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June 2008Managing Contractor RisksIt’s time to place greater emphasis on reducing the risks from contractors working on your site. by Henry Chajet On May 1, 2008, the Acting Assistant Secretary of Labor for the Mine Safety and Health Administration (MSHA), Richard Stickler, stated the following: “One disturbing trend we have seen in metal/non-metal fatalities is contractor deaths. From 2000 through 2006, contractor employees have experienced 21 percent of the fatal accidents. Last year, 32 percent of the fatalities in metal/non-metal operations were contractors. We must take a hard look at why this happens and get it under control.” Not only are these deaths terrible tragedies, they pose significant risks of severe enforcement and civil liability. When Stickler states, “We must take a hard look,” I suggest that he intends to apply the heavy hand of government to accident investigations, and the resulting enforcement actions and penalties. Given the newly adopted fines of up to $220,000 per “flagrant” violation, and the increasing risk of criminal penalties, a review of contractor risks and compliance programs seems worthwhile; particularly given the election-year politics at work during the upcoming months. The recent Congressional focus on alleged enforcement failures by the Occupational Safety and Health Administration (OSHA) and the Mine Safety and Health Administration (MSHA) was aimed directly at the agency leadership and the Administration. It is part of the political process during this election year. New legislation passed by the House of Representatives and awaiting Senate action was preceded by hearings and reports that skewered the agencies for lax enforcement and negligence. Like Stickler, every senior OSHA and MSHA regional official is well aware of these Congressional indictments of his or her performance. The response is to increase enforcement severity and ignore the industry’s enviable safety record, measured on an hours-worked basis, as compared to the rest of the world. The result is a massive increase in enforcement and financial risks that require aggressive risk-reduction programs, particularly those aimed at contractors and subcontractors. Throughout the United States, state workers’ compensation programs set fixed compensation for accidental workplace injuries and illnesses suffered by employees in exchange for prohibiting lawsuits by employees and their heirs against employers. However, contractor and subcontractor employees can often sue the site operator, even though they are barred from suing their own employer — the contractor company — by the state’s workers’ compensation shield. Under the Mine Safety and Health Act and the Occupational Safety and Health Act, MSHA and OSHA can issue citations and penalties to both the contractor and/or the site operator/employer, even if a subcontractor caused the violations. Plaintiffs’ lawyers can use these enforcement actions as evidence in lawsuits against the site operator, increasing the risk of liability and punitive damages. Stickler’s remarks represent the reality of today’s enforcement atmosphere and provide clues for risk-reduction strategies. He states that the “MSHA Web site can be a useful tool to help assess the safety performance of contractors before they come on your property….the contractor’s accident frequency rate…details of violations and accidents charged against the contractor” can be reviewed. He is correct — if the MSHA information is placed in the context of a feasible contractor risk-management program. Write good contracts A risk-reduction program for contractors and subcontractors must begin with a company policy that mandates protection for all personnel that enter the site, regardless of their status as employees, contractors, or visitors. Written contracts or purchase orders must be used to set forth the safety, health, and compliance duties of contractors and subcontractors. The common practice of telephoning contractors, requesting work, and permitting site entry and job performance, without documentation, must be eliminated to establish an effective risk-reduction program. To overcome administrative burdens and delays in time-sensitive situations, local, routine, and long-term relationships can be memorialized once in a written contract and all future work can be performed according to the terms of that contract, by the use of a written purchase order or work order that refers to the contract. As is customary, the documents should require compliance with “all laws and regulations,” but also should include specific, critical safety and health mandates like training, work place hazard inspections, and personal protective equipment (PPE). The contract and purchase order documents can reference more extensive safety and health programs and rules and require compliance with them, including the use of site safety and health “checklists” or “forms” that document compliance. Stickler’s admonition, essentially to use contractors and subcontractors with good safety records, is excellent, but not achievable using only the MSHA Web site data (which may report nothing for most small subcontractors and no prior incidents for many others). Whenever possible, contractor selection should include consideration of the company’s expertise and workers’ compensation history and ratings — far better tools for safety and health risk comparisons than the government Web sites. Moreover, “indemnification and defense” contract provisions, as well as specific and adequate insurance coverage contract mandates, and the production of proof of insurance, are critical risk-management tools. Keep it simple Contractor risk-reduction