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ROYAL M EEKER, Com m issioner

( W H O L E '} ! '-)
W O R K M E N ’ S IN S U R A N C E



S E R IE S :




TON, D. C., DECEMBER 5 TO 9, 1916

JU NE, 1917





60 C E N T S P E E




............. ............................ .................... .... 13-15


I. Merits and demerits of different form s o f administration.
Address by the chairman, Dudley M. Holman, president, I . A . I . A . B . C .
Industrial accident board system, by Frank J. Donahue, chairman,
Massachusetts Industrial A ccident Board....................................................
District system, by George B. Chandler, member, Workmen’s Compen­
sation Commission of Connecticut..................................................................
Pennsylvania system, by Harry A. Mackey, chairman, Workmen’s Com­
pensation Board of Pennsylvania...................................................................
Merits and demerits of the Ontario system, by George A. Kingston, com­
missioner, W orkmen’s Compensation Board of O n ta rio...........................


Miss Gertrude Beeks, director welfare department, National Civic
T. J. Duffy, member, Ohio Industrial Commission......................... 62-65
George A. Kingston, commissioner, Workmen’s Compensation
Board of Ontario................................................. .................................. 62, 65

H . M erits and dem erits o f different methods o f carrying w orkm en’ s
compensation insurance.
Merits and demerits of the different forms of writing workmen’s compen­
sation insurance, by J. Scofield Rowe, vice president, iEtna Life
Insurance Co., Hartford, Conn........................................................................ 66-93
Different methods of workmen’s compensation insurance, by Edson S.
Lott, president, United States Casualty Co., New Y ork ........................ 94-104
Self-insurance, by Dudley P . Kennedy, director, labor department,
B. F. Goodrich Co., Akron, O hio............................................................... 105-110
Employers’ mutual associations, b y Walter S. Bucklin, president, Massa­
chusetts Employees’ Insurance Association............................................ 111-122
Discussion: Mr. Davis, Mr. Beyer, Dr. Baldwin, and Mr. L ott___ 122-124
Competitive State funds, by F. Spencer Baldwin, manager, New York
State Insurance F u n d .......... ........................................................................ 125-140
State monopoly of compensation insurance, b y T. J. Duffy, member,
Industrial Commission of O h i o .................................................................. 141-145
State monopoly of compensation insurance, by William A. Marshall,
chairman, Industrial Accident Commission of Oregon........................ 146-148
Competitive plan of workmen’s compensation insurance, b y W. W.
Greene, actuary and insurance manager, Industrial Commission of
Colorado............................................................................................................ 149-160



H . M erits and demerits o f different methods o f carrying w orkm en’s
com pensation insurance— Concluded.
Albert L. Allen, assistant manager, Pennsylvania Workmen’s In- p age.
surance F u nd...................................................................................... 161-164
John W. Mapel, Pfister & Vogel Leather Co., Milwaukee, W is .. . 164-168
Samuel Davis, attorney at law, Boston, Mass.......................... 168,169,171
T. H. Carrow, Pennsylvania Railroad Co............................................
W. G. Wilson (of Cleveland, Ohio), iEtna Life Insurance Co..........
David S. Beyer, manager, accident-prevention department, Mas­
sachusetts Em ployees’ Insurance Association............................. 170,171
T. J. Duffy, member, Industrial Commission of O hio.................. 171-173
S. Herbert Wolfe, consulting actuary, New York C ity................. 172,173
Harry A. Mackey, chairman, Workmen’s Compensation Board of
Pennsylvania....................................................................................... 172,173

III. Compensation schedules o f awards.
Schedule rating for permanent disabilities, b y A. J. Pillsbury, chairman,
Industrial Accident Commission of California........................................ 175-183
Basis of compensation, b y P. Tecumseh Sherman, attorney, New York
C ity............................................................................................................... . 184-192
Compensation schedules of awards, b y Albert W. Whitney, general man­
ager, National Workmen’s Compensation Service Bureau.................. 193-197
S. Herbert Wolfe, consulting actuary, New York City. 198-201, 216, 217
G. F. Michelbacher, National Workmen’s Compensation Service
Bureau, New York C ity................................................................... 201-205
Dudley M. Holman, president, I. A. I. A. B . C ............ 205-211, 216, 217
Edson S. Lott, president, United States Casualty Co., New
Y o r k ............................................................................................. 208,209,219
Capt. Wm. P. White, United States Navy, retired, treasurer and
general manager, Lowell Paper Tube Corporation............. 209-211, 217
L. D. Clark, United States Bureau of Labor Statistics................. 211-214
George A. Kingston, commissioner, Workmen’s Compensation
Board of Ontario................................. ...................................................
Ralph H. Blanchard, University of Pennsylvania........................ 215, 216
S. W. Ashe, General Electric Co., Pittsfield, Mass........................ 216, 217
Albert W. Whitney, general manager, National Workmen’s Com­
pensation Service Bureau................................................................ 217, 218
T. H. McGregor, chairman, Industrial Accident Board of Texas,
Austin, T e x .........................................................................................218,219
IV. Lump-sum settlements.
Lump-sum settlements, b y William C. Archer, deputy industrial com­
missioner, in charge of the Bureau of Workmen’s Compensation of
New Y ork ........................................................................................................ 220-225
Lump-sum settlements, b y Robert E. Grandfield, secretary, Industrial
Accident Board of Massachusetts............................................................... 226-230




V. Basic principles of rate making.
Basic principles of rate making, b y Walter G. Cowles, vice president,
The Travelers Insurance Co., Hartford, Conn........................................ 231-237
Principles and methods of rating compensation risks, b y Leon S. Senior,
manager, New York Compensation Inspection Rating Board............. 238-248
Experience rating versus schedule rating, b y David S. Beyer, Massachu­
setts Em ployees’ Insurance A ssociation................................................. 249-260
Ralph H. Blanchard, University of Pen nsylvania....................... 261, 262
James Higgins, Industrial A ccident Commission of M aryland... 262, 263
Prof. Willard C. Fisher, New York U niversity...................................
David S. Beyer, Massachusetts Em ployees’ Insurance Associa­
tio n ....................................................................................................... 263,266
Herbert M. Wilson, director, department of inspection and safety,
the Associated Companies, Pittsburgh, P a ................................. 263, 264
T. H. Carrow, Pennsylvania Railroad Co............................................
Walter G. Cowles, vice president, The Travelers Insurance Co.,
Hartford, Conn.......................................................................... ......... 264, 265
Prof. Walter M. Adriance, Princeton U n iversity..............................
VI. Accident prevention in connection w ith w orkm en’ s compensation.
Accident jxrevention in California, b y W ill J. French, member, Indus­
trial Accident Commission of California................................................... 267-272
Inspection and schedule rating of coal mines as a means of preventing
mine accidents, b y Herbert M. Wilson, director, department of inspec­
tion and safety, the Associated Companies, Pittsburgh, P a................ 273-282
Lewis T. Bryant, commissioner of labor, New J ersey ... 283-285, 290, 291
Alfred W. Donovan, chairman, Board of Labor and Industries of
Massachusetts........ ............................................................................ 285-290
Miss Gertrude Beeks, director, welfare department, National
Civic Federation................................................................................ 287, 288
Prof. Willard C. Fisher, New York University...................................
S. W. Ashe, General Electric Co., Pittsfield, Mass............................
Royal Meeker, United States Commissioner of Labor Statistics...

VII. M edical services and m edical and hospital fees under workm en's
Medical services and medical and hospital fees under workmen’s com­
pensation, by F. M. Williams, chairman, Workmen’s Compensation
Commission of Connecticut......................................................................... 292-304
Medical services and medical and hospital fees under workmen’s com­
pensation, b y Dr. Francis D. Donoghue, medical adviser, Industrial
Accident Board of Massachusetts.............................................................. 305-313
VH I. Physical exam ination and m edical supervision o f employees.
Compulsory physical examination, b y John P. White, president, United
Mine Workers of Am erica............................................................................. 314-316
Informal remarks b y William Green, secretary-treasurer, United Mine
Workers of America.................................................................................. .



V m . Physical examination and medical supervision of employees— Concluded. Page.
Physical examination and medical supervision of factory employees, by
W. Irving Clark, M. D m e d ic a l director, Norton Co., Worcester, Mass. 317-326
Physical examination and medical supervision of employees, by W. H.
White, M. D., chief medical examiner, Industrial Commission of Ohio. 327-334
Dr. J. W. Schereschewsky, surgeon, United States Public Health
Service.................................................................................................. 335-337
Dr. David L. Edsall, Massachusetts General Hospital, Boston,
Mass...................................................................................................... 337,338
Dr. Otto P. Geier, director, em ployees’ service department, Cin­
cinnati Milling Machine Co............................................................. 338, 339
Dr. S. M. McCurdy, Youngstown Sheet & Tube Co...................... 339-341
Arthur E. Holder, American Federation of L a b or........................ 341, 342
Capt. Wm. P. White, United States Navy, retired, treasurer and
general manager, Lowell Paper Tube Corporation.................... 342-346
Dudley It. Kennedy, director, labor department, B. F. Goodrich
Co., Akron, O hio................................................................................ 345-347
Dr. George M. Price, director, Joint Board of Sanitary Control in
Dress and Waist in du stry.....................................................................
IX . Permanently disabled w orkers.
Problem of the handicapped man, by Dudley M. Holman, president,
I. A. I. A . B. C ..................*........................................................................... 348-357

X. Defects and suggested changes in workm en’ s compensation laws.
Some defects and suggested changes in workmen’s compensation laws, by
Prof. Willard C. Fisher, New York University...................................... 359-377
Omission of occupational diseases as a defect in workmen’s compensation
laws, by Frederick L. Hoffman, statistician, Prudential Insurance C o. 378-397
Prof. John It. Commons, University of Wisconsin......................... 398-400
F. H. Bohlen, consulting attorney, Pennsylvania Bureau of Work­
m en’s Compensation, Department of Labor and Industry. . . . 400-402
H. B. Bradbury, counselor at law, New York City....................... 402-405
Chas. H . Verrill, expert, United States Bureau of Labor Statistics. 405-409
Hal H. Smith, counsel, Michigan Workmen’s Compensation Mu­
tual, Detroit, M ich ............................................................................. 409-413
G. E. Beers, member, Workmen’s Compensation Commission of
Connecticut......................................................................................... 413, 414
Ralph H. Blanchard, University of Pennsylvania........................ 414, 415
Nathan B. Williams, associate editor, The Lawyer and Banker,
Washington, D. C.............................................................................. 415, 416
Capt. Wm. P. White, United States Navy, retired, treasurer and
general manager, Lowell Paper Tube Corporation...................... 416,417
Frederick L. Hoffman, statistician, Prudential Insurance Co........




E xisting agencies.
Address b y chairman, Dr. W illiam J. Kerby, professor of sociology,
Catholic University, Washington, D. C .................................................... 419,420
Group insurance, b y W illiam A. Day, president, Equitable Life Assur­
ance Society. . ............................................................................................... 421-429
Existing agencies for health insurance in the United States, by Edgar
Sydenstricker, public health statistician, United States Public Health
Service.............................................................................................................. 430-475
Trade-union sickness insurance, by G. W. Perkins, president, Cigar
Makers’ International Union of Am erica.................................................. 476-481
Employees’ Benefit Association of the International Harvester Co., by
George A. Ranney, secretary and treasurer, International Harvester
Co..................................................................................................................... 482-490
Pennsylvania Railroad voluntary relief department, by E. B. Hunt, of
the Pennsylvania Railroad Co.................................................................... 491-496
Mutual benefit funds, by Abb Landis, National Fraternal Congress... 497-504
Students’ health insurance at the University of California, by Robert T.
Legge, M. D., professor of hygiene and university physician, Univer­
sity of California......................................................... .................................. 505-511
Joint-stock company health insurance, by Rufus M. Potts, insurance
superintendent, Illinois........................................ . ..................................... 512-518
Charles F. Nesbit, superintendent of insurance, District of Co­
lum bia.............. ................................................................................... 519-521
Ansley K. Salz, advisory member, Social Insurance Commission
of California...................................................... .......... ..
521-524, 546, 547
Royal Meeker, United States Commissioner of Labor Sta­
tistics ........................................................................................... 524, 533, 534
Edward F. McSweeney, former member, Industrial Accident Board
of Massachusetts..................................... .......................... 524-530, 533, 534
Miss Gertrude Beeks, director, labor department, National Civic
Federation................................................................................. . 530-533, 543
John B. Andrews, Ph. D., secretary, American Association for
Labor Legislation...................................................................................
John S. Kennedy, secretary, employees’ benefit fund committee,
eastern group of companies of the Bell system........................... 535-537
Capt. Wm. P. White, United States Navy, retired, treasurer and
general manager, Lowell Paper Tube Corporation.................... 536, 537
T. H. Carrow, Pennsylvania Railroad C o....................................... 536,537
F. W. Boswell, secretary, Flint (M ich.) Factories Mutual Benefit
Association.......................................................................................... 537-539
Miles M. Dawson, consulting actuary, and member of the social
insurance committee of the American Association for Labor
Legislation................ -................................................................. 539-541,546
J. P. Chamberlain, of the legislative fund of Columbia Univer­
sity........................................................................................................ 541-543
Dr. Otto P. Geier, director, employees’ service department, Cin­
cinnati Milling Machine Co...........................................................
Harry A. Mackey, chairman, Workmen’s Compensation Board of
Pennsylvania...................................................................................... 543, 544
Alfred W. Donovan, chairman, Board of Labor and Industries of
Massachusetts...................................................................................... 544, 545
S. W. Ashe, General Electric Co., Pittsfield, Mass........................ 545, 546



II. Proposed legislation for health insurance.
Proposed legislation for health insurance, by John B. Andrews, Ph. D .,
secretary, American Association for Labor Legislation.......................... 549-558
Proposed legislation for health insurance, by Grant Hamilton, member,
legislative committee of American Federation of Labor...................... 559-571
Assurance of health versus sickness insurance, by Frank F. Dresser,
member, rating committees of National Association of Manufacturers
and National' Association of Machine-Tool Builders............................. 572-588
III. Some problems o f sickness insurance fo r women.
Some problems of sickness insurance for women, by Miss Mary Van
Kleeck, director, division of industrial studies, Russell Sage Founda­
tion.................................................................................................................... 589-597
IV. Some fundamental considerations in health insurance.
Some fundamental considerations in health insurance, b y Lee K. Frankel,
third vice president, Metropolitan Life Insurance Co., New Y o r k ... 598-605
J. P. Chamberlain, of the legislative fund of Columbia Univer­
sity ....................................................................................................... 606-608
Mrs. Florence Kelley, general secretary, National Consumers’
League.................................................................................................. 608-610
Dr. Otto P. Geier, director, employees’ service department, Cin­
cinnati Milling Machine C o............................................................. 610-612
Edward B. Saunders, Associated Industries of Massachusetts... 612, 613
Royal Meeker, United States Commissioner of Labor Statistics___
A. P. Nevin, counsel, National Association of Manufacturers... 613, 614
Ansley K. Salz, advisory member, Social Insurance Commission
of California......................................................................................... 614-616
Richard G. Williams, special investigator, Norton Co., Worcester,
Mass....................................................................................................... 616,617
Miss Olga Halsey, special investigator, American Association for
Labor Legislation............................................................................... 617-619
Miles M. Dawson, consulting actuary, New York City. 619, 620, 636-641
Dr. Alice Hamilton, special investigator, United States Bureau of
Labor Statistics................................................................................... 620, 621
Dr. Eden V. Delphey, West Side Physicians’ Economic League,
New York C ity ................................................................................... 621, 622
John McF. Eaton, Cadillac Motor Car Co.............................................
Frederick L. Hoffman, statistician, Prudential Insurance Co. 623-633, 636
Hal H.‘ Smith, counsel, Michigan Workmen’s Compensation
Mutual, Detroit, M ic h ....................................... ............................... 633, 634
R. B. Stearns, vice president, Milwaukee Electric Railway &
Light Co............................................................................................... 634,635
J. W. Magruder, general secretary, Federated Charities, Balti­
more, M d.............................................................................................. 635, 636
Frank F. Dresser................................................................................... 641,642
Lee K. Frankel, third vice president, Metropolitan Life Insurance
Co., New Y ork .................................................................................... 642-644




V. M edical benefits and services under the proposed sickness (h ealth) Page,
insurance system.
Organization of medical benefits and services under the proposed sickness
(health) insurance system, b y Alexander Lambert, M. D., chairman,
social insurance committee, American Medical Association................ 645-675
Existing conditions of m edical practice, forms of service under health
insurance, and preventive work, b y Michael M. Davis, jr., Ph. D.,
director, Boston D ispen sary......................................... ............................ 676-682
Medical services under health insurance, b y Dr. I. M. Rubinow, execu­
tive secretary, social insurance committee, American Medical Asso­
ciation.............................................................................................................. 684-694
Dr. Richard C. Cabot, Harvard Medical School, Cambridge,
Mass...................................................................................................... 695-699
Dr. Frank Billings, chairman, council on health and public instruc­
tion, American Medical Association.............................................. 699-702
B. S. Warren, surgeon, United States Public Health S erv ice... 702-711
Dr. Louis I. Harris, Department of Health of the City of New
Y o r k . . ................................................................................................. 711-715
Dr. Eden V. Delphey, West Side Physicians’ Economic League,
New York City................................................................... 715,717-721,727
Miles M. Dawson, consulting actuary, New York C it y ................ 715-717
Dr. Otto P. Geier, director, employees’ service department, Cin­
cinnati Milling Machine Co............................................................. 721, 722
Dr. William C. Woodward, health officer, Washington, D. C___ 722-725
Dr. Hills Cole, chairman, committee on health insurance, American.
Institute of H om eopathy................................................................. 725,726
Dr. Alexander Lambert, chairman, social insurance committee,
American Medical Association.................................................... ... 726-728

I. Existing agencies.
Service pensions and pension funds, b y Miles M. Dawson, consulting
actuary, New York C ity.............................................................................. 729-741
United States Steel and Carnegie Pension Fund, b y J. B. Erskine, man­
ager, United States Steel and Carnegie Pension F u n d.......................... 742-74 G
Trade-union benefit funds, by Marsden G. Scott, president, Inter­
national Typographical U nion................................................ .................. 747-755
William Green, secretary-treasurer, United Mine Workers of Amer­
ic a ................................................................................................ ..
Rev. Father O ’Grady, Catholic University, Washington, D. C ___ 753,
759, 762
Capt. Wm. P. White, United States Navy, retired, treasurer and
general manager, Lowell Paper Tube Corporation..................... 759, 760
William J. Graham, department of group insurance, Equitable
Life Assurance Society...................................................................... 760-762



II. Compulsory in va lidity and old-age insurance, pensions, and retire­
ment allow ances.
Compulsory invalidity and old-age pensions, insurance, and retirement
allowances, by Magnus W. Alexander, General Electric Co., West Lynn,
Mass................ ................................................................................................. 763-774
Old-age pensions, by John Franklin Crowell, executive officer, Chamber
of Commerce, New York State.................................................................... 774-777
Miles M. Dawson, consulting actuary, New York C ity................. 778, 779
William J. Graliam, department of group insurance, Equitable
Life Assurance Society.........................................................................

