                                 REVISED
                   United States Court of Appeals,

                             Fifth Circuit.

                              No. 96-60770

                            Summary Calendar.

DIRECTOR, OFFICE OF WORKERS' COMPENSATION PROGRAMS, UNITED STATES
DEPARTMENT OF LABOR, Petitioner,

                                       v.

                       INGALLS SHIPBUILDING, INC.,

                                   and

                       Hollis Ladner, Respondents.

                             Oct. 21, 1997.

Petition for Review of an Order of the Benefits Review Board.

Before JOLLY, SMITH and STEWART, Circuit Judges.

     JERRY E. SMITH, Circuit Judge:

     The Director of the Office of Workers' Compensation Programs

("OWCP"), United States Department of Labor ("Director"), petitions

for review of an order of the Benefits Review Board ("BRB")

granting Ingalls    Shipbuilding,          Inc.   ("Ingalls"),   special   fund
contribution for a worker's pre-existing disability.                Concluding

that Ingalls failed to meet its evidentiary burden, we grant the

petition for review and reverse and remand.

                                       I.

     Hollis   Ladner    worked   for       Ingalls   in   various   capacities

starting in 1986.       As a sheet metal worker, he was injured in

January 1987 when a jackhammer fell on his toe.              William Hopper,


                                       1
Ladner's physician, treated him.             After several months of being

unable to work, Ladner returned to the shipyard, only to discover

that Ingalls was discharging him because it required fewer sheet

metal workers, and Ladner lacked seniority.

        At Ladner's request, Ingalls found him another position as a

joiner.       In    this   position,   Ladner   injured   his   left   knee   in

September 1987 when he fell down a ladder while working on a ship

and injured his left knee.        Again, he was treated by Hopper and his

assistant.     After the fall from the ladder, Ladner complained to

Hopper about his prior toe injury, and Hopper prescribed therapy.

Thereafter, Ladner had to undergo back surgery to repair two

ruptured discs, apparently the result of his fall.

                                       II.

        For   his    inability    to    work,   Ladner    claimed      workers'

compensation under the Longshore and Harbor Workers' Compensation

Act ("LHWCA"), 33 U.S.C. § 901 et seq.              Ingalls unsuccessfully

contested the claim before an administrative law judge ("ALJ"), who

awarded Ingalls contribution from the LHWCA's special fund for part

of its compensation payments.          See 33 U.S.C. §§ 908(f), 944.1

        The Director appealed the ALJ's contribution finding to the

BRB, which failed to act within the statutory period.             See Omnibus


    1
     At the proceedings, Hopper—among others—testified that Ladner
was disabled and that part of his current permanent partial
disability was the result of his prior toe injury. Hopper stated
that the jackhammer injury had resulted in a 35% permanent
disability to the toe. Hopper also concluded that Ladner would
face a 30% "whole man" disability after his fall from the ladder.
On this evidence, the ALJ found that Ladner was entitled to partial
disability compensation.

                                        2
Appropriations Act for Fiscal Year 1996, Pub.L. No. 104-134, 110

Stat.   1321.     As   a    result,   the    ALJ's   decision   was   summarily

affirmed.    See id.       The Director now petitions for review of that

affirmance pursuant to 33 U.S.C. § 921(c).2

                                      III.

        In petitions for review of a BRB order, we evaluate the ALJ's

factual findings under a substantial evidence standard. See, e.g.,

Ceres Marine Terminal v. Director, OWCP, 118 F.3d 387, 389 (5th

Cir.1997).      Substantial evidence is that relevant evidence—more

than a scintilla but less than a preponderance—that would cause a

reasonable person to accept the fact finding.             See, e.g., Polanco

v. City of Austin, 78 F.3d 968, 974 (5th Cir.1996).               Because the

fact finder is entitled to deference, a reviewing body cannot

substitute its own view of the facts for that of the ALJ. See

Ceres, 118 F.3d at 389.          Thus, our "only function is to correct

errors of law and to determine if the BRB ... deferred to the ALJ's

fact-finding...."      Avondale Shipyards, Inc. v. Vinson, 623 F.2d

1117, 1119 n. 1 (5th Cir.1980);             accord Ceres, 118 F.3d at 389.

Because the BRB failed to act in this case, we look directly to the

ALJ proceedings.

                                      IV.

        Generally, the employer is liable under the LHWCA for an

employee's entire disability upon injury, regardless of the effect

that prior injuries have on the level of the resulting disability.