programs must be easy to implement in order to be effective, particularly at small operations and job sites. The programs should be designed to be implemented by either hourly personnel or management, with minimal additional training, using predetermined forms and checklists of critical items applicable to the site and expected jobs (e.g. insurance certification, training documents, fall protection, lockout/tag out, and PPE). Site access should be restricted, controlled, and documented to the greatest extent possible to help implement a risk-reduction program. Site entry should be combined with, and dependent upon hazard warnings, site rules, training documentation, and accompaniment by site personnel, to the fullest extent possible. The effectiveness of a contractor risk-reduction program can be measured by its application and enforcement, and its failure can be measured by its tolerated breach, generally long before an accident ever takes place. Contractors and subcontractors must be monitored for safety and health contract compliance, just like they are for job performance. Documented enforcement of contracts, including suspension and termination, should be the means for addressing contractor and subcontractor safety and health failures. “Form” warning notices and letters, as well as management training, can make this difficult task easier for site personnel charged with implementing risk-reduction programs. Customize your program Identifying site-specific, high-risk jobs and the most likely potential enforcement actions can help tailor a contractor risk-reduction program. Stickler and MSHA, like OSHA, provide help by identifying the leading causes of violations and accident-related enforcement actions. In the same May 1 speech, Stickler stated: “During the last five years, failure to block equipment has been one of the two most-often cited standards following a fatality at metal/non-metal operations. “The other most-often cited standard following a fatality at metal/non-metal operations is a lack of task training, which ties into another area of concern that is maintenance. “Almost half — 13 out of 31 — of the fatal accidents last year in metal/non-metal operations were maintenance, construction, or repair related. Inadequate procedures, lack of risk assessments, and no task training prior to performing work were the leading causal factors of these accidents. “Personal protective equipment is also an area that requires improvement. Eight of the 31 accidents involved the lack of personal protective equipment that might have saved lives.” Addressing these concerns provides focus for risk-reduction programs and site implementation. Additionally, reviewing a site’s specific history of enforcement actions (available on the MSHA and OSHA Web sites) provides additional focus, training, and self-inspection topics to help prevent “repeat” violations that carry much larger penalties and enforcement risks. Creating and implementing programs to attack the cause of already issued repeat violations, including aggressive company rule enforcement programs, also provides a response to the potential use of repeat violations by plaintiffs’ lawyers. Experience defending companies in accident investigations, designing liability risk reduction programs, and training management personnel indicates that now is the time to reinvigorate, audit, improve, and implement contractor risk-reduction programs. Given today’s enforcement atmosphere, combined with the continuous litigation threats faced by industry, an ounce of prevention is worth far more than the pound of cure.
May 2008Are You Covered?As MSHA ratchets up enforcement, re-examine personal liability coverage for your management team. by Avi Meyerstein With all that Congress and the Mine Safety and Health Administration (MSHA) have done to ratchet up safety enforcement and penalties, you’ve probably thought about one of the worst-case legal scenarios: that MSHA will decide to go after you or other individuals in management, personally, for safety violations. After all, under the Mine Act, MSHA can refer individual corporate agents for criminal prosecution resulting in penalties of up to $250,000 and/or one year in prison for the first offense. In addition, MSHA has the authority to issue personal, civil fines against individual corporate agents for alleged knowing or willful violations. These penalties can apply to a broad range of management personnel defined as corporate agents, beginning with frontline foremen and rising all the way to the CEO. With so much on the line, it makes sense to consider strategies to reduce the impact of MSHA cases on management employees who act in good faith, but get caught up in an MSHA action. Every company should consider a policy permitting lawful defense and indemnification of its agents. Companies with such policies in place should review the policies from the perspective of potential MSHA cases and related investigations and litigation. Indemnification is a clumsy word that simply means protection from loss or damage, such as when a mine operator agrees to reimburse its management employees for legal liabilities and expenses the employee incurs on the job (within certain limitations). Covering an employee’s costs of defending an MSHA investigation by “advancing” legal fees and paying resulting civil penalties is a perfect example of how indemnification can work. Even without MSHA fines and prosecution referrals, management personnel at all levels are faced with incurring legal fees simply if they must defend themselves from MSHA allegations or they need independent advice during an MSHA investigation when management counsel has a potential conflict of interest. While management