Workmen's compensation and insurance

Foreword

The legislative tendency of to-day is unquestionably toward the rapid socialization of the state. In this movement, workmen's compensation laws and other statutory provisions for the insurance of the industrial hazard are playing an increasingly important part. By reason of the adoption of such measures, first in European countries, then in the colonial possessions of the great powers, and finally in the vast majority of the commonwealths which go to make up the United States of America, an impressive body of precedent and a wide divergence of views on matters of legislative policy have developed, to the study of which writers on economic and social questions are yearly devoting greater attention.

The present work is in answer to the demand for a brief critical presentation of the subject, as distinguished from an exhaustive and non-committal treatise. It was written in successful competition for the 1917 award of the David Ames Wells prize of $500, offered annually to seniors of Williams

vii vffi FOREWORD

College and graduates of not more than three years' standing, for the best essay on a subject in the field of political science assigned by a committee of the Faculty. The author is a graduate of the class of 1914. The essay method of treatment has been followed throughout, and matter of interest to the scholar and the legalist rather than the general reader is relegated to footnotes.

Every effort has been made to keep the text free from inaccuracies. Perfection in this regard, however, is hardly to be expected, especially in view of the mass of material through which the student of workmen's compensation is forced to wade, and the constant changes in the subject introduced by new legislation, court decisions, and administrative action. The most that the author dares to hope is that his unintentional transgressions will prove to have been few.

My thanks are due to the members of the Faculty Committee on the Wells Prize Contest, consisting of President Harry A. Garfield, Prof. Walter W. McLaren, and Prof. Theodore Clark Smith, and particularly to Prof. McLaren for valuable suggestions and unfailing sympathy and assistance.

Washington, July, 1918.

Contents

CHAPTEB PAOi

Fobewobd vii

I Undeblying Pbinciples 8

Chapter I

A careful text-book writer has defined workmen's compensation acts as "enactments which embody the principle that the workman is entitled to compensation for injuries received in the course of his employment." 1 Accepting this description as adequate for the purposes of an introductory chapter, we are led to ask : "Where and when did this principle first gain credence; and why was legislation necessary to engraft it on our law?" Until these questions are answered, an intelligent study of workmen's compensation as it exists to-day is impossible.

For centuries before the modern legislation with which we are to deal, the law had treated contracts

i Boyd, Workmen's Compensation, p. 205.

of employment as purely personal agreements (the interest of the public in them being overlooked) ; and controversies arising out of them had been disposed of by the courts with an eye chiefly to mulcting the party at fault for the benefit of the party injured. Especially has this been true of suits by the workman to recover damages from his employer for injuries suffered in the course of the employment. The question put by the law in such cases has long been: "Was the injury due to the positive fault or culpable negligence of the employer ?" Unless this query were answered in the affirmative, damages or compensation for the injury could not be recovered, and the unfortunate workman was left to his fate. Such was the common law of negligence.

It will readily be conceded that this narrow code, even if calculated to work substantial justice in the rare cases where the relation of master and servant was a purely personal and intimate one, is wholly unadapted to the conditions of modern industry, where factory labor is the rule and personal contact of employer and employed is the exception; yet it has been made even harsher and more anachronistic, in countries following the English law, by the importation of three peculiar doctrines.

These are known as the contributory negligence rule, the fellow-servant rule, and the doctrine of assumption of risk.

The contributory negligence rule is not peculiar to the law of master and servant, but is broadly applicable to all cases of accidental injury. Briefly, it is that if the party injured has by his negligence contributed to the risk which occasioned his injury, he cannot recover compensation for such injury in an action against the carrier, master, or other negligent party. Contributory negligence of the injured workman is a perfect defense for the employer in such suits. 2 The test of whether it exists in a particular case has been well formulated in a leading Indiana decision: "If the risk is so great and immediately threatening that a person of ordinary prudence, under all the circumstances, would not take it, contributory negligence is established. If the risk is not so great and immediately threatening but that a person of ordinary prudence, under all the circumstances, would take it, contributory negligence is not established." 3