         2
        Ladner has no interest in this case.      Whichever party
prevails, he will receive his disability payment.

                                       3
See Strachan Shipping Co. v. Nash, 782 F.2d 513, 517 (5th Cir.1986)

(en banc).      Essentially, this "aggravation rule" mimics the common

law:       A tortfeasor takes his victim as he finds him.          See, e.g.,

Vosburg v. Putney, 80 Wis. 523, 50 N.W. 403, 404 (1891).

       Standing    alone,   the    aggravation   rule   creates    a   perverse

incentive:      It discourages employers from hiring workers who have

been previously injured.          See, e.g., Ceres, 118 F.3d at 389.       Risk

averse employers rationally fear the expected costs of hiring a

worker with a prior injury.3           Thus, all things otherwise equal,

employers will prefer an employee without a prior injury.

       To overcome this incentive to discriminate, Congress, in the

LHWCA, provided for a special fund.4          See 33 U.S.C. §§ 908(f), 944.

The LHWCA provides that any employer that meets the factors of §

908(f)(1) can obtain contribution from the special fund.                    To

qualify, the employer must prove that (1) the employee had a

pre-existing permanent partial disability (2) that was "manifest"

to the employer before the occurrence of the injury at issue, and

(3) the disability following the subsequent injury was "not due

solely" to the subsequent injury.           See id. § 908(f)(1);   Ceres, 118

F.3d at 389-90.      Whether the third factor has been met is at issue


       3
     This worry is exacerbated when the risk of injury is as great
as it is among longshoremen and harbor workers.
           4
       The special fund is financed by a taxing system on all
employers in the industry.    See 33 U.S.C. § 944.     This device
spreads the loss and internalizes the cost of the prior injury for
the first employer. The first employer would otherwise escape
paying for the worker's subsequent disability because the effects
of the first injury remained latent during the worker's prior
employment.

                                        4
in this case.

     The countervailing worry, as with any insurance system, is

that those entitled to benefit from the special fund will face a

moral hazard problem.    Because they pay only a fraction of the

costs, employers will rationally "over-demand" benefits from the

special fund.5

     In the LHWCA, Congress has attempted to control employers'

incentives to use small, insignificant prior injuries to pass off,

to the fund, costs that the employer should bear.         Because this

risk is especially large in permanent, partial disability cases,

the LHWCA adds an additional component to the third statutory

factor:   The employer also must show that the disability following

the subsequent injury was "materially and substantially greater

than that which would have resulted from the subsequent injury

alone."   33 U.S.C. § 908(f)(1).    The Director claims that the ALJ

applied the two parts of this third statutory factor incorrectly.

                                   A.

     The Director contends that the ALJ failed to find that the

permanent partial disability resulting from Ladner's fall from the

ladder was "not due solely" to his fall.           The ALJ found that

Ladner's permanent partial disability after his fall was increased

because of his prior toe injury.       The Director, however, maintains

that in order to meet the "not due solely" requirement, the ALJ had


     5
      Cf. Ball Mem'l Hosp. v. Mutual Hosp. Ins., Inc., 784 F.2d
1325, 1332 (7th Cir.1986) ("Insurance creates "moral hazard.' Once
a person has insurance, he wants the best care regardless of
cost—for someone else bears the cost.").

                                   5
to find the converse as well:           that without the prior toe injury,

the subsequent permanent partial disability would not have been as

great as it was.

     The Director confuses the standards necessary to show "not due

solely" to the subsequent injury in partial and total permanent

disability cases.       In a total disability case, the employee could

be "more injured" as a result of the subsequent injury without

necessarily entitling his employer to relief from the special fund.

For example, the worker could be thirty-five percent permanently

disabled from his prior injury but still one hundred percent

permanently disabled from his subsequent injury. Thus, in order to

meet the "not due solely" requirement, the employer would have to

prove that without the prior injury, the worker would not now be

totally       permanently   disabled.        See   Two   "R"   Drilling   Co.   v.

Director, OWCP, 894 F.2d 748, 750 (5th Cir.1990) (per curiam).

     In the case of permanent partial disability, however, all the

employer must show to meet the "not due solely" requirement is that

an increased permanent partial disability results when the injuries

from the prior and subsequent injuries are combined.               Whenever the

disability is increased from the combination of the two injuries,

the resulting permanent partial disability is necessarily "not due

solely" to the subsequent injury.6

     The ALJ found that the permanent partial disability resulting

from Ladner's fall was increased because of his previously-injured

          6
         This happenstance may explain why Congress added the
"materially and substantially greater" requirement in permanent
partial disability cases. See infra part V.B.