counsel can often provide advice to corporate agents when no conflicts exist, aggressive MSHA enforcement can lead to potential conflict considerations that require separate counsel for management agents. Similarly, even though workers’ compensation laws generally prevent management agents from being held liable for workplace injuries or fatalities, some states permit such lawsuits, and management agents often fear these risks even beyond their realistic potential for liability. Someone in management, acting in the best interests of employee safety and the company, could wind up with crippling expenses for investigation or defense counsel. From a company perspective, telling a management agent who was acting in good faith to “fend for yourself,” during the middle of an MSHA investigation, could eliminate company loyalty and invite retribution by an angry agent. A far better approach is to adopt a policy that demonstrates loyalty and permits the company to pay reasonable, independent counsel costs for management agents who were acting in good faith, but who can not be represented by company counsel (e.g., because of a potential conflict of interest). In such a setting, company counsel and independent management agent counsel can enter into “joint defense agreements” to further their common interests, protect privileges, and avoid duplication of work, thereby achieving common goals while protecting against conflicts of interest. Creating — and training — employees about these indemnification and defense policies is often in an employer’s best interest. The best time to tell employees about these policies is ahead of time, even when no MSHA action is pending against them. In fact, whenever possible, incorporate your company’s indemnification and defense policy while training management agents about MSHA liability prevention. Moreover, in a tight employment market, where skilled mining personnel are scarce, current and prospective employees will view an indemnification and defense policy as a benefit provided by a loyal employer. An indemnification policy not only protects valued employees and ensures them representation and a fair hearing if needed, but it can also help an employer’s attorneys defend the employer. If the employee has an experienced attorney, it is all the better for establishing a successful joint defense. Yet, there has been concern among policymakers that there should be limits to indemnification and defense by companies of its management employees. They fear that if “bad” conduct is defended and indemnified, some people will lose their incentive to follow the law since they will no longer face the costs of their actions. As a result, each state has an indemnification statute that may even require indemnification and/or advancement in some situations, allow them in other circumstances, and prohibit such agreements under other conditions. In Delaware, for instance, where many corporations are registered, corporations are free to indemnify their officers, directors, and employees involved in civil, criminal, or administrative actions based on these individuals’ roles in the corporation “against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred” by the individual. However, there are limits in Delaware. Indemnification in civil cases generally must be limited to situations where the employee acted in good faith and in a way he reasonably believed was in the corporation’s best interests. In criminal cases, the employee can only be indemnified where he had no reasonable basis for believing his conduct was illegal. Significantly, there is no presumption that an employee acted in bad faith or knowing the conduct was wrong. So, just because you may lose or (more likely) settle an MSHA case does not mean that you will automatically lose any indemnification rights you may have under state law, your company’s charter or policy, and/or your terms of employment. Delaware also requires indemnification in certain situations. In the case of officers and directors specifically, the corporation must provide indemnification to the extent the individual is successful in defending all or part of the action against him. In addition, Delaware law permits a corporation to advance to an officer or director the expenses and attorneys’ fees required to defend the lawsuit provided that the individual agrees to reimburse these funds if it later turns out that he was not entitled to indemnification (such as if he is found to have acted in bad faith). Not only should companies consider or review policies to indemnify and defend employees under appropriate circumstances, but they also should review insurance policies that may cover some indemnification and/or defense. Certain “D&O” (directors and officers) insurance policies, and sometimes even general liability policies, may cover defense and/or indemnification costs in certain MSHA investigation settings related to anticipated lawsuits. On the other hand, many insurance policies may not cover regulatory liabilities, may have limited or no coverage for “willful conduct” claims, and may initially deny coverage for MSHA defense costs. Yet, policy coverage is worth exploring when MSHA situations occur; particularly when companies anticipate civil lawsuits. Preferably, companies will review these insurance policy terms when policies renew. Companies should consider making indemnification and defense policies and agreements apply, even when no insurance is available, and seek coverage that includes company agent defense needs. Reviewing company defense and indemnification policies and commitments to management agents at risk of ever-increasing MSHA enforcement seems to be a particularly worthy goal for 2008.