The fellow-servant rule, or the "doctrine of common employment," as the English call it, is said ta

zBurdick, Law of Torts (3d Ed.), p. 198.

have originated in the case of Priestley v. Fowler 4 in 1837; though it has been pointed out that that case is authority for no such broad proposition. 5 But whatever its origin, it has taken a mighty hold on English law, and is the prevailing doctrine in jurisdictions where it has not been abolished by statute. 6 The general rule has been stated as follows : "One who enters the service of another takes upon himself the ordinary risks of the negligent acts of his fellow-servants in the course of his employment." 7 Such a proposition will be seen to be a natural outcome of the old theory that contracts of employment are personal contracts, under which the master assumes no responsibility except for his own personal acts or omissions ; but it is grotesquely inapplicable to modern industrial conditions, where the workman often never sees his real employer. It is true that the rule has been modified in some jurisdictions so as to give the workman a right of action against the employer in cases where the fel-

« Burdick (supra), p. 202; also Pease, J. G., in 15 Columbia Law Review, at p. 509. But see Dawbarn, Employers' Liability and Workmen's Compensation (4th Ed.), at p. 2; and Boyd, Workmen's Compensation, at p. 26, for the conventional view of the origin of the fellow-servant rule.

« Burdick (supra), p. 203.

low-servant's negligence can reasonably be imputed to the master on the theory that the former is so completely clothed with the powers and discretion which the master could exercise if present as to be the master's alter ego rather than a true fellow-servant. 8 But even so the rule serves to defeat recovery in that large class of cases where the fellow-servant's negligence, though not imputable to the master personally, is clearly a risk inherent in the employment rather than a mere independent tort of the fellow- servant himself. Speaking of the rule, Augustine Birrell has said: "The doctrine of common employment was only invented in 1837. Lord Abinger planted it, Baron Alderson watered it, and the devil gave it increase." 9

The doctrine of assumption of risk is related to the fellow-servant rule, and really embraces the latter. "Under this principle every risk which an employment involves after the master has done everything he is bound to do for the purpose of securing the safety of his servants (including the employment of other servants) is assumed, as a

8 Bradbury, Workmen's Compensation and State Insurance Law <2d Ed.), p. 5.

9 Quoted from The (London) Times of May 18, 1897, in an article on Workmen's Compensation and the Theory of Professional Risk, by F. P. Walton in 11 Columbia Law Review, pp. 36-50, at pp. 38-39.

matter of law, by each of those servants." 10 And the broad proposition has been stated by another writer thus: "When a man enters another's employ he does so with his eyes open, and with a knowledge of the risks incidental to it, including those due to the negligence of fellow-servants, and those he contracts to take, e. g., a miner or a sailor, whose occupations of their very nature are dangerous." ai The doctrine was first authoritatively laid down in 1842 by Chief Justice Shaw of Massachusetts, in a famous case. 12

It is true that, to offset the several defenses which the employer had to an action by the workman for injury suffered in the course of his employment, the common-law laid certain duties upon the employer, breach of which was considered negligence or fault on his part. These duties were: (1) to employ suitable fellow-servants; (2) to establish and promulgate proper rules; (3) to provide a safe place to work; (4) to furnish safe appliances; (5) to warn youthful and inexperienced servants of the dangers of the employment. But

io Boyd, Workmen's Compensation, p. 5.

nDawbarn, Employers' Liability and Workmen's Compensation (4th Ed), p. 2.

izFarwell v. Boston, etc., R. Co., 4 Met. (Mass.) 49; see also Boyd, Workmen's Compensation, at p. 26.

these duties were far from nullifying the special defenses we have discussed. 13 Thus, though the master was under a duty to employ suitable fellow-servants, he discharged himself of all responsibility by exercising reasonable care in their selection ; if, after such due care, an injury happened to a servant through the unfitness or negligence of a fellow-servant, the master was not liable therefor.

