base Act requires every company with an overseas U.S. contract to obtain health insurance for its workers.

But no single U.S. agency is fully in charge of implementing the program, which has exploded since the wars in Iraq and Afghanistan. More than 1,600 civilians have died and 37,000 have reported injuries.

In theory, the Labor Department is the lead agency. But Labor officials do not issue overseas contracts. That responsibility falls largely to the Pentagon and a handful of other federal agencies such as the State Department.

When the wars in Iraq and Afghanistan started, contracting officers with little experience in war zones began awarding bids to companies that lacked the required insurance.

The ProPublica review identified five companies that either did not purchase the required insurance, or which purchased the insurance, and then cancelled it. At least 33 employees have reported serious injuries while working for uninsured companies, according to Labor records.

One company, Strategic Security Solutions, Inc., failed to renew its insurance as recently as last year, according to court records. The company did not return calls for comment.

When companies fail to buy insurance, contractors’ medical care is put at risk.

Typical was the injury sustained by John Mancini, a contract specialist who found a job in Kuwait in 2004 with Procurement Services Associates, a small firm in Pleasanton, Calif., that did bookkeeping for larger contractors in Iraq.

Mancini was on his way home from work in Kuwait City in September 2004 when he was hit from behind by another SUV. Mancini smashed head-on into a concrete freeway barrier. The crash, at speeds of more than 75 miles per hour, totaled both cars. Mancini was left with severe back pain and difficulty walking.

Procurement Services had never purchased Defense Base Act insurance, court records show. Mancini was left to battle the company in Labor Department administrative courts to force them to pay his medical bills. Finally, after nearly two years of frustration and mounting pain, Mancini snapped.

On Oct. 6, 2006, Mancini barricaded himself inside his home outside of Phoenix and began calling 911, making threats and bizarre demands, records show. When local police arrived, Mancini unleashed a barrage of gunfire. After a lengthy stand-off caught live on television, police managed to lure Mancini out of his home.

Mancini pleaded guilty but insane in summer 2007 to charges of endangering police officers and passersby. He was

“It was against everything that I stand for,” Mancini said in a jailhouse interview shortly before being sent to the hospital. “It’s not like I’m a crazed maniac. I don’t shoot at police.”

Mancini and his family believed the standoff would not have happened, had Mancini been able to get help earlier.

Mancini’s neck continues to bother him, and he is scheduled for surgery next year. Taxpayers will foot the bill, although the injury stems from his work accident, said his ex-wife, Susan Mancini. Mancini hopes to petition for an early release, but he has no home to return to. Earlier this year, his house burned down in a case of unsolved arson.

“You hear about veterans’ mental health all the time. These poor contractors end up with nothing,” said his ex-wife, Susan Mancini. “To me, that’s a crime.”

Scofflaws Run Free

In an interview at his company’s offices in Pleasanton, Dan Plute, the president of Procurement Services, acknowledged that his company had not purchased Defense Base Act insurance.

Plute said he was unfamiliar with the law since his firm had not worked overseas before Iraq. Procurement Services paid some of Mancini’s medical bills, but stopped after a doctor hired by the company found that Mancini was fit to return to work, Plute said.

Plute accused Mancini of exaggerating his injuries to get disability payments. He said the Defense Base Act program was biased against employers.

“I don’t think the judge realizes the misery that his decision put me, my family, my employees through,” he said.

And yet under the law, Plute could have been charged with a federal misdemeanor or a fine. But Labor officials did not pursue such charges—despite admonitions from one of the department’s own judicial officials.

At a Labor Department hearing just before Mancini snapped, Administrative Law Judge Russell Pulver warned Plute that failure to provide coverage can result in “criminal liability.”

Procurement Services “has consistently shirked its responsibility to [Mancini] to furnish adequate and prompt medical treatment, apparently hoping that someone else will shoulder its responsibilities in this regard,” Pulver wrote. “I find this position untenable, if not outright reprehensible.”

Under the law, Labor officials are required to ask Justice Department prosecutors to pursue charges against company officials who fail to purchase insurance, a misdemeanor that can result in a year in federal prison.

But Justice has historically shown little interest in pursuing such low-level crimes. In a statement, the Labor Department said that since 2001, it had proposed one case to the Justice Department involving a contract company which failed to purchase the required insurance, but the case resolved before any action was taken.

The law “does not provide for fines or penalties except through criminal prosecution by the Department of Justice,” the Labor statement said. “That avenue is currently not available to us.”

Yet even when Labor officials have the power to impose penalties on companies for administrative infractions, such as failing to file timely paperwork, they rarely act, the review found.

Companies are supposed to file a notice with the Labor Department within 10 days of an employee’s injury. But in nearly 7,000 cases, the companies filed those notices more than a year after they had knowledge of the injury, according to an analysis of Labor Dept. records.

Yet the department has only fined only five companies since 2001 for failing to report injuries. “The current system…provides little incentive for enforcement,” the memo by Congressional investigators concluded.

In the U.S., at least the threat of punitive fines and possible criminal charges exists. For a corporation operating abroad, the Labor Dept. has no way to pursue scofflaws. And hundreds of companies contracted to work in Iraq are based overseas.

David Barnett, a Florida attorney who handles injured worker claims, has argued several cases in which foreign firms contracted with the U.S. government failed to purchase insurance. He said foreign companies face little incentive to cover workers since the Labor department does not pursue actions against them.

“If there are no repercussions to not having insurance coverage, why would you do it?” Barnett said. “It’s a huge problem.”


The Labor Department has not done much better overseeing insurance carriers.

Under the Defense Base Act, it is illegal to intentionally falsify claims information. Violators face five years in prison or a $10,000 fine. Yet the government has rarely enforced the provision, according to interviews and federal records.