April 2008Predictions Prove AccurateSpeculation of increased MSHA enforcement actions and increased penalties comes to pass. by Daniel J. Pubal
It is becoming more necessary from a business standpoint — and more economically feasible — to challenge citations that are wrong, including those with exaggerated allegations of degree of seriousness, overzealous classifications of being significant and substantial, and irresponsible designation as unwarrantable failures. One of the pieces of evidence is the number of cases being filed with the Federal Mine Safety and Health Review Commission (the Commission). The Commission has announced that it will publish weekly tallies of newly filed cases to advise the public of the dramatic increase in the number of cases pending before the Commission since the passage of the MINER Act and the revision of MSHA’s civil penalty regulations. During fiscal years 2005 and 2006, the Commission received an average of 2,500 new cases per year. In fiscal year 2007, that number rose to 4,097, and during the first 4-1/2 months of fiscal year 2008 (October 2007 through mid-February 2008), the Commission has received nearly 2,600 cases. If contest filings continue at the current rate, the Commission could receive more than 8,000 cases in fiscal year 2008, or well over 850 cases per judge in the Commission’s Office of Administrative Law Judges. On Jan. 10, 2008, Acting Assistant Secretary of Labor Richard E. Stickler stated: “Right after the President signed the [MINER] Act, MSHA immediately issued policies to propose increased minimum penalties for unwarrantable failure and immediate accident notification violations. In November 2006, we implemented the MINER Act provisions for flagrant violations.” By Jan. 1, 2008, 15 flagrant violations had been assessed by MSHA; with 22 more under review. Four flagrant violations have now been assessed the maximum penalty of $220,000. Stickler quantified MSHA’s recent dramatic penalty increase as follows: “The amount of penalties we assessed increased over 100 percent last year. In 2006, assessed penalties totaled $35 million; in 2007, assessed penalties totaled $74.6 million. I believe that this increased penalty structure will provide a greater incentive for operators to ensure that safety and health laws are followed, which will result in safer working conditions for our miners.” Commission Chairman Michael F. Duffy stated: “[M]iners, operators, and MSHA need to be advised that if the current trend continues, the Commission may not be able to meet certain performance guidelines we had previously set regarding the time it takes for a case to reach decision. That is why we have taken this step to keep the public apprised of this mounting challenge.” Based on Department of Labor announcements, Chairman Duffy predicts substantial numbers of inspectors and solicitors will be added to the ranks of the Labor Department to handle mine safety and health inspections and litigation. The Commission’s workload will continue to expand, and more cases will proceed to hearing. Mine operators are clearly in the path of MSHA’s enforcement avalanche. That avalanche is rapidly growing in magnitude and is now swiftly gaining momentum. Inspections are a given, as are more numerous citations. Their increased gravity and increased penalty amounts are already apparent. Although many operators want to work amicably with the agency, more operators than ever will be forced to vigorously challenge agency enforcement actions. The current enforcement climate necessitates the dedication of more resources to safety and health compliance, and a careful examination of the facts surrounding every citation or order to determine whether it should challenged.
