Coal Companies Note Increased Exposure to Black Lung Benefit Liabilities

The Patient Protection and Affordable Care Act enacted in March 2010 contained an amendment to the Black Lung Benefits Act (BLBA) which reinstates provisions that had been removed in 1981.  The amendment provides that an eligible miner can be awarded total disability benefits if he can prove he worked 15 or more years in or around coal mines and has a totally disabling respiratory impairment.  In addition, the amendment provides for an automatic survivor benefit to be paid upon the death of a miner with an awarded federal black lung claim without the requirement to prove that the miner’s death was due to black lung disease.

Form 10-Qs filed by mining companies in August to report the fiscal quarter ended June 30 discuss the new legislation in the Risk Factors section, including Patriot Coal Corp. (SEC file no. 001-33466), Westmoreland Coal Co. (001-11155) and James River Coal. Co. (000-51129). 

Patriot Coal states it has evaluated the changes to the BLBA that provide for automatic extension of awarded lifetime benefits to surviving spouses and the changes to the legal criteria used to assess and award claims.  Patriot Coal estimates the impact to its current population of beneficiaries and claimants results in an estimated $11.5 million increase to its benefit obligation.

Westmoreland indicates that through the first three months of the amendment’s effectiveness, it has experienced an increase in black lung claims over similar periods, including the automatic award of certain widow claims that fall under the new provisions. Westmoreland states it has incomplete information to determine whether this increase in claims constitutes a one-time spike or represents a future trend in black lung claims and eventual awards.

James River accrues amounts for benefit obligations based on the present value of expected future costs.  At June 30, an independent actuary estimates James River obligations of $43.9 million for coal workers’ black lung benefits and $60.8 million for workers’ compensation benefits.  These obligations are unfunded and the company notes it could be required to expend greater amounts than anticipated if its assumptions are incorrect.