The Fascinating History of Workers’ Compensation Insurance | Pie Insurance

The workers’ compensation system in the U.S. developed from principles enacted in Europe.¹ From their inception in the 1900s, workers’ comp laws have evolved significantly through the years. To better understand the history of the laws, let’s take a look at the basics of workers’ comp as they stand now:

• Workers’ comp is state regulated with laws determined by each state’s legislative body and implemented by a state agency
• Regulations have common principles across the country, with some variation state by state
• Benefits are provided to injured workers without regard to fault and, in return, employers’ liability is limited
• The calculation of benefits takes into account future wages lost for permanent disabilities
• Not all occupational injuries and diseases are paid for by workers’ comp coverage
• It provides payment of lost wages, medical treatment, and rehabilitation services to workers who have experienced an occupational injury or developed a disease due to their work

The Roots of Employee Restitution

Before workers’ comp legislation came to the United States, workers injured on the job had to fight for compensation for lost wages, medical expenses, and other reparations. To do so, workers had to prove negligence by their employers, which typically meant a long, costly, disruptive legal battle. Employers had a number of statutes—called the “unholy trinity of defenses”²—that they could draw on to deflect liability during their defense:

• The contributory negligence defense upheld that employees could be denied payment if they contributed even remotely to causing the accident
• The fellow-servant defense could reduce or eliminate the employer’s liability if another employee was at fault
• The assumption-of-risk defense could limit a worker’s ability to recoup damages if he or she knew of the hazards in the workplace and agreed to those risks by working there

Since securing payment was an uphill battle, not many employees received settlements. In fact, even in fatal accidents, only about half of the victims’ families received payment, and if they did, it was only about a year’s pay.³ 

The United States’ version of workers’ compensation laws has roots in Germany, according to most historians. Under Prussian Chancellor Otto von Bismarck, Germany passed the Sickness and Accident Laws:

• The Employers’ Liability Law of 1871 offered limited social protection to workers in certain factories, railroads, quarries, and mines.
• The Workers’ Accident Insurance in 1884 formed the first modern system of workers’ compensation.
• Public Pension Insurance offered a stipend to employees debilitated by non-job-related illnesses
• Lastly, Public Aid supplied a safety net for those who weren’t ever able to return to work because of disability

While these laws were perhaps a boon to the common man, processing claims at the Prussian workers’ compensation board could be mind-numbing work. It’s believed that the dark tone of Franz Kafka’s writings was partly inspired by his job at the board.⁴ 

Bismarck wasn’t the first one to think that compensation for bodily injury was a good idea. In approximately 2050 B.C., Ur-Nammu, king and founder of the Sumerian Third Dynasty of Ur in southern Mesopotamia, crafted a law that provided monetary compensation for specific injuries to workers’ body parts, including fractures.⁵ Not to be outdone, in 1750 B.C., Babylonian king Hammurabi included similar provisions in his famous code.⁶ In fact, Ancient Greek, Roman, Arab, and Chinese laws all included compensation schedules for the loss of a body part.⁷ In all of these laws, specific injuries were compensated at a specified level.

And, for some trivia that you can file under “you can’t make this stuff up:” Eighteenth century pirates recognized the dangers of their occupation and developed a system to compensate injured “employees.”⁸ However, surviving the injury was key to collecting the bounty; there were no death benefits.⁹

Workers’ Comp Comes to America

In the early 1900s, literary muckrakers began penning genre-defying novels about the struggles of the common man in modern industrial society. Perhaps most notable was Upton Sinclair, the author of The Jungle, a novel that detailed the hellish conditions faced by slaughterhouse workers in turn-of-the-century Chicago. While Sinclair’s efforts didn’t spark workplace reforms, it did help inspire the Food and Drug Act of 1906 and the Meat Inspection Act of 1906, precursors to the formation of the Food and Drug Administration that we know today.

Soon after, public pressure to address employee safeguards prompted Congress to pass the Employers’ Liability Acts of 1906 and 1908, which worked to soften the defense of contributory negligence.¹⁰ While the federal government at that time showed little interest in architecting a national workers’ comp system, it did regulate interstate commerce, perhaps rubber-stamping the first compensation system in America via the 1908 law designed to protect workers involved in interstate trade.¹¹ 

The first comprehensive workers’ comp law was adopted in Wisconsin in 1911, and nine other states passed regulations that year—and not a moment too soon; in 1913 alone, more than 25,000 employees were killed in work-related accidents and about 700,000 were seriously injured.¹² Considered the first type of social insurance in the United States, workers’ comp provisions were adopted rapidly. Thirty-six more states followed suit before the close of the decade. In fact, by 1921, only six states had not authorized compensation for workplace injuries.¹³ The last holdout was Mississippi, which finally passed workers’ comp guidelines in 1948.¹⁴ 

Employee Safeguards Evolve in the Modern Age

In the early 1970s, Congress approved the creation of the National Commission on State Workmen’s Compensation Laws to research if workers’ comp should be brought under federal oversight. In 1972, the commission report didn’t champion federalization. However, it did make nearly 20 recommendations for the states, which kicked off a flurry of reforms to many workers’ comp laws.¹⁵

Employers’ sticker shock regarding the cost of providing workers’ comp coverage to employees prompted another round of reforms in the late 1980s and early 1990s. These changes reduced benefits to employees and supplied business owners with tools to control medical costs.¹⁶

Workers’ comp laws have been tweaked further to better define under what conditions compensation would be warranted. This evolution has varied by state. For example, the states disagree about covering psychological conditions if they weren’t caused by a physical injury on the job.¹⁷

In addition, many states are open to reconsidering employment during an employee’s time on permanent disability, and most insurance companies will conduct periodic check-ins to see if an employee is working or able to work. Through advancements in medicine and technology, those who once might have been considered permanently disabled may be able to work again.

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