Insurance experts and claims attorneys said the lack of enforcement opens the door to abuse by insurance carriers. Civilian contractors have been forced to spend months, and sometimes years trying to get benefits restored after having payments cut on false grounds submitted by carriers, according to court records, injured workers and their attorneys.

Terry Marshall suffered back and hip injuries in May 2005 when he fell from the top of his truck while working for defense contractor KBR at a U.S. base in Iraq.

His hip shattered, he went through years of surgeries and rehabilitation. KBR’s workers compensation carrier, American International Group, faithfully paid Marshall’s medical bills and disability payments.

Then, this March, Marshall was surprised when AIG cut off his disability payments without warning. AIG told the Labor Dept. that Marshall had failed to attend a doctor’s appointment arranged by the firm.

The problem? AIG itself had cancelled the appointment, according to an email Marshall received from his case manager.

In an Feb. 2009 email, Terry Marshall is informed that AIG has canceled his medical appointment.

In this Mar. 24, 2009 Labor Dept. form, AIG cancels Terry Marshall's benefits, claiming that he had failed to attend the medical appointment, which they had canceled.

Marshall appealed his case to the Labor Dept., which instructed AIG to reinstate his benefits. “There would appear to be no basis for the employer/carrier to have terminated” benefits, a Labor claims examiner wrote to AIG in April.

AIG simply ignored the notice, which carries no legal weight. Marshall is now in the final stages of negotiating a settlement agreement with the carrier.

AIG “can punch in anything it wants, and the Department of Labor accepts it,” said Marshall, 53, of Springville, UT. “I have to go in and prove that I’m innocent.”

AIG declined to respond to questions about individual cases. But the company denied making false statements. It noted that it had never been sanctioned by the Labor Department for such a violation.

“We do not make false statements to the federal government on (Defense Base Act) claims,” the company said in response to written questions. “Our claims personnel are held to the highest standard in handling claims ethically, professionally and fairly.”

If true, Fred Busse, 44, has a hard time understanding AIG’s handling of his claim. Earlier this year, AIG refused to provide Busse medical and disability payments for a neck injury he suffered while riding in a truck in Iraq in 2007.

Busse “never reported this alleged injury to employer,” an AIG attorney told a Labor Department judge to explain why the company was denying the claim.

Yet Busse’s employer, KBR, had sent Busse to a doctor in Kuwait to examine his neck, according to court records. And AIG had sent an investigator to Busse’s house, where Busse recounted his neck injury, records show.

Perhaps most puzzling of all, a Labor department judge explicitly noted Busse’s neck injury: Busse “injured his neck in an automobile accident,” the judge wrote in a decision involving a separate injury that Busse had suffered.

More than two years after hurting his neck–diagnosed by KBR’s doctors, noted by AIG’s investigators and litigated by a federal judge—Busse finally won his case earlier this month. A Labor department judge ruled that AIG must pay for Busse’s neck treatment and disability wages, records show. “No medical evidence disputes claimant suffered a neck injury during his employment in Iraq for employer,” Judge Clement Kennington wrote in his decision.

“They’re doing this to everybody,” Busse said. “They’re just trying to get rid of you is what they’re doing. Period. They’re trying to dismiss you.”

Gillelan, the former attorney for the Labor Department, said that Labor officials have a duty to report instances of fraud—when committed either by claimants or insurance carriers.

Over the years, however, staff has been cut back and successive Democratic and Republican administrations have emphasized “compliance assistance” over enforcement.

“They no longer have the personnel to be proactive,” Gillelan said. “They can’t even be reactive.”

Hallmark, the Labor official, said that today’s system depends heavily on checks and balances between workers and insurance carriers. Claimants’ attorneys and unions battle in court with insurance carriers, employers and their attorneys.

“This is an insurance-driven program. It presumes that the parties have access to the mechanisms for resolving disputes,” he said.

Hallmark acknowledged, however, that Iraq and Afghanistan lack the components which help protect worker rights. There are no unions for contract employees. Nor are there many attorneys who specialize in Defense Base Act cases.

“There are limits to what we can actually do in a foreign location that’s in the middle of a war,” Hallmark said.

Richard Philemon learned about the Labor department’s limits the hard way. He was driving a fuel truck for KBR in northern Iraq in October 2006 when he was hit by a roadside bomb. He jumped out of the burning truck, his face, chest and arms on fire.

“I looked like a Roman candle,” Philemon said. “I was surrounded by flames.”

After returning to the U.S. for initial treatment for his burns, Philemon flew back to the Philippines, his home. He repeatedly asked to be treated at Filipino medical centers. AIG adjusters told him he had to return to the U.S., but never paid for his flights, court records show.

After several trips to the U.S., Philemon decided to start treatment in the Philippines. In September 2007, he began seeing a rehabilitation specialist and a psychiatrist, who diagnosed him as suffering from post traumatic stress disorder, or PTSD. He also hired an attorney to force AIG to pay for his care in the Philippines.

Three months later, AIG cut off his disability and medical benefits. The company told the government that Philemon had “apparently abandoned medical care,” according to federal records–even though Philemon was seeing doctors regularly.

Philemon spent the next year living off money from relatives as he waited for his case to wind through the system. Finally, this February, a judge ordered AIG to pay Philemon’s disability, starting from the cut off date in December 2007.

“We put our lives in danger for our military. We supply them with water, food, ammunition, housing. And yet, we’re screwed,” said Philemon, an Air Force veteran. “I almost give my life for my country and I get treated like dirt?

“Something’s not right with that picture,” he said.


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2) If you’re not ready to donate but you’re interested enough in our work to be reading this, please consider signing up for our free Mother Jones Daily newsletter to get to know us and our reporting better. Maybe once you do, you’ll see it’s something worth supporting.

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