CHAPTER - 28
EMPLOYERS’ LIABILITY AND
WORKERS’ COMPENSATION INSURANCE : 1
Presented by:
U Lwin Oo
General Manager
Myanma Insurance 1
INDUSTRIAL INJURY
¡ It is estimated that each year 10,000 employees die and almost 2,000,000 more
are injured as a result of work-related accidents.
¡ The economic loss can only be estimated, but $63 billion would probably be a
safe estimate of the cost of industrial injuries.
¡ Much of this amount is not compensable under present requirements.
¡ Even when related to a work force of 129 million and a Gross National Product of
more than $23 trillion, industrial death and liability are economically significant.
2
EMPLOYERS’ LIABILITY
¡ The law has given consideration to the responsibility of the employer for injury to
employees through much of recorded history.
¡ It is said, for example, that Hebrew laws of 1500 B.C. held that if a slave became
disabled as the result of an act of the master, whether intentional or not, the
master was required to free the salve.
¡ Since early time, admiralty law has recognized the responsibility of the shipowner
and captain for the safety and well-being of the crew.
3
THE COMMON LAW
¡ The common law of England has served as the principal guide for common law in
the United States.
¡ In the absence of statutory law, the common law doctrines govern.
¡ During its early history, England was largely a feudal, agrarian society.
¡ The working people had few rights other than the protection granted by their
master, but they did have an obligation to work the land of their lord.
4
THE COMMON LAW (CONT’D)
¡ This relationship changed with the coming of the Industrial Revolution, which started
early in the 1800s.
¡ Capital in the form of tools and power, added to labor, made for specialization. This in
turn led to larger numbers of employees with absentee ownership and a division
between ownership and management.
¡ As a result of industrialization, England assumed a dominant role in world economics
and politics.
¡ Entrepreneurs credited for this progress were rewarded materially, socially, and
politically.
¡ Labor, including that of children, was regarded as a factor of production with little
regard for humanitarian considerations.
5
THE COMMON LAW (CONT’D)
¡ The common law, prior to the 1830s, gave no special consideration to the relationship
between employer and employee.
¡ If an employee was injured during the course of employment, the basic common law
doctrine of negligence applied as it would between any two members of the public.
¡ All that was required of the employer was to provide: (1) a reasonably safe workplace
and tools, (2) reasonably competent fellow employees, (3) suitable supervision
applying reasonably safe work rules, and (4) warning of hidden dangers.
6
THE COMMON LAW (CONT’D)
¡ Beginning in 1837, with the case of Priestly versus Fowler, the legal relationship
changed dramatically in favor of the employer.
¡ This case established the first of the cardinal defenses, the fellow servant rule or
doctrine of common employment.
¡ The effect was to relieve the employer of liability for injury of an employee caused by
another employee, quite in contrast to the agency relationship recognized by common
law.
¡ A second defense, which the courts came to recognize, was that of contributory
negligence.
¡ If the employer could show that the employee was to any degree responsible for his or
her own injury, the employer was relieved of liability.
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THE COMMON LAW (CONT’D)
¡ The third and perhaps most complete employer defense was the doctrine of
assumption of risk.
¡ Here the court reasoned that if the injury arose out of an unsafe condition that the
employee could have reasonably foreseen, the employer was relieved of liability.
¡ In attempting to justify its position, the court took another step by saying that
hazardous occupations paid a premium wage, which justified the employee
assuming the risks involved.
¡ It appears that the English court chose to ignore coal mining, which was most
hazardous and clearly less than overpaid.
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THE COMMON LAW (CONT’D)
¡ The effect of the cardinal defenses was to strengthen the position of the employer
at the expense of the injured employee.
¡ Today, the employer, in the absence of statutory modification, still has the three
basic defenses but they are subject to more modification.
¡ For example, the fellow servant rule has recognized the vice-principal
modification.
¡ The employer cannot evade responsibility by delegating authority to another
employee.
¡ Contributory negligence and assumption of risk have also been modified by the
enactment of safety rules covering the conditions or the conduct of employment
that affects the application of these rules.
9
EMPLOYERS’ LIABILITY ACTS
¡ The Lord Campbell Act of 1846 was perhaps the first statutory modification of
the English common law with regard to the employer-employee relationship.