It will be seen, then, that the common-law of England and the United States rested the employers' liability to the workman for injuries to the latter in the course of his employment solely on principles of tort. The workman could recover compensation from the employer only when he could clearly establish that it was the latter's fault that the injury occurred; and the number of ways in which such responsibility could be shifted I have already indicated. When the accident was due to the inherent hazards of the employment, to the act of God, or where the blame could not be fixed, the employer was not liable. 14

This review of the state of the common-law in

i3Burdick, Law of Torts (3d Ed.), pp. 184-197; also Boyd, Workmen's Compensation, p. 2.

i* Boyd, Workmen's Compensation, p. 6. These rules are especially unjust in view of modern impersonal relations between employer and employed. Commons and Andrews, Principles of Labor Legislation, pp. 357-358.

England and America prior to the passage of the workmen's compensation acts puts us in a fair way to answer one of our questions: "Why was legislation necessary to engraft the principle of workmen's compensation on our law?" Simply because the common law and the modern acts proceed on a wholly different ethical, economic and legal basis. The legislator of to-day rejects the narrow view that the problem of industrial accidents is one wholly between the parties to the contract of employment; and hints that its true solution is to be found in saddling on the industry, as one of the necessary incidents of conducting it, the expense of compensating its injured employees regardless of the varying degrees of negligence of the parties. Workmen's Compensation presumes a right in the injured laborer to compensation for injuries received in the course of his employment; but this right is no more personal to the laborer than is the duty to pay personal to the employer. In a given case, the workman's negligence may be inexcusable, the employer's conduct exemplary; but because in the long run it is better for the industry to bear the brunt of industrial accidents, because individual adjudication of such cases involves great expense, delay, and uncertainty, the supporters of the modern legislation have insisted that the law shall make "the assumption, in all cases, that neither party was guilty of negligence and that the injury was the inevitable result of the occupation in which the employee was engaged." 15

The reader must not, however, assume that the principle of workmen's compensation, which has been thus broadly stated, operates to its fullest extent in all those jurisdictions in which it has been adopted. Indeed, it has been pointed out that in none of the American states in which a modern act is in force, does the law cover all employments ; and in all there are limitations in the causes and results of injuries for which compensation will be granted. 16 Most statutes refuse compensation when the accident is due to the willful act of the employee ; 17 and some make the same rule in the case of intoxication. 18 But these and other exceptions must not be taken to impeach the theory on which all these acts are based; which is that it is in

15 Bradbury, Workmen's Compensation and State Insurance Law (2d Ed.), p. 6.

is W. C. Fisher in Quarterly Journal of Economics, vol. XXX, pp. 22-23. There is a marked tendency, however, to do away with these limitations. Rhodes, Workmen's Compensation, p. 135.

17 Bradbury, Workmen's Compensation and State Insurance Law (2d Ed.), pp. 6-7.

is Bradbury (supra), p. 7; see also New Jersey statute (P. L* 1911, p. 134) Section 2, paragraph 7.

the interest of the state and its citizens, to have "the portion of the cost of furnishing products and services which is represented by the loss of time through disabilities caused by accidents arising out of the occupation, and by death from such accidents of persons engaged in the occupation," borne in the first instance by the employer and ultimately by the consuming public in the form of increased prices, rather than by the injured workmen themselves. 19

As has been shown, the distinction between the two legal systems is a fundamental one; the common-law of negligence raising the question of comparative fault, while the workmen's compensation acts waive that question entirely, and rest on the broad proposition that public policy requires that the industry bear the burden of the accidents incidental to it. But, clear as is the distinction in principle, the terms used to describe the two theories have been ambiguous and confusing. "Employers' Liability" is the antithesis of "Workmen's Compensation"; and the former should be used to denote the common law system, either in its purity or modified in its details but not its principles by

19 See Dawson, Miles Menander, on The Constitutionality of Workmen's Compensation and Compulsory Insurance Laws, in Case and Comment, vol 22, at p. 278 (September, 1915).

"Employers' Liability laws," as distinct from the innovations of the statutes we are discussing. 20 Notwithstanding, the two terms have not infrequently been used interchangeably. The courts themselves have taken notice of these inconsistencies, however, and in at least one instance have suggested a change to the more accurate term in describing a statute.