I, M a tern ity benefits.

Informal remarks by chairman, Ernest P. Bicknell, director of civilian
relief, American 'Red Cross..............................................................................
Maternity insurance and benefit systems, by Henry J. Harris, Library of
Congress, Washington, D. C ........................................................................ 780-784
Miss Julia Lathrop, Chief, United States Children’s Bureau........ 785-787
Royal Meeker, United States Commissioner of Labor Statistics. ..
Miss Mary Conyngton, United States Bureau of Labor Statistics. 787-792
John Franklin Crowell, executive officer, Chamber of Commerce,
New York State............................................ *.................................... 792, 793
II. M others’ pensions.
Theory and development of the, mothers’ pension movement, b y Sher­
man C. Kingsley, director, Elizabeth McCormick Memorial Fund,
Chicago, 111...................................................................................................... 794-804
Experiences in administration of mothers’ pensions, b y Mrs. H. Otto
Wittpenn, president, New Jersey State Board of Children’s Guardians. 805-810
Experiences in administration, by William H. Matthews, member,
Board of Child Welfare, New York City; director of family welfare
department, New York Association for Improving the Condition of
the Poor............................................................................................................ 811-817
Administration of the Illinois funds-to-parents law, by Miss Edith Abbott,
associate director, Chicago School of Civics and Philanthropy.......... 818-834
Miles M. Dawson, consulting actuary, New York C ity.................. 835-837
Henry J. Harris, Library of Congress, Washington, D. C .............. 836, 837
John Franklin Crowell, executive officer, Chamber of Commerce,
New York State......................................................................................
R®yal Meeker, United States Commissioner of Labor Statistics.. 837, 838




Chairman , J/on. William C. Red field, Secretary of Commerce.


Address b y President Woodrow W ilson.................................................................... 839. 840
Address b y Hon. William B. Wilson, Secretary of Labor.................................... 841-844
Address b y Samuel Gompers, president, American Federation of L a b o r ----- 845-849
Address b y Col. George Pope, president, National Association of Manufac­
turers............................................................................................................................ 849-854

I. British, national system of unem ployment insurance.
Informal remarks b y the chairman, Royal Meeker, United States Com­
missioner of Labor Statistics...........................................................................
British system of national unemployment insurance in its relation to
other methods of dealing with unemployment, b y Bruno Lasker,
assistant secretary, Mayor’s Committee on Unemployment, New York
City................................................................................................................... 855-873
British national system of unemployment insurance—its operation and
effects, b y Miss Olga S. Halsey, special investigator, American Asso­
ciation for Labor Legislation....................................................................... 874-886
Miss Edna Laurence Spencer, member, Special Commission on
Social Insurance, Massachusetts..................................................... 887, 888
Ralph H. Blanchard, University of Pennsylvania........................ 888, 889
D udley R. Kennedy, director, labor department, B. F. Goodrich
Co., Akron, O hio................................................................................ 889-893
Bruno Lasker, assistant secretary, Mayor’s Committee on Unem­
ployment, New York C ity............................................................... 890, 892
Prof. Walter M. Adriance, Princeton University........................... 892, 893
R oyal Meeker, United States Commissioner of Labor Statistics. 892, 893
John Franklin Crowell, executive officer, Chamber of Commerce,
New York State.................................................................................. 893, 894
A. G. Catheron, Massachusetts Commission on Social Insur­
an ce............ ......................................................................................... 894,895
II' Massachusetts system o f savings bank life insurance.
Massachusetts system of savings bank life insurance, b y Alice H. Grady,
financial secretary, Massachusetts Savings Insurance League............ 896-903
Letter from S. B. Bartlett, vice president, greater Boston Mort­
gage Corporation................................................................................. 904, 905
A. G. Catheron, Massachusetts Commission on Social Insurance.. .
H. La Rue Brown, Assistant United States Attorney G eneral... 906-909
James B. Craig, assistant actuary, Metropolitan Life Insurance Co. 909, 910
M. A. Brooks, secretary and managing editor, W eekly Under­
writer.................................................................................................... 910,911
Royal Meeker, United States Commissioner of Labor Statis­
tics................................................................................................. 911,912,915
Frederick L. Hoffman, statistician, Prudential Insurance Co. .. 912-915
Appendix A.— Industrial commission system, by Fred M. W ilcox, member
of Wisconsin Industrial Commission....................................................................917-925
A ppendix B .— List of persons who registered at Social Insurance Confer­
en ce............................................................................................................................... 926-933
Appendix C.—Delegates appointed by State Governors.................................... 934, 935



W H O LE N O . 212 .


JU NE, 1917

WASHINGTON, D. C., DECEMBER 5 TO 9 , 1 9 1 6 .

The following resolution was adopted among others by the Inter­
national Association of Industrial Accident Boards and Commis­
sions at its third annual meeting, held at Columbus, Ohio, April 25
to 28, 1916:
Resolved, That a special conference on social insurance under the auspices
o f the industrial accident boards and commissions be called to meet at W ash­
ington, D. C., in September or October o f this year to hear the proponents and
opponents o f various plans o f social insurance, and this in order that the
association constantly may be apprised o f the relation o f such proposed legis­
lation to workm en’s com pensation; that invitations be issued freely to all
interested parties to participate, and that the program fo r such meeting be
arranged by a committee to be appointed by the chairman to be elected for
the ensuing year. ,

In compliance with this resolution a committee on social insur­
ance was appointed, consisting of Royal Meeker, United States
Commissioner of Labor Statistics, chairman; Dudley M. Holman,
president of the International Association of Industrial Accident
Boards and Commissions; F. M. Wilcox, member of the Industrial
Commission of Wisconsin; J. B. Vaughn, chairman of the Industrial
Board of Illinois; and Wallace D. Yaple, chairman of the Ohio
Industrial Commission.
Two meetings of the committee and such advisors as I could bring
together were convened in the offices of the New York State Indus­
trial Commission in New York City to consider the scope and gen­
eral aspects of the conference program. The first meeting was at­
tended by Dudley M. Holman, president of the International Asso­
ciation of Industrial Accident Boards and Commissions; John B.




Andrews, secretary of the American Association for Labor Legisla­
tion; William C. Archer, deputy commissioner, New York Bureau
of Workmen’s Compensation; F. Spencer Baldwin, manager, New
York State Insurance Fund; W. S. Barnaby, editor, The Specta­
tor, New York; Frederick L. Hoffman, statistician, Prudential
Insurance Co. of America; and William H. Tolnian. The second
meeting was attended by Dudley L. Holman, William C. Archer,
F. Spencer Baldwin, Lee K. Frankel, third vice president of the
Metropolitan Life Insurance C o.; William J. Graham, superintend­
ent of group insurance, Equitable Life Assurance Society; Frederick
L. Hoffman; Florence Kelley, general secretary, National Con­
sumers’ League; Bruno Lasker, assistant secretary, New York
Mayor’s Committee on Unemployment; William H. Tolman; Mary
Yan Kleeck, director, division of industrial studies, Russell Sage
Foundation; and Albert W. Whitney, general manager, National
Workmen’s Compensation Service Bureau.
It was found impossible to complete a program and secure speak­
ers within the time limits originally set, so the date was changed to
December 5 to 9, inclusive. It was agreed that the conference
should be held before the assembling of the State legislatures, so as
to give the legislators the benefit of the ideas presented in the princi­
pal papers and brought out in the discussions.
The purpose of the conference was clearly set forth in the pre­
liminary announcement as follows:
It is not tlie purpose o f this conference to adopt resolutions comm itting the
conference to p a rticu la r , policies or methods. The rules governing interna­
tional congresses heretofore held under the auspices o f the International
Permanent Committee on Social Insurance did not under any circum stances
permit the presentation o f resolutions committing such congresses to the advo­
cacy o f particular policies and methods for attaining desired ends. This rule
should be stringently follow ed in this conference. Much time and considera­
tion are needed to work out the best policies and methods. W hat is best fo r
one State or section may not be the best for another State or section. It w ill
be a sufficient accomplishment i f the problems considered can be clearly
defined and definitely stated for the inform ation o f legislators and adm inistra­
tors. I f this desirable object is to be accomplished the conference must avoid
all resolutions prescribing particular ways and means o f securing adequate
protection to w orkers against the hazards o f accident, sickness, invalidity, old
age, and unemployment.

The conference was even more successful than any of those inter­
ested dared to hope. Nearly everyone who had accepted a place on
the program was present or sent a substitute. The discussion from
the floor was unusually valuable and showed the keen interest of the
This bulletin includes the formal papers submitted to the con­
ference and the stenographic reports of the discussions. Most of



the leading papers were presented to the conference by the writers
only in summary because of the time limit.
I believe that this collection of evidence, testimony, and opinions
by the prominent exponents of all shades of opinion will serve a
most useful purpose in presenting the problems of social insurance
and in clarifying the issues which our legislators, administrators,
and judges must face.





Gommissioner of Labor Statistics„


The C h a i r m a n . I am glad to welcome you to this conference, for
out of it I feel &ure much good will flow. It will have far-reaching
effect. At the outset I think I may be pardoned if I say that the
program which has been prepared is a most ambitious one, and has
brought to Washington thoughtful men and women who are deeply
interested in this work, who will discuss from every angle each phase
of social legislation.
I can not give too much credit to Dr. Meeker, chairman of our
committee on social insurance, who has worked indefatigably to
arrange a program that will be of much assistance to those who in
the future will deal with this problem in a legislative way. The con­
ference is by no means confined to the industrial accident boards
and commissions, and is thrown open to organizations, insurance
companies, and individuals wTho are interested in solving these
Lloyd George answers the question, “ What is the really great root
trouble of our present social system ? ” by saying that it is the great
precariousness, not of life, but of living. There are four conditions
which confront every one who has to work for a livelihood—injury
or death from accident; sickness, due either to employment or the
conditions under which he labors or over which he has no con­
trol; lack of employment through no fault of the worker; and the
infirmities of advancing years, which render his labor no longer
profitable to the employer. In most of our States we have partly, at
least, solved the problem so far as personal injuries received while at
work are concerned, and under the theory of workmen’s compensa­
tion the States and Provinces in our association have so legislated
that the burden is distributed on the industry and no longer falls
wholly upon the individual and his family. These compensation



acts are not perfect by any means, but they are steps, and big ones,
in the right direction.
But we have accomplished by legislative enactment nothing so far
as concerns sickness insurance, unemployment insurance, and old-age
pensions for workers in industry, and yet the problem for the worker
and his family is just the same under each set of conditions. A
workman breaks down in his prime and permanently loses his power
of earning a livelihood. He has contributed his all—his labor—to
the common good. He has given all that he has and has aided in
the development of the resources and the might of the Nation.
Why should he be left unprovided for, and his family come to want,
and perhaps actually starve?
A man is thrown out of employment through no fault of his
own. He and his family have the same problems of living that
they had before. The sufferings of the unemployed workmen are no
less severe when the pay envelope stops coming because some one has
blundered financially, and the worker’s wife and little children are
just as hungry as though the wage earner had met with an accident.
And when the infirmities of advancing years manifest themselves,
and the man or woman looks forward every week to the notice in the
envelope that they are no longer productive enough to be kept at
work—the awful fear that grips their heart hastens, rather than re­
tards, the dreaded notice. What lies before them in America to-day ?
Charity or the poorhouse. It is true by their labor they have
added millions to the wealth of the Nation. It is true that they
have given all their strength, that they have worked on and on
under conditions that have hastened this day of enforced idleness.
How shall we deal with them?
Someone has divided a nation roughly into two classes. The first
class know they will go through the year without privation or suffer­
ing. The second class know that from the moment they are de­
prived of employment by bad trade, by sickness, or by old age,
the security of bread disappears.
You men and women have come here out of your desire to aid in
the solution of those problems. It is a disgrace to the wealthiest
Nation on the face of the earth, a Nation whose resources are wellnigh inexhaustible and which is adding to the wealth by billions of
dollars annually, that it should be the last of the big civilized na­
tions of the globe to legislate so that we can drive hunger from the
hemes of those who toil and banish forever the fear of the poorhouse
from their minds.
Much of this sickness is preventable, as large a percentage as the
percentage of preventable accidents, which, I believe, from personal
investigations covering a period of years, and a study of over 375,000
700S50—Bull. 212— 17------ 2



accidents, can be placed at 50 per cent. It is a tremendous burden
which industry is carrying—industry, plus the workers in industry.
To have it continue longer is a crime and an insult to our intelligence
as a humane thinking people.
With our great leaders in industry joining hands with us in reme­
dying these conditions, we shall bring about an industrial efficiency
such as America has never seen, but which the newer conditions
arising as the result of the great war will make necessary if we are
to hold our own not only in the markets of the world but in our
own markets. As a Nation we must have men and women working
under safe and healthful conditions; the most prolific causes of
sickness in industry to-day are long hours of labor, amid unsafe
surroundings, in poorly ventilated, poorly lighted factories and
workshops, with bad sanitary conditions preying upon the health
and sapping the vitality of the worker. These latter conditions we
can remedy very easily. It is merely a matter of education, but it
is- the employer who must be educated first, then the worker.
It is with these purposes in mind that this conference has been
called, and it is a pleasure to see that the response has been so
prompt and that so many of you have come here from the distant
parts of this country and Canada to do your share and contribute
your part to the common fund.
What we say and do here will be a powerful factor in forcing
home upon the communities in which we live that we can no longer
tolerate conditions that to-day put the paralyzing fear of coming
want into the hearts of those who toil.
The means, the methods, this conference does not undertake to
suggest. We want the best thought, the best and most reliable in­
formation we can get together, and then it will be up to the legislative
bodies to utilize such information as we are able to furnish them
and enact such remedial legislation as in their wisdom seems best
adapted to the needs of their particular communities.
I have a few announcements to make here, and I wish you would
pay strict attention to them, because the program is a long one, and
we must live up pretty rigidly to these requirements.
Those who deliver principal papers are limited to not more than
20 minutes. Those whose names appear on the program for dis­
cussion are limited to not more than 10 minutes. Those who partici­
pate in the open discussion will be limited to not more than 5 minutes.
A single rap on the table by the chairman will notify a speaker that
he has but 2 more minutes before his time expires. Two raps will
indicate that a speaker’s time has expired.
As stated on the program, those who wish to participate in open
discussion must send their names and connections to the chairman



of the session during the meeting. All speakers should come to the
front, in order that they may be distinctly heard by the conference
Mr. J. D. Beck, chairman of the Industrial Commission of Wis­
consin was not able to get here, and I have the pleasure of introduc­
ing Mr. F. M. Wilcox, of the commission.
[The subject of the paper read by Mr. Wilcox at this time was
“ The industrial commission system.” Owing to delay in receiving a
copy of this paper it was not possible to include it in the original
manuscript sent to the printer. It is therefore printed as Appen­
dix A.]


As the program notes, representatives of five different workmen’s
compensation boards are assigned to speak here to-day on the “ Merits
and demerits of different forms of administration.” I am con­
cerned not so much with the form of administration as with the
result. “ What’s one man’s meat may be another’s man’s poison,”
and what we consider a very excellent system in Massachusetts might
work out very poorly in Pennsylvania. Mr. Bradbury, in his excel­
lent work on workman’s compensation, says that the administration
and procedure under no two of the compensation acts in force in
the United States are exactly alike. So far as administration goes
there is no reason why this should not be so. Geographical con­
siderations and railroad facilities must inevitably be important fac­
tors in determining upon the form of administration of the act in
any State whether a disputed case shall be heard by the full board
or commission, by a single member, by a committee of arbitra­
tion headed by a board member, by a committee of arbitration on
which no member of the board shall necessarily sit, or by a referee
or master appointed by the board or commission; the findings of fact
and rulings of law to be reported to the full board, where it does not
itself hear the case.
Massachusetts, in the enactment of her workmen’s compensation
act five years ago, provided for what is now called the industrial
accident board form of administration, and in our Commonwealth
that form of administration has proven eminently satisfactory.
Neither the employees nor the insurers have ever suggested a change.
We have a; board of five members, and the tenure of office is five
years. In every disputed case the employee and the insurer come
in direct contact with a member of the board; at first, if it appears
that any good may result therefrom, in conference; then, if the con­
ference fails of results, the parties meet in formal hearing, a member
of the board heading a committee of arbitration, on which his asso­
ciates are a representative of the employee and a representative of
the insurer. This committee on arbitration hears the witnesses and



files a report of the evidence, together with its findings of fact and
rulings of law, with the industrial accident board.
The industrial accident board, as a board, sits in two capacities:
First, as an appellate board on appeals from decisions of committees
of arbitration, which appeals must be filed within seven days of the
date of the filing of the committee’s report; secondly, the board sits
in review of weekly payments, where it is claimed that incapacity has
partially or wholly ceased, and the question is as to the discontinu­
ance of compensation. These are cases which have previously been
decided by a committee of arbitration, and where compensation has
been paid under the award, or where compensation has been paid by
agreement. Such cases as these, where the question is merely whether
compensation shall continue, might well be heard by a single mem­
ber of the board, rather than occupy the time of the full board.
An appeal can not be taken to the supreme judicial court from a
decision of an arbitration committee. The appeal from the commit­
tee’s decision must be to the board. Any party in interest aggrieved
at a decision of the board may appeal therefrom to the supreme
judicial court, after first presenting the papers in the case to the
superior court and obtaining a decree based on the board’s finding.
Decisions of the board on questions of fact are final.
I have outlined to you, in brief, the details of the administration
of the workman’s compensation act in Massachusetts. These details
may be familiar to you all but I have learned that it is never safe
to assume anything in discussing workmen’s compensation acts.
Most of the lawyers of our own Commonwealth are unfamiliar wTith
the method of administration and procedure laid down by the legis­
lature. As for myself I do not claim a full acquaintance with the
acts of other States and it would be presumptuous on my part to
discuss what may appear to be demerits in their administration and
I assume that what we are most interested in is not the details of
administration but whether the acts should be administered by a
board or commission sitting for the whole State, by a single com­
missioner acting likewise with referees or masters under him, by
district commissioners, or by some other of the various forms of
administration; and whether the board, commission, or commissioner
administering the workmen’s compensation act should have any
other duties, such as the enforcement of the multifarious labor laws.
This subject has recently agitated the State of Massachusetts. Our
thorough-going, progressive governor, Hon. Samuel W. McCall, fresh
from 20 years of service in Congress, was appalled when, upon begin­
ning work upon his inaugural address following his election in
1914, he found that there are approximately 105 boards and com­
missions administering the laws of Massachusetts. He made various





recommendations to the legislature upon the subject and among
these was the following statement:
suggest that you consider whether the boards o f labor and industry, m ini­
mum wage, and industrial accidents should not be consolidated into one strong
board and whether this consolidation would not result in the saving o f expense
and in a more comprehensive and ju st treatment o f the interests involved.