¡ Until the passage of this act, the representatives of an employee killed on the job
had no satisfactory right of action against the employer.
¡ The Lord Campbell Act of 1846 gave the family of the deceased worker a right of
action.
¡ There were numerous modifications of the 1846 law, but the next major
milestone was the Employers’ Liability Act of 1880, which served two purposes.
10
EMPLOYERS’ LIABILITY ACTS (CONT’D)
¡ One was to give back to the injured employee the same basic common law rights
as those available to the general public.
¡ If there were negligence on the part of the employer or foreman, the employee
was to have a right of action.
¡ The second purpose was to establish some definite and equitable basis for the
compensation of injured employees and their families.
¡ Although this law was a step forward, it did not solve the problem adequately.
11
EMPLOYERS’ LIABILITY ACTS (CONT’D)
¡ In 1897, Great Britain passed the Worker’s Compensation Act, which served as
the basis for the enactment of similar statutes in this country.
¡ The German Compensation System dates from 1883 and 1884, and although it
influenced the English law there were significant differences.
¡ It is generally considered that the compensation acts in the United States are
patterned after the English law.
¡ As a general proposition, workers’ compensation has been regarded as the
exclusive remedy for claims by an employee against an employer for job-related
injury or death.
12
WORKERS’ COMPENSATION LAWS
Effect of the law
¡ It can be said that workers’ compensation laws place the liability on the employer
without regard to negligence.
¡ The employers’ liability under Workers’ Compensation is absolute but is limited to
the benefits provided by the law.
¡ Looking at it from an employee’s point of view, the employee gave up the right to
sue the employer for the certainty of some compensation.
¡ On balance, one must conclude that, at least in the early days of the law, the
employee’s gain was the greater.
13
THE RATIONALE OF WORKERS’ COMPENSATION
¡ The preceding outline of the history of workers’ compensation suggests that the
original laws reflected a social concern for the employees and their dependents.
¡ Today, when much of the legislation is oriented toward providing for and
strengthening the social welfare, it would be natural to assume that
compensation concept.
¡ The early rationale has been referred to as the theory of occupational risk.
¡ Briefly, this is based on the position that industrial injuries are a natural
consequence of our industrial process.
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THE RISK AS IMPOSED BY LAW
¡ The compensation laws impose on the employer an exposure to loss, one that is
usually transferable.
¡ The risk of an employer being sued by an employee for negligence of the employer
has been eliminated in most, but not all, cases.
¡ The following areas of the laws are usually regarded as covering the most
significant characteristics; (1) elective or compulsory,(2) covered employees,(3)
covered injuries and diseases, (4) benefits provided, and (5) administration.
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ELECTIVE OR COMPULSORY
¡ Basically, elective laws provide that prior to an injury, and with proper notification
to appropriate state authorities, either the employer or employee can elect to
reject the coverage provided by that state’s workers’ compensation law.
¡ The term elective is sometimes used in different sense. State laws often
specifically exclude some employees from coverage but provide that the
employers of such excluded employees may, by request, have their employees
come under the protection of the law.
¡ In the elective situation, the law provides an inducement for the employers and
employees to come under the Compensation Act. Failure of the employer to come
under the law means a loss of the three cardinal defenses discussed earlier.
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ELECTIVE OR COMPULSORY (CONT’D)
¡ On the other hand, if an employees elects out, the employer retains the same
three very effective defenses. If both elect out, the employer loses the three
cardinal defenses.
¡ The U.S. Supreme Court in the New York Central Railroad case of 1917 held that
the states have the authority to pass a compulsory law under their police powers.
¡ The fact that two states still retain the elective feature in spite of the Supreme
Court ruling and federal pressure for compulsory laws suggests that certain
advantages may be attained.
¡ Any advantage is not to the employees, and it is extremely rare for an employee to
elect not to be covered. Under some conditions, employer may not regard the loss
of their defenses as serious.
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ELECTIVE OR COMPULSORY (CONT’D)
¡ In the periods of depression, or where a firm is standing at the brink of
bankruptcy, the employer may choose to elect out.
¡ “Even without his defenses the employer may find it preferable to trust his
advantages in money and lawyer-power and their concomitants of delay and
discouragement.”