Another phrase which is often used and is apt to confuse the unwary is "State Insurance." By State Insurance Laws are meant simply those workmen's compensation laws, or statutes of even broader application, which follow the German plan of providing compensation for disabled workers by means of state-managed insurance funds, to which the employers (and sometimes the workmen themselves) contribute in the form of premiums. This is a form of workmen's compensation apparently increasing in popularity, though meeting with the organized opposition of the private insurance companies. 21

Enough has been said to show that a new prophet

20 Bradbury, Workmen's Compensation and State Insurance Law (1st Ed.), at p. ix of the Introduction; Rhodes, Workmen's Compensation, p 3. See also Gregutis v. Waclark Wire Works, 91 Atl. (N. J.) 98, for judicial view of distinction.

2i See current comment in The Weekly Underwriter, published at has arisen in Israel; that the attitude of our forefathers towards labor, and more especially towards the problem of industrial accidents, is not the attitude of the rising generation. But a theory is not sound merely because it is new. How solid is the economic basis on which it rests ?

To begin with, the supporters of the workmen's compensation principle insist that accidents are an inevitable incident of modern industry. In the long run, there will be a "more or less stable aggregate of loss and damage occasioned by industrial accidents ; and this loss or damage is as much a part of the cost of the commodity produced as destruction of material, wear and tear on machinery, etc." 22 In reply to the contention that "the workman can get relief by suing his employer," the advocates of the new legislation point to the results of actual investigations, like that of the German Government commission of 1887, whose careful statistics show that out of every 100 serious accidents 43 are such as no care on the part of the employer could have prevented. 23 In those 43 cases,

80 Maiden Lane, N. Y. The Workmen's Compensation Publicity Bureau at the same address is avowedly run in the interests of private insurance.

22 Frankel and Dawson, Workingmen's Insurance in Europe, p. 9.

23 11 Columbia Law Review, p. 40, n. 9.

then, the law of negligence, even under the most liberal of employers' liability acts, would give no relief; and the burden would be thrown upon those least able to bear it — the injured workmen themselves. It need hardly be added that this means, in the last analysis, that the support of the disabled laborer and his dependents is thrust upon the general community in the form of charity. 24

Let us put aside for the moment whatever feeling of pity for the unfortunate workman and his family may be stirred in us by the situation thus presented, and consider it simply as an economic problem. In a given industry — say that of mining for coal — the risk is unusually great. This is not because of negligence on the part of the employers, who, we will presume, have spent much money and put a great deal of thought into safety devices; but because mining is an inherently dangerous occupation. Every year a great number of serious accidents occur; the injured miners, and the representatives of those who are killed, are constantly bringing actions against the mining companies. Sometimes big verdicts are recovered; but oftenest it is impossible to prove that the employers were negligent, and only the lawyers profit. The situation is pitiful; the

24 Frankel and Dawson, Workingmen's Insurance in Europe, p. 9»

families of disabled workmen struggle on in dire poverty, or drift to the poor-farms, where they are a continuous expense to township and county.

This picture represents more than .a social injustice; it reveals an economic fallacy. That large proportion of accidents which are inseparable from the employment, yet for which the law permits no recovery against the employer, constitutes one of the normal incidents in the production of coal; and a sane economic policy dictates the assumption of the expense of these accidents, not by the impoverished workman, not by the public charity to which the workman eventually turns, but by the employers of that industry in the first instance, and eventually by the consumer of the coal in the form of increased prices for that commodity. It is for the consumer of the coal, in the final analysis, that the miner toils and subjects himself to danger; and since it is the consumer who has set the industry in motion, it is but right that when he comes to pay for the product of the miner's labor he shall include in the purchase-price enough to compensate the miner for the dangers he has undergone and the injuries he has suffered. Yet for many years the mining communities, instead of the particular group which benefits by the production of the coal, have had to bear the burden of the accidents incidental to its production, in the form of the expense of litigation concerning these accidents, the care of the victims, and the many evils growing out of the resulting distress and pauperism. 25

