Surfboards count as 'vessels' under the Jones Act, and it's creating big problems for workers' comp

by Nicholas DeSimone, Washington Examiner, December 20, 2018

It turns out the nearly 100-year-old federal law doesn’t just apply to shipping vessels, but other qualifying vessels such as surfboards and kayaks, which negatively affects workers' compensation insurance for small businesses in Hawaii.

The Jones Act or “Merchant Marine Act of 1920” is a federal protectionist law that governs maritime activities and provides seamen with a personal injury negligence remedy. The federal law increases costs to ship owners and consumers by requiring shipping vessels transporting goods between U.S. ports to be built in and flagged by the U.S. and also to be 75 percent owned and crewed by Americans. The federal law not only increases the cost of living for Hawaii residents, but now it also affects small recreational water-sport businesses.

A simple change in the federal law to exclude recreational water-sport vessels from the Jones Act would reduce premium costs for businesses, which would only have to purchase and comply with state coverage rules.

The problem begins with two flawed Supreme Court rulings. In 1995, the court ruled in Chandris, Inc., v. Latsis that any employee spending less than 30 percent of his annual work time servicing a “vessel” on navigable waters is not a “seaman” under the Jones Act. In 2005, in Stewart v. Dutra Construction Co ., the court determined the word "vessel" includes "every description of water-craft or other artificial contrivance used, or capable of being used, as a means of transportation on water.” This includes everything from large shipping vessels to crafts as small as surfboards and kayaks.

Combined, these two rulings entail that if a single business has some instructors that spend less than 30 percent of their annual time teaching on qualifying vessels such as surfboards or kayaks (requiring state workers compensation, covered under Hawaii Revised Statues, Chapter 386) and other instructors spending 30 percent or more of their annual time teaching on those vessels (requiring federal Jones Act coverage), this would technically require the business to have both state and federal workers’ compensation insurance, which means paying two separate premiums.

The Hawaii Employers' Mutual Insurance Company provides Chapter 386 coverage for workers’ compensation. If businesses only have Chapter 386 coverage, they could face rejected claims under state law if an employee teaching on the water 30 percent or more of his annual time gets injured and makes a claim.

In fact, this happened in one particular case. The Hawaii Department of Labor, Workers Compensation Division denied a workers’ compensation claim predicated on the flawed Supreme Court rulings. According to the principles of the law, Chapter 386 applies to “employees in maritime employment and their employers not otherwise provided for by the laws of the United States.” The injured employee in this case was denied state workers compensation because the business qualified for Jones Act coverage, as per the 30 percent rule on qualifying vessels.

Small recreational water-sport businesses are affected by these flawed rulings because they employ instructors working in both state and federal jurisdictions. Their workers’ compensation coverage could be compromised if they do not properly document the percentages of employees that spend their time teaching in the water on qualifying vessels.The average insurance policy for state coverage through HEMIC can cost as much as $10,000 in annual premiums, and adding additional Jones Act coverage could cost another $10,000 a year in premiums. This makes complying with the laws very costly for these businesses.

Most people are familiar with the high cost of living in Hawaii due to the Jones Act burden. Reform efforts would not only help recreational water-sport businesses but could lead to cost savings between $5 billion and $15 billion annually for Hawaii, Alaska, and Puerto Rico.

But there's no question that when the Jones Act was written, it was meant to apply to shipping vessels, not surfboards or kayaks used for recreation. If Congress or the courts simply exclude recreational vessels such as surfboards and kayaks as qualifying vessels, along with their 30 percent rule, as it applies to those qualifying vessels, businesses would have much more freedom to operate profitably.