Reporting from Los Angeles and Washington — Civilian workers who suffered devastating injuries while supporting the U.S. war effort in Iraq and Afghanistan have come home to a grinding battle for basic medical care, artificial limbs, psychological counseling and other services.

The insurance companies responsible for their treatment under taxpayer-funded policies have routinely denied the most serious medical claims. Those insurers -- primarily American International Group (AIG) -- recorded hundreds of millions of dollars in profits on this business.

The civilian contractors have played an indispensable role in the two conflicts, delivering fuel to frontline troops, guarding U.S. diplomats and translating for soldiers during dangerous raids. More than 1,400 civilian workers have died and 31,000 have been wounded or injured in the two war zones.

Yet unlike wounded soldiers, who are offered health care, rehabilitation and support services by the military, the civilians have to battle a federally supervised insurance system marked by high costs and excessive delays, an investigation by the Los Angeles Times, ABC News and ProPublica has found.

In contrast to the public outcry over squalid conditions at some military hospitals, the contractors' plight has drawn little attention.

"It's almost like we're this invisible, discardable military. Once we've done our jobs, they can actually sidetrack us and not worry about us anymore," said Tim Newman, a sheriff's deputy from South Carolina who lost his leg to a roadside bomb in Baghdad. Once back home, he fought an insurance company for a year to get a prosthetic leg that his doctors recommended.

"It's like we're disposable soldiers," said Newman, 44, who worked on a police training program in Iraq.

The insurance system for civilian contractors has generated profits for the providers, primarily AIG, the war zone's dominant player. Insurers collected more than $1.5 billion in premiums paid by U.S. taxpayers and have earned nearly $600 million in profit, according to congressional investigators.

A military audit deemed AIG's premiums "unreasonably high."

Insurance companies initially rejected 44 percent of claims from contractors involving serious injuries and more than half of all claims related to psychological stress, records show. As a result, civilians maimed or traumatized in the war zone often must wage lengthy court battles for medical care and benefits.

The high denial rate is partly due to government rules that give insurers only 14 days to decide the validity of a claim. Insurers often reject first and investigate later.

Those case-by-case investigations are usually resolved through mediation. When the two sides can't agree -- as has happened in more than 1,000 cases -- the dispute winds up in court. Workers win such appeals in 75 percent of cases, records show, but the process can last months or years.

Kevin Smith, 38, a truck driver from Abilene, Texas, was severely injured when his supply convoy was ambushed by insurgents outside Baghdad in 2004.

A round pierced his unarmored truck, shattering his left leg. He underwent a series of surgeries and a painful rehabilitation. Back home in Texas, he suffered nightmares and flashbacks. He awoke one night to hear the washing machine thumping and for a moment thought it was insurgent gunfire. A psychologist diagnosed him with post-traumatic stress disorder.

Months later, AIG -- the insurance carrier for Smith's employer, defense contractor KBR -- stopped paying the injured trucker's medical bills, saying his recovery was complete. In November 2007, AIG also stopped disability payments to Smith, although its own hired expert had agreed that he was partially disabled.

With medical bills piling up and a wife and baby to support, Smith went back to work driving a truck, though he said he was in pain and woozy from medication.

In December 2008 -- four and a half years after he was injured in Iraq -- an administrative law judge for the U.S. Department of Labor ordered AIG to pay all Smith's medical bills and disability payments.

Judge C. Richard Avery ruled that the insurer had failed "to offer any medical evidence" supporting its position that Smith's PTSD was not caused by the convoy attack. Smith, the judge said, "has shown extraordinary effort in returning to work against the recommendations of his treating physicians and in spite of considerable physical pain."

AIG has appealed. It has yet to pay Smith's outstanding medical bills.

"We don't want million-dollar bonuses. We want what we deserve. That's it," Smith said. "Anybody, anybody that goes into a war situation and does something for their country deserves some kind of honor, some kind of dignity."

AIG declined to comment on individual cases. But the company defended its overall handling of war zone claims, initially saying it paid 90 percent of contractors' claims without protest. Questioned about the Times-ProPublica findings, the insurer modified its statement, saying "the vast majority" are paid without dispute "when the proper supporting medical evidence has been received."

Like Workers' Comp

The insurance program for civilian contractors is roughly equivalent to the workers' compensation programs in which U.S. companies buy insurance to cover workplace injuries.