Unsound in principle, the old law did not work out well in practice. In a few cases, injured workmen excited the sympathy of the jury and recovered scandalously large verdicts; but a vast majority of accidents went wholly uncompensated or were met with inadequate payments. 26 It has been estimated that the common-law remedy furnished compensation of any kind in not more than 12 per cent, of the cases of injuries to employees; and even in those few cases of recovery, the amount paid averaged scarcely one-fifth of what is deemed adequate. 27 In Germany, before the adoption of the compulsory insurance laws, the percentage of cases of accidents to employees in which compensation was awarded was even smaller, being barely ten per cent. 28 That these percentages do not repre-

25 See Dawson, Miles Menander, in Case and Comment, vol. 22, p. 278.

26 Frankel and Dawson, Workingmen's Insurance in Europe, p. 7.

27 Boyd, Workmen's Compensation, p. 54.

sent the ratio of meritorious to undeserving cases, even approximately, goes without saying.

Capitalists and large employers to-day have joined the labor element in welcoming the compensation principle. 29 Undoubtedly the aggregate yearly payments under the compensation laws are greater than formerly under the old slipshod system; but the terror of the "big verdict" is gone. Another abomination done away with by the acts is the necessity of paying expensive attorneys and claim agents to fight the claims — an item often of greater magnitude than the whole amount paid as damages. 30

But whether employers are pleased or not, it is likely that they will have to submit to workmen's compensation laws, which, after long delay, have come like a whirlwind upon the United States, most of the states and territories having adopted the principle since 191 1. 31 And as the legislation, and the industries to which it applies, gradually undergo the changes necessary to the process of mutual adaptation, even the most stubborn of the oppo-

29 Senate Document No. 338, 62d Cong., 2d Sess., pp. 551, 1378.

30 Boyd, Workmen's Compensation, p. 60.

3i For texts of the laws passed up to the end of 1916, see Honnold, Workmen's Compensation, vol. 2. See also digests and other publications of the Workmen's Compensation Publicity Bureau, 80 Maiden Lane, New York City.

nents of the idea will be compelled grudgingly to admit, as did a successful and conservative banker friend of mine, that "after all, it's a better solution of the labor problem than the old one."

Chapter II

The theory of workmen's compensation is such a newcomer to the United States that some study of its history, of how, why and where it came to be, is essential. To an account of the rise of the compensation principle, and a description of the form it has taken in foreign countries, and more especially in Germany and England, this chapter is devoted.

Switzerland was the first country to declare that for accidents in certain employments the employer was to be liable without proof of fault ; 1 but the German Industrial Insurance Act of 1884 is conceded to have been the first modern compensation law, 2 and on the German system most subsequent

ill Columbia Law Review, p. 36. See also Fourth Special Report of the Commissioner of Labor, edited by John Graham Brooks (1893), p. 354; and Frankel and Dawson, Workingmen's Insurance in Europe, p. 74. The Swiss law of 1881 "made factory proprietors liable without fault for accidental injuries to their employees," and included among such injuries "diseases caused by such poisonous substances as should be specified by the Federal Council." 65 Univ. of Penn. Law Review, 516-517 (April, 1917).

2 Bradbury, Workmen's Compensation and State Insurance Law (1st Ed., 1912), p. xii of Introduction.

enactments have in some degree been patterned. 3 It must not be supposed, however, that in Germany or anywhere else the compensation principle came into being by spontaneous generation; its ultimate adoption was the culmination of a long series of legislative experiments along similar lines, which in turn were the result of gradual advances in the field of eccjpomic philosophy.

The philosophic influences which have molded modern German labor legislation are especially important. They are very much older than such legislation itself, going back at least to Hegel, Fichte and Sismondi, whose theories were the inspiration respectively of Marx, Lasalle and Winkelblech, the three Socialistic thinkers with whom the rise of the principle of compulsory workmen's insurance is indissolubly associated. The theory of the duty of the state towards the working class, which Fichte, writing at the close of the eighteenth century, expounded with such eloquence, was taken up and expanded by Sismondi twenty years later; and it was the latter's disciple, Professor Winkelblech (Karlo Mario), who first conceived the idea of state insurance in Germany. Another Socialist, Dr. Schaeffle, has been called the father of that