A special committee of the legislature was appointed to consider
the subject of consolidation of the various boards. This committee
dealt with the governor’s remarks in regard to the industrial accident
board, board of labor and industries, and the minimum-wage com­
mission in the manner that he intended—as a suggestion and not as a
recommendation—and upon the completion of the hearings came to
the conclusion that it was unwise to interfere with these boards as they
were then conducted. Later in the session, as the result of an agita­
tion over insurance rating, the subject of the prevention of accidents
by the enforcement of safety rules which had hitherto been jointly
administered by the industrial accident board and the board of labor
and industry was transferred to the latter board, much to the gratifi­
cation of the industrial accident board. Every labor organization
in Massachusetts was represented in opposition to a consolidation of
the industrial accident board with any other board or boards. The
Massachusetts Industrial Accident Beard to-day exercises almost
purely judicial functions. In actuality it is a court of industrial
Speaking upon the subject of consolidation before the special legis­
lative commission, Mr. Frank F. Dresser of Worcester, author of
“ Dresser on Employer’s Liability/’ said: “ The amount of work
which the industrial accident board is doing in its judicial state is
increasing very much and I suppose that to do it properly and
promptly, which is one of the essentials in workmen’s compensation,
would take all of the time of the five men who now compose the
board. What I would like to see would be all these questions of
safety, industrial statistics, wages and what not taken charge of by
a bureau effected for that purpose, and make the industrial accident
board an industrial court in its true meaning. I do not think it
should be in any sense subject to any political influence or any ques­
tion of expediency. If we are to levy, in this State, on the community
the four or five million dollars which are now collected for compen­
sation insurance, and seven and one-half million dollars which sick­
ness insurance would involve, and I do not know how much an em­
ployment bill would involve, all to be distributed to the community,
we ought to be sure that the distributions are guided by certain
principles w^hich only a court can lay down and not be subject to
expediency, charitable inclination, or political influence. We can
not get as a general thing the same type of man to be both an



•efficient judge and an efficient administrator. Taking the industrial
accident board as a .striking example, it should be treated as a
court. That would mean the appointment of its judges for life,
which I think ought to be so. It is just as much a court in dealing
with these things as any tribunal in the Commonwealth.”
The annual number of accidents reported to our board has
increased from about 95,000 in the first year of the act, ending June
30, 1913, to about 140,000 in the year ending June 30, 1915. A t pres­
ent reports of accidents are being received at the rate o f approxi­
mately 180,000 per year. Approximately 20 per cent of the cases
require the payment of compensation. The number of cases in which
the insurer and the employee appealed to the board and arbitration
hearings were requested has increased from 584 in the first year to
1,600 in the 12 months ending November 30, 1916. Cases heard by
the board on appeals from decisions of committees of arbitration has
increased from 56 during the first year of the act to 172 in the year
ending November 30, 1916. The number of cases of weekly pay­
ments reviewed by the board were only 6 during the first year of the
act and during the year just ended were 34. During the past year
the board, sitting as a board, heard 896 special board cases as against
170 during the first year of the act. These special board cases are
cases where the question is the fixing of a lump sum, or of approving
attorneys’ or physicians’ bills, or fixing the probable future earn­
ings of a young and inexperienced workman as a basis of compensa­
tion, and a large number of other matters over which the board has
jurisdiction. Other than these there were 842 board matters before
the board during the past year.
The State board of labor and industries, which it was suggested by
some be combined with the industrial accident hoard, has charge of
the enforcement of all the labor laws of the Commonwealth, laws
affecting the health of employees, the hours of labor of women and
minors, seats for employees in certain occupations, the overtime law,
and scores of other social-welfare acts which have been enacted by
our own and other States in recent years. This board during the
year 1915 made 41,843 inspections of factories and workshops and
10,579 reinspections of the same factories and workshops. It prose­
cuted in the courts 340 violations of the law.
Combining the work of these two boards would, in my opinion,
result in the nonenforcement of a large number of labor laws and
w^ould cause great delay in the payment of compensation to injured
employees, with the resultant hardship to them and their families.
My convictions as to the functions of a board having in charge the
administration of a workman’s compensation act are emphatic. I
do not believe that such a body should be other than a judicial one
sitting as a court of industrial claims. Workmen’s compensation in




this country is only in its infancy, and the attitude of the great
masses of the common people toward workmen’s compensation is
going to depend largely on the methods of administration and pro­
cedure employed. This is an age of specialization, and I should con­
sider it absurd to put in the hands of one board the administration
of all the laws of the State which affect labor. In my mind it would
be impossible to find three, five, or seven men each endowed with
the necessary attributes for the performance of these multifarious
duties. The popular feeling against the courts, which reached its
height a few years ago, was the result not only of unjust laws but of
delays in their administration, and these were almost wholly laws
covering personal-injury cases. The better feeling toward the courts
to-day is the result, I believe, of the enactment of workmen’s com­
pensation acts taking the cases of personal injuries in industry out
of the courts and placing them in the hands of administrative tri­
bunals. Chief Justice Winslow, of the Supreme Court of Wisconsin,
has called the taking of these questions out of the hands of the courts
and placing them in the hands of the administrative tribunals “ a
legislative indictment of the courts,” and has said: “ For myself, I
believe there is a very substantial basis for the dissatisfaction felt by
the practical layman with the methods used by trial courts generally
in the trial of jury cases.”
Do we want the same dissatisfaction to come to pass with respect
to the tribunals which are administering the workmen’s compensation
acts? In my opinion such dissatisfaction will arise if the members
having in charge their administration are overloaded with other
duties to such an extent as to prohibit the proper and prompt en­
forcement of the workmen’s compensation acts.
Elihu Root, speaking before the American Bar Association in
October, 1914, said: “ American procedure ought to follow as closely
as possible the methods of thought and action of American farmers,
business men, and workmen. The law is made not for lawyers but
for their clients, and it ought to be administered so far as possible
along the lines of laymen’s understanding and mental processes. The
best practice comes the nearest to what happens when two men
agree to take a neighbor’s decision in a dispute, and go to him
and tell their stories and accept his judgment.” This is the kind of
procedure it was intended should be given by workmen’s com­
pensation acts, and if we are to enjoy it we must allow the men who
administer these acts and who are drawn from the business men and
farmers and the practical laymen of all classes, as well as from the
profession of law, to devote their entire time to the administration
and interpretation of the greatest humanitarian legislation ever
enacted upon this continent.



Men who have given careful thought to the subject are almost
unanimous in their agreement that we get no better law from
the appellate courts than is contained in the briefs of counsel. Prof.
John H. Wigmore, in a recent article in the Illinois Law Review,
gave several reasons for this unhappy result; among others, and
the one which I deem most important, is the overburdening labor
which cramps the courts. The Supreme Judicial Court of the Com­
monwealth of Massachusetts, composed of seven members, in recent
years has averaged, per year, 70 opinions for each justice. It would
be idle to contend that all these opinions, or even a majority of
them, represented the law of the court, and yet when we go to the
highest judicial tribunal in the State we expect, as Prof. Wigmore
says, “ that all the law of every opinion should be intelligently
affirmed as law by every member of the court.”
We have encountered this danger wThere the appellate courts have
passed upon decisions of workmen’s compensation boards. Adopted
as our acts are from the English act, English decisions upon the
interpretation of the act are entitled to great weight, but we find
that instead of carefully weighing them and giving them that
weight which is their due, our courts are swallowing the English
decisions, “ bait, line, and sinker.” It has been said that Meesson’s
and Wellsbys’s reports, which contain the famous decision in
Priestby v. Fowler, said to be the foundation for the fellow-servant
rule, have produced more bad law than can be found in many times
the same number of volumes elsewhere. But for irreconcilable deci­
sions commend me to the 18 volumes of English compensation cases
from 1897 down to date. Yet these cases are taken as controlling
precedents by many of our American courts in passing upon work­
men’s compensation cases.
If we are to get a proper interpretation of our acts from the
courts, all the law and reasoning upon the subject should be con­
tained in the decision of the administrative board. The Supreme
Judicial Court of Massachusetts has said that the act does not
contemplate the employment of attorneys, and, in fact, in a very
large number of cases which come to our board the claimant is
without help of counsel. Therefore the decision, if it involves a
question of law, must be not only a ruling upon the law but a brief
for the claimant before the court.


The district system of administering workmen’s compensation
acts hardly has wide enough currency in this country to erect it into
a class. It appears in its pure form solely, so far as I know, in the
State of Connecticut, although the State of Pennsylvania has a
mixed plan in which the district system is to some extent applied.
It may be roughly defined as a method of administering workmen’s
compensation acts in which original jurisdiction is confined to an
individual official having charge of a fixed geographical area, appeal
lying directly from his decision to the courts. In the State of Con­
necticut these officials are called “ commissioners,” and their districts
are coterminous with the congressional districts of the State. In Pennsylvania original jurisdiction resides in a “ referee ” sitting in
what is known as a u compensation district.” The Pennsylvania act
provides for the establishment of not to exceed 10 such districts, but
I am advised that the maximum number have not yet been set off.
In measuring the efficiency of a system of administration it is
first necessary to determine what are requisites of good administra­
tion, there being, of course, certain prerequisites wrhich it were su­
perlative to catalogue, such as honesty, a fair measure of intelligence,
and good common sense.
On the whole I would say that the first essential is promptness,

I observed a provision in the statute of a certain State to the effect
that voluntary agreements which have been executed between the
parties become valid unless disapproved within 30 days. In my
opinion, not more than -SO days should on the average be consumed
in the execution of the agreement and the approval thereof taken
together. Workmen unfortunately usually live from hand to mouth.
Even where the yearly income is above the somewhat uncertain line
of subsistence, the old-fashioned notions of thrift preached by Ben­
jamin Franklin and formerly widely practiced in this country are
no longer in effect. During the waiting period the injured work­
man draws neither wages nor compensation. In the meantime the
family expenses are usually increased. Even with the compensation
paid, the income is cut down. Moreover, the evidence often gets



cold, bad feeling is engendered between the parties, and there may
be a tendency to malingering while waiting for the payments to
begin. Moral delinquency, borrowing, the social evil, and other forms
of vice all are liable to result from unreasonable delay. Every con­
sideration, social, domestic, and legal, demands prompt placing of
funds in the hands of the employee.
A second requisite of efficient administration is informality of
procedure and the personal touch— something, indeed, akin to pater­
nalism. Usually the claimant, and not infrequently the respondent, <
appears without a lawyer. The commissioner must be much freer
in giving advice prior to a hearing than a court can properly be.
Every administering officer is deluged with applications for com­
mutation of the weekly payments into a lump sum, where the act pro- j
vides for this procedure, and personal knowledge of the facts, or
ability to acquire such knowledge, is necessary in order to avoid
abuse. The administering officer is also frequently called upon to
exercise his personal influence, or the intervention of local authorities,
to keep compensation away from drunken husbands; minors need
to be protected oftentimes from the misapplication by avaricious or
vicious parents of the compensation due to them. Much information
indispensable to a humane and intimate administration of the act
may be acquired by conference over the telephone with doctors, em­
ployers, and other persons. Malingerers require constant watching*
both for their own good and for the good of industry and society.
Applications are continually being made by widows and others for
partial advances to provide for immediate needs, and it is of the
utmost importance that the commissioner investigate these applica­
tions with, care to prevent the misuse or dissipation of the funds.
A third essential of good administration is cheapness and con­
venience of access. Not only are employees usually persons of small
means but they seldom are able to express themselves clearly in letters,
although often able to do so with intelligence orally. In States whera
settlement by voluntary agreement is permitted by the statute, they
often and properly desire the advice of the commissioner before
signing stich an agreement. The administration should be so near
the people that either by personal interview or by telephone call such
simple matters as may be properly discussed between the parties and
the commissioner can be taken up.
To the f oregoing I would add a fourth requisite, that of simplicity
of procedure and absence of red tape. I believe in a simple filing
system affording quick reference, such as may be used if necessary
while the party at the other end of the line is 44holding the wTire.”
Such a system is more easily applied where the administering depart­
ment covers a small area and is close to the field.


w o r k m e n 's

c o m p e n s a t io n


It is so self-evident as to require no demonstration that each-of the
foregoing conditions of good administration may be better satisfied
under the district system than any other plan, provided that the
circumstances of population, topography, and transportation justify
it, else why has the experience of the race led to the universal
establishment of local justice courts? The final test, however, of any
system is experience. It matters little how finely spun are our
theories; if in practice they break down, they must be discarded.
Permit me to quote from the last annual report of the Board of
Compensation Commissioners, of which I am a member:
The district system o f adm inistration has proved its w orth in many other
ways. Allusion has already been made to the manner o f investigation in the
case o f application fo r commutation into a lump sum. It has obviated the
necessity o f employing a corps o f investigators and subofficials. It is especially
valuable in granting certificates o f financial ability to employers desiring to
carry their own risk, which is hereinafter referred to. Personal character is
recognized by the great commercial agencies as a prime consideration in extend­
ing credit. Each commissioner has knowledge by common repute, and in a
great number o f cases by personal acquaintance, o f the character, business
standing, and social and business ideals o f the heads o f the industrial institu­
tions that apply for certificates. He has means o f keeping close watch upon
their financial standing. He enjoys a personal acquaintance w ith the respon­
sible adjusters o f the various companies and w ith the representatives o f local
trade-unions who sometimes represent the interests o f employees at hearings.
Not infrequently he knows personally the circumstances and character o f the
injured employee himself. In other words, he can take notice o f many facts
essential to the administration o f justice, incapable o f being reproduced w ith
fidelity in a transcript o f evidence.
In the exercise o f his power to lim it the fees o f physicians to those prevailing
in the community fo r persons o f like standard o f living, in his judgm ent o f
the value o f testimony o f medical experts in accordance w ith their recognized
standing in their profession, and in his occasional designation o f experts to act
as his adviser by stipulation o f the parties, the knowledge acquired by the
commissioner through local residence and acquaintance is invaluable. It is
doubtful if any feature o f the act contributes more to the ends o f justice than
the commissioner’s personal knowledge o f the individuals o f the m edical
When Gov. Baldwin, in whose administration the act was passed and by
whom the original board o f commissioners was appointed, characterized the
office o f compensation commissioner as a tribunal to w hich “ the immigrant
wTidow w ith a shawl over her head ” might repair for counsel and advice, he
reduced to a figure o f speech the essential spirit o f the act. This was later
translated into the terms o f a court ruling by Justice Wheeler, in the H otel
B ond’s appeal, when the court defined the compensation commissioner as “ the
adviser o f all and the umpire between the disputants.”
One o f the evils w hich it was the purpose o f this act to correct was the.
unavoidable delay in securing judgm ent through the courts. It is not neces­
sary to rehearse the fam iliar fact that trials were tedious and expensive and
hedged about by rules o f procedu re; appeals were taken to the higher courts,



and i f in the end injured employees secured a substantial sum in the way o f
damages it was largely eaten up by costs and attorneys’ fees. In the meantime
the employer had been compelled to spend an amount approxim ating that now
paid out under the w orkm en’s compensation act.
It w ill be a matter o f public interest to know to what extent these evils have
been remedied. As has hereinbefore appeared, there have been 10,492 cases
settled by voluntary agreement and 533 cases determined by form al hearing
and award. * * * Cases settled by voluntary agreement average to be ap­
proved by the commissioner and transmitted to the clerk o f the superior court
43 days after the injury is sustained. When, however, w e deduct the w aiting
period, together w ith the week allowable for the maturity o f the first pay­
ment, this delay is cut down to 25 days. This average is, o f course, rendered
less favorable by certain cases which for necessary and proper reasons, else­
w here referred to in this report, are delayed.
The foregoing averages, however, fail to show the real facts as to settlements.
In our discussion o f the topic “ Advance payments to needy employees ” we
refer to the manner in which payments are made to an injured employee prior
to the filing o f the voluntary agreement. * * * Computation based upon a
sufficient number o f typical cases thus reported to provide a fair average show
that payments are actually made by the employer, or his insurer, to the
employee 30 days after the injury w as sustained or incapacity began. D educt­
ing therefrom the w aiting period and the one week allowed thereafter for the
m aturity o f the first payment, we find that the actual delay in placing funds in
the hands o f the injured employee is cut down to 12 days.
W hile this may not be ideal, it being the purpose o f the legislature to pro­
vide a plan whereby compensation will be paid as promptly and regularly as
wages, w e believe that under no compensation act in any Am erican State are
payments made m ore promptly. This is, o f course, due prim arily to the system
o f administration by small districts placed under the jurisdiction o f a single
commissioner. Constant efforts are being made by each commissioner to reduce
this average. W e believe that as time goes on it w ill be so reduced, because
as employers become more fam iliar with the act and its terms they w’ill report
injuries to insurance companies more promptly. It is our belief that in the
plants o f large employers carrying their ow n risk compensation is in most cases
paid as prom ptly after the termination o f the w aiting period as wages are paid.
It w ill be observed that even under the present practice payments reach the
em ployee in one month’s time after they cease to draw wages— in other words,
as promptly as wages reach those employees who are paid by the month.

I doubt not that throughout my address there has existed in the
minds of a considerable portion of my hearers a query as to how
certain administrative functions applying to the State as a whole
are provided for under the district system. In Connecticut func­
tions which in various other States are delegated to the compensa­
tion commission or the industrial accident board are performed by
the commissioner of labor and factory inspection, by the State board
of education, and by other departments. In other words, the Con­
necticut commissioners have very little to do with the compilation
of statistics, the inspection of factories, or the enforcement of labor
laws. There are, however, certain common duties which the several
commissioners have to perform, and the legislature constituted the



several commissioners, when acting together for the performance of
such duties, a central body styled the board of compensation commis­
sioners. In this capacity the necessary forms are prepared, the
necessary bulletins are issued, reports are compiled, matters of pro­
cedure are discussed, and in some instances questions of law and fact
pertaining to particular claims of a doubtful character are taken up.
The board meets on the call of the chairman. A t certain seasons of
the year meetings may be held several times a month, while at other
seasons several weeks may elapse without a meeting being called. ~No
difficulties have arisen through lack of uniformity of procedure in
the several districts, nor has there been any serious conflict between
the commissioners in their construction of the act. There have been,
of course, some disagreements as to the meaning of the law, but these
are probably no more important or frequent than those of the judges
of the lower courts prior to the final adjudication of a legal principle
by the court of last resort.