Under a World War II-era law known as the Defense Base Act, companies working under U.S. contracts in Iraq or Afghanistan must purchase insurance that pays for medical care and disability benefits for workers injured on the job, as well as death benefits for those killed. Taxpayers ultimately pay the cost, because the premiums are built into companies' contracts with the government.

When an injury or death is the result of hostile action, such as a roadside bomb or insurgent ambush, the government directly reimburses the insurer in full for any benefits paid -- plus a 15 percent processing fee. Such cases are believed to be a small percentage of all war zone claims, but they account for the most serious injuries and the largest medical costs.

The system, created in an era when the U.S. military made sparing use of civilian contractors, handled a few hundred claims a year. Then the U.S. invaded Afghanistan in 2001 and Iraq in 2003.

In both conflicts, the Pentagon has relied heavily on civilians to guard bases, drive supply trucks, cook meals and do other work once done by soldiers. There were 200,000 contractors in the war zone last year, more than the peak number of military personnel.

The number of civilians filing injury claims under the Defense Base Act soared twentyfold between 2003 and 2007, reaching 11,000 per year before falling to just under 6,000 last year. Total payments for health care and other benefits rose fourteenfold during the first four years of the Iraq war, to more than $170 million annually.

Before the wars, Defense Base Act insurance typically cost about 2 percent to 5 percent of a contractor's payroll, according to Government Accountability Office audits. That cost typically was billed to the government as part of the contract price.

After 2002, insurance companies quadrupled their premiums, according to a 2005 GAO report. Early in the Iraq war, insurance brokers charged prices for premiums that in some cases equaled the salaries of the insured workers. In other words, it cost taxpayers $100,000 per year to insure a civilian paid $100,000 per year.

"It was a market that was out of control," said Sara Payne, a senior vice president for Rutherfoord, an insurance broker.

AIG worked aggressively to be the dominant player. Maurice "Hank" Greenberg, then AIG's chief executive, visited Iraq in early 2004, and in 2005 his company opened an office in Dubai to handle injury claims filed by foreigners working on U.S. contracts. Later, the company helped open a clinic in Iraq to treat injured Iraqi contractors.

Greenberg, who left AIG in 2005, said the company's motives were both profit and patriotism.

"I felt that we should begin to provide coverage for those American contractors who were going to operate there," he said in an interview. "Without that kind of coverage, a lot of contractors wouldn't go."

AIG held a near-monopoly on workers' compensation coverage in Iraq and Afghanistan. In 2007, the company processed nearly nine of every 10 injured-civilian claims filed in the war zones, records show.

AIG's dominance made it difficult for defense contractors to shop for lower premiums.

"There really was no market," said Jack Martone, a former senior official in the Labor Department. "The market was AIG."

The other major firms providing workers' compensation policies in the two war zones are Continental Casualty Co. (CCC), based in Chicago, ACE Ltd. of Bermuda and the Chubb Group, based in New Jersey.

They and other insurers are responsible for the current and continuing claims of more than 31,000 civilian workers injured in Iraq and Afghanistan, as well as for payments to the families of more than 1,400 contractors who died in the war zones.

Congressional investigators calculated last year that insurance companies had collected $1.5 billion in premiums. They estimated that the companies would spend about $900 million in compensation and expenses -- leaving a profit of about $600 million.

An Army Audit Agency report in 2007 said that AIG's premiums were "unreasonably high and excessive." AIG charged contracting giant KBR $284 million in premiums on a single insurance contract from 2003 to 2005. AIG is expected to pay $73 million for the care of injured KBR workers, the audit found.

Insurance officials said the high premiums they charged in the early years of the conflicts reflected uncertainty over the risks of insuring employees in a war zone and on such a large scale.

War zone insurance is unlike any other kind of coverage. Once U.S. military involvement in Iraq and Afghanistan ends, the insurers will lack a reliable stream of future premiums to cover the costs of past claims, some of which will require decades of compensation. Thus, the insurers say, they had to charge more up front.

Premiums have declined as underwriters have gained a better understanding of the risks, industry officials noted. Today, companies operating in Iraq and Afghanistan are paying 3 percent to 17 percent of their payrolls for insurance -- above historical norms but below the premiums charged initially.

"You don't know when starting out whether the rates are adequate or inadequate. How the hell do you know?" Greenberg said. "We charged what we needed to cover the risk."

'Lack of Compliance'

The U.S. Labor Department, which oversees the insurance program for civilian contractors, has struggled to handle a greatly increased workload without adding staff or boosting funding.