3 11 Columbia Law Review, p. 37.

principle ; and it was unquestionably the sudden increase in the Socialistic vote after the Franco-Prussian War that led Bismarck to adopt the compulsory insurance idea. 4

The Prussian Act of November 3, 1838, had contained the elements of an employers' liability law of narrow application. It provided, in substance, that railway companies should be liable to both employees and passengers for injuries sustained from the operation of the trains ; but it also expressly permitted the companies to set up in defense either that the accident had been caused by the negligence of the injured party, or that it was due to an act of God. 5 The statute was indicative of a broader attitude towards accidents to employees than that characteristic of the common law of negligence and fault; but there was as yet no sign of acceptance of the compensation principle.

Labor problems, however, continued to occupy the attention of German legislators. In 1854, certain classes of employers in Prussia were compelled

4 Fourth Special Report (see footnote 1), pp. 19-22, 27. Mr. Brooks, the author of the report, makes, in Chapter 1, a thorough examination into the philosophic basis of the compensation principle. See also Rhodes, Workmen's Compensation, pp. 41-45.

6 Boyd, Workmen's Compensation, p. 26. Mr. Boyd has an excellent historical summary of German legislation in this book, on which the writer has freely drawn for information.

by statute to contribute one-half of the subscriptions to the fund of the sick associations formed according to local statutes; and Brunswick, Mecklenburg and Saxony went even further in requiring that all employers should be members of some kind of mutual sick association. 6 The earlier Prussian laws, however, do not seem to have been very effective; as, in 1876, when the law relating to friendly and active societies was passed, barely one-half of those employed in mines and other industries coming within the law were insured in the Sickness, Relief and Burial Societies provided for. 7

The employers' liability act of 1871, for united Germany, related only to mines, railways, and a few other industries, and made employers liable for death or accident proved to be directly or indirectly the fault of the employer. Assumption of risk and the fellow-servant rules were done away with by this statute, which, however, caused so much bitterness and involved so many delays in the administration of justice that it must be set down as a failure. 8

The voluntary insurance act of 1876, to which I

« Fourth Special Report (supra), p. 35; Boyd (supra), pp. 26-27. See also Willoughby, Workingmen's Insurance, pp. 33-34. 7 Boyd, Workmen's Compensation, p. 27. s Ibid., pp. 28, 1180-1181.

have already referred, also proved a failure, as a result of that industrial selfishness which is the hane of all such legislation. 9 The need of stronger measures, which in operation would not lay the hurden on conscientious employers and exempt their less altruistic competitors, was pressing; and Bismarck set himself to the solution of this problem with characteristic energy. The compulsory insurance acts of 1883-1889, heralded by an Imperial message to the Reichstag on November 17, 1881, were the results of his labors.

The scheme of these laws was novel and comprehensive. By the Sick Insurance Act of June 15, 1883, insurance was made compulsory as to workmen of an earning capacity up to 2,000 marks a year in a large class of industries, and voluntary as to the exempted workmen, officials and servants. It was to be carried out by means of local associations, established by trade guilds, townships, factories, or other industrial units; these were mutual, self -administered organizations, to whose insurance funds workmen and employers contributed in a ratio of two to one. The relief to which the insured were entitled consisted in free medical attendance from the beginning of the illness, including medicines,

9 Fourth Special Report (supra), p. 46.

bandages, etc., and a sick pay equal to one-half of the insured's wages for a limited period, first set at 13 weeks. In addition, special hospital treatment was provided for in particular cases, and burial money in the case of death. 10

Accident Insurance (as distinguished from Sick Insurance) was covered by the following enactments: (1) the "fundamental law," often referred to as the first modern compensation act, of July 6, 1884, which applied to mines, quarries, excavations, factories, and in general the handicrafts using machines and some underground building; (2) the "extension law," extending the principle of the former act to the transport trades within the country, including the post, telegraph, army and navy; (3) the "agricultural law" of May 5, 1886, for Agriculture and Forestry; (4) the "building law" of July 11, 1887, for building trades so far not insured; (5) the Marine Law of July 13, 1887> for Navigation.