dojN001934.xml

dojN001934.xml

born-digital

email

yes

no

2002-01-17

Thursday, January 17, 2002 11:12 AM
victimcomp


Attachment 1,


Kenneth L. Zwick, Director
Office of Management Programs, Civil Division
U.S. Department of Justice
Main Building, Room 3140
950 Pennsylvania Avenue, NW
Washington, DC 20530

Re: September 11th Victim Compensation Fund of 2001 - Comments to Interim Final Rule

Dear Mr. Zwick,

I am a lawyer specializing in estate planning and the settlement of estates. I have reviewed the Interim Final Rule (the Rule) issued December 20, 2001 in connection with the September 11th Victim Compensation Fund of 2001 (the Fund) and wish to offer the following comments:

1. Distribution of award to decedents beneficiaries. Section 104.52 of the Rule provides, in substance, that the victims personal representative is to distribute any award in a manner consistent with the laws of the decedents domicile. The section further provides that if the Special Master concludes the personal representatives distribution plan does not appropriately compensate the victims spouse, children or other relatives, the Special Master may direct the personal representative to distribute all or part of the award to such spouse, children or other relatives.

This provision raises a number questions. First, although it is clear that the personal representative is to distribute the award in a manner consistent with the law of the decedents state of residence, it is not clear which laws are intended. The laws of intestacy? The states laws relating to damages for wrongful death? (One assumes the latter is intended, but technically an award from the Fund is not a tort recovery, but a substitute for one). Depending on the jurisdiction, the two could yield very different results. For example, in the case of a Massachusetts decedent who left a spouse, no issue and parents, the laws of intestacy would direct that everything above a threshold amount be distributed one-half to the surviving spouse and one-half to the parents. By contrast, the laws governing damages for wrongful death would, under the same circumstances, award 100% of the compensatory damages to the spouse, and any award for funeral expenses, medical expenses, punitive damages and conscious pain and suffering to the estate.

If the Victims Compensation Fund is to be a meaningful alternative to tort litigation, the Rule should expressly direct the Special Master to designate the economic loss component of the award as compensatory and specify that this component is to be distributed by the personal representative in the manner consistent with the state law of the decedents domicile governing the distribution of compensatory damages in a wrongful death suit.

Many of the victims of September 11th were young and it is likely that many died without wills. In some jurisdictions, intestacy statutes may produce a harsh result for those who were financially dependent upon the victims. By far the largest part of most victims awards from the Fund will be based upon loss of earnings under Section 104.43. That being the case, it only makes sense that, in cases where the decedent left a spouse or other dependents, this portion of the award benefit those who actually relied on the victims income: the spouse or other dependents. The alternative -- to distribute the economic loss portion of the award in accordance with the rules of intestacy -- could result in part of the award being distributed to heirs-at-laws who were not financially dependent on the victim and so suffered no actual economic loss as a consequence of the tragedy.

Finally, victims and practitioners would appreciate guidance as to the circumstances under which the Special Master would exercise discretion to distribute all or part of the award otherwise than in accordance with the personal representatives state law-directed distribution plan.

2. Collateral Sources. Section 405(b)(6) of the underlying legislation, Title IV of Public Law 107-42 (Air Transportation Safety and System Stabilization Act) (the Act), mandates a reduction to the award for payments from collateral sources. Section 104.47 of the Rule tracks the language of the statute and describes collateral sources as including life insurance, pension funds, death benefit programs and payments by federal, state or local governments… Nowhere are any of these expressions defined for purposes of the Fund.

Many of the victims were highly compensated professionals, and it is likely that many had life insurance (which they themselves paid for), and retirement plans such as 401(k) accounts (to which they contributed their own money, rather than investing these funds in some other type of savings vehicle). Virtually all of the victims will have died on the job and their survivors may be eligible to receive worker compensation benefits.

The underlying legislation was intended to encourage the victims survivors to participate in the Fund rather than pursue a tort claim against the airlines. If the families of the victims are to be induced to forego suit, the meaning of collateral sources should be relatively narrow.

For example, worker compensation should not be considered a collateral source payment. Although these payments are made by an insurance company, they are not technically life insurance nor are they technically payments by the government. Moreover, if worker compensation benefits were to be considered collateral sources, these payments would be virtually impossible to value. Under Massachusetts law, for example, the worker compensation benefit is paid for 250 weeks and, if the spouse has then remarried, the payments would end at that point. If the spouse does not remarry the payments could continue. How would one value such a benefit? Because of the difficulties in valuation, and because worker compensation benefits are not expressly enumerated as a collateral source, the final rule should provide that worker compensation benefits are not collateral sources for purposes of awards under the Fund.