There is no doubt about the marked success of the district system
in a populous territory like Connecticut. Take, for example, the dis­
trict under my jurisdiction, known as the first congressional district,
in which the city of Hartford is located. It so happens that this
district is identical in area with Hartford County, which may be
roughly described as a very irregular parallelogram about 25 miles
square, and containing a population of nearly 300,000. In this dis­
trict are situated seven industrial centers. The industrial compact­
ness of the district may be shown by the fact that the trolley fare
from the remotest Center to my office is 28 cents, and the highest tele­
phone charge is 25 cents. By far the greater part of the industrial
population, however, is within a 10-cent telephone cally and a 10 or 15
cent trolley fare. The district is gridironed by macadam and con­
crete roads,, and by trolley and railroad lines. The commissioner
enjoys the personal acquaintance of a considerable percentage of the
manufacturers and labor officials of the district. He also possesses
considerable knowledge of the character and skill of the surgeons
of the district. He has means of acquiring, without expense, knowl­
edge of the character and mode of life of workmen, or their de­
pendents. In numerous ways this close connection of the com­
missioner with the field to be administered and the intimate rela­
tionship resulting therefrom are invaluable for the effective adminis­
tration of the act. The third Connecticut district is even more con­
gested than the first, and the fourth is similar to the third. The fifth
district, however, is very much larger in area, while the second covers
geographically more than half the State of Connecticut. So far as we
have been able to observe there is little difference in the efficiency of
the district system as between the populous and the more sparsely
settled areas, but to what extent a similar system might be applied,



for instance in the State of Texas, or, to use an extreme case, the
State of Nevada, whose population is only 81,875, but whose area
is 150 times that of Hartford County, is a serious question.
We usually defend and advocate the method or system with which
we are most familiar. It is quite natural that as an administrator
of the district system I should appear as its defender. It may, how­
ever, lend some weight to my conclusions if I add that at the time
I was appointed I looked with disfavor on the plan which had been
inaugurated by the legislature. I was somewhat under the spell of
that bureaucratic efficiency which is usually attributed to a central
State board. My conclusions with respect to the district system
have been forced upon me by the frictionless and, as I believe, gen­
erally equitable and humane results which have been attained under*
this system in the State of Connecticut. Through no particular
virtue of the persons intrusted with its administration, the adminis­
trative features of the act gave immediate and universal satisfac­
tion. So far as I know no manufacturer, trade-unionist, sociologist,
or other person of standing has criticized the administration of the
act. The board was promptly placed upon a bipartisan and non­
political basis by Gov. Baldwin, and this basis has been retained by
his successor in office, Gov. Holcomb. Any official of average intel­
ligence and common honesty can do good work under almost any
system if he is let alone, but no official, under however perfect a
system, can render good service if he is constantly nagged and beset
by politicians and other persons with axes to grind. In attempting
to determine the best method of administration we must do as wise
men of all times have done in all other human affairs—worship no
preconceived system, plan, theory, or device, but simply apply to each
set of conditions as it arises that measure of practical wisdom and
sound common sense with which nature has endowed us. The Con­
necticut commissioners come to this conference to learn, not to
instruct. They are the propagandists of no pet method or project.
Frederick the Great used to say that when he wanted to punish a
province he let it be governed by its philosophers.


I take it that when this subject was assigned to me it was intended
that I should explain the system of administration of the Workmen’s
Compensation Bureau of Pennsylvania and elaborate only upon
those features that perhaps are unique and stand out in contradistinc­
tion to the methods adopted by other States. In other words, in a
conference such as this it is not necessary in a paper on any phase of
workmen’s compensation to defend its principles nor to justify its
existence either by argument or statistics. Our presence here empha­
sizes our convictions and thoroughly establishes the fact that we are
anxious to compare our methods and results in order to equip our­
selves better for this great humanitarian work.
Let me call your attention to the tremendous problems with which
we in Pennsylvania have to contend. We have 8,000,000 people in
Pennsylvania; we have 200,000 employers and 2,000,000 industrial
workers. We take 593 different kinds of mineral deposits out of the
earth. We manufacture in Philadelphia more of some particular
things—from saws and carpets to locomotives—than any city in the
world. Then, of course, we have the great steel and iron mills in
Pittsburgh, and anthracite coal in eastern Pennsylvania and bitu­
minous in western Pennsylvania.
The output of Pennsylvania for the year 1915—just the output in
minerals—amounted to $1,044,089,000. This will show the hugeness
of the Pennsylvania problem. We also have the oil districts of the
Ten months of compensation, in Pennsylvania are responsible for
rather interesting data.
The number of compensation cases from January 1, 1916, until
November 1,1916, was 65,820.
Of this number 2,113 were fatal cases. In 41,000 of the above
number compensation agreements have been approved.
Information pertaining to the month of October:
Fatality compensation due according to agreements
Fatality compensation paid during the month_____
D isability,com pensation paid during the month_____


$618, 872. 50
25, 671. 52
176, 357.11



Of the 2,113 fatal compensation cases, 896 compensation agree­
ments have been approved by the board.
The amount required to pay the dependents o f the
896 men i s _________________________________________$2, 263, 003. 24
Total amount o f fatal compensation paid to date is_
95,133. 88
896, 569. 99
Disability compensation paid to date_______________

There have been 1,388 claim petitions filed. In about one-fourth
of this number compensation agreements have been entered into
prior to the hearings before the referees.
We find in the bituminous-coal region, which includes Washington,
Allegheny, Fayette, and Greene counties, there were 4,429 compen­
sation cases. Of this number 139 were fatal cases.
In the anthracite-coal region we find there were 6,958 compensation
cases. Of this number 333 were fatal cases.
We also find that the majority of men killed are Americans, and
that it requires between $2,500 and $2,600 to pay the dependents in the
fatal cases.
The Pennsylvania Legislature of 1915 promulgated our workmen’s
compensation legislation in six acts, as follows:
1. An act creating bureau to enforce workmen’s compensation act.
2. An act creating State insurance fund.
3. An act regulating policies of insurance against liability arising
under Article III of the workmen’s compensation act.
4. An act authorizing the creation of mutual liability insurance
5. An act exempting farm and domestic employees from the work­
men’s compensation act.
6. Joint resolution amending the constitution of Pennsylvania.
All accidents.— In Pennsylvania in “ course o f employment ” causing dis­
ability for m ore than 14 days— or death in 300 weeks (except when intentionally
self-inflicted or caused by a third person for personal reasons). [Commenting
on this subject, Mr. M ackey added, “ It might be o f interest to you gentlemen
to know that in our State we have eliminated the necessity o f inquiring as to
whether the accident ‘ arose out o f the employment,’ as we grant compensation
for all accidents occurring ‘ during the course o f employment.’ ” ]
E m ployees excepted .— Domestic servants, agricultural workers, home workers,
and casual w orkers not employed in employer’s regular business.
Compulsory.— On State, county, city, borough, township, school, “ or any other
governmental authority created by the law s o f this Commonwealth.”
Optional.— W ith all other employers and all employees.
No com pensation allow ed for first 14 days, but em ployer must furnish
reasonable m edical services during this time not to exceed $25 unless a m ajor
surgical operation is necessary, when $75 is the maximum.
N onfatal injuries.— R ate is 50 per cent average weekly wages— time to run
varies with disability— total amount not to exceed $4,000.
1 Prepared by Commissioner James W« Leech.

70085°— Bull. 212— 17-------3


w o r k m e n ’s

c o m p e n s a t io n


Compensation not to be over $10 nor less tlian $5 per week, unless wages are
less than $5 per week, when fu ll wages are to be paid.
(a ) Total disability: F ifty per cent wages to end o f total disability, not
to exceed 500 weeks, nor $4,000.
<b) Partial d isability: F ifty per cent loss in earning pow er (difference
between wages before and after accident) to end o f partial dis­
ability, not to exceed 800 weeks.
( c ) Permanent in ju rie s : F ifty per cent wages fo r 175 weeks fo r loss o f
h a n d ; 215 weeks for loss o f arm or le g ; 150 weeks for loss o f f o o t ;
125 weeks fo r loss o f eye.
N o t e .— L oss o f a n y tw o such m em bers, n o t c o n s titu tin g to ta l d is a b ility , th e sum
periods fo r e a c h ; loss o f b oth eyes, h a n d s, a r m s , fe e t, or leg s equ als t o t a l d isa b ility .


Fatal in juries.— Rate varies w ith number o f dependents.
W ages (fo r computation purposes) not over $20 nor under $10 per week.
Compensation therefore can not be over $12 nor under $1.50 per w e e k ;
time to run 300 weeks.
Compensation not paid to w idow unless living with, or actually depending
upon, her deceased husband at time o f his death.
Compensation not paid to w idow er unless incapable o f self-support and
dependent upon his w ife fo r support at time o f her death.
Reasonable expenses o f last sickness and burial not to exceed $100 must
, be paid to dependent, if a n y ; if not, then to personal representative,
(a ) I f there be neither w idow nor dependent widower, and—
1 or 2 children survive, 25 per cent wages to children until 16 years
o f age.
3 children survive, 35 per cent wages to children until 16 years
o f age.
4 children survive, 45 per cent wages to children until 16 years
o f age.
5 children survive, 55 per cent wages to children until 16 years
o f age.
6 or more children survive, 60 per cent wages to children until 16
years o f age.
0>) I f a w idow or w idow er survive and—
0 children, 40 per cent wages to w idow or w idow er for 300 weeks.
1 child, 45 per cent w^ages to w idow or w idow er fo r 300 weeks.
2 children, 50 per cent wages to w idow or w idow er fo r 300 weeks.
3 children, 55 per cent wages to w idow or w idow er for 300 weeks.
4 or more children, 60 per cent wages to w idow or w idow er for 300
(c ) I f there be neither w idow , w idower, nor children, and parents sur­
vive, 20 per cent wages to parents or survivor for 300 weeks if
dependent to any extent upon deceased employee.
(d ) I f there be neither widow, widower, children, nor dependent parent,
and brothers and sisters, actually dependent, survive—
' l brother or sister, 15 per cent wages to brother or sister for 300
2 brothers or sisters, 20 per cent wages to them fo r 300 weeks.
3 or more brothers or sisters, 25 per cent wages to them fo r 300
(e ) Nonresidents o f United S tates: W idow s and children receive twothirds o f amounts provided fo r residents. W idowers, parents,
brothers, and sisters not entitled to compensation.



Compensation must be paid to all children until they reach the age o f 16.
I f this requires more than 300 weeks, then the compensation fo r time
in excess o f 300 weeks shall be as fo llo w s :
1 child, 15 per cent wages until 16 years o f age.
2 children, 25 per cent wages until 16 years o f age.
3 children, 35 per cent wages until 16 years o f age.
4 children, 45 per cent wages until 16 years o f age.
5 or more children, 50 per cent wages until 16 years o f age.
Insurance.— Every employer electing to come under A rticle III must insure
to cover his liability to his employees and may do so in—
1. The State insurance fund,
2. A stock company,
3. A mutual company, or
4. Carry his own insurance, if permitted by the board.
N o t e . — If, after 30 days’ notice, he should fail to insure, an insured employee, his
dependents or his personal representative, if injury is fatal, may elect to sue at law for
damages under Article II, or demand compensation under Article III o f the act.


Our main act and its auxiliary establish a scheme of compensa­
tion which is an elective one. This election, however, is denied to
all governmental agencies. This law is administered by a quasijudicial board composed of three commissioners, who perform the
various functions of administration, from granting exemption from
the necessity of insuring to those who have proved their financial
ability to carry their own risks, to approving compensation agree­
ments, granting commutation in present value of continuing pay­
ments, granting hearings de novo and conducting the same, and
either reversing or sustaining the decisions of the referees.
Pennsylvania has the referee system. The State was divided by the
board, under direction of the act of assembly, into eight compensa­
tion districts, equalizing as far as possible population and hazard­
ous employments. Ten referees were assigned to these eight districts.
The most striking feature of the Pennsylvania system is its sim­
plicity. The act was made elective because Article III, section 21,
of the State constitution prevented the passage of a compulsory law.
Our electors at a recent election adopted an amendment to the consti­
tution, so that hereafter compulsory legislation will be possible if the
legislature deems it wise.

Our supreme court, in Anderson v. Carnegie Steel Co., sustained
the constitutionality of the law' upon this elective feature. Chief
Justice Brown said:
It is first contended that section 201, A rticle II, o f the act o f 1915 is uncon­
stitutional, because (1 ) it is violative o f A rticle I, section 9, o f our constitu­
tion, w^hich provides that one can not be deprived o f his property “ unless by
the judgm ent o f his peers or the law o f the land, and (2 ) because it is in con­



travention o f the fourteenth amendment o f the Constitution o f the United
States, w hich declares that no one shall be deprived o f his property “ w ithout
due process o f law .” Section 201 is as follow s: “ In any action brought to
recover damages fo r personal injury to an employee in the course o f his em­
ployment, or for death resulting from such injury, it shall not be a defense:
(a ) That the injury was caused in whole or in part by the negligence o f a
fellow em ployee; or ( b ) that the employee had assumed the risk o f the in ju r y ;
or (c ) that the injury was caused in any degree by negligence o f such em­
ployee, unless it be established that the injury was caused by such em ployee’s
intoxication or by his reckless indifference to danger. The burden o f prov­
ing such intoxication or reckless indifference to danger shall be upon the de­
fendant, and the question shall be one o f fact to be determined by the ju ry.”
It is urged that the taking away o f these defenses is deprivation o f property
without due process o f law. Section 201 applies only to actions at law for
damages resulting from the negligence o f employers, and by it they may no
longer set up certain defenses available under the common la w ; but no one has
property in any rule o f that law. Rights o f property may be acquired under
it, and when so acquired, the owner o f them is not to be deprived o f them
“ unless by the judgment o f his peers or the law o f the land ” ; but, w hile
rights o f property created by the unwritten law can not be taken away w ith­
out due process o f law, the common law itself may be changed by statute, and,
from the time it is so changed, it operates in the future only as changed. The'
written and unwritten law are both rules o f civil conduct proceeding from the
supreme power o f the State. “ That one is unwritten and the other w ritten
can make no difference in their validity or effect. The common law did not
become a part o f the laws o f the States o f its own vigor. It has been adopted
by constitutional provision, by statute or decision and, we may say in passing,
is not the same in all particulars in all the States. But however adopted, it
expresses the policy o f the State for the time being only and is subject to
change by the power that adopted it.” (W estern Union Telegraph Co. v. Com­
m ercial M illing Co., 218 U. S. 406.) In Mondou v. N. Y., N. H. & H. R. R. Co.,
223 U. S. 1, it was held that an act o f Congress abolishing the defenses o f
assumption o f risk and the fellow -servant rule, and providing that contributory
negligence shall merely mitigate damages, did not violate the “ due process o f
law ” clause o f that Constitution, and, in so holding, it was s a id : “ A person
has no property, no vested interest, in any rule o f the common law. That is
only one o f the form s o f m unicipal law, and is no more sacred than any other.
Rights o f property which have been created by the common law can not be
taken away without due process; but the law itself, as a rule o f conduct, may
be changed at the w ill * * * o f the legislature, unless prevented by con­
stitutional limitations. Indeed the great office o f statutes is to remedy defects
in the common law as they are developed, and to adapt it to the changes o f
time and circumstances.” Other cases to the same effect a re: Young v. Dun­
can, 218 Mass 346; Borgnis r. Falk Co., 147 W is. 327; Section v. Newark
D istrict Telephone Co., 84 N. J. L. 85; State v. Creamer, 85 Ohio St. 349.
The first contention o f the appellant is groundless.
It is next contended that section 204 o f Article II o f the act o f 1915 is un­
constitutional, because it is an unreasonable interference with the right o f an
individual to make his own contract and is as fo llo w s : “ No agreement, com­
position, or release o f damages made before the happening o f any accident,
except the agreement defined in Article II I o f this act, shall be valid or shall
bar a claim for damages for the injury resulting th erefrom ; and any such
agreement, other than that defined in A rticle I I I herein, is declared to be



against the public policy o f this Commonwealth. The receipts o f benefits from
any association, society, or fund shall not bar the recovery o f damages by action
at law, nor the recovery o f compensation under Article III h ereof; and any
release executed in consideration o f such benefits shall be void.” A t the time
the act o f 1915 was passed the settled law o f this State was that a contract
lim iting or releasing damages for future negligence w as against public policy.
(Pennsylvania R ailroad v. Butler, 57 Pa. 335; Grogan & Mertz v. Adams Ex­
press Co., 114 Pa. 523; Pennsylvania R ailroad v. Raiordon, 119 Pa. 577.) The
foregoing section is but a statutory extension o f the same principle.
It is further urged that sections 301, 302, and 303 o f Article I I I o f the act
o f 1915 are unconstitutional, because they are violative o f A rticle I, section
6, o f our constitution, which declares that “ trial by ju ry shall be as heretofore,
and the right thereof inviolate.” I f the foregoing sections are to be binding
on an employer or employee in any case, they w ill be so only after both have
agreed they shall be so bound. It is clearly pointed out in section 302 to each
o f the contracting parties how either o f them may, in a very simple way, pre­
vent the operation o f A rticle III. Neither o f them is deprived o f a trial by
ju ry except by his own consent, conclusively presumed to have been given
unless withheld in the manner prescribed by the act. Either party, employer
or employee, by his statement in w riting to the other that the provisions o f
A rticle I I I o f the act “ are not intended to apply,” may prevent their applica­
tion. Nothing is to be found in the said three sections depriving employer or
employees o f the constitutional right o f a trial by jury. They merely permit
a w aiver o f the same, i f both so agree, and neither the Federal nor State con­
stitution precludes such waiver. (K rugh v. Lycom ing Fire Insurance Co., 77
Pa. 15.)
Finally, it is contended that Article III o f the act o f 1915 is unconstitutional,
because it is violative o f section 21 o f Article II I o f our constitution, w hich pro­
vides : “ No act o f the general assem bly shall lim it the amount to be recovered
for injuries resulting in death, or for injuries fo persons or p rop erty ; and in
case o f death from such injuries, the right o f action shall survive, and the
general assembly shall prescribe for whose benefit such actions shall be prose­
cuted.” It need only be said o f this contention that the amount to be recovered
for injuries to an employee is lim ited only when the parties to the contract o f
employment so agree.


The employer of Pennsylvania faces then a constitutional com­
pensation law, and is compelled to ask himself certain questions.
The legislation being entirely new to our 200,000 employers and
2,000,000 industrial workers, their inquiries necessarily have been
quite primitive and elementary. It can be imagined that every em­
ployer has asked himself the question, “ Am I under the terms of this
legislation?” The answer came to him: “ Yes, if you employ 1
man or 100,000.” Then naturally he would seek information lead­
ing to the determination of the question of accepting or rejecting the
terms of the law. It is suggested that a wise employer will very
readily conclude to accept the act, and to adopt compensation, for the
reason that if he rejects he places himself under section 201, which
provides that in any action brought to recover damages for personal




injuries to an employee in the course of his employment or for death
resulting from such injuries it shall not be a defense—
(a) That the injury was caused in whole or in part by the negli­
gence of a fellow employee,
( b) That the employee had assumed the risk of the injury, or
(c) That the injury was caused in any degree by the negligence of
such employee unless it be established that the injury was caused by
such employee’s intoxication or by his reckless indifference to danger.

