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By John H. Garrison, CPCU
Editors note: The following article appears because we believe that understanding the history and concept behind the intent of Workers’ Compensation insurance, will assist the reader in being better able to understand the abuses now prevalent in the system.
Germany and England were the pioneers and had the greatest influence on the American workers’ compensation movement. The general principle of workers’ compensation was first adopted on a limited scale in Prussia in 1838, when railroads were made liable for injuries to employees as well as to passengers. This was providing the injury was not caused by the worker’s negligence and was not an “act of God.”
A broad compulsory compensation law was enacted in 1884, effective 1885. Bismark, who had supported the first bill introduced in the Reichstag and counteracted the growing strength of the Socialist Party, had much to do with its enactment. That act is the parent of all Workers’ Compensation Legislation, although some of its progeny have developed characteristic variations.
England started its own system in 1897, but with several important differences. In Germany, employers were required to insure their risks, and employees were required to pay part of the cost, whereas in England, employers were merely made liable, and the entire cost was placed upon the employer, with administration left to the courts. Americans were influenced more by the English than by the German Act, largely because the German Act was designed to fit into a highly centralized totalitarian type of government and differed greatly from the British and American styles of democracy.
American interest in European social legislation was slow to develop, partly due to inadequate news coverage of European experiments. But in 1898, the first American general survey of European social insurance was published by the U.S. Department of Labor, favoring compensation laws. The survey deplored the fact that we were so far behind other nations in this field of legal reform and criticized the fact that the very principles involved were not even comprehended. It stated that the first step should be to educate public opinion. A report to the New York Bureau of Labor Statistics published in 1899 surveyed European Workers’ Compensation Legislation and concluded that such legislation was suitable and feasible for America, and should one state assume the lead, others would quickly fall into line.
The Social Reform Club of New York City appointed a committee to study German Social Insurance and English Workmens’ Compensation. It prepared a bill modeled after the British plan and introduced it in the 1898 New York Senate. Theodore Roosevelt, Governor of New York, favored the bill, but trade unionists interested in more stringent employer’s liability laws and others who believed that the “time was not yet ripe,” successfully opposed its enactment. But the attempt formally launched the American movement and helped educate Americans.
Maryland is generally credited with the first American Workers’ Compensation Act. In 1902, it provided that in mining, quarrying, steam and street railways and in the excavation and construction of sewers and other physical structures for municipalities, dependents of those killed in accidents would be paid $1,000 without proof of negligence. The insurance commissioner was authorized to extend the act to any industry he deemed it prudent to include and to exempt any company making better payments than those provided by the laws. Employers could escape liability for damages by paying the State Insurance Commissioner. Premiums were based on the number of employees and half could be deducted from employees’ wages. After slightly less than two years, the act was declared unconstitutional by a Baltimore court, on the ground it gave the insurance commissioner judicial powers and deprived individuals of the right to trial by jury. The decision was not appealed.
In 1908, President Theodore Roosevelt brought about the enactment of a compensation law for certain categories of federal employees. Samuel Gompers, President of the American Federation of Labor, claimed that the bill was based wholly and solely through the activities and at the expense of his organization. The act covered civilian employment in government manufacturing establishments, arsenals, navy yards, river and harbor fortification construction, hazardous construction work for the Isthmian Canal Commission, and the reclamation or management of arid lands. Injured workers, after a 15-day waiting period – or their dependents in case of death – were allowed one year’s wages. But no compensation was payable unless the injury arose out of or in the course of employment, or if the injury was due to the worker’s negligence or misconduct. Although limited in scope, stingy in benefits, and crudely drafted, it was nevertheless the first real American workers’ compensation law.
In 1910, New York passed a compulsory act applicable to eight hazardous occupations in building construction, railroads and explosives, drafted in such a way as to avoid all constructional difficulties. The New York Court of Appeals in a March, 1911 decision held that the act was revolutionary and not a proper exercise of the state’s police power and took property without due process of law and was therefore unconstitutional.
In 1913, New York amended its constitution to authorize the enactment of a compensation law. A United States Supreme Court decision in 1917 upheld the constitutionality of this type of legislation.
After the Federal Act of 1908 and the New York Act of 1910, the movement rapidly came to a climax. Many state commissions were appointed by the legislature in 1909, and joint conferences of these commissions were organized. The American Association for Labor Legislation became active and gave great support. The National Civic Federation prepared a “model” bill and was instrumental in having bills introduced in state legislatures. A committee of the National Association of Manufacturers polled 25,000 manufacturers to learn their attitude toward compensation and found more than 95 percent were favorable. The association proposed a plan under which workers would contribute. The American Bar Association established a committee to plan for uniform compensation, although the legal profession had not been very interested. The American Federation of Labor threw in its support and several large corporations voluntarily established accident relief systems analogous to compensation.
In 1911, five laws became effective, followed by nine more in 1912, eight in 1913 and four in 1914. The movement soon spread to all states.
John Garrison, CPCU, has been an insurance industry professional since ‘61. He is a noted lecturer and teacher of insurance subjects.
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