Similarly, how is the expression pension to be interpreted? Many retirement plans are funded by both employer and employee contribution. One example of this is a 401(k) plan where the employer matches. It would seem unfair, and contrary to the intent of the collateral source provisions of the statute, to consider the employees own contributions and growth attributable to these contributions to be collateral sources. They are, in effect, no different than savings on the part of the victim. It would be more appropriate to limit the offset for pension funds to that portion of any retirement benefit that is attributable to the employers contribution and the growth attributable to that contribution.

With respect to life insurance, Section 405(b)(6) of the Act only requires an offset for insurance payable to the claimant. Section 104.2(a) of the Rule narrowly defines claimant as any September 11th victim or the victims personal representative. Abidingly, the Rule should assign the narrowest possible definition to the collateral source reduction for life insurance, while still adhering to the Congressional mandate, by treating only insurance payable to the victim or his or her estate as a collateral source payment. As it stands now, Section 104.41 of the Rule offsets for all insurance on the victims life. This interpretation penalizes the families of those victims who prudently invested disposable income in insurance as opposed to other investment vehicles. The potential inequities of this interpretation are exacerbated by the cap placed on the economic losses payable to families of victims who were financially successful. By capping awards and subtracting all insurance proceeds, the Rules as presently structured may essentially eliminate the ability of many families to obtain relief from the Fund.

3. Publication of awards. Section 104.34 provides, in part, that the Special Master reserves the right to publicize the amounts of some or all of the rewards. It seems to me that the interest of the families are best served if the Special Master is required to publish all awards together with some type of summary describing the victims family and financial circumstances but not identifying any individual by name. This will put family members in the best position to try and assess the likely amount of the award under the Fund and decide whether to participate in the Fund or to pursue a tort claim.

4. Determination of presumed non-economic losses for decedents. Section 104.44 states that the presumed non-economic loss shall be $250,000 plus an additional $50,000 for the spouse and each dependent. The $250,000 figure is a fraction of what the victims family might receive in a civil suit. If a purpose of the Fund is to induce victims families to forego litigation against the airlines, consideration should be given to increasing the base award for non-economic loss to a more realistic number.

Also, how is this amount to be payable? Is it intended that the $250,000 base portion of this award be paid over to the decedents estate and distributed in accordance with the intestacy statute of the decedents state of domicile (assuming that the decedent left no will) and that the $50,000 award that is for the spouse be paid either directly to the spouse or to the personal representative but earmarked for distribution to the spouse? Or is it intended that the full amount of the award ($250,000 plus $50,000 for the spouse and each dependent) is to be paid over to the estate and distributed to those who would take under the state intestacy laws. Depending on the intestacy laws of the decedents state of residence, this may make a difference. If the $50,000 amount is really for the spouse and dependents, the $50,000 should be expressly earmarked for distribution to him or her.

5. Amount of Compensation. Section 104.41 provides, in part, that In no event shall an award (before collateral source compensation has been deducted) be less than $500,000…. There is still considerable uncertainty as to how the deduction for collateral source payment is going to be applied. That being the case, to alleviate some of the victims uncertainty -- and also as an inducement to participation in the federal fund rather than a civil suit -- the Rule should be revised to provide for a minimum award size that would be determined without regard to the amount of collateral source compensation. The Special Master has recently been quoted by the media as suggesting that he would exercise his discretion to be sure that each claimant received an award of at least $250,000. I would suggest that the minimum award size must be at least twice that amount to make it economically rational for the families of those victims who were prudent enough to insure their lives to participate in the Fund.

6. Determination of Presumed Economic Loss for Decedents. Section 104.43 directs the Special Master to evaluate the victims income history and specifically states that The decedents salary/income in 1998 - 2000 shall be evaluated in a manner that the Special Master deems appropriate. The Special Master may, if he deems appropriate, take an average of income figures for each of those three years.

A great many of the victims were professionals in their mid-thirties who were undoubtedly just hitting their strides, career-wise. At this time of life many individuals make the leap from junior management to more senior management positions. For example, it would be most unfair to look to a three year average income figure in the case of an executive who had in the year of death just received a big promotion and raise. The overwhelming likelihood is that a young person who had achieved such professional success would continue to succeed. To apply a three year average rule in such a situation is tantamount to assuming that the victim would not or could not maintain his or her current position. While it is certainly helpful to claimants to know what factors the Special Master might take into account in assessing income, it is critical that the three year averaging rule not be woodenly applied.

I appreciate the opportunity to offer these comments.

Individual Comment
Boston, MA

2002-01-17