DISTRIBUTION OF LOSSES AND EXPENSES RESULTING FROM ACCIDENT II

Amount of loss and expense assumed by company

Claim number

Award

Α

Total.

1234567

$162,500 $25,000 $25,000 $25,000 $25,000 $25,000 $6,000 $131,000

In this case the limit of the policy is reached on the first and third claims and, while every cooperating company is called upon to share in the total losses and expenses, the amount covered by the insurance is less than the total cost arising out of the accident by $31,500. In this case the assured is responsible for the excess cost, and the only way in which he might have secured complete protection would have been by procuring insurance for higher limits, such as $75,000/$175,000.

CHAPTER XIX

EMPLOYERS' LIABILITY AND WORKMEN'S COLLECTIVE INSURANCE

EMPLOYERS' LIABILITY

In this final chapter certain general comparisons will be made between the methods employed in the insurance of the employer's obligation in so-called employers' liability states and those which obtain in states which have workmen's compensation laws. Employers' liability insurance preceded workmen's compensation insurance and it was natural, therefore, that the original coverages, rates, classifications, rules of procedure and other details of workmen's compensation insurance should have been copied largely from the corresponding items in the allied field of employers' liability. Many practices which exist today in workmen's compensation insurance very clearly show their kinship to similar practices which at one time prevailed in employers' liability insurance. This is particularly true in certain phases of underwriting, claim, statistical and other branches of technical procedure.

Today, the importance of the two classes of insurance has been reversed. Workmen's compensation insurance is now the important factor and employers' liability insurance is continued only for the purpose of meeting the requirements of employers in the few states which still adhere to employers' liability as the basis of indemnification for industrial injury. Employers' liability insurance, therefore, is growing smaller in premium volume each year and eventually, when all states have enacted workmen's compensation legislation, will not exist. In view of this situation, the tendency is to make employers' liability insurance conform as closely as possible to workmen's compensation insurance so that a change in laws affecting the legal status of employers will require

no more than a nominal change in insurance practices. Thus, rate-making, manual classifications, merit rating, underwriting rules, reserve requirements and other items are, as a general rule, similar for the two classes. Moreover, the same companies transact both classes and their operations in the home office and in the field are identical.

Contracts. The only point of substantial difference will be found in the policy contract and particularly in that provision of the contract which defines the coverage and is known as the "insuring clause." This is because the position of the employer is different, and it follows that the coverage required to protect his interests must necessarily be different.

The workmen's compensation policy is in effect a direct arrangement whereby the company deals with the employee or his dependents but the employers' liability policy leaves the employee out of consideration entirely and establishes a relationship between the company and the employer. It does not guarantee the payment of anything to the employee but rather it obligates the company to assume the liability of the employer and to conserve his legal rights when his employees claim damages for industrial injuries. The insuring clause states that the company, in consideration of the premium agrees "to indemnify the policyholder against loss and/or expense arising or resulting from claims upon him for damages on account of bodily injuries and / or death accidentally suffered, or alleged to have been suffered," by his employees. The policyholder is required to report accidents promptly and also to notify the company whenever suits are brought against him to enforce claims for damages. In the latter case, the company, at its own expense, defends the employer and, if judgments are awarded against the employer, the company pays them subject to certain limitations which will be explained presently.

The policyholder, for his part, agrees to aid the company in effecting settlements, in securing information and evidence, in arranging for the attendance of witnesses, and in prosecuting appeals. Moreover, he agrees not to assume any liability voluntarily, to refrain from interfering in any negotiation for settlement or in any legal proceeding, and to make no efforts to settle

claims or to incur expense without the written permission of the company. The burden of defending the employer against claims for damages is assumed in its entirety by the company. The company pays if the employer is found legally liable or if it chooses voluntarily to make a settlement although, in certain cases, with the written consent of the company, the policyholder may settle the claim himself and secure reimbursement from the company.

The distinctive features of an employers' liability policy have been described as follows:

This insurance is written to protect employers from loss on account of their legal liability for personal injuries, sustained by their employees, or other persons. It differs fundamentally from life, accident or fire insurance in that the loss arises out of injury to persons who are not parties to the contract. The claimant has no rights against the insurance company, but makes demand and prosecutes suit directly against the insured, who is defended and indemnified by the company. The protection afforded the insured is of a definite kind; not against moral responsibility which the insured may feel toward the claimant, but for the tangible and fixed liability imposed upon him by law; that is, what he can be compelled to pay by resort to litigation. It is apparent, therefore, that an insured has no right to enlarge his responsibility by voluntarily assuming obligations not imposed upon him by law or authorized by his policy, without the assent of the company, unless he intends to fulfill such obligation himself.1

A further point of difference which at one time distinguished the employers' liability policy was that it was purely a contract of indemnity. It, therefore, served to place the company in the position of the policyholder only so long as he was capable of incurring and discharging liability. When the policyholder became insolvent and was, therefore, without means of meeting his responsibilites, the liability of the company terminated. This situation no longer obtains to any extent because laws have been enacted in several states requiring the companies to issue contracts which provide coverage even though the employer

CLARK, WALTER L., "Settlement of Losses," in "Business of Insurance," compiled by Howard P. Dunham, p. 262.

is insolvent, and the majority of the companies have adopted this practice generally even where there is no statute bearing on the subject.

Liability Limits.-There is a limitation in all cases upon the liability assumed by the company. This is usually in the form of two limits, one, the lower limit, establishing the maximum amount which the company is obligated to pay on account of injury to a single individual in any one accident, the other and higher limit fixing the maximum amount for which the company holds itself liable on account of all the claims arising out of a single accident in which more than one person is injured. Thus, in the case of limits of $5,000 and $10,000 the company assumes liability up to the limit of $5,000 on account of a claim presented by a single individual and, subject to this limit per individual, it is responsible for a total liability of not to exceed $10,000 on account of all the claims arising out of a single accident.

If insurance with these limits is purchased by a policyholder and a judgment of $15,000 is awarded to an employee who has suffered as the result of a work accident, the company is responsible for $5,000 of this amount and the policyholder is responsible for the remaining $10,000. However, if three persons are injured in a single accident and the judgments awarded are respectively $1,000, $3,000 and $6,000, the company is responsible for the entire amount of the first two claims and for $5,000 of the third claim. In this case, the policyholder would be required personally to make good the deficit of $1,000. If the second person in this example should receive an award of $5,000, it would increase the liability of the company to $10,000 on account of the three claims, and the liability of the policyholder would be increased to $2,000.

The question of limits is important, particularly in view of the tendency, which has become apparent in recent years, for juries to make excessive awards in individual cases. Verdicts exceeding $25,000 are no longer rare. The limits of liability included in the coverage for which manual rates are charged are the standard limits of $5,000 and $10,000 (commonly referred to as limits of 5/10-"five and ten"). Higher limits may be obtained, however, upon payment of an increased premium. Thus, if