The Workers’ Compensation Bargain. A Model for Gun Insurance?

This is the second post in a series about workers’ compensation insurance as a model for mandating gun insurance.  The series starts with Firearms and the History of Workers’ Compensation.

The two sides of the bargain

The Great Bargain of Workers’ Compensation is called that because employers gain immunity from lawsuits for negligence from their workers and the workers gain certainty that they will be compensated for work injuries by compulsory insurance purchased by the employers.   As the first post in this series described; the system came out of an intense reform effort from many people determined to protect and benefit workers; but employers, especially the larger firms, also pressed hard for enactment of the system.  The result was adoption of compulsory insurance in many states before 1920.  Even in states where an employer could elect not to participate (still allowed in Texas) nearly all employers opted in to get protection from liability.

The driving force for legislatures adopting a system trading protection from liability for compensation to employees was both legislative and judicial expansion of liability for employers of injured workers.  This rolled back the old defenses such as employee assumption of the risk, employee contribution to the accidents, fault of co-workers and necessity of proof of negligence.  Most employers were glad for the new system.  This history is outlined in Price V. Fishback and Shawn Everett Kantor’s book A Prelude to the Welfare State: The Origins of Workers’ Compensation.

As might be expected parties on both sides of this bargain try hard to get out of the limitations, costs and restraints in particular cases.  Any standard textbook on Workers Compensation Law is filled with analysis of  injured parties to trying to find a way to impose tort liability on someone–perhaps an employer that commits some disqualifying misbehavior such as fraud or intentional infliction of injury or a third party not covered by the bargain, such as a customer or supplier to the business involved.  On the employer side, there is a stream of political attempts to reduce insurance costs by reduction of the benefits afforded to injured workers.  In recent years, there are many such attempts by business oriented legislatures as described by a investigative series of reports by ProPublica and NPR.  Dishonesty in making and in denying claims occurs in come cases and is claimed to occur in other cases, but the scale of the system makes them a relatively unimportant problem.

The resistance can be seen as evidence of the ubiquity and depth of the system’s coverage.    Businesses and workers approach their tasks with a general assumption that their risks will be taken care of by insurance that is always there.  When an accident strikes, there can be a surprise; but it will be a genuine surprise.  After over a century, the workers’ compensation bargain is depended on to protect both employers and workers and to facilitate commerce.  The modern employment relationship cannot be imagined without it.

The bargain necessarily leads to a no-fault system

Because one of the basic half of the workers’ compensation bargain is elimination of liability for employers, the role of courts in determining fault is eliminated in injury cases.  One of the primary needs driving workers to demand this basic reform was to eliminate their uncertainty that medical care and wage replacement would be available in the event of injury.  Fault, usually from negligence, is extremely hard to determine in even simple cases.  It can be divided between multiple parties, based on minute details of unknown facts or assessed in an idiosyncratic and subjective way.  Law courts are designed to deal with this; but it results in their being slow and expensive and producing diverse results.  This did not serve workers and resulted in their half of the drive for the new system.

The new workers’ compensation only required the establishment of two basic facts; first that the injury was “arising out of the employment,” and that a certain provided for compensation was required by the nature of the injuries.  This is a completely different basis for requiring compensation; instead of trying to determine if the employer had wrongfully done or failed to do something, the question is did the employer provide the circumstances encompassing risk that resulted in the injury.  In a later post, it will be seen that this is an important shift of view for the risks of firearms as well. A much larger proportion of injured workers now receive compensation.  The lottery nature of tort litigation is eliminated.  It eliminated a few “winners” of the old system who might otherwise receive large awards, but now many who would receive nothing get needed medical care and income support.  Employers avoid the large expense of legal representation and trials, the few large judgments against them and the costs of uncertainty.  The new security for all parties contributes to peace and efficiency in the workplace.

A no-fault system aligns the efforts of insurance purchasers and beneficiaries

One of the problems of liability based insurance is that parties wanting to save on insurance costs and avoid responsibility often put their efforts to eliminating liability rather than eliminating injuries.  One only needs to think of the defensive practice of medicine and unnecessary medical tests to see how that happens.  Another wasteful practice is having customers and others sign wavers and putting up signs designed to shift responsibility rather than genuine attempts to provide safety warnings.  The instruction books for many consumer products are practically unreadable attempts to have a warning on record, even if a warning that no one will read.  The real dangers are buried in a mass of boilerplate–often boilerplate that doesn’t apply to the product at hand such as electrical warnings on a non-electrical product.

No-fault systems get away from this.  Because the injured party is rarely made whole by compensation and still suffers the pain of an injury there is an incentive on that side to avoid accidents.  Because the insured party has to pay regardless of fault the way to reduce cost is also to avoid accidents.  Workers’ compensation has worked for a century now as a no-fault system; and insurance companies have become a major driver of business related safety.  Many businesses are more concerned about inspections by insurers than from government safety inspectors.  The insurance safety system is carefully tuned by economic considerations to enforce reduction of risks rather than simply enforcing rules.

The next post will be about application of this bargain to firearms.

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