March 2008Who Gets What?Make sure you know the training requirements for non-employee individuals on your site. by Marcy M. Fulton Mark Twain once said “training is everything…cauliflower is nothing but cabbage with a college education.” For those of us operating in a Mine Safety and Health Administration (MSHA) world, determining what training an individual needs can be difficult. For your employees, who are clearly “miners” under the Mine Act, training requirements are set forth in the MSHA regulations, and it is a relatively straightforward prospect to determine whether or not that individual has been appropriately trained. The determination is not as easy for individuals who may come onto your site, such as maintenance or service workers, and an incorrect determination can mean enforcement troubles for you as an operator. The training requirements for miners at operations engaged in shell dredging, sand, gravel, surface stone, surface clay, colloidal phosphate, and surface limestone mines are set forth in 30 C.F.R. Part 46. Determining what degree of training is required for non-employees on mine property pursuant to 30 C.F.R. Part 46 depends, in part, upon the frequency and duration of an individual’s visits to the site. Under Part 46, new miners must be provided with new miner training and site-specific hazard training, while individuals excluded from the definition of “miner” must only be given site-specific hazard training. 30 C.F.R. § 46(g) defines a miner as “[a]ny person…who works at a mine and who is engaged in mining operations.” The definition specifically includes “independent contractors and employees of independent contractors who are engaged in mining operations.” “[S]cientific workers; delivery workers; customers (including commercial over-the-road truck drivers); vendors; or visitors” are excluded from this definition. “[M]aintenance or service workers who do not work at a mine site for frequent or extended periods” are also excluded. Inherent in the exclusion is the concept that maintenance or service workers who do work at a site for frequent or extended periods are considered miners for purposes of Part 46. But, what is “frequent and extended” in MSHA’s eyes? MSHA views extended exposure as “exposure to hazards at mining operations of more than five consecutive work days.” That seems clear enough, but MSHA views frequent as “a pattern of exposure to hazards at mining operations occurring intermittently and repeatedly over time.” This explanation leaves a considerable amount of gray area. Is a service worker’s monthly visit to your site sufficient to constitute frequent exposure and require new miner training? Similar confusion exists for operators
subject to the 30 C.F.R. Part 48 training requirements. Whether
an individual receives hazard or comprehensive new miner
training is dependent upon which definition of miner these
individuals fall under. 30 C.F.R. § 48.22(a)(2) defines “miner”
as “any person working in a surface mine, including any
delivery, office, or scientific worker or occasional, short-term
maintenance, or service worker contracted by the operator, and
any student engaged in academic projects involving his or her
extended presence at the mine.” Individuals falling within this
definition are required to receive hazard training in accordance
with 30 C.F.R. §48.31. The MSHA Program Policy Manual provides
some guidance as to the types of hazard training to be
administered to non-employees: Examples of Appropriate Training Although the amount of required training may vary, the following are examples of appropriate training… 3. Customers and Delivery Persons a. For purposes of training, custom ers are individuals who are briefly on mine property to pick up mined materials. The extent of customers’ exposure to mine hazards varies. Training is not required if there is no exposure to mine hazards. Customers must receive hazard training commensurate to their exposure to mine hazards. In addition, they must be trained in the health and safety aspects and safe operating procedures of any mine machinery or equipment that they are required or allowed to operate while on mine property. Comprehensive training would apply to customers engaged in the extraction and production process. b. Delivery persons are individuals who enter mine property briefly to deliver supplies, who are not engaged in the extraction and production process, or do not perform maintenance and service work. Delivery persons must receive
hazard training commensurate to their exposure to mine hazards.
MSHA expects a realistic appraisal by the mine operator of the
hazards associated with such jobs. 30 C.F.R. § 48.22(a)(1) defines “miner” as: any person working in a surface mine or surface areas of an underground mine and who is engaged in the extraction and production process, or engaged in shaft or slope construction, or who is regularly exposed to mine hazards, or who is a maintenance or service worker employed by the operator or a maintenance or service worker contracted by the operator to work at the mine for frequent or extended periods. (Emphasis added.) Individuals falling within this definition are required to have comprehensive training. Clearly, any of the individuals specifically described in 30 C.F.R. § 48.22(a)(2) (i.e. delivery drivers) would be required to have comprehensive training if they are “regularly exposed to mine hazards.” The MSHA Program Policy Manual interprets regular exposure to mine hazards as “either frequent exposure, that is exposure to hazards at the mine on a frequent rather than consecutive day basis (a pattern of recurring exposure), or extended exposure of more than five consecutive workdays, or both.” Unfortunately, when it comes to the issue of regular exposure to mine hazards and “frequent and extended” exposure, the MSHA regulations and policy guidance do not provide definitive guidance. The key for an operator is to be aware of the issue, be aware of the frequency of visits to your site by non-employees, and when in doubt as to what training is required, always err on the side of safety.