                                         6
toe.       Therefore, assuming for the moment the sufficiency of that

finding,7 the ALJ correctly determined that this part of the third

statutory factor was met.

                                              B.

       The       Director    claims    that    the       ALJ   was    required   to   state

explicitly         that     Ladner's     permanent          partial      disability      was

"materially and substantially greater" than it would have been had

the toe injury never occurred.                    Both sides concede that the ALJ

never made an explicit "materially and substantially greater"

finding.         Recently, however, we noted that "[a]lthough it would be

helpful if attorneys asked questions designed to elicit the "magic

words' that authorize special fund relief, we decline to adopt a

rule that would require a rote recitation of the applicable legal

standard."         Ceres, 118 F.3d at 391.

           Instead, when the "magic words" are absent from the record,

"the fact         finder's    inquiry     must      of    necessity      be   resolved    by

inferences based on such factors as the perceived severity of the

pre-existing disabilities and the current employment injury, as

well as the strength of the relationship between them."                          Id. Thus,

assuming for the moment the sufficiency of the evidence, it was not

error, in and of itself, that the ALJ failed to state explicitly

that       the    permanent     partial       disability        was     "materially      and

substantially greater" as a result of the prior toe injury.

                                              V.


       7
     We address the Director's sufficiency of the evidence claims
in part V, infra.

                                              7
      The Director maintains that even if the ALJ applied the

correct legal standards in determining the two parts of the third

statutory factor, the evidence cannot support a finding in favor of

the employer on either part.           We agree with regard to the second

part.   First, we address the sufficiency of the "not due solely"

finding.      Then, we discuss the "materially and substantially

greater" determination.

                                         A.

        The evidence is sufficient to find that Ladner's current

permanent partial disability is "not due solely" to the fall from

the   ladder.       At   the   proceedings,      Hopper     testified     to    this

conclusion.       Although there was conflicting evidence, the ALJ was

entitled to weight Hopper's testimony more and others' less.                     The

record indicates that the ALJ accepted Hopper's conclusion that

Ladner's permanent partial disability was increased because of the

prior toe injury.        This finding was a reasonable inference.

                                         B.

      The same cannot be said about the second part.                      Any ALJ

finding that Ladner's permanent partial disability was "materially

and substantially greater than that which would have resulted from

the subsequent       injury    alone,"    33   U.S.C.   §   908(f)(1),     is    not

supported    by    the   evidence.       Satisfying     the      "materially     and

substantially greater" prong of the statutory test requires "an

employer [to] present evidence of the type and extent of the

disability    that    the   claimant     would   suffer     if    not   previously

disabled when injured" subsequently.             Director, OWCP v. Newport


                                         8
News Shipbuilding & Dry Dock Co., 8 F.3d 175, 185 (4th Cir.1993),

aff'd, 514 U.S. 122, 115 S.Ct. 1278, 131 L.Ed.2d 160 (1995).

         Thus, the employer must offer some proof of the extent of the

permanent partial disability had the pre-existing injury never

existed.8    See Newport News, 8 F.3d at 185-86 & n. 9. Ingalls can

offer only testimony that the permanent partial disability was

increased because of the prior toe injury.

     There is no evidence suggesting that the resulting permanent

partial disability was "materially and substantially greater," nor

is there any quantification of the resulting permanent partial

disability in the absence of the prior injury.9     Although Hopper's

testimony is enough for a rational person to infer that the

resulting permanent partial disability was increased because of the

prior toe injury, no reasonable fact finder could infer that the

permanent partial disability was "materially and substantially

greater than that which would have resulted from the subsequent

injury alone."     33 U.S.C. § 908(f)(1).


         8
       In Newport News, the evidence the employer presented was
similar to that in the present case. Concluding that the employer
had not met the statutory burden, the court noted: "Newport News
showed that the Claimant suffered from a pre-existing permanent
partial disability in the cervical spine area that created a five
percent whole body impairment. After the work-related injury at
issue, the Claimant suffered an ultimate permanent partial
disability that produced a whole body impairment of eighteen
percent.... This conclusion stops short of identifying whether the
ultimate   permanent   partial   disability  is   materially   and
substantially greater than a disability cause by the work-related
injury only." Newport News, 8 F.3d at 186 n. 9.
     9
      Because we find the standard has not been met in this case,
we need not express any view about what evidence would support a
"materially and substantially greater" inference.

                                   9
     Therefore, because Ingalls has failed to offer sufficient

evidence needed to obtain special fund relief under § 908(f)(1), we

GRANT the petition for review and REVERSE and REMAND to the BRB for

proceedings consistent with this opinion.




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