¡ Poor financial standing plus loss of the cardinal defenses make insurers less than
enthusiastic writing employer’s liability insurance on firms that have elected out
workers’ compensation.
¡ This has encouraged use of workers’ compensation by many employers.
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COVERED EMPLOYEES
¡ The great majority of states provide that all employees are covered except those
groups identified in law. This approach is referred to as coverage by exclusion. The
specific types of employment excluded vary considerably among the states.
¡ The first is that the employment is so temporary as to make the administration of
coverage and benefit payment difficult. The second is that many state legislatures
have been dominated by politically powerful rural interest.
¡ In some states, employers with less than a specified number of employees are exempt
from the law.
¡ The number of employees qualifying for exemption ranges from one to five.
¡ In one instance, the numerical exemption applies only to domestics, casual employee,
and farm labor.
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COVERED INJURIES
¡ Most of the laws provide coverage for ‘accidental occupational injuries arising out of
and in the course of employment.’
¡ The term accidental is intended to eliminate self-inflicted injuries.
¡ The wording occupational injuries means fortuitous, unexpected events, definite in
time and place.
¡ ‘Arising out of and in the course of employment’ is intended to limit benefits to those
situations in which there is a definite relationship between the employee’s work and
the injury.
¡ It is now generally conceded that for purposes of Workers’ Compensation coverage,
employment begins when the employee reaches the entrance to the premises where
the work is to be done.
20
COVERED INJURIES (CONT’D)
¡ Occupational disease coverage, as a part of the compensation laws, has been added or
liberalized only during the past few decades.
¡ Occupational disease is defined as “ an injury arising out of employment and due to
causes and conditions characteristic of, and peculiar to, the particular trade,
occupation, process or employment, and excluding all ordinary diseases to which the
general public is exposed. All of the states provide that benefits are payable for all
diseases.
¡ The employee is expected to demonstrate that there is a cause-and-effect relationship
between the disease and the employment.
¡ Conditions such as noise or emotional stress and strain often result in accumulative
injury.
¡ Cumulative injury refers to disabilities that develop over time as a result of repeated or
continuous exposure to unfavorable conditions. 21
BENEFITS PROVIDED
¡ The types of benefits provided for in the laws may be divided into four groups; (1)
medical, (2) income replacement, (3) death and survivors, and (4) rehabilitation.
¡ The first two must be regarded as fundamental and essential to the compensation
concept.
¡ It is important to remember that the benefits, as provide by the law, represent a right of
the injured employee.
¡ The burden of proof is not on the employee to show entitlement but rather rests with
the employer to demonstrate the reason that the benefits should not be paid.
MEDICAL BENEFITS
¡ Every law provides for the payment in kind of medical, surgical, nursing, and hospital
benefits.
22
INCOME REPLACEMENT
¡ The second fundamental purpose of the laws is to provide the injured employee and
family with a weekly income while the worker is disabled as the result of a covered
injury or disease.
¡ The disability income level and duration varies depending om; (1) total or partial
disability, (2) employee’s average weekly wage level, (3) maximum duration of benefits
stated in the law,(4) maximum aggregate dollar limits, (5) waiting periods, and (6) cost
of living increase.
¡ There is on standardized definition of disability, and often the laws are silent on the
point, or at least give a very general definition.
¡ The court has said that ‘total disability within the Workmens’ Compensation Act does
not mean absolute helplessness or entire physical disability, but means inability to
perform the work of one’s trade or inability to obtain reasonably gainful employment.’
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INCOME REPLACEMENT (CONT’D)
[1] TOTAL AND PARTIAL DISABILITY
¡ In general, one is totally disabled when unable to perform the important duties of one’s
occupation.
¡ For benefit purposes, total disability is subdivided into permanent and temporary.
¡ In the case of permanent disability, there is an assumption that the injured employee will
not be able to work again.
¡ Some laws specifically state that the loss of both eyes, both legs, or both arms shall
constitute total and permanent disability, but it is not limited to these specified losses.
¡ Temporary disability is that situation in which the facts indicate that the employee will be
able to return to work at some future time.
¡ Weekly income benefits are usually the same for both permanent and temporary total
disability.