The department has fined only a handful of companies, despite indications that scores of worker injuries and deaths have gone unreported in Afghanistan and Iraq. Nor has the department pursued criminal sanctions for companies that failed to obtain workers' compensation insurance, as required by law.

Russell Skoug of Diboll, Texas, who lost part of his leg in a roadside bomb explosion, has had to delay surgery while he fights his employer, Wolfpack Security and Logistics, for compensation. The company failed to purchase the mandatory insurance before Skoug was maimed.

"It's agonizing," said Skoug, a mechanic who repaired air conditioners in Iraq.

Wolfpack President Mark Atwood said he had not known about the insurance requirement. "People coming over there should understand they're not walking down a rose garden," he said. "Don't go crying foul when you've injured yourself."

The company, now out of business, paid some of Skoug's bills after losing a court battle.

Shelby Hallmark, the Labor Department official overseeing the civilian insurance program, said there had been a "complete lack of compliance" in the early days of the conflicts in Iraq and Afghanistan.

Asked why the government has not sought criminal penalties against companies that neglected to purchase war zone insurance, Labor officials said in a statement that they considered referring one such case to the Justice Department, but did not. In the past, Justice has shown a reluctance to prosecute such cases, which are misdemeanors.

"It's not an enforcement kind of program. Enforcement is not the function," Hallmark said.

The department also relies on companies to keep employees informed of insurance benefits available to war zone workers.

Yet Rita Richardson had no idea that she was eligible for compensation after her husband, Rod, was killed by a roadside blast in Iraq while working as a contractor for Falcon Security.

After advice from friends of the former Marine Corps lieutenant colonel, Rita spent a year squabbling with the Labor Department and ACE, the insurer, to receive benefits.

"My husband's blood is the same as anybody else's," she said. "It didn't matter that he didn't have on a uniform. He died serving his country."

ACE declined to comment.

Hallmark acknowledged that the agency was "struggling" to keep up with the flood of claims. He called the Defense Base Act program an "insurance-driven" system in which the Labor Department has little power.

Labor officials "don't have any authority. They can't tell an insurer you must pay," he said. "All they can do is try to encourage people to do the right thing."

Contested Claims

AIG said that it pays the "vast majority" of claims without dispute. And the Labor Department has said that only about 8 percent of claims are contested. However, the Times-ProPublica investigation found those statistics misleading because insurance companies rarely contest minor claims, which account for the vast bulk. They are much more likely to dispute claims involving serious injuries.

When an injury resulted in more than four days of lost work -- about 9,000 of 31,000 total war zone claims -- insurers filed a protest in nearly half of the cases. Even when a worker was killed, the companies filed protests in more than a third of the cases.

Insurance firms protested more than half of all claims involving PTSD.

The Labor Department has made a priority of resolving disputed war zone cases through mediation between insurers and workers. Such disputes take an average of six to seven months to be resolved.

A case fought all the way to a courtroom, however, typically takes an average of two years until a final judgment is ordered, according to an analysis of court files.

"The problem that we see a lot is where injuries occur overseas, the knee-jerk reaction is the insurance company says, 'I can't pay right now, I don't have documentation,'" said Miranda Chiu, Labor's director of policy for Defense Base Act claims. "They drop the ball."

The most contentious issue is pay. Disability and death benefits are based upon how much a worker earned during the last year. When contractors are injured or killed after only a few weeks or months in Iraq, disputes often arise over whether payments should be based on what they earned in Iraq or what they were paid previously in the U.S., usually a much lower figure -- or on an average of the two.

Teresa Hyatt's husband, Gene, was killed in an industrial accident in Iraq in 2005, six months after he started working.

AIG began sending her $555 per week. For two years, Hyatt fought the insurer in court, contending that the payments were lower than her husband's salary. She had to sell her home to pay her bills. Finally, in July 2007, a judge determined that AIG had been systematically underpaying. Her payments increased to nearly $900 a week.

"I was degraded, disgraced," said Hyatt. "They took advantage of me wholeheartedly."

This is the first in a series of occasional articles on the plight of civilian workers injured in Iraq and Afghanistan. T. Christian Miller, a former Times staff writer, did much of the reporting for the series before leaving the newspaper last year. He continued to report on the issue for ProPublica, an independent, nonprofit investigative newsroom in New York where he is now a senior reporter. Doug Smith is the Times' director of database reporting.