The burden of proving the allegations of intoxication or reckless
indifference to danger is placed by our law upon the employer, both
defenses being questions of fact to be passed upon by a jury. It is
interesting to note that only a few of our employers rejected the act,
and in every case their business is of such nature that liability for
negligence is of the most remote possibility. In order that an em­
ployer should reject the act it was necessary for him to serve a writ­
ten notice of such rejection upon each of his employees in the lan­
guage understood by the employee and to file with the board an affi­
davit setting forth the names of such employees so served, with the
time and place of such service. Our experience has thoroughly jus­
tified the provision of the act requiring a definite and initiatory step
on the part of the employer in order to reject. We submit that the
results are more satisfactory than a system which presumes rejection
and provides for a written acceptance of the law on the part of the
employer. Under the scheme of administration contemplated in our
act the board and all our executive agencies are called the bureau.
This term is inclusive of the members of the board, the referees,
statisticians, financial experts, inspectors, and all the clerical force
necessary to insure the enforcement of the law. Under the accident
reporting law of 1913, the employer is compelled to forward within
48 hours a report of any accident in his establishment to the depart­
ment of labor and industry. It will be noticed that our workmen’s
compensation bureau is a division of the department of labor and

In passing—statistics are tiresome, but sometimes interesting—I
note that one of the speakers spoke of the number of inspections.
Our department of labor and industry during the year 1915 made
200,000 personal inspections of machinery in the plants o f Penn­
sylvania. All the various divisions of this great department are
interwoven and interlaced so that each ministers to and aids the
others, and all make for the fullest accomplishment of this great
work. An outline of the work of the bureau is as follows:



When an accident report is received, two index cards are imme­
diately made out, one in the name of the employer and the other in
the name of the employee. They are of different colors and are filed
tinder the captions of employer and employee. The accident report
is given a serial number and is also filed. I f the report indicates
that the injury is one that will necessitate the payment of compen­
sation, the report is sent to the workmen’s compensation bureau or is
filed under the name of the injured employee. I f it is one in which
compensation will not be paid, it is kept on the files until the supple­
mental report is received. I f the supplemental report show^s clearly
that it is not a compensation case, the report is then coded and the ma­
terial it contains taken off on cards which are run through the Holle­
rith machine and tabulated. I f it is a compensation case, the report
is held in the files for a reasonable length of time, and if an agree­
ment comes in, then that agreement is attached to the report as well
as all reports and any other correspondence in that particular case.
When it becomes a closed case the report is returned to the bureau of
statistics and information, where it is coded and the information
tabulated. I f an agreement is not received in a reasonable time, and
the report indicates that it is a compensation case, the employer is
then asked why he has not entered into an agreement with his in­
jured employee, and if an accident report has been supplemented by
an agreement for compensation and no receipts for the payment of
the same are on file, then the employer is likewise interrogated as to
why they are not there and if compensation has been paid*

w o r k : op



On the other hand, if an accident occurs and the employer and
employee are not able to agree as to the extent of injury and as to
the amount of compensation as provided for by our law, then the
injured employee executes a claim petition and sends it to the bureau
at Harrisburg. In the preparation of this petition he is privileged
to visit a compensation referee, who will furnish him with the
required forms, assist him in its preparation, take his affidavit, and
forward the same to the bureau. Immediately upon its receipt it is
filed and docketed and is forwarded to the referee most conveniently
located to the scene of the accident. A copy of the petition is served
upon the defendant and the insurance carrier is notified. May I say
right there that we have found it is a most important thing to do.
We treat the insurance carrier as having equal rights with the de­
fendant. We have had many cases that did not progress success­
fully because the real defendant had carried his notice around in his
pocket and had not let his insurance carrier into his confidence, and
therefore we have treated the two alike as far as notices are con­
cerned. Within 7 days after such notice and service of a certified


w o r k m e n ' s, c o m p e n s a t i o n .

copy of the petition upon the defendant he shall fix a time and place
for hearing, which hearing shall be not less than 12 nor more than 21
days after the notice of the filing of the petition shall have been
mailed or delivered to all adverse parties thereto. In the meantime
the defendant, either himself or through his insurance carrier, must
file his answer within 7 days after the claim petition has been served
upon him. Our referees are the most important functionaries in the
administration of our law. They come in first contact with the
people. Very frequently they are able to effect an agreement be­
tween the parties after a claim petition has been forwarded to them.
They are frequently able to point out to the parties that they are
differing over very immaterial matters or that one or the other is
misunderstanding the plain provisions of the law. If, however, there
can be no such amicable arrangement, then the case goes to a hearing
and the referee must file within 7 days thereafter his findings of
fact and conclusions of law, together with his allowance or disallow­
ance of an award. Either party who is aggrieved at the findings of
the referee can appeal to our board within 10 days after notice has
been served upon him of the referee’s findings. The board at its next
meeting will place the case upon its calendar and will dispose of the
same either with or without argument or upon written briefs alone,
when the parties can appear with or without counsel.
From the decisions of the board there can be appeals to the com­
mon pleas courts, but in such cases the findings of fact of the referees,
when affirmed by the board, are conclusive, so that matters of law
alone are subjects of argument. In the determination of over 60,000
cases in 10 months, including the approval of agreements, and in the
sustaining or disallowing the awards of the referees there have been
but 11 appeals to the common pleas courts. These appeals are made
to the courts of the county of the claimants unless the parties by
mutual agreement then shall choose another forum. The board
meets in Harrisburg, Philadelphia, Pittsburgh, Scranton, or other
centers convenient to the dispatch of accumulated business.
We have then before us a calendar prepared by our secretary pre­
senting the following order:
1. Exemptions.—We have each week petitions from employers ask­
ing to be relieved of the necessity of insuring. When these petitions
are filed with the bureau they are referred to our financial experts.
The statements contained in the petitions and the financial standing
of the petitioners are thoroughly investigated. The reports are
before us when we act upon the petitions.
2. Gompensation agreements.—Under our act of assembly no agree­
ment entered into between an employer and employee is of any bind­
ing effect until approved by our board. This guarantees to the em­
ployer that there is no possibility of any one imposing upon him.



I f any agreement is not within the terms of our act, it is returned to
the parties for correction, and, of course, it is not approved by our
board until it is drawn within the language and terms of our law.
It might be interesting to note that we have already approved of ap­
proximately 40,000 such agreements voluntarily entered into by em­
ployer and employee, showing that the terms of the act are plain and
understood by all classes of our citizenship.
3. Certificates of payment of compensation,—These must be ap.proved by our board before they are binding receipts.
4. Appeals from the decisions of referees.
5. Petitions for determination of compensation because of the
altered status of the parties.
6. Determination of compensation on agreed facts.—Where the
parties agree on the facts, but differ in their conclusions therefrom.
7. Petitions for commutation.—These have become numerous and
of importance. When one of these matters came before our board
recently, we outlined our policy as follows:
In this case the w idow has form ed the opinion that although by this agree^
ment she has been secured in substantial semimonthly payments until her.
youngest child shall have reached the age o f 16, to w it: December 26, 1931,
that she prefers to have the future payments commuted to present value and
venture the whole sum in some uncertain undertaking.
It seems to the board that it w ill be well to protect her as against herself by
refusing her petition. These petitions for commutation come before us under
section 424 o f the workm en’s compensation act. It w ill only be in rare cases
that we can wisely exercise this discretion by granting such petitions. It is .a
great temptation to a w idow or any beneficiary under this law to ask that the
compensation payments be commuted to present value and paid in a lump sum.
W e think, however, in a great m ajority o f these cases these petitions are ill
advised, and a real w rong would be done to the petitioners if w e granted their
The act has wisely provided for the payments o f compensation to be made at
such times as the injured or the deceased would have received his p a y ; thereby
providing a certain modest, but sufficient, sum at stated intervals, so as to
relieve the dependent o f real want.
In the m ajority o f these cases the dependents have been unaccustomed to the
use o f money in bulk, and the sudden acquisition o f a considerable sum might
readily lead to its unwise expenditure or to its unfortunate investment. The
w idow might terminate her dependency by rem arrying and then the money
would probably be spent without regard to the rights or the best interests o f the
As a general rule, w e are opposed to granting such petitions to alien citizens
who are desirous o f taking the money to foreign countries. Aw ards have been
made on the basis o f their residence here. This same amount o f money in a
foreign country would be w orth more than it is here, hence the difference in
the act in the amount to be awarded to alien dependents; not that our legisla­
ture intended to discrim inate against this latter class, but it attempted to
equalize money values between foreign countries and ours.
W e desire by this opinion to apprise the public that it will only be in the
exceptionally m eritorious case that we w ill grant commutation.



8. Petitions for hearings de novo— Uniform rules governing ap­
peals.—The practice throughout the State in the appeals to the com­
mon pleas courts was rendered uniform by the board drafting rules
governing the same and submitting them to the board of judges of
Philadelphia County, asking that this board lead the way and estab­
lish a precedent by adopting them.
Our Philadelphia judges immediately complied with the sugges­
tion. Their example has been followed by practically all the com­
mon pleas judges of Pennsylvania. These rules provide inter alia
that the referee shall cause his official stenographer to transcribe the
testimony in full, certify to its correctness, and attach the same to his
report, which shall be in the following order:
1. Title of case and number of claim petition.
2. Date and place of hearing.
3. Names and addresses of parties, insurance carrier, counsel, and
4. A brief statement of material testimony.
5. Findings of fact.
6. Conclusion of law.
7. Award, citing section and clause of the act upon which the
award is based, or giving in full reasons for disallowing compensa­
8. Distribution of costs.
To this whole record is attached the certificate of the referee that
it is the full and correct record of the case. Then in response to a
certiorari sur appeal issued by the prothonotary of the court where
the appeal has been lodged, this whole record is returned, and to it is
added the certificate of the chairman of the board as to the correct­
ness of the proceedings thus sent back for review. And, further,
upon the first page of this return are the docket entries of the case
detailing every stage in the proceedings from the time of the filing
of the claim petition with the bureau until its return to the court
for review under the certificate of the chairman* At the same time
the appellant files his specification of errors with his appeal and
furnishes the board with a copy of the same. Thus we give the
court the benefit of our entire procedure set forth in an intelligible
and orderly manner. This record remains with the court to which
it has thus been sent until it has been finally disposed of or in turn
forwarded by the prothonotary of that court to the supreme or supe­
rior courts for final review, when the prothonotary of that court of
last resort will then return it to the bureau at Harrisburg, where it
finds its original number and then becomes a permanent record. The
main office of the bureau is at the State capitol. The largest busi­
ness offices in connection with the work of administering the com­
pensation law are in Philadelphia, and Pittsburgh, where there are



two referees in each office constantly engaged in hearing or adjusting

It might be interesting to note that while our 10 referees each have
an office, very few of their hearings are held in them. For instance,
our two referees in Philadelphia hear the cases of district No. 1,
which includes the counties of Philadelphia, Chester, Delaware,
Montgomery, and Bucks, They fix their hearings at the nearest pos­
sible point to the place of the accident or near the residence of the
injured man, so that the affairs of no business are interfered with by
the withdrawal, under subpoena, of a large number of its employees
summoned to meet at a referee’s hearing at some distant point.
Our referees will go to the plant and conduct their hearings in the
office of the management or in the town adjacent thereto. Much
of their work is done at night. This rule prevails with all our 10
referees scattered all over the State. Our Philadelphia and Pitts­
burgh referees each have two stenographers, so that when one is
taking testimony at a hearing the other can be transcribing his notes
of another case previously heard. This method has caused a great
cry of relief to go up all over the State, for we have substituted for
long-delayed litigation, uncertainty of results, and serious conse­
quences due to such delay sure and certain relief, expeditiously ad­
ministered without cost to litigants, and avoiding the annoyance of
The board early promulgated certain rulings explanatory of some
parts of the act of doubtful interpretation and provided over 50
printed forms, anticipating every contingency that might arise in the
administration of the act. Under the terms of our law the employer
furnishes medical service for the first 14 days after disability. The
employer has the right to select the physician. I presume that our
experience has been quite common in other States, that this provision
has been misunderstood and has led to considerable criticism at the
hands of the medical profession.

We have been engaged in meeting our medical brethren in their
various organized bodies and have sought to establish the wisdom of
this provision by speech and pamphlet. The result has been so satis­
factory that I was justified in a paper read before the Philadelphia
County Medical Society in saying:
At every appearance before a medical society I liave urged patience, careful
observation, and thoughtful study o f the effect o f this law upon the profession.
Physicians individually and medical societies have exercised the greatest degree
o f m oderation in considering this subject. I believe that when we shall have



enjoyed a full year’s operation o f this law and are ready to appear before the
next legislature to recommend any amendments that our experience shall then
have justified that we w ill not have as many suggestions from the medical
profession, as it first seemed that we would. I believe that physicians w ill
realize the multiplied opportunities this law presents for their activities and
appreciate the fact that it does not fix their fees nor trespass upon the ethics
o f their great profession. It w ill only be, however, through the mature delibera­
tion o f societies such as this that the final judgm ent o f the profession shall
have been voiced.
Our board w ill then feel especially commissioned to place before the next
legislature your recommendations which we know w ill represent the patriotic
judgment o f members o f a great humanitarian profession imbued w ith the
highest sense o f civic and professional obligations.

The question of insurance has been a very important one to our em­
ployers. Pennsylvania presents three opportunities in this respect.
An employer may insure in a stock company, licensed to do business
in Pennsylvania by our insurance department, or he may secure his
personal immunity through a mutual company whose formation has
been authorized by our legislature, or he may insure in the State
fund, whose existence was provided for by the same legislature that
created workmen’s compensation. This latter fund is administered
by a separate commission composed of the State treasurer, the com­
missioner of labor and industry, and the insurance commissioner.
The workmen’s compensation board, whose duties are at least quasi
judicial, has held itself aloof from any insurance discussion. In
order clearly to place ourselves upon record and to answer the sug­
gestion that we were engaged in promoting the State fund to the end
that the next legislature should make insurance therein compulsory
to the exclusion of all other forms of insurance, we have just issued
the following:
In order to correct a rumor that if not contradicted might bring about a great
misunderstanding, w e desire to say that the workm en’s compensation board, as
far as the question o f insurance is concerned, is entirely neutral and officially
has no preference, nor have we a right to make any favorable suggestions in
fav or o f one company or system o f insurance over another.
All that our board is interested in is that the insurance companies doing busi­
ness in Pennsylvania shall be perfectly solvent, so that a policyholder may have
the security for which. he pays. The only matter o f vital interest to us is that
the insurance carrier be financially strong and that the rating board fix the
rates so that these carriers can prosper, for we can not expect an insurance
company to carry hazardous risks w ithout a fair profit.
Many o f our employers naturally are looking for a cheap rate, but the thing
to do is to inquire whether the rate is an adequate one, because if it is not no
insurance carrier can survive. There ought to be plenty o f competition. This
law has created probably $30,000,000 worth o f new insurance business in our*
State. No one should desire that the State fund monopolize this business any
more than any other company. There should be a fair field with no favors.



All the various schemes o f insurance that have been doing business in Pennsyl­
vania having been approved by the State department at H arrisburg have their
particular advantages.
Therefore any statement that our board is using its official influence to favor
the State fund as against the old-line stock companies, or that we are address­
ing ourselves to the question o f insurance at all, is entirely erron eou s; as a mat­
ter o f fact, w e are opposed to creating a State monopoly. W e are very care­
fu lly watching how each company meets its obligations and the promptness
with which our awards are paid and the spirit displayed by the various carriers
tow ard the employees. W e are interested in security and prompt payment only.
As a board, we do not care w hat carriers come up to these conditions and all
w ill receive our support and w ill be treated exactly the same in the determina­
tion o f their cases.


We have endeavored in every possible way in our short existence
to create a system whereby substantial relief can be immediately
brought to the home of the injured at a time when it is most needed.
We have endeavored to create a method of compensation whereby no
employer can impose upon his employee, and at the same time we
have been just as zealous to protect the employer as to furnish relief
to the employee.
While our act provides that neither the board nor the referees shall
be bound by the technical rules of evidence, we have not construed
this clause to justify the finding of verdicts upon purely hearsay
evidence. In investigation our board and our referees admit such
testimony, but before one man’s property can be taken for another a
verdict must rest upon substantive and substantial evidence, other­
wise this great humanitarian enactment will become an unthinkable
propaganda that can not survive in an intelligent community.
We early impressed upon our referees that the success of the ven­
ture in Pennsylvania depended upon the common sense and the good
judgment displayed by them. We adjured them to hold the scales
of justice so delicately balanced that they would dip one way or the
other because of evidence only and that their investigations should be
for the ascertainment of the truth alone. We pointed out to them
that, while this was a great humanitarian law, nevertheless it must
be administered by the dictates of the brain rather than by the
emotions of the heart. In judgment over their work has sat our
board of three lawyers, who might be called common-law lawyers
believing in the science of the law and thoroughly convinced that ulti­
mate justice can be based only upon sound evidence.
Our Pennsylvania system has received in the short space of 10
months from our 200,000 employers many encomiums. The men
who go down into the mines and those who work in the mills and in
the factories, the women of the shops and those who are anywhere
engaged in the activities of Pennsylvania’s industry have heralded


w o e k m e n 's

c o m p e n s a t io n .

compensation as the greatest of all conceptions for the benefit of
The C h a i r m a n . There is an imaginary and invisible line running
across our northern border for nearly 3,000 miles, separating the
Dominion of Canada from the United States. In this work of com­
pensation, however, there is no line, imaginary or otherwise, that
separates the men who are engaged in this work, whether they work
on the one side or the other of that imaginary line. It gives me great
pleasure to welcome here—to introduce to you—Mr. George A. King­
ston, of the Workmen’s Compensation Board of Ontario.
[Mr. Kingston then read his paper. When the 20-minute limit
was almost up, a gentleman said, “ This is such an interesting paper
that I move he be allowed to go on. It is not often that we get a
man from Canada to the United States.” Motion carried, and Mr.
Kingston proceeded to finish his paper.]





I approach the subject matter of this paper with rather conflicting
emotions. It is easy enough for any of us to discuss the merits of
our respective compensation laws, but when we come to speak of
their demerits we are naturally a bit embarrassed. We all, however,
if we are honest with ourselves, should recognize our weaknesses.
It is the wise man who first learns his own weak spots, and the wise
Nation, State, or Province also that is quick to recognize where its
laws should be strengthened or where the national administrative
machinery should be repaired or improved.
However, it is possibly but human nature to try to avoid dis­
cussing our weaknesses on the housetops, so if this paper deals
largely with what may be considered the merits of our law, do not
think that I can not see room for improvement in a number of fea­
tures of our system of compensation in Ontario. After all it de­
pends so much on the point of view, whether what one considers a
meritorious feature of any law has real merit or not, or, shall I put
it, upon the environment in which one has become involved in
his experience with the subject.
In our administration of the law in Ontario I have grown up in
an atmosphere which is strong on what has come to be known as the
State insurance system, with all that is comprehended in the two
familiar words associated therewith, viz, exclusive and compulsory.
I am quite sure, however, there will be many present at this con­
ference who just as firmly believe that such a system is not well
adapted to their particular State. With such I have no quarrel.
Doubtless they have many arguments which they consider good and
sufficient to support their point of view. The purpose of this paper,
however, is simply to mention a few of the features of our law—
first, those for which we claim some merit and, second, the points in
respect to which I consider there might be improvement.
I conceive it to be our uniform desire at this conference, in so far
as it deals with the question of workmen’s compensation, to get words
of wisdom from men who are familiar with one or other form of
administration, so that we may see how this or that system is work­
ing out in its practical application to the industrial life of the State
or Province in which the law is being administered.