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INCOME REPLACEMENT (CONT’D)
[1] TOTAL AND PARTIAL DISABILITY (Cont’d)
¡ Partial disability means that the employee can perform some but not all of the
important duties of the occupation. Again, there is a subdivision of permanent and
temporary.
¡ Often the injured person is regarded as temporarily totally disabled following an
accident or sickness. He or she may then return to work on a limited basis.
¡ Actually, the existence of partial benefits encourages the injured employee to return to
work more quickly than would otherwise be the case.
¡ The laws often state that the loss of certain specified body members constitutes
permanent-partial disability.
¡ Benefits are offered in a lump sum and are often expressed in terms of a number of
weeks of total disability amounts.
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INCOME REPLACEMENT (CONT’D)
[1] TOTAL AND PARTIAL DISABILITY (Cont’d)
¡ Temporary-partial disability applies when the worker returns to a wage-earning capacity
on a limited basis.
¡ The law often provides for an adjusted level of benefits.
¡ These are of the nonscheduled type.
¡ Most state laws provide for an adjustment based on the wage-loss adjustment
percentage used to determine temporary total.
¡ The percentage is applied to the difference between wages earned before and after an
injury.
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INCOME REPLACEMENT (CONT’D)
[2] EMPLOYEE’S AVERAGE WAGE
¡ In terms of dollar amount, the employee’s average wage is the most significant factor
affecting benefit payments. One of the basic concepts of compensation laws is to relate
disability income levels to earning capacity, within fixed minimum and maximum limits.
¡ The first step in determining the extent of income replacement is to determine the
injured employee’s total weekly wage for some period, often thirteen weeks,
immediately preceding the disability.
¡ The average is found by merely dividing the total compensation earned in this period by
thirteen or another appropriate number.
¡ The rate of compensation payable is usually expressed as a percentage of the average
weekly wage so determined. The percentages used vary from 60 to 70 percent, with 66
2/3 percent being the most common.
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INCOME REPLACEMENT (CONT’D)
[3] DURATION OF BENEFITS
¡ Reference has already been made to the fact that partial disability benefits, both
temporary and permanent, are subject to some form of maximum limit.
¡ Total disability benefits, in the great majority of states, are paid for life.
¡ However, five states have limits ranging from 400 to 650 weeks.
¡ The trend is clearly away from such limits.
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INCOME REPLACEMENT (CONT’D)
[4] DOLLAR LIMITS
¡ Generally, states with lifetime permanent total disability benefits do not impose dollar
limits on the amount to be paid.
¡ There are only two exceptions at the present time.
¡ Temporary total disability benefits are subject to both duration limits referred to earlier
and maximum dollar-amount limits.
¡ All of the states place a maximum dollar limit, and all but one have a minimum dollar
limit, on the amount of weekly disability income to be paid.
29
INCOME REPLACEMENT (CONT’D)
[5] WAITING PERIPODS
¡ Every state law has a waiting period, ranging from two days to a week, before disability
income benefits begin.
¡ If the disability continues for some period (typically two to four weeks), benefits are
usually retroactive to the original date of disability.
¡ There is no waiting period or deductible for medical benefits.
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INCOME REPLACEMENT (CONT’D)
[6] COST OF LIVING INCREASE
¡ One of the serious shortcomings of workers’ compensation benefits has been that once
fixed, they remained constant for their duration; thus for a younger, permanently
disabled worker this could mean fifty years or more.
¡ In a stable economy this is not a problem, but with double-digit inflation, the injured
employee will find that at the end of just a few years, compensation benefits, in
purchasing power, are only a fraction of the income replacement originally provided at
the time of disability.
¡ To date, eighteen state laws now provide for automatic cost-of-living increases.
31
DEATH AND SURVIVORS’ BENEFITS
¡ The workers’ compensation laws provide that actual funeral expenses will be paid,
up to a maximum dollar amount.
¡ In addition, all states provide income continuation for the surviving spouse and
children of the employee whose death is work related.
¡ As in the case of disability, this weekly income amount is based on a percentage
of the average weekly wage of the deceased, subject to minimum and maximum
dollar limits.
¡ Children’s benefits terminate when they marry or reach the age of eighteen.
