N001929
Thursday, January 17, 2002 10:25 AM
9/11 Victim Comp. Fund
January 17, 2002
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: Comments to September 11 Victim Compensation Fund
of 2000 Interim Final Rule
Dear Mr. Zwick:
I am a partner in the Stamford, Connecticut law firm . I was pleased to learn that the Special Master recently
opened an office on Atlantic Street in Stamford. As you may know, our community
is a mere 25 miles from Manhattan. Many people in the greater-Stamford area
commute daily to New York City. As a result, ours is among the many communities
that have suffered immensely as result of the attacks of September 11, and our
firm represents several victims of these attacks. Each faces a decision
concerning whether to take advantage of the Victim's Compensation Fund ("Fund"),
and we are attempting to counsel them in connection with this decision.
I have reviewed the Interim Final Rule and its enabling legislation, and
write to offer the following comments and questions, which I ask that the
Special Master consider in promulgating the Final Rule. Let me begin by
expressing my admiration and gratitude for the work that your office done to
date, under difficult circumstances. In my estimation, the Interim Final Rule
resolves many thorny issues fairly and thoughtfully. However, the Interim
Final Rule also leaves unanswered many questions of widespread application
concerning matters such as the calculation of income and the treatment of
potential collateral source reductions. Among them:
1. Determination of Presumed Economic Loss for Decedents. Section 104.43
directs the Special Master to evaluate the victim' s income history and
specifically states that "The decedent's 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.
2. 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 victim's 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.
3. 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.
4. 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.
A. Workers' Compensation. Will workers' compensation payments be
treated as collateral sources? The Summary of Public Comments submitted in
response to the November 5, 2001 Notice of Inquiry and Advance Notice of Rule
Making indicates that this issue was considered. Yet , the Interim Final Rule
does not address the question and one is left to speculate as to whether, and if
so to what extent, workers' compensation payments will be treated as collateral
sources for purposes of the Fund. In order that potential claimants may
evaluate the benefits of participation in the Fund as compared with
participation in litigation, the Final Rule should provide unambiguously whether
workers' compensation benefits operate to reduce a claimant's award.
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.
For instance, the standard death benefit under New York law is $400 per
week, which terminates in the event that the surviving spouse remarries. How
would one value this benefit? What term would one use, especially in light of
the possibility that the surviving spouse will remarry, thereby terminating
benefits entirely? If some arbitrary term is selected, what would the term be?
What discount rate would be applied to reduce the value to a lump sum present
value?
In my view, because of these difficulties in valuing the benefit, coupled
with the fact that workers' compensation is not an enumerated collateral source,
nor is it a payment by Federal, State or local government, the Final Rule should
provide that workers' compensation benefits are not collateral sources for
purposes of the Fund.
B. Pension Funds. The Final Rule should provide a more specific
definition of "pension funds." Will the Fund utilize the definition of "pension"
utilized for purposes of ERISA, or will a different definition be applied?
How will the Special Master calculate the collateral source reduction based
upon pension fund payments? 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 employee's 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.
On a related topic, will the Special Master consider employer contributions
to pension funds for the years 1998 through 2000 in calculation of income? The
Presumed Economic and Noneconomic Loss Tables indicate that pretax earnings will
include "base salary and bonuses plus certain employer benefits (such as
premiums for medical coverage paid by the employer)." Will employer
contributions to pension funds be among those employer benefits that will be
included in the calculation of income?
C. Executive Defined Contribution Plans. Many claimants are entitled to
stock pursuant to executive defined contribution plans. For instance, our firm
represents a potential claimant whose husband was killed in the collapse of the
World Trade Center towers. At the time of his death, he was the beneficiary of
an EDCP consisting of stock in a privately held company. Some of the shares had
vested in decedent prior to September 11, 2001; and some of the shares were
unvested as of September 11, 2001 but vested subsequently.
Will the value of shares that vested in the years 1998 through 2000 be
considered as income in these years by the Special Master? If so, how will the
value of these shares be calculated?
D. Life Insurance. 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 victim's 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 victim's 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. Conversely, if
EDCP benefits are considered to be potential collateral sources, will the
Special Master include all vested and unvested shares (as of 9/11/2001) in the
calculation of collateral sources; or only shares that were unvested as of
September 11 but vested subsequently? Or, will another analysis be utilized?
5. Review of Presumed Awards. The Interim Rule makes clear that the
Special Master may increase a presumed award upon review of claimant-specific
information. Does the Special Master anticipate that presumed awards may be
reduced in some cases following a review of individual specific information?
Or, will the presumed award operate as a floor?
6. 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 victim's 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.
Whatever the Special Master's intention with regard to these issues,
potential claimants would benefit by the promulgation of a Final Rule that
clarifies the Special Master's intentions in regard to these points so that they
may make informed decisions as to whether to participate in the Fund.
Again, thank you for your consideration of these points, and for the hard
work and thoughtfulness that your office has devoted to this matter.
Very truly yours,
Individual Comment
Stamford, CT