It will be readily understood from what I have stated above that
the law in Ontario is an exclusive, compulsory system. At the end of
this December the law will have been in force two years. The lia­
bility companies doing business in the Province arranged with the
coming into force of the law on January 1,1915, to cancel all existing
policies pro rata. On that date the field was at once cleared of every­
thing in the shape of competition. A table of rates had previously
been adopted by the compensation board for each industry in the
Province, an estimate of each employer’s pay roll for the ensuing
year called for, and a few days prior to the new law coming into
force the board levied the first year’s assessment on the employers
of the Province, giving to each employer the option of paying it in
two installments, if he so desired, interest being charged on the de­
ferred portion. It is interesting to note that about three-fourths of
the employers so assessed paid the full amount of the first year’s
assessment in one payment at the outset, notwithstanding the fact
that the war had only recently started and business in many lines
was very seriously dislocated. This, of course, was only a provi­
sional assessment. At the end of that year the board called upon each
employer for a sworn statement showing the actual wages expended
in 1915, together with an estimate for 1916; and in sending out the
new assessment early in 1916 there was embodied in it an adjustment
for 1915—that is to say, the employer whose original provisional
assessment was too high because of lower wage expenditure than
the amount estimated was given a proper credit, and, on the other
hand, the one who had underestimated his wage expenditure was
charged a pro rata excess.
This all worked out without any difficulty once the method of
working out the details wTas clearly established.
This adjustment was for the most part based on wages only, but
in quite a number of industries it was decided that there should be
an adjustment on rate also—for example, in the printing business
the original rate established was 50 cents. The experience in this
class for the year was so uniformly good and we had such a sub­
stantial surplus at the class credit at the end of the year that it was
considered the rate should have been 25 cents from the first, and
adjustment was accordingly made on this basis. The rates were care­
fully revised early in 1916, and generally speaking the new rates
showed quite a substantial reduction from those for 1915. In this
connection I may say that the board has but one desire, viz, to
get the rates to the point where they will meet the actual cost of com­
pensation plus the small loading required for expenses of administra­
tion. This, of course, is the rock upon which we split with the insur­
ance companies.



Our expense ratio in Ontario was about 5 per cent fcr 1915—that
is, 5 per cent of our gross assessment. As this gross assessment was
somewhat in excess of our compensation cost, if the latter figure
were taken as the basis, the percentage of course would be a little
higher, but certainly our expenses would not be more than 7 or 8
per cent of our compensation cost. No insurance company can run
its business on any such expense ratio, and when they argue that they
are willing to carry the risk at less than our rates, one of two things
must be apparent—either their rates are too low or ours are too
high. I f the insurance company rates are too low, they must eventu­
ally either go out of business or raise their rates to a point which will
overtake their losses, for I know of no insurance company philan­
thropic enough to continue running its business very long5 at the
expense of its shareholders, for the good of the public.
If, however, our rates are too high, and I imagine possibly they
are in a few of the classes, then any surplus w^hich has been ac­
cumulated by reason of such excessive rates belongs pro rata to the
subscribers to the fund in the respective classes. These are our
shareholders, and if our rates are excessive, we will, with the accu­
mulated surplus, be able to pay dividends to our emplo}^ers in the
form of a reduced rate for next year.
Our aim, as I say, is to operate at actual cost, and we can have no
interest in collecting more from employers than is actually required
for this purpose.
I know, of course, the time-worn argument that no Government
commission can operate a system of State insurance as economically
as a privately managed corporation. Norway, I think, was the
first country to prove the fallacy of that argument, and the Ohio
experience, if I correctly understand the situation, is a disappoint­
ment to those who are opposed to the State insurance method of
compensation. It is also very freely asserted by certain writers
that it is impomble to hope for anything in the shape of honesty
or efficiency fracn a board appointed from political considerations.
While I can not pretend to understand accurately the conditions in
your country, I do know that in Ontario the State insurance plan
has been a success. There has never been a suggestion from the
time the board was organized up to the present that any judgment
or action of the board has been dictated by political influence, nor,
so far as I know, has any member of any political party sought to
influence unduly the judgment of the board in any cause or matter.

Perhaps it is because of the fact that the work of the board in
Ontario is so far removed from politics that we can speak as we do
70085°— Bull. 212— 17-------4


w o r k m e n 's


about political interference in our work, or rather the absence of it.
The board was, of course, appointed by the Government in power
at the time the act was passed. In most of the States, I understand,
such appointments are made by the governor of the State person­
ally. With us the governor is merely the representative of the
Crown and acts in such matters only on the advice of his respon­
sible ministers; so we say the appointments are made by the lieu­
tenant governor in council, which means that the council of ministers
(otherwise known as the cabinet) had all to do with the selection and
appointment of the members of the board, the lieutenant governor
simply giving his formal assent to the order in council.
This question of “ responsible government,” to which I have
alluded above, might be the subject matter itself of a paper well
worth studying. Books have been written on it, and early in the last
century much bitterness was engendered and some blood was shed
in the struggle which secured for Canada this form of government.
However, it is not the purpose of this paper to go into that subject.
You may ask,“ Had politics anything to do with the appointments
of the members of your board ? ” Possibly so. Governments with us
are probably no less partisan in their appointments to office than
in most countries where party government prevails, and it is doubt­
less true that in looking for men to fill the places on the board the
Government did not seek them from amongst political opponents.
Here comes the difference, however, between what I am given to
understand is the system in most of the States and that prevailing
in Canada in regard to appointments to public office. The moment
such an appointment in Ontario is made and accepted, from that
moment, and during the whole tenure of office, the appointee must
keep himself absolutely free from political activity of any and every
description. The right to vote is, of course, not denied him, but
further than that he should not go.
^There is no express limitation to the tenure of office of a member
of our compensation board, except the age limit of 75 years. The
act, however, does expressly provide that each commissioner shall
hold office during good behavior, but may be removed at any time
for cause.
You ask, “ What happens to Government officials generally in
Ontario or in Canada when there is a change of Government ? ”
The answer simply is, our civil service is not disturbed by political
changes. Misconduct in office or offensive partisanship on the part
of public officials would, however, be considered good cause for
dismissal from the service.
The compensation board in Ontario is given absolute authority
to make its own appointments without reference to the Government,



except as to approval of salary, and, organized as we are in the
manner I have briefly outlined, it is not difficult to keep the adminis­
tration of the law free from political influence.
I can not think that it would make for efficiency in administration
if members o f a board administering such a law as this should
have occasion to feel concerned over their own position in event of
a change of government. They should not be put in a position where
their official duties come into conflict with their personal interests,
and that is almost certain to be the case if they are dependent for the
continuance of their position on the continuance in power of the
political party to whom they may happen to owe their appointment.
Another point in connection with the tenure of office of members
of compensation boards is perhaps worthy of special observation.
The work is not of an easy nature. Men usually are selected because
of special qualifications for the office; they are in most cases taken
from occupations or professions in which they have had perhaps,
almost, if not quite, as good an income as the emolument of the new
office gives them. In accepting the responsibility of office a commis­
sioner must almost of necessity “ blow up the bridges behind him,55
and if at the end of a period of 4, 5, 6, or 10 years he is required to
retire from the position, it is not an easy matter socially to rees­
tablish himself in the activities in which he formerly was engaged.
No one looks forward with complacency to the prospect of having to
begin life over again from the business point of view after he has got
into or past the forties. I should add that in Ontario, as in all the
other Provinces in Canada where compensation laws have been
passed, a commissioner is prohibited from engaging in any other
business and must not even allow himself to be interested as a share­
holder in any industry to which the act applies.
So much for the commissioners’ point of view. But there is, in
my opinion, another viewpoint of equal, if not of greater, impor­
tance—that is, the interest of the State, and this is always of
greater importance than the interest of the individual. Let us
assume we have a board in a certain State which has brought the
administration of the law in its jurisdiction up to a high degree of
efficiency, reflecting credit not only on itself as a body, but also on the
government of the State it represents. It comes to the end of its
term of office, and by reason of a change of government it is proposed
to displace it by a new board. Is not the State the real loser? Can
you imagine any well-managed business institution displacing a
highly trained expert and replacing him by some one with no special
training other than that he happens to be brother-in-law or cousin
to the president of the company ? Places may be found or made for
the brother-in-law or favored cousin, but the man who has acquired


w o r k m e n ' s c o m p e n s a t io n .

the expert knowledge is an asset the company usually does not like
to lose. I f the various compensation boards are going to be sub­
jected to changes in personnel with every change of government, we
can scarcely hope to attract the best men for these very important
offices, nor may we expect to see that progressive spirit adopted which
is always seeking for more perfect methods and higher ideals in
administration. These laws should, in my opinion, be administered
by men who are experts, and their appointments to office, if we are
to have in mind the best interests of the industrial community to
which the law is so closely related, should be for life, terminable only
by reason of misconduct or unfitness for the work.

I possibly should have stated earlier that the compulsory national
system does not apply with us to all industries. The railways, steam­
ship lines, telegraph, telephone, and express companies comprise a
separate grouping known as Schedule II.
To these the individual-liability system applies, and while the law
gives the board authority to compel these companies to carry liability
insurance, they are for the most part corporations of sufficient
strength financially to warrant the board allowing them to carry
their own risk. In order, however, to provide greater security for
Schedule II pensions, the board, in all Schedule II death and serious
permanent disability cases, requires the employer to deposit a certain
sum with the board under the provisions of section 28 of the act.
In permanent disability cases this sum is three-fourths of the amount
which would be required to purchase from an insurance company a
life pension payable to the injured workman, and in death cases it
is the sum which, according to the widow’s death and remarriage
table hereafter referred to, represents the present worth of the
Should the pensioner die in the early years of the pension period,
the board usually repays the unexpended balance of such deposit to
the employer, but should the pensioner live long enough to exhaust
the deposit, plus accumulated interest earnings, the board will go
back to the employer for the required balance.
It might possibly happen, of course, that the particular employer
would be nonexistent at that time—though the chances of this are
very slight, as they are for the most part large corporations—but
where the danger of this contingency can be reasonably anticipated,
the board has the power to retain the deposits made in respect to
those cases where the pensioner has died during the early years of
the pension period.



The act in respect to Schedule II is administered and Schedule II
awards are arrived at by exactly the same method as is the case with
relation to Schedule I. The employer is not permitted to settle with
his injured workmen except in those minor cases where the injury
causes disability for less than four weeks, and even then the settle­
ment must be on the basis prescribed in the act, viz, 55 per cent of
When an award is made, the employer is not ordered to pay the
money to the workman, but rather to the board. The board then
passes it on to the workman, the idea being to avoid putting the
workman in the position—frequently embarrassing—of having to
deal directly with the employer in a matter involving some risk of

Under the Ontario system—that is, referring to Schedule I cases—
provision is made out of each year’s assessment to take care not only
of the actual requirement of that particular year in accident cost,
but also the payments required to be made in future years in respect
to that year’s accidents. Much has been said and written about
other methods of financing future payments. The board in Ontario
came to the conclusion, however, that the system of making each
year as nearly as possible bear its own losses was the soundest
All our reserves are calculated on a 5 per cent interest earning

Accidents which result in death or permanent disability are com­
pensable under our act b}^ pensions to dependents or the surviving
workman, as the case may be.
Pensions may be terminated in any one of four ways—death,
remarriage, attainment of age 16, or expiration of the fixed period
for which a limited pension is to run.
The persons to whom pensions may be payable, together with
the limitations, are as follows:
(a) I f the accident results in death and the workman leaves a
widow but no children, the widow is entitled during life or widow­
hood to the payment of $20 a month.
(b) I f he leaves a widow and children, the payment to the widow
is $20 a month plus $5 a month for each child under 16 years of
age, but not exceeding $40 in all.
(c) I f an invalid husband survives, he receives the same compen­
sation as a widow.



{d) I f the workman leaves children only, the payment is $10 a
month for each child under 16, but not exceeding $40 in all.
(e) Where the dependents are persons other than those above
mentioned, they are entitled to a sum reasonable and proportionate
to the pecuniary loss to them occasioned by the workman’s death, but
not exceeding to the parent or parents $20 a month, or, in the whole,
$30 a month for life.
All the above is governed, however, by the provision that in no
case is the compensation to exceed 55 per cent of the workman’s
earnings in the employment in which he was injured.
Where a widow marries again the pension ceases, but she is
entitled within a month after her marriage to a lump sum equal to
two years’ payments.
When an accident results in total or partial permanent disability,
the workman in Ontario is entitled to a pension of 55 per cent of
the impairment of earning capacity, having regard to his wages in
the employment in which he was injured, provided that if the
partial impairment be less than 10 per cent of his total earning
capacity compensation is ordinarily made in the form of a lump
sum in lieu of a pension.

In the computation of the values of pensions to widows, the
board adopted the following combined mortality and remarriage
table. In constructing this table the following standard tables were

The widow’s life table, pages 68 and 69, supplement to the Seventyfifth Annual Report of the Registrar General of Births, Deaths^
and Marriages in England and Wales.

The Dutch State insurance fund (Rejksverzekcringshank) remar­
riage table, modified by the arbitrary assumption that the remar­
riage element disappears after age 55. This Dutch table, as doubt­
less most of you know, is based upon 10 years’ compensation expe­





of $20
per month.

21 .


2,626. 24
2,702. 08



19. 40

3,147. 75




Age (years).







of $20
per month.




19. 46

3,076. 27

3,318. 54
3,364. 27
3,404. 82


15. 52

2,748. 48




12. 54

2,249. 49


3,510. 71


10. 84

1,792. 78

Age (years).


The pension is calculated on the nearest age (in years) of the
widow at the date of death of the workman.

For the computation of values of pensions to children the experi­
ence necessary was a table showing the mortality rate, and the table
used by the Canadian insurance companies has been adopted as the


AGE OF 16.

value of $5
per month.

2 .................................................
3 .................................................
4 .................................................


13. 48


5 .................................................
6 .................................................
7 .
8 .................................................

8. 79


Ago (years).

Age (years).

value of So
(years). per month.

9 ...............................................









Computations in respect of life pensions for permanent disability
to workmen under Schedule I, or life pensions to dependent invalid
husbands, are based on the American experience table of mortality to



age 56. Beginning with age 56, a modification of the healthy-male
table is used on the assumption that industrial life is not coterminous,
but somewhat less than actual life; and in the case of permanent
injury, social rehabilitation is not so easily attained at an advanced
age as it is at a younger age.
The following table shows expectancies and the values of $1 per
month at various ages:

Value of $1
per month.








42. 87




168. 90
16.]. 25








39. 49

207. 57 1 54..............................................







16. 69


32.......................................; ____

35. 33

198. 87





32. 50


63.................... ........................





189. 92


14. 28
14. 04



28. 90

185. 83

67.......................... „..................

13. 01

120. 56



Expect­ Value of $1
per month.


As in practically every jurisdiction where State insurance pre­
vails, the industries in Ontario are divided into groups or classes.
We have in Ontario 33 classes altogether.
The purpcse of this grouping, of course, will be obvious—simply
to provide that industries of a like nature shall, as far as possible,
be required in a collective sense to bear the losses sustained over the
class as a whole. Each class thus forms a sort of mutual insurance
society, administered by the board, but the system is made elastic
in that the whole accident fund is available, if necessary, for the
purpose of providing for the accidents in any one group. In our
rating for assessment purposes it does not at all follow that the
rates within the class are all the same. On the contrary, we have
sought to cure every inequality in hazard within the various classes
by appropriate rates for the various industries comprised therein.



I do not think it wise to extend this classification idea—I would
rather see certain classes consolidated so that they would be fewer
in number than to attempt to make a class for each type of industry.
For example, we have four classes in what I may term the wood
schedule, viz, the sawmill group, the pulp-mill group, the furniture
group, and the planing-mill group. These could, without any risk
of injustice to any industry comprising any of these classes, be con­
solidated into one or possibly two classes.
So in the metal schedule we have five classes apart from mining,
which we shortly describe as follows: The rolling-mill group, the
foundry group, the heavy machinery group, the lighter machinery
group, and the agricultural implement group.
It will easily be seen that there must be considerable overlapping
in these divisions of the metal industries, which of course makes
the administration of the law from a classification point of view
somewhat confusing. My suggestion would be—make the classes
as few as possible, conforming with broad general divisions of indus­
try, and depend on curing inequality in hazard by differential rates
within the class.
m a x im u m : an d m in im u m a w a e d s .

We have no irreducible minimum provision in our law. This, I
think, is one point wherein our compensation act might be improved.
I notice that in practically all of the American compensation laws
there is both a minimum and maximum provision. We have a maxi­
mum provision, viz, in figuring out the amount of compensation pay­
able in any case, wages in excess of $38.46 per week must not be con­
sidered—i. e., $2,000 per annum. It is, of course, only in a very few
cases that this maximum provision applies, as the amount is about
three times the average wage of our workmen. My suggestion would
be to provide a minimum basis and reduce the maximum.
w a it in g

p e h io d .

We have a conditional waiting period of seven days—i. e., to say,
should the injury disable for seven days or more, compensation datesfrom date of injury. I f my suggestion as to minimum and maximum
scales were adopted, I would be inclined to recommend that this
waiting period be made absolute. Our statistics indicate a very much
larger proportion of accidents causing disability for one week than
for any other period. This leads to the conclusion that in many
cases where a wTorkman might go back to work in five or six days, he
finds it convenient to be disabled the full week. I understand all
jurisdictions with a conditional waiting period are having a some­
what similar experience.


w o r k m e n 's

c o m p e n s a t io n .

The amount thus paid out in what I may term undeserved compen­
sation is not large in actual money, but these statistics indicate that
the conditional waiting period is not serving the purpose for which
it was intended,
I would particularly recommend the absolute waiting period of at
least a week, if provision is made for medical attention to the injured

We do not pay for any medical attention in Ontario, except in a
few exceptional cases, for which special provision was made. I have
always been of opinion, however, that a compensation law should
provide not only for first aid but for full medical attention, and I
am given to understand some amendment in this respect is con­
templated at the next session of our legislature. I think it will be
readily admitted that provision for first aid is more important than
compensation, but efficient subsequent medical treatment is in most
cases no less important.
It is of the utmost importance from an economic point of view that
injured men be restored to industry at the earliest possible date, and
if the difference between efficient medical or surgical attention and
indifferent attention meant on an average a saving of only two days’
disabilit37' in each case it is eas}^ to calculate what a difference it
would mean to the Nation not only in value of the producing power
of this great army of workmen but also in the saving it would repre­
sent to the accident fund.

