Defense Base Act Settlement: Amounts, Approval, and Timeline

A Defense Base Act settlement is a negotiated lump-sum resolution of an overseas contractor’s workers’ compensation claim, closing out past and future wage-loss benefits, medical costs, and disability compensation in a single payment. Reported figures run from roughly $150,000 to over $500,000, with cases involving permanent or severe disabilities sometimes exceeding $1 million.¹ What you actually receive depends on your average weekly wage, how your disability is classified, the projected cost of your future medical care, and how hard your carrier fights each of those numbers.

What Drives the Settlement Amount

Every DBA settlement is built from the same core inputs. Change any one and the number moves.

Average Weekly Wage

The average weekly wage sets the baseline for every compensation calculation. For overseas contractors, this figure can include foreign housing allowances, cost-of-living adjustments, completion bonuses, vacation pay, overtime, and per diem, provided those items are not duplicative.² An administrative law judge determines annual earnings using one of three statutory methods: prior-year earnings if the worker was employed in the same field for substantially the whole year, the earnings of a similarly situated employee, or a broader reasonableness analysis when neither of the first two fits.³

Two disputes come up over and over. First, whether to blend lower stateside wages with higher overseas pay: because overseas contractor work carries greater risk and higher compensation, a blended figure can substantially understate what the worker was actually earning at the time of injury. Second, whether per diem counts as wages. The federal circuits are split. Some courts treat unrestricted per diem paid like regular wages as a disguised wage; others follow the IRS tax-withholding treatment and exclude it.⁴

The weekly compensation rate is capped. For the fiscal year running October 2025 through September 2026, the maximum weekly rate is $2,082.70. If your average weekly wage falls below the minimum rate of $520.68, you receive your full weekly wage rather than the minimum, a rule specific to DBA claims.⁵ Permanent total disability and death benefits also receive annual cost-of-living adjustments, which ran at 4.18% for fiscal year 2026.⁶

Disability Classification

How your injury is classified shapes both the weekly rate and the settlement calculus:

Temporary total disability pays two-thirds of the average weekly wage while you cannot work at all during recovery.
Temporary partial disability pays two-thirds of the difference between your pre-injury wage and your current earning capacity.
Permanent partial disability is based on an impairment rating assigned by a physician, calculated against the average weekly wage for scheduled body parts or loss of earning capacity for unscheduled injuries.
Permanent total disability pays two-thirds of the average weekly wage, potentially for life, with annual cost-of-living adjustments.⁷

Insurance carriers resist permanent total disability findings hardest because they create an open-ended, lifetime obligation. That risk is often the central leverage point in negotiations. Carriers may offer more to settle than they would otherwise pay, precisely to avoid the chance that an ALJ awards PTD benefits.

Future Medical Costs and the Labor Market Survey

A settlement must account for projected future medical expenses: surgeries, physical therapy, mental health treatment, long-term care. It also has to reckon with the carrier’s argument that you can still work. That argument usually arrives in the form of a labor market survey, prepared by a vocational expert the carrier hires. The survey lists jobs allegedly available within about 35 miles of your home, along with pay rates and contact information, and it is used to argue you retain earning capacity, which lowers your settlement value.⁸

In DBA cases, carriers sometimes commission “global” labor market surveys that include international contract positions, relying on case law to argue the claimant could work anywhere in the world. That tactic can significantly reduce the perceived value of a claim. Claimants push back on whether the listed jobs are genuinely available rather than theoretical, whether the worker could realistically be hired given physical limitations or medication side effects, and whether overseas positions belong on the list at all when the worker can no longer obtain medical clearance to deploy. The carrier bears the burden of proving suitable alternative employment actually exists.⁸

Lump Sum vs. Keeping Benefits Open

The central trade-off is between one immediate payment and continuing weekly benefits with open medical coverage. A lump sum gives you cash now but permanently closes the claim. If the injury worsens or new medical issues emerge later, you have no right to further compensation.

A typical lump-sum settlement accounts for past-due wage-loss benefits, unpaid medical bills and liens, projected future wage loss and lost earning capacity, estimated future medical expenses, attorney fees, and case costs. If you are already on Medicare or expected to enroll within 30 months, the settlement may also need a Workers’ Compensation Medicare Set-Aside to protect Medicare’s interests. CMS will review a proposed set-aside when the claimant is already a Medicare beneficiary and the total settlement exceeds $25,000, or when enrollment is reasonably expected within 30 months and the settlement exceeds $250,000.⁹

There is a middle option. Parties can enter into stipulations rather than a full settlement, leaving certain benefits open. A stipulation might agree on a permanent impairment rating and pay a lump sum for that portion, while preserving your right to ongoing medical care or future weekly compensation.

How the Settlement Gets Approved

Every DBA settlement must be approved under Section 8(i) of the Longshore Act. It is the only mechanism for compromising an employer’s liability for benefits. The parties submit Form LS-8 with a detailed application that includes a summary of the injury and treatment, the settlement terms, the claimant’s work status and education, a current medical report, and an explanation of why the settlement amount is adequate.¹⁰

Either a district director or an ALJ reviews the application to decide whether the settlement is inadequate or was procured by duress. When both sides are represented by counsel, the settlement is deemed approved unless specifically disapproved within 30 days. Once a Compensation Order issues, the carrier must pay within 10 days or face a 20% penalty on the outstanding amount.¹⁰ An approved settlement discharges the employer and carrier from all future liability on the claim.¹¹

How Long It Takes

There is no fixed timeline. Straightforward, uncontested claims can resolve in a few months. Disputed cases routinely run 12 to 24 months and sometimes longer.¹² Contested claims that reach the ALJ stage have historically averaged 18 months or longer. The biggest delays come from disputes over injury severity or work-relatedness, thin medical documentation, uncooperative carriers, and the procedural weight of formal hearings, which involve discovery, depositions, and scheduling backlogs. Historical claims surges, such as those following the wind-down of operations in Afghanistan, have also stretched timelines.¹ Many cases settle during the pre-hearing period rather than going to trial.

