Here’s the Value of Compounding Interest

Longshoreman's Association

Nobody in Congress or the courts has established the back-interest rate to pay disabled longshoremen when just compensation is delayed.  Until today.

The 9th U.S. Circuit Court of Appeals, in a 10-1 vote, said simple interest, awarded in the case of Arel Price, wasn’t enough.  If the purpose of the law was prompt payment to disabled workers, the court said use a one-year Treasury bond yield and compound it.

That will get the Labor Department moving.

Longshoreman injured while working on the docks or ships must file claims, which may take some time to resolve.  Any disability compensation is capped at two times the national average weekly wage.

Two years ago, the U.S. Supreme Court said the compensation had to be limited to the cap that applied in the year in which the disability occurred – not when the worker claimed it.

Price was injured in 1991 while working for Stevedoring Services of America, Inc.  He continued to work, after surgery, until 1998, when his doctor said he had to stop.

The company paid him for his injury $677 per week between his injury date in 1991 and January 1992.  He also got a lump sum payment for 11 months of 1992.

But they disagreed about whether he was paid the correct benefits. Price argued it should have been based on the cap in 2000 when he got final compensation order.

An Administrative Law ordered it to remain at the cap rate for 1991, but found that was $700 a week and ordered the amount to include simple interest.

The 9th Circuit, voting 2-1, upheld the 1991 capped amount of the award, but said Price should be entitled to compound interest based on the rate of a one-year Treasury bill.

“While the parties agree that Price should receive interest on his past due benefits, they disagree as to the proper rate of interest,” write Judge Marsha Berzon.

The Longshoreman’s Act contains no express provision for interest rates or standards for calculating the rate.

“This case – like others in which the rate of interest is likely to matter – was resolved neither quickly nor informally,” Berzon wrote.  Notices were filed in 1992 and not resolved until 2000.

She concluded that “simple interest at the Treasury bond rate is inadequate alone to compensate parties for the decrease in a judgment’s value over time.”

Berzon knows what she’s talking about.  She was a long-time labor lawyer representing unions prior to her appointment to the appellate court by President Bill Clinton.

The majority joins the St. Louis-based 8th Circuit in recognition that compound interest is necessary to compensate workers fully for changing economic realities.

In the lone dissent, Judge Diarmuid O’Scannlain said the court should defer to the Director of the Office of Workers’ Compensation Programs on the method of computing interest.

Joining Berzon in the majority were Chief Judge Alex Kozinski and Judges Mary Schroeder, Stephen Reinhardt, Sidney Thomas, Barry Silverman, William Fletcher, Ronald Gould, Carlos Bea and Mary Murguia.

Case:  Price v Stevedoring Services, No. 08-71719




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