There is a very radical difference between the method adopted in
Ontario and that in most jurisdictions in the United States, in the
manner of fixing compensation for permanent disability. In most
States the only elements to be considered are wages of the workman
and his physical or functional impairment. We add to this the very
important element of the workman’s life expectancy, as well as the
elements involving the distinction between major and minor hand
or arm. I do not think it should be considered equitable to pay a
man at age 70 as much for a lost arm as one at age 25. The latter,
according to our workman’s expectancy table, has 39 years to live
without his arm, whereas the man at 70 has only 13 years to live,
and very few, if any, of those 13 years would be working years, be­
cause physical life is not coterminous with industrial life, except in a
very few cases, after a man has passed 65 years.
To illustrate how this works out with us: Take a man at 25 getting
$15 a week who loses his right arm at the shoulder. Without going



into the figures showing how the award is arrived at, we would pay
this workman a pension for life of $23.24 per month and we would
set aside $4,853.44 to provide for that pension.
Take, then, a similar accident to a man age 65. True, we give
him the same pension for life, but we need only set aside $2,866.42
to provide for the pension in his case.
It is obvious that the practice adopted in many jurisdictions of
giving in such case a percentage of wages for 400 weeks—practically
8 years—gives as much to the old man as to the younger, this quali­
fied, of course, by the greater probability of the older man not
outliving the 400 weeks.
With reference to the differentiation between major and minor in
dealing with hand or finger cases, we have made a difference of
about 10 per cent in our table of rates as between these two injuries.
For example, where we allow 40 per cent for a right hand we allow
only 36 per cent for a left hand.

As indicated above, under the heading of pensions, it will be noted
that we pay a pension of $5 per month to each child of a deceased
workman (limited to $20 per month for all children) until they
respectively reach 16 years of age.
Provision is not made, however, for adopted children nor for chil­
dren subnormal who are helpless for many years past 16—perhaps
for life—nor for illegitimate children. We are permitted to pay
compensation to the dependent parent, sister, or brother of deceased,
provided, of course, neither wife nor children survive, and provided
also that real dependency is proven. Is there not strong reason for
urging that children of the classes named should be dealt with the
same as ordinary children? On the other hand, though there may
be absolutely dependent sister or parents of deceased surviving,
nothing can be allowed to them should the deceased leave a wife or
children. It adds something, of course, to the burden imposed by
the lav/ to compensate all real dependents under all circumstances,
and I am not contending that this was intended or that the law in
this respect should be changed. It is difficult, however, to convince
the dependent parent in the one case that he or she is less entitled to
compensation for the loss sustained than the one who gets compensa­
tion because there happened to be neither wife nor children of de­
ceased surviving. I admit, of course, the greater claim on the part
of wife and children, but the question will be urged seriousty some
day that dependency should always be a question of fact end com­
pensation should be awarded only and always wThere real dependency


w o r k m e n ' s c o m p e n s a t io n .


In common with many other jurisdictions in this respect the
remedy provided by the act in Ontario for an injured workman is the
only redress he has. The old common-law right of action against his
employer is absolutely done away with. No right to elect whether
he will accept the provisions of the new law or abide by the old is
allowed to the employer as is the case in many jurisdictions.
I f for the moment I may assume the role of a critic it does not
seem to me logical or sensible to put a law on the statute books and
then by a sort of third-degree or coaxing method seek to enforce it—
practically saying to employers u We’ll leave you to the tender mer­
cies of a jury without any defense if you don’t accept this new law
we offer you.” I f the State is not ready for the law it should not
be put on the statute books at all, much less in any sort of optional
form, but if the legislators, with their ears to the ground in an effort
to sense public opinion, come to the conclusion that this sort of law
is wanted and is in the public interest, then let it be a law for all
alike without any 64by your leaves” or “ if s ” about it. The prin­
ciple of “ local option ” in certain laws may be all right as applied
to communities or municipalities, but I know of no authority on
political economy who has sought to justify this principle in legisla­
tion as applicable to the individual.

This is one feature of our law in respect to which we differ from
almost every other jurisdiction where a compensation law is in
force. There is no right of appeal from the decision of the board in
Ontario except to the board itself for reconsideration. In practice,
where reconsideration is asked for, the request is invariably granted,
and if there appears any fact which was not before the board in the
first instance, we have no hesitation in amending the award if it is
considered that the facts so warrant. All this in the most informal
manner without intervention of attorney or counsel. In fact, the
legislature has practically read the lawyer out of our act in so far
as practice before the board is concerned.
It probably would not be in good taste for me to say that abso­
lutely no appeal should be allowed in any case, even where a very
important principle of law is involved. That would be tantamount
to saying that the board’s decisions are always right. I do say
this, however, without hesitation—that it is infinitely better that
there should be no right of appeal at all than that such a right be
unrestricted. I can recall some few cases, involving important
points of law (but I may say these are very few, comparatively
speaking), in which I would have been glad to have had the judg­



ment of the board considered by our court of appeal. An unre­
stricted right to appeal, however, would in my opinion result in
reestablishing the practice of expensive litigation in these accident
cases, which it was one of the very purposes of the act to get away
from. My thought is that if there are to be appeals at all they
should be limited solely to those cases where in the opinion of the
board an important question of law is involved, and as to these it
should be necessary that a fiat giving leave to appeal should first be

Now, in conclusion, I hope I have not conveyed the impression
that I think ours is a perfect compensation law or that it fully
meets the requirements of our industrial conditions. At least, most
of our compensation laws may be said to be yet in the experimental
stage, and it is but fair to our legislature and to the legislatures in
other jurisdictions to say that most of the original faults in our
law and in yours were due to the novelty of the principles in­
volved—to the want of adequate data upon which to proceed and
possibly also to the lack of an intelligent public opinion upon the
subject. You in the United States, I know, have constitutions to
consider and your laws must be drawn accordingly. In possibly a
less technical sense there is also a constitutional limitation to the
powers of our provincial legislatures, but within the field of prop­
erty and civil rights our Provinces are the supreme authority in
With all the shortcomings, however, of our act it is so far supe­
rior and so much better suited to modern conditions than was the
old system that no suggestion is made in any quarter of a desire
to go back to the old order of things. Compensation according to a
predetermined and fixed schedule has come with us, and I am sure
it has come to most of the jurisdictions on your side of the line, to
stay, and with the improvements we are all endeavoring to work out,
both in the form of our legislation as well as in matters of adminis­
tration, it is but $ matter of a short time when we shall, I hope,
have compensation laws in all our States and Provinces, to which we
may all point with pride—laws which do justice not only to the
workingman but to the employer as well. Labor and capital are
alike essential to the well-being of every community, and every com­
pensation law must have a fair regard for both.

New times demand new measures and new men.
The w orld advances and in time outgrows
The laws that in our fathers’ days were best.
And doubtless after us some purer scheme
W ill be shaped out by wiser men than we,
M ade wiser by the steady growth o f truth.


Miss G e r t r u d e B e e k s , director welfare department, National Civic
Federation. Does the Province of Ontario contribute to the cost of
administration of the State fund?
Mr. K i n g s t o n . Yes; that is part of our system. It does not con­
tribute all of the cost, but it contributes a portion of it.
The C h a i r m a n (F. M. Wilcox, of Wisconsin Industrial Commis­
sion, in the chair). The general discussion of the manner of admin­
istration was to be led by Mr. Wallace D. Yaple, chairman of the
Ohio commission. Mr. Yaple is not present, but Commissioner Duffy,
of that commission, is here and will act as substitute.
T. J. D u f f y , member Ohio Industrial Commission. I am laboring
under a double handicap. I was not present to hear all of the papers
read, and I did not know that I was going to be called on to take
Mr. Yaple’s place. I am going to take just a few minutes. As I
understand., the subject is the administration feature of workmen’s
compensation laws.
Probably you agree with me that the administration system that
might fit the conditions in Ohio may not fit the conditions in other
States. I am going to explain briefly the Ohio plan, because I must
frankly admit I am not able to criticize the papers read, on account
of my absence during the greater portion of the session. Under the
Ohio plan we have what may be called a double administrative sys­
tem ; one applying to the cases that come under the State insurance
fund and the other to the cases coming under what we call s e lfinsurance.
Under the State insurance system the injured workman is required
to fill out what we call the preliminary application within three days
after the injury. That is to be followed by what we call the supple­
mentary application, to be filed within two weeks after the date of
injury. This supplementary application form is an application
signed by the injured employee and verified by the employer as to the
facts. That is followed up by the attending physician’s report. Now,
in that class of cases where there is no dispute between the employer
and the employee, and the attending physician has filed his report,
our claims department, through its clerical force, practically adjusts
all of that class of claims, and that composes more than 90 per cent
of the total number.



In that class are included what we call the “ paedical only ” ; that is,
where the disability has been less than one week and we merely pay
the medical expenses. It contains also the cases of temporary total
disability, except where there is some disputed point. It contains also
the cases of permanent partial disability, except where there is some
disputed point between the employer and employee. Therefore you
can see that in more than 90 per cent of the total number of cases
coming before our commission the personal attention of the mem­
bers of the commission is not required. Under that plan we pre­
serve that personal touch between the employer and the employee
which so many employers seem to think is important in any adminis­
trative system under the workmen’s compensation law. However,
it is understood by the employee that if the employer is unwilling to
verify the application of the employee, he may directly apply to the
industrial commission. That case is then set for hearing. Employer
a"nd employee are notified of the date of hearing. They may submit
their respective sides of the question either by communication or by
personally appearing before the commission.
Now, in less than 1 per cent of the total number of cases coming
before the commission—and I might say that the total number for
the year 1916 will be approximately 150,000—in le^s than 1 per cent
of those cases is the personal attention of the commission required.
I emphasize that point because our aim has been to have what we call
a very simple system of adjustment of claims. The cases that require
the personal attention of the commission are those where there is
some dispute as to whether or not the injury occurred in the course
of employment; as to whether or not the disability claimed by the
employee is a result of the injury which he claims to have received,
which, in most cases, as you know from your own experience, depends
upon the medical testimony involved in his case. There are many
other questions that I won’t take time to call your attention to at this
time, but the point that I am trying to make is this: While under the
Ohio plan three members of our commission are responsible for the
adjustment of 150,000 claims which we will have in the year 1916, yet
less than 1 per cent of those claims will require our personal attention.
This, however, is sufficient to keep the members of the commission
busy every day in the year.
Now, then, you might wonder whether or not it is giving satisfac­
tion. Of course, we have had about four years now of operation
under the optional and under the compulsory workmen’s compensa­
tion law, and that system has been amended and improved upon
from time to time, and through our organization we feel that we
have got that system fairly well advanced to the point where we
can protect ourselves against any gross mistakes without the mem­
bers of the commission being required to give personal attention to
each and every case, which, you can understand, is an impossibility.



You take a case, for instance, of permanent partial disability; a
workman has lost a hand. The employer and the employee agree
that it occurred in the course of employment. All that is required
is simply to figure out the amount due, according to the schedule,
and all that time is saved.
Before finishing I want to call your attention to one defect of
our system, or, rather, in our law. I think that is what we are
interested in—the things that can be improved upon. Our law pro­
vides that a workman may take an appeal from the decision of the
commission in cases where compensation is denied. We find that
the lawyers are beginning to understand that they can come before
the commission, present a case, find out just what evidence is lack­
ing to make a good case, and then take an appeal to the courts and
introduce other evidence that was not presented to> the commission
when that case was being passed upon. We find that very often
when the case reaches court it is tried upon a very different state­
ment of facts or line of evidence than that submitted to the com­
mission. We are therefore going to recommend to the next session
of the legislature that any appeal taken from the decision of the
commission must be taken upon the evidence submitted to the com­
mission, and no further evidence permitted to be submitted in court.
X would most heartily express my approval of that part of the
paper of the Canadian delegate where he touches upon the tenure
of office. I know from personal experience in Ohio that it is a han­
dicap not only to those who are charged with the duty of enforcing
the law~ but it is a handicap in the development of any system under
any workmen’s compensation law if the men who are charged with
that duty must feel that they have got to keep themselves in good
standing with any or all the political parties in order that they may
be continued in the work that they are doing. Reference was made
to the fact that we had this question in politics in Ohio during the
past campaign. That is true. I will say, however, that we have not
been handicapped in Ohio so much—in fact, very little—in our plan
of administration. The effort made in Ohio was to destroy the law
entirely, and, strange to say, the very people who cite politics as
being a reason why the State should not have a State insurance
fund are the very people who injected politics into the issue, and I
refer to the insurance carriers.
myself, as a member of the commission, got out into the cam­
paign because I felt that I knew more about the matter, or as much
about the matter from the inside, as anyone in the State, and I
felt that the duty devolved upon me to let the people of the State
know that the workmen’s compensation law was in danger in order
that the people might be able to pass fair judgment upon the ques-



tion. Just for a minute you can realize from that standpoint that,
being compelled to take that active part in politics in order to pre­
serve the workmen’s compensation law in our State, I will be handi­
capped, perhaps, in the future as an administrative official, because
1 find that employees are just like other classes of people in our
State—that they have their political prejudices just as strong as
any other people, and therefore they will be inclined to think that
it would have -been better had I not gotten into politics on this
matter. However, I feel that I have no apology to make for that,
because it was absolutely necessary for some one to do it in order to
preserve the law.
Mr. K i n g s t o n . About what vote in your State was in favor of
the destruction of the law; or was there a substantial vote?
Mr. D u f f y . Well, of course, there is no way of ascertaining that,
because it was only one of the many issues involved in the State
campaign. However, I think that I am safe in saying that it was the "
principal question between the two candidates for governor. The
governor elect came out squarely in favor of the exclusion of the lia­
bility companies, which was the original intention of the law. His
opponent dodged the issue, and he was supported by the liability
insurance companies. Now, the governor’s majority was only 6,600
and some votes out of about 1,150,000.
The C h a i r m a n . 6,600 or 66,000?
Mr. D u f f y . 6,600.
The C h a i r m a n . It will be necessary for us to close this morning’s
session at not later than 1 o’clock, on the dot. Just an announce­
ment, please: Mr. Meeker has arranged for the taking of a picture
of those who are attending this conference—a picture to be taken
at the post-office site just across from the hotel, as I understand,
immediately upon our adjournment, and it is imperative that each
of you go posthaste to that post-office site on the conclusion of
the session.
It is understood that the afternoon session begins promptly at
2 o’clock.
Meeting adjourned.
70085°— Bull. 212— 17-------5




My story is much too long to more than touch the high spots in
the time allotted. I shall therefore u hit the trail” of my subject at
once, omitting even the usual preliminary story.
In attempting an analysis of the merits and demerits of several
methods of doing a certain thing or of attaining a given purpose,
we should first consider the needs of the occasion for doing the
thing at all: Why do employers need workmen’s compensation
insurance? Of what benefit is workmen’s compensation insurance
to emplo}~ees? How is society generalty benefited by insurance?
We find our answer: First, in the theory of insurance, which is
founded upon securing the benefit of dividing the cost of each par­
ticular casualty among as large a number as possible of the members
of society so that it will not fall with crushing effect upon one or a
few; second, in the administrative and economic ends sought by
workmen’s compensation laws, designed as they are to place upon
each industry the burden of its accident losses, which should be ac­
complished with—
Absolute financial certainty; the least possible delay; the least
possible waste; avoidance of social friction; and at the lowest cost
commensurate with the desired ends.
Any analysis designed to distinguish the merit of a particular
scheme for carrying workmen’s compensation insurance requires by
common agreement a determination of just what different plans or
types of insurance carriers are available "for the purpose of furnish­
ing this service.
The various plans available may be classified as follows:
1. The private stock insurance company.
2. The private mutual insurance association.



3. An abbreviated form of mutual known as reciprocal.
4. Self-insurance—without the intervention of a third party
5. So-called State funds, operating “ public mutuals.”
An ideal type or carrier must obviously be one which comes
nearest attaining the ends sought, and we shall hope to aid in the
solution of this problem by analyzing the qualifications of the plans
mentioned above on the basis of security, service, cost, social and
economic soundness of conception as applied to American institu­
Approaching these plans and their qualifications in their inverse
order, the so-called State insurance^ or governmental operation and
conduct of a plan for mutual insurance, confronts us at the outset
with a question of primary principle, Is it or is it not within the
legitimate functions of the State to engage in any business, and
either to solicit or compel public patronage thereof?
Organized government is sustained by society for the purposes of
maintaining order and dispensing justice. Any activity which will
not stand the test of necessity for the attainment of either of these
purposes should be excluded from the category of governmental
It is perhaps unnecessary for me to say that all my references to
“ government55 relate to the form of democracy upon which the
fabric of our country’s institutions is based.
This is a representative democracy. Those who are chosen to make
and execute the laws are presumed at all times to be controlled by the
principle that the liberties of one man stop where the rights of an­
other begin. Certain of these rights are guaranteed, including the
right of life, liberty, and the pursuit of happiness as asserted in the
Declaration of Independence and substantially incorporated in the
bills of rights and constitutions of our several Commonwealths.
Recognizing that a large office-holding class would envelop if not
wholly destroy the representative character of our Government, the
fathers of the Constitution set aside this District of Columbia as the
headquarters for the National Government departments. Because of
its selection for this purpose they denied to its inhabitants the elective
franchise. Any large office-holding class who retained the franchise
would develop a self-interest and a proximity to control of the legisla­
tive and executive branches of the Government to a point which would
vitally menace the Government’s broadly representative character. I
believe this fact need but be stated to be accepted.
If we admit that the Government has a right to engage in any
form of business—either seeking or compelling public patronage—
then there would seem to be no logical limit to such activities. On this
account I challenge in principle the right of the State to engage in any


w orkmen


c o m p e n s a t io n .

branch of the insurance business, and am indebted to the report of
our own Federal Workmen’s Compensation Commission (S. Doc. 338,
Feb. 21, 1912, p. 58) for the following language:
I f the Federal Government were to undertake an insurance system * * *
it would be necessary to create a governmental agency to supervise such mutual
insurance and then to guarantee the solvency o f the fund. This would involve
ultim ately the creation o f an extensive bureaucratic establishment o f doubtful
efficiency requiring great expense under more or less political influence and
wholly foreign to our habits o f thought, training, and institutions.
I f theoretically desirable it is so opposed to all practical considerations that
this commission unhesitatingly rejects it.