Attorney Fees

Attorney fees in DBA cases are governed by Section 28 of the Longshore Act and must be approved by the district director, ALJ, or Benefits Review Board before an attorney can collect. Fees cannot be set by private agreement or calculated as a straight percentage of the recovery. They are determined using the lodestar method: a reasonable hourly rate multiplied by hours reasonably spent.¹³

Who pays the fee matters for what lands in your pocket. If the employer or carrier declined to pay compensation within 30 days of receiving written notice and you then successfully prosecute the claim with an attorney, the employer must pay the attorney’s fee on top of the compensation award. Your recovery is not reduced. When the fee obligation falls on the claimant instead, the approved amount may be established as a lien against the compensation owed.¹⁴ Collecting any unapproved fee is a criminal offense.

Getting the Release Language Right

A recent Benefits Review Board decision has changed how carefully settlement language needs to be drafted. In Schulmeister v. Blackwater USA, decided in September 2024, the Board vacated an ALJ ruling that had blocked a worker’s 2022 left-shoulder injury claim based on a 2020 settlement. The original settlement referenced only a “left pectoralis major injury.” The ALJ had looked outside the agreement, at medical records and deposition testimony, to conclude the shoulder claim was covered. The Board held this was error: without first finding the settlement language ambiguous, the ALJ could not rely on outside evidence to expand its scope.¹⁵

In a follow-up case decided in December 2024, Atanasov v. Fluor Conops, the Chief ALJ distinguished the facts by pointing to settlement language that explicitly included a respiratory condition and allocated funds for physical manifestations of psychological conditions. That specificity was enough to bar a later claim.¹⁶

Read together, the two cases cut in opposite directions depending on which side of the settlement you are on. If you are the claimant, vague release language may leave you room to file a later claim for an injury not specifically named. If you are the carrier, the same vagueness may not buy the finality you paid for. Well-drafted DBA settlements now list every known injury, symptom, and complaint with specificity, reference the underlying medical records, and allocate funds clearly across categories: past compensation, future compensation, scheduled impairments, and physical manifestations of psychological conditions.¹⁶

PTSD and Other Mental Health Claims

PTSD, traumatic brain injuries, anxiety, and depression are compensable under the DBA, and these claims have grown common among civilian contractors who worked in conflict zones. They are harder to prove than physical injuries because symptoms are less visible and may not appear for months or years after the triggering event.

A threshold question is whether the PTSD is classified as a traumatic injury from a single event, like a rocket attack, or as an occupational disease from cumulative exposure to hazardous conditions in a war zone. The classification changes the filing deadline: one year for traumatic injuries, two years for occupational diseases. The statute of limitations does not begin running until the worker becomes aware of the relationship between the condition, the employment, and the impact on earning capacity. A diagnosis alone does not automatically start the clock.¹⁷

Carriers frequently dispute PTSD claims by alleging pre-existing conditions, arguing that symptoms are exaggerated, or attributing the condition to personal stressors rather than the work environment. Successful claims require a formal psychiatric diagnosis, consistent treatment records, and evidence linking the condition to specific work-related events.

Non-U.S. Residents and Non-Citizens

The law provides a separate commutation mechanism for claimants who are non-U.S. residents and non-citizens. Permanent disability and death benefits may be converted to a lump sum equal to half the present value of future compensation, as determined by the OWCP district director. Medical benefits cannot be commuted under this provision.²

Tax Treatment

DBA benefits received for personal physical injuries are generally not taxable under IRC Section 104(a)(2), which excludes damages received on account of physical injuries or physical sickness. The picture is not always simple. Portions of a settlement allocated to lost wages may be subject to Social Security and Medicare taxes, and lump-sum payments can draw closer IRS scrutiny depending on how the proceeds are characterized. Any punitive damages are taxable regardless of how they are paid.¹⁸ How the settlement agreement allocates the payment among its components drives the tax result, which is another reason the drafting matters as much as the total.

1
Defense Base Act Attorneys. Defense Base Act Claim Timeline
2
U.S. Department of Labor. Defense Base Act FAQs
3
LOIS, LLC. Using Overseas Earnings to Calculate Benefits in Defense Base Act Claims
4
AM Equity Insurance – Longshore Insider. When Is Per Diem Considered a Wage in Longshore Claims
5
U.S. Department of Labor. Industry Notice No. 207
6
U.S. Department of Labor. National Average Weekly Wage Information
7
Templer Hirsch. Defense Base Act Settlement Calculator
8
Strongpoint Law. Defense Base Act Labor Market Surveys
9
CMS.gov. Workers’ Compensation Medicare Set-Aside Arrangements
10
U.S. Department of Labor. Section 8(i) Desk Aid
11
JustComp. Defense Base Act Settlements
12
Templer Hirsch. Defense Base Act Settlements Average Payout
13
U.S. Department of Labor. Section 28 Desk Aid
14
Cornell Law Institute. 33 U.S.C. § 928
15
U.S. Department of Labor – Benefits Review Board. Schulmeister v. Blackwater USA, BRB No. 23-0255
16
Galloway Law Firm. Longshore Defense Base Act Update – Chief ALJ Compares Apples to Oranges Following Schulmeister Decision
17
U.S. Department of Labor. Commentary on Timeliness of Psychological Injury Claims
18
IRS. Tax Implications of Settlements and Judgments