¡ The window’s benefit ceases on remarriage, and her benefits are usually subject
to an aggregate dollar limit.
32
REHABILITATION
¡ Loss reduction in the form of rehabilitation must be ranked with loss prevention as two
of the most socially beneficial aspects of workers’ compensation.
¡ It is unfortunate that not all of the states make specific provision in their laws for
rehabilitation.
¡ Even in the states that do, the provisions and financing are often inadequate.
¡ A number of insurance companies have performed an outstanding service in this area,
but economics dictate that they realize an offsetting saving in benefit payments to
justify rehabilitation expenditures.
¡ Expenditures should not be subject to a cost-loss savings relationship because the
total cost to the employee, to the family of the employee and to society cannot be
measured in dollars alone.
33
ADMINISTRATION
¡ Apart from the social desirability and acceptability of any law, it cannot be
effective in its purposes without efficient and equitable application.
¡ For this reason, the compensation laws provide for a system of administration.
¡ Areas requiring supervision include: (1) claims, (2) financial responsibility, (3)
legislative review, and (4) rate supervision.
34
CLAIMS
¡ It must be regarded as a testimonial to (1) the clarity of the laws, (2) the social
conscience of employers and insurers, and (3) generally sound administration of the law
that 95 percent of workers’ compensation claims are settled by agreement.
¡ In those cases in which a mutually agreeable settlement cannot be reached by the
employee and the employer (or employer’s insurer), a system of review must be
available. The potential disadvantages of this system are delay and lack of specialized
knowledge of the law’s application.
¡ Most jurisdictions employ a separate industrial commission or board to review the claim.
When a disputed claim arises, the board reviews the facts and makes or withholds
awards.
¡ In questions of fact, the board’s decision is final. If there is disagreement with regard to
questions of law, either party to the dispute has the right of appeal to the courts.
35
FINANCIAL RESPONSIBILITY
¡ The benefits provided by the law are only of value if the employer or the
employer’s representative is able to respond financially.
¡ For this reason, most laws require that the employer purchase insurance from a
state fund or from an approved commercial insurer.
¡ Six states have monopolistic state funds. In these states, the employer has no
choice but to transfer the compensation risk to the state fund.
¡ In twelve states, a state fund is available that operates in competition with
commercial insurers.
¡ The general rule is that an employer is limited to using insurers that are licensed
to do business in the state or are otherwise specifically approved.
36
FINANCIAL RESPONSIBILITY (CONT’D)
¡ Self-insurance is permitted in all but three states. Where permitted, the commission or
board establishes qualification standards.
¡ The commission or board also periodically reviews the employer’s balance sheet, claim
and loss adjustment experience, and the outstanding compensation liabilities.
¡ In addition, some states require that the employer furnish a bond guaranteeing the
payments required by law.
¡ Almost two-thirds of the states permit group self-insurance.
¡ Under a group self-insurance plan, employers band together and form a joint self-
insurance fund that pays workers’ compensation benefits on behalf of all of its
employer-members.
37
FINANCIAL RESPONSIBILITY (CONT’D)
¡ The funds are regulated to varying degrees by the states in which they operate.
¡ A group self-insurance fund operates much like a mutual insurance company, but
there is at least one major difference.
¡ The members have unlimited joint and several liability for the benefits due to
injured workers.
¡ If one or more employer-member cannot pay their share, the remaining members
must make up the shortfall.
38
LATE PAYMENT OF BENEFITS
¡ An occasional problem has been a delay in the delivery of Workers’ Compensation
benefits.
¡ For many injured employees, a loss of income for more than two weeks can be an
economic disaster and is quite contrary to the basic concept of compensation.
¡ To combat the problem, some states have enacted legislation requiring an additional
payment to the employee by either the employer or the insurer when late payments
occur. The party found responsible for the delay is the one charged.
¡ In one state, the law provides that the penalty shall be an additional 10 percent of the
benefits due if the delay is beyond the fourteenth day after the employer has
knowledge of the injury or death.
¡ If compensation is not paid within twenty days, the penalty is increased to 20 percent.
39
Legislative Review
¡ In a fluid economy, with variations in the purchasing power of the dollar, changing wage
levels, and changing benefit costs, periodic modifications of the law are necessary.
