Series: Disposable Army Civilian Contractors in Iraq and Afghanistan

A version of this story was co-published with The Los Angeles Times.

An administrative law judge has referred a U.S. insurance company for criminal investigation after the firm failed to pay benefits owed to survivors of Iraqi translators killed while working for the American government.

Under a federally funded program, Chicago-based CNA Financial Corp. provides insurance coverage to contractors killed or injured while working overseas for the United States. The slain translators were helping to train Iraqi police recruits.

Instead of paying out benefits, however, CNA withheld information from the federal government and avoided making payments to nine families who lost relatives in a 2006 attack, according to court files and interviews. One widow lost her home, unable to keep up payments after her son and other translators were ambushed by insurgents in the southern city of Basrah, one of her attorneys said.

In a ruling this week, administrative law Judge Daniel Solomon ordered CNA to begin making payments to the families. In an unusual move highlighting the government's concern over potential fraud, the judge also told the Labor Department, which oversees the program, to investigate whether the insurance carrier should face criminal charges. A Labor spokesman said the agency would "fully investigate" the allegations to determine whether to ask the Justice Department to prosecute the case.

CNA said it was also looking into the case.

"We are investigating the matter and will take all appropriate actions," said Katrina Parker, a company spokeswoman.

Attorneys for the families said they believe CNA withheld documents to avoid making payments.

"These were people who helped the U.S. in Iraq," said Agnieszka Fryszman, an attorney for the families. "Their families were kicked to the curb when they were most in need of help."

CNA's failure to pay out benefits underscores the continuing problems with the Defense Base Act, essentially the workers compensation system for overseas federal contractors.

The system was little-used until the wars in Iraq and Afghanistan sent hundreds of thousands of private contractors onto the battlefield. All told, the government has paid out nearly $1.5 billion in premiums since 2001.

Reporting in 2009 by ProPublica, the Los Angeles Times and ABC's 20/20 revealed deep flaws in the program. Workers fought long battles for medical care, including such things as prosthetic devices and treatment for post-traumatic stress disorder. Foreign workers, including Iraqi and Afghan translators, often did not receive payments or treatment. The Labor Department seldom took action to enforce the law. One official called the system a "fiasco."

Congress subsequently held hearings that showed that American insurers were reaping large profits from the program. Documents showed that CNA reported the highest profits margins, taking in nearly 50 percent more in premiums than it paid out in benefits.

The case decided this week began on Oct. 29, 2006, when insurgents boarded a bus and killed 17 Iraqi-born translators working in Basrah for Sallyport Global Services, a logistics and security contractor. The insurgents later scattered their bodies around the city.

Under the law, CNA was responsible for paying death benefits to the translators' dependents. CNA paid when translators had children and spouses, according to interviews and court records, but not to other survivors. Several translators had no children, but supported parents or other family members.

In such cases, the Labor Department demands proof that survivors relied on contractors' earnings. CNA hired investigators who interviewed nine families, confirmed their eligibility, and even set up bank accounts. But CNA withheld portions of the investigators' findings when it submitted the claims to the Labor Department, court records show.

One CNA file shows that the slain translator had supported his mother, a widow, since his father was killed in the Iraq-Iran war. The town council even issued a statement of support, confirming the translator was his mother's "sole provider." Another CNA file shows that another translator killed in the ambush was sole support for his family, which "could be described as very poor."

But those pages were missing from the information CNA submitted to the Labor Department. As a result, Labor officials accepted CNA's declaration that there were no dependents to pay in any of the nine cases.

The translators' attorneys at Cohen Milstein, a well-known Washington firm doing pro bono work on the case, estimated that CNA owed a total of about $500,000 to the nine families. Instead, CNA paid about $45,000 into a special federal fund set up to help support the workers compensation system.

The company subsequently recovered some of that money plus additional fees under an obscure law—the War Hazards Compensation Act—that allows insurance carriers to recoup costs for contractors killed in hostile acts, court documents show.

In one case, CNA paid $5,000 into the special fund and $518 to a translator's family for burial expenses, but was reimbursed $9,289 by the federal government for investigating and handling the claims.

A Sallyport official said the company believed that CNA had made payments to all of the translators' families except one, which declined to accept money because of security concerns.

In an emailed statement, the company declined further comment due to the litigation. It said it would "continue to monitor the situation and support the families within our remit."