February 2008Worker's Comp 101
by Cole A. Wist With a few important exceptions, 50 individual state statutes govern workers’ compensation law in the United States, and interpretations and exceptions to these statutes originate in the state court system. The exceptions generally involve federal government employees, railroad employees, and longshoremen, as well as certain specific disease compensation systems (black lung). Generally, state compensation statutes require employers to maintain workers’ compensation insurance and to provide guaranteed but capped payments and benefits to employees for workplace illnesses and injuries. Employers are also required to provide compensation to a fatally injured employee’s surviving dependents, regardless of fault. The workers’ compensation systems are administered outside of the court system, by state administrative agencies. State workers’ compensation systems generally provide a shield for employers against civil tort claims by employees. In other words, injured employees (and their dependents or heirs) covered by a state compensation system generally cannot sue the employee’s employer for damages based on traditional legal theories of recovering damages caused by the actions of others. The key concept in this compromise was the creation by state legislatures of an unqualified, but defined and limited payment duty, for occupational accidents, in exchange for the elimination of employer tort law defenses. The basic workers’ compensation structure is a “no-fault” system. In other words, for an occupational injury or illness, the injured or ill employee, or their heirs, need not prove the negligence of the employer, and the only factor needed to trigger workers’ compensation is the occupational nature of the injury or illness. However, over time, a number of state courts interpreted their state’s employer shield to contain “exceptions” for damages caused by the “willful” conduct of employers, permitting tort claims to be brought in court for damages. Currently, there are a wide variety of state workers’ compensation systems, providing different levels of defined and capped benefits for employee injuries, illnesses, and death. Some states provide very strong shields for employers against almost all occupational tort claims, and other states offer weaker shields which permit tort actions and monetary damages for certain classes of injuries or illness (those caused by the “willful” conduct of employers or actions brought by workers who do not fit the traditional employee definition such as independent contractors, temporary service personnel, etc.). In most states, workers’ compensation claims are investigated by independent third-party adjusters, hired by workers’ compensation insurers, and licensed and regulated by individual states. Workers’ compensation claim investigations occur well after the event that caused the claim and should not be confused with Occupational Safety and Health Administration (OSHA) and Mine Safety and Health Administration (MSHA) investigations, which can occur immediately, particularly in fatal or serious accident or toxic chemical exposure cases. Although employers generally are shielded from tort liability from claims of their employees, they generally are not shielded from claims of non-covered persons (i.e., visitors, contractors, or temporary employees). Understanding state workers’ compensation law and its relationship to federal regulatory law is critical to evaluating, limiting, and/or properly transferring tort liability risks. The regulations and standards of OSHA and MSHA create minimum “standards of care” and duties for employers. These standards of care and the investigations and inspections by the federal agencies (and their state equivalents) create evidence that is often used by attorneys representing plaintiffs in court actions against employers. Such plaintiffs’ legal actions often take the form of one of the following:
Employer liability risk-reduction programs should anticipate risks beyond the state workers’ compensation system. Such risk-reduction programs should encompass the following:
Many site management personnel have little appreciation for how the regulatory process can drive tort liability risks, and attention should be focused on this issue, particularly through site management training and contractor liability risk prevention programs that enhance contractor safety and properly transfer and protect against liability risk.
January 2008The Dirty Dozen in
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Following
the passage of the Mine Improvement and New Emergency Response
Act of 2006 (the MINER Act), we warned in these pages that there
would be an avalanche of citations issued by the Mine Safety and
Health Administration (MSHA) and massive increases in the size
of penalties assessed. Those predictions are coming true. 
Marci
M. Fulton is an associate at Patton Boggs LLP’s Denver
office where she advises clients on administrative and
regulatory issues, particularly environmental, health, and
safety issues, and civil litigation. Fulton may be reached
via phone at 303-894-6121 or via e-mail at
Cole
A. Wist is a partner at Patton Boggs LLP. He counsels
clients in occupational/mine safety and health law,
including MSHA and OSHA inspections. Wist may be reached at
the firm’s Denver office via phone at 303-894-6159 or via
e-mail at 