¡ Typically, such changes originate with the commission or board. The board drafts new
laws that are then presented to the legislators for hearing and appropriate action.
Rate Supervision
¡ Practices vary among states with regard to approving rate levels for workers’
compensation insurance.
¡ In some, the insurance commissioner has this duty, and in others, the commission or
board is responsible.
¡ In either case, the basic requirements of adequacy, reasonableness, and equity are the
guides to rate approval.
40
MEASURES OF INJURY
¡ There are numerous time series that may be used, but three are rather universal: (1)
Accident Frequency Rate, (2) Severity Rate, and (3) Accident Loss Rate.
¡ The Accident Frequency Rate is the number of disabling injuries per million man-hours
worked.
!"#$%& () *!+"&*%,
Injury Rate =
-(./0 1("&, 2(&3%4 (*! #*00*(!)
¡ A disabling injury is one in which the injured employee loses at least one day of work.
¡ The Severity Rate is defined as the number of days lost by the injured employees per
million man-hours worked.
¡ The days lost are actual working days lost.
41
MEASURES OF INJURY (CONT’D)
¡ In the case of death or permanent total disability, 6,000 days are arbitrarily added to
provide a weighting for these serious losses.
¡ The Accident Loss Rate is the amount of benefits and medical costs per million man-
hours.
¡ At least to the employer, this ratio is the one that is best understood and most
meaningful.
42
SECOND-INJURY FUNDS
¡ A second-injury fund, or more accurately a subsequent injury fund, is one in
which, because of the effects of a preceding injury, the disability resulting from
the subsequent injury is greater than would have been the case had there been
no previous injury.
¡ A simple example involves an employee who is injured and loses the sight of the
other eye.
¡ A question arises as to the equity of assessing the employer at the time of the
second accident for the full cost of the total and permanent disability.
¡ In the absence of any alternative, this is what would be done, with the result that
employers would be very hesitant to hire a handicapped employee.
43
SECOND-INJURY FUNDS
¡ Practically all states have established second-injury funds for social and economic
reasons.
¡ Such funds make it possible to charge the second employer for the disability
resulting from that accident considered by itself.
¡ The fund then pays the difference between that amount and the total benefit to
which the employee is entitled.
44
CURRENT DEVELOPMENTS
¡ The development of workers’ compensation must be viewed against a background
of the strengths and weaknesses of the system.
¡ Unfortunately, the points considered are largely judgment values and, as such,
tend to shift as social and economic standards change.
¡ On the positive side, it must be said that the basic theory that occupational injury
and disease should be treated as a cost of producing goods and service is valid.
¡ Quantitatively, it can be demonstrated that the socially desirable reduction in
injury has resulted.
¡ Economic considerations have encouraged loss prevention.
45
CURRENT DEVELOPMENTS (CONT’D)
¡ The problem of industrial injury may logically be viewed as two problems.
¡ One is providing economic protection to the injured employee and the employee’s
family.
¡ The second problem, that of preventing injury and disease, was left to broadly
defined and loosely administered work safety rules, limited union activities, and
the economic motivation of the employer and insurers.
46
COMMISSION ON WORKERS’ COMPENSATION
¡ For many years, it has been recognized that, as constituted, workers’ compensation does
not fulfill its full potential. Generally, it has been felt that benefits were inadequate and
inequitable.
¡ Under authority granted by the 1971 Occupational Safety and Health Act, President
Nixon appointed the National Commission on State Workers’ Compensation Laws in June
of 1971.
¡ After a year of careful study, the eighteen-member commission recommended that
administration and regulation continue to rest with the several states, but that there be
substantial improvement in the program.
¡ The commission’s report urged improvement along three courses of action: (1) improve
coverage and benefits, (2) provide for a revaluation by the commission in 1975, (3)
appoint a new commission to provide technical assistance to the states in order to
improve their programs. 47
OSHA
¡ The purpose of the Occupational Safety and Health Act is
to assure safe and healthful working conditions for working men and women; by
authorizing enforcement of the standards developed under the Act; by assisting
and encouraging states in their efforts to assure safe and healthful working
conditions; by providing research, information, education, and training in the field
od occupational safety and health; and for other purposes.
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