The successful administration of workmen’s compensation insurance
and its attendant service involves the employment of a vast number
inspectors, underwriters, investigators, adjusters, physicians, sur­
geons, nurses, and clerical force, all of which was well known to the
scholarly commission from whose report I have just quoted.
It is neither a pleasant nor a patriotic duty to dwell upon the
lamentable inefficiency which attends nearly every enterprise involv­
ing governmental performance of work and service. We all admit
there are certain functions peculiar to the Government, which belong
to it, notwithstanding such inefficiency, but surely the field of these
activities should not be widely extended—in any event positively not
encouraged in the absence of extreme necessity.
I have never heard anyone claim that such extreme necessity ob­
tains in the service of furnishing workmen’s compensation insurance,
but it has been admitted by those in charge of State funds that the
average business man with experience, common sense, and business
intelligence naturally prefers private enterprise to State management.
I have heard the socialistic reformer loudly proclaim it to be an
outrage against society to permit the business of insurance to make a
profit out of the misfortunes of the poor.
I f it is an offense to society to allow a profit to be made from the
business of preventing accidents and misfortune and of administer­
ing and guaranteeing the payment of future pensions, why does not
our paternalism rightfully extend to the prohibition of profit on
medicines, clothing, feeding, and housing of these same people, and
why is it that insurance protection is the sole element of service ren­
dered to them from which all profit must be excluded?
The principle involved is of such vital and compelling importance
as will no longer admit of mere soft-pedal protestations. The entire
State insurance propaganda is un-American, wholly unfitted for
American institutions, and utterly fails to square with American
I have heard it said that this whole propaganda of State insurance
finds its origin not in any public need or desire that the State go



into business but in the desire to enlarge the public feeding trough
for the benefit of tax-spending politicians.
While sporadic efforts have been made in certain limited sections
of our country to operate State funds we can not recognize this as an
appropriate governmental function, and except for the fact that we
might be charged with evading the issue I should rest my comment
on the whole scheme of State insurance by dismissing it from serious
comparison with private enterprise.

Viewed from the standpoint of security we find State funds, wholly
or partly monopolistic, such as found in Washington and Ohio, must
be charged with the following demerits:
(a) No State guaranty of solvency.
(b) No capital.
(c) No surplus, except that set aside from premiums without
proper actuarial examination to verify.
(cl) No certainty of adequate reserves, a striking example of which
is found in the Washington fund, disclosed by a recent examination
to be over half a million dollars short in adequate reserves for accrue’d
losses up to January 1 last, which probably means nearer a million
dollars short if calculated to date. Does this early and certain evi­
dence of insecurity inspire confidence in the ultimate security of
compensation funds collected and disbursed by State officials?
(e) Considered merely as a large group of small mutuals, those
industrial classifications with a high loss are insolvent or face pro­
hibitive rates. The small industries of the average State produce a
volume insufficient to gain an insurable average.
( /) With the absolute certainty of political exploitation do these
so-called State fund schemes look attractive?
State funds of the optional type, such as those provided in Cali­
fornia, New York, and Pennsylvania, are better described as com­
petitive “ public mutuals ” operated by specially appointed State
officials, and are subject to substantially all the demerits and weak­
nesses previously mentioned as to security.
Self-insurers, or rather noninsurers—
(a) Fail to qualify at the outset, as in only a comparatively few
instances have they sufficiently dependable financial strength.
(b) By financial inability of 999 out of every 1,000 they must
be discarded as a safe and secure method of securing the payment
of long-deferred compensation losses.
Private mutuals and reciprocals—
Lack security because operated without invested capital or



The pledged security of associated members is invariably
narrowed by charter or statutory limitation of liability.
(<?) The operation of many mutuals is confined to one or only a
few classes of business. Likewise the operations of many are con­
fined within one State, resulting in lack of volume sufficient to obtain
an iifsurable average.
Ordinarily a fair volume of business can only be secured by
“ mutuals ” when the sovereign powder of the State, applied by and
through a political machine, is used—or rather misused—as a busi­
ness-getting adjunct. While governors of States have acted as State
insurance solicitors they were elected for other purposes.
Stock insurance companies—
(a) Have invested capital and surplus—and by the average good
company in amount fully in proportion to the business conducted.
(b) The contributed capital and accumulated surplus of stock in­
surance companies permit a positive fixing of premium cost.
(c) Such capital and surplus serve as a guaranty or offset against
the inability always to take advantage of or depend upon the law7 of
(d) Such capital and surplus are a guaranty or offset against illjudged underwriting and care for the catastrophe hazard.
(e) The supervision and requirement of adequate reserves assures
continued solvency, so essential to real protection, especially in work­
men’s compensation with long-deferred pa^yments.
( /) A sfock insurance company is a guarantor of insurance, while
members of a mutual are merely guarantors of each other. A State
fund, or 44public mutual,” offers no guaranty beyond that of private
mutuals (except where contributors are promised relief from further
liability, and that neither properly nor legitimately).
(</) Stock companies have a nationwide distribution of loss in
each industry and have created the machinery to make possible that
(h) Stock companies have a legal guaranty behind their reserves,
by examination and by publicity.
(i) Stock companies are the most likely of all carriers to have
the ablest management obtainable, through—
1. The self-interest of stockholders.
2. Supervision by stockholders and directors.
3. State requirements and supervision.
4. Actuarial, not political, examination.
5. Permanency of tenure and by not being subject to political
6. Being allowed to declare dividends only when earned, and not
being compelled to declare dividends for campaign purposes.




Coming now to the question of service, which is second only in
importance to financial stability, the important elements of service
should be segregated into underwriting, inspections, pay-roll audits,
investigation and adjustment of claims.
While we are attempting in a measure to deal with them sepa­
rately, the nature and value of service and the question of comparative
cost parallel each other so closely that a proper analysis of one neces­
sarily calls for careful consideration of the other.
No carrier can honestly give something for nothing.
No carrier can afford to render any form of service at less than cost.
No carrier can be criticized for charging what its services are fairly
Carriers that promise equal service at less than cost should be re­
quired to make good or shut up shop.
There are items of necessary and specific service that must be in
some measure rendered by all carriers. These are now recognized to
be investigation and settlement of claims, pay-roll audits, inspec­
tions—and by this I do not mean inspections for rating alone, but
primarily for the improvement of risks and the prevention of
Companies long established in the liability and workmen's compen­
sation business have spent enormous sums in endeavoring to lessen
the number of industrial accidents through inducing employers to
adopt safety devices and urge safe practices.
The truth of the old adage, “ an ounce of prevention is worth a
pound of cure,” is recognized as never before, and privately managed
companies through already existing organizations of expert and
trained inspectors and safety engineers offer an advantage over other
insurance carriers in accident-prevention service.
New and untried companies, mutuals, so-called State funds and
reciprocals, captained by inexperience, have neither the knowledge
or organization necessary to do such work efficiently.
Prompt and efficient claim service is rightfully demanded by both
employer and employee. Injured employees need, and have a right
to expect, prompt payment of compensation when due, and quick serv­
ice in paying benefits can not be rendered unless claims are promptly
and thoroughly investigated.
To secure equal and fair distribution of claim benefits, trained
men employed by experienced companies handle claims to the best
advantage of all parties concerned.
Claim service can be neglected only at the expense of claim cost
and at the price of encouragement of fraud and deceit on the part
of claimants.


w o r k m e n 's


There is always with us the professional claimant, the simulator
of injury. Every necessary safeguard should be interposed against
the payment of fraudulent claims. The success of one fraud, like a
contagious disease, breeds a hundred others. The necessity for effi­
cient investigation of claims can not be overestimated.
There is only one institution that is capable of applying the highest
degree of efficiency to the solution of the problems involving abuses
of this plan, and that is the one that is acquiring and digesting a
national experience based upon a sufficient volume of business to
enable it intelligently to determine cause and result, and such an
institution is not to be found in either State funds or the smaller
mutual institutions.
Stock company insurance is under a competitive and commercial
necessity (not felt by any other form of carrier) to effect prompt and
liberal adjustment of all bona fide claims, and likewise to guard
against unjust and fraudulent claims and at the same time not waste
any money for needless claim expense.
Now I hold that to be of equal value the cost of inspection and
claim service must be approximately the same to all, and in any case
where the cost is materially less the service must be correspondingly
I f there is an exception, it will be in favor of the carrier with a
long-established organization perfected by training and experience
and equipped to serve its clients promptly and efficiently anywhere
and at any and all times.
Such an organization can often give better service at less cost than
carriers (whether stock or mutual) operating with a restricted or
limited organization.
This is merely the inherent advantage which rightfully belongs
to a matured business or organization with long experience acquired
through years of honest endeavor in serving the needs of the business
There are elements of service rendered by some carriers and not
attempted by others. This service is only offered through the
“ agency system55 employed by private stock companies and it de­
pends upon an efficient field organization.
Mutual plans, whether operated by private interests or public offi­
cials, decry the agency system of stock companies and favor insur­
ance of the mail-order type, although in practice they all find it
necessary to use salaried employees to line up and close their pros­
pects, the cost of which, however, is not generally permitted to be
segregated as acquisition expenses.
Now, I maintain that the stock company agency system is worth
all it costs to the insuring public and is absolutely indispensable to
the solvency of the business through its value in selection, distribu­



tion, and supervision, and in serving as the main lines of transmis­
sion through which alone the superior administrative service de­
manded by an intelligent and discriminating public can be furnished.
No substitute for the agency system has been successful in securing
a sufficiently wide distribution of risks to insure continued solvency
and to secure to the companies the essential benefits of the law of
The underwriting and supervisory service of an agency organiza­
tion is largely minimized in, or entirely absent from, all forms of
mutual insurance, and particularly so in the case of so-called State
funds or public mutuals.
This service consists of the proper classification and correct rating
of the risk; of bringing an assured to the point of understanding
the whole question of insurance; his relation to it; the relation of
the employee, and the relation of the carrier to it. This educational
service can be performed only by personal contact through qualified
agents who, by education, by training, and by experience, are quali­
fied to interpret contracts correctly and to explain the intricacies of
Comparatively few employers have a comprehensive knowledge
or understanding of their obligations under compensation and lia­
bility laws.
The great majority of employers will not seek information or
advice concerning their direct or contingent liability arising out of
accidental injuries to employees.
Knowledge and understanding of his obligations and wise pre­
paredness against casualties must be thrust upon the average em­
ployer, and this can not be accomplished effectively, if at all, by
edict, manifesto, proclamation, or public pronouncement.
Through natural* inclination and training, the average employer
awaits the personal solicitation of the agent whose business it is
(notwithstanding the barriers of* all human obstacles, ignorance,
prejudice, scepticism, obstinacy, and all the other infirmities of the
human mind) to save the otherwise busy business man from the con­
sequences of blind and heedless indifference to natural or man-made
Frequently the stock company agent is the personal friend of
the employer and administrator of the employer’s entire insurance
affairs, both of personal and of business nature.
A multiplicity of insurance and other interests brings the agent
into frequent contact with the policyholder and his plant. Most
employers carry many different lines of insurance, and not infre­
quently the employer places all of his insurance through one agent,
who aids and assists him in the multitude of details and arrange­


w o r k m e n 's

c o m p e n s a t io n .

ments necessary to maintain at all times and under varying condi­
tions exactly the protection and service needed at minimum cost.
Each compensation problem of the employer demands the per­
sonal and intelligent attention of a specialist, for there is no stand­
ard practice or fixed rule of action for the automatic solution of
everyday questions. Most business men are too much engrossed in
their ordinary business duties to look into the detailed merits of each
proposition involving insurance, and must in wise economy and
experience rely upon the agent in whom they place their confidence.
Eliminate that agent for all purposes and the employer would
have to deal with a multitude of home offices, State commissioners
and bureaus with defaults and other unanticipated liabilities accu­
mulating with every mischance.
Merit or schedule rating has offered the agent additional oppor­
tunity for rendering the very highest quality of service to the em­
ployers, employees, and the public in conserving human resources
and to capital engaged in industry in equalizing the burden of cost in
favor of the careful employer.
Skilled agents
in competition
with each other for business will
exert a powerful influence for accident prevention, and their con­
tinued activity will be of the greatest social value.
With the business of insuring workmen’s compensation being con­
ducted upon a thoroughly efficient and high moral plane, private
stock-comp any service strongly attracts the intelligent, well-informed,
capable, honest, and public-spirited agents, who are wrell wTorthy of
their hire and whose service has a value not to be measured by the
yardstick of competitive price.

While the problem of cost is important, it i& only relatively so,
compared with the greater importance of security and service.
The claim that is advanced by mutual insurance carriers, both pri­
vate and public, as the one upon which they are entitled to recogni­
tion, is cheapness; and while current premium charges will be
pointed to as evidence of their cheapness, we challenge any claim that
may be made that their value equals the value of the security and
service furnished by private stock companies, and we contend against
the false economy which seeks to attain mere cheapness at the ex­
pense of ultimate security and the most thoroughly complete and
efficient service.
Furthermore, workmen’s compensation service in America is yet
too young to determine the real and relative costs of the different
plans or types of carriers and we can not admit, and are certain that
the advocates of mutual insurance, either private or public (State



funds) can not prove, that stock insurance companies are unable to
write workmen’s compensation insurance at fair and equitable rates.
Believing as we do in the superiority of our financial guaranty and
in the superiority of our service, we know we are giving value re­
ceived for every dollar of premium written, and until a sufficient
period of time has elapsed to acquire matured experience as to rela­
tive rates and cost of administration we can not admit that mutual
insurance, either private or public, can even duplicate in America
(over a reasonable term of years) stock insurance rates.
Furthermore, the distribution and administration cost of stock
insurance is as low, and in fact lower in most instances, than the
cost of distribution of any service rendered or any article sold or
any commodity used commonly in America; and if this be true, why
is it necessary and why is it fair that stock insurance should be
singled out as the sole phase of our social activity from which profit,
acquisition, and distribution cost must be eliminated?
The element of distribution cost, which is so commonly criticized
and the elimination of which is so constantly demanded, is what is
commonly known as acquisition cost, limited generally to 10 per
cent to agents and brokers and 7|> per cent overhead expense for
general agents and branch offices, making a total of 17| per cent.
If the trouble is taken to investigate and compare this selling cost
with the selling cost of articles in daily use in this country, it will
be found exceedingly low, sufficiently low to eliminate all necessity
or excuse for the campaign that is being waged against that particu­
lar element of cost in the administration of the insurance business.
Home-office expense estimated at approximately 7 per cent brings
the total acquisition and general administration cost to 244 per
cent, with the comparison still correspondingly favorable.
Taxes and license fees cost 2-J- per cent. This load is absurdly
excessive and out of all proportion to the cost of supervision and
regulation by insurance departments. Nevertheless it is imposed
and must be paid by all stock insurance companies. Private mutuals,
including reciprocals, receive preferential treatment in some States
upon the wholly illogical theory that they are not operated for
On the same theory State funds—i. e., public mutuals—pay no
license fees or taxes, although in their case this tax exemption could
be more logically defended on the ground that such public mutuals
properly belong to a well-known class of tax-exempt institutions,
among which we find jails, reformatories, and insane asylums.
The cost of pay-roll audits estimated at 2 per cent, the cost of
inspection estimated at 4 per cent, and the cost of claims investigat­
ing and adjusting estimated at 7 per cent, making a total of 13 per


w o r k m e n 's

c o m p e n s a t io n .

cent, can not be said to be excessive, and in any event these elements
of expense must be incurred for the benefit of policyholders, whether
they be in State, private mutual, or in stock companies.
We maintain that these items of expense can not be further
reduced except at the expense of the safety and permanency of the
carrier attempting such reduction.
In so far as these figures are estimates they are, should, and will
be subject to correction, and if it should develop that any one of these
elements of administration expense in connection with audits, inspec­
tions, or claims is higher than need be they will be reduced. If, on
the other hand, experience shows us that proper results can not be
obtained within the percentages estimated, then these items must be
increased, and no matter which form of carrier is considered, these
elements of service must be faithfully and efficiently provided, and
undue effort by any institution to curtail such expenditures must
imperil the successful administration of that particular institution.
We find altogether too often actual acquisition cost on the part of
mutuals successfully concealed and usually denied. In their plea for
membership they invariably claim that the entire acquisition cost is
eliminated and they fail to take into account the efforts being made by
the salaried employees of such institutions to acquire membership. It
matters little in the ultimate result of a business whether the acquisi­
tion cost is borne in its entirety by commissions or by salaries. I f the
effort is made, an element of cost is created and must be paid out of
premiums received.
Stock insurance companies have no complaint to offer against
private mutuals provided they are required to set aside the same
adequate reserves and submit to the same tests of solvency as are
applied to stock companies. However, there is just cause to com­
plain of, and the public has reason to demand greater evidence of se­
curity from, such carriers as reciprocals and public mutuals or State
funds which are allowed to operate without the guaranty of invested
capital and without proper supervision or regulation either as to the
adequacy of rates or reserves.
Reciprocal security.—With a regularly organized company, stock
or mutual, a license does not issue if the company is found insolvent,
and the insurance commissioner may, if he believes a company’s
solvency is impaired, dissolve it and revoke its certificate. No such
tests apply to interinsurance associations, under the so-called stand­
ard law in force in some 15 States, enacted presumably for the purpose
of safeguarding the operation of interinsurers, so as to afford con­
sistent protection to policyholders. Really and primarily, it is clearly
evident that the single intent of the law is to compel the insurance
department to issue to attorneys in fact certificates of authority which
would imply to the insuring public that the particular scheme of the



particular interinsurance exchange has the indorsement and recom­
mendation of the insurance department.
There is no standard of solvency provided in these acts. It is
assumed that subscribers are all subject to contingent liabilities such
as would warrant the indorsement or recommendation of both the
nature and extent of the security to policyholders; whereas in fact
the contingent liabilities of subscribers are subject to limitation and
may be entirely eliminated by agreement between the underwriters.
The law makes no requirement of compliance with safe rules and
regulations by interinsurers whose methods may fail to afford
adequate protection to policyholders.
The requirement that each subscriber shall have a commercial
rating of not less than ten times the maximum sum he assumes on a
single risk is a deception calculated to mislead the unwary into assum­
ing that it has the effect of a stipulation; that each subscriber shall
assume contingent liability equal to ten times the maximum he
assumes on a single risk. It does not, as a matter of fact, make any
requirement of a contingent liability to any extent whatever. There
is no requirement anywhere in the law that a subscriber shall assume
any contingent liability, nor is there anything to prevent assuming
on each and every single risk a liability greater than his entire losspaying ability ($25,000) required by the law. Any implied option
of refusal to grant a license to interinsurers whose contingent liabili­
ties may be inconsistently limited or whose methods may not be
found satisfactory is taken away in the language wherein it is pro­
vided that upon compliance with certain requirements the insurance
commissioner “ shall issue such certificate of authority.”
The requirements provided afford only desirable but limited infor­
mation to the insurance department, with no effort made to assure
sound security to policyholders and without obligation to file any
underwriters’ agreement if a separate document. The latter, and
not the policy, nor necessarily the powers of attorney, may fix the
extent of the underwriters’ contingent liabilities, which may be
inconsistently limited.
The requirements do not include a statement of outstanding lia­
Under such a system an exchange may be accumulating liabilities
far in excess of its loss-paying abilities and yet be able to make a
nominal-time report which will entitle it to a continuance of its
If perchance, upon investigation, the insurance commissioner may
find the exchange insolvent and a swindle, he can not take charge
of its affairs and wind them up. He may not even revoke its certifi­
cate; on the contrary, there is nothing to prevent the attorney in
fact continuing to trade on the certificate. Further, as the law


w o r k m e n ' s c o m p e n s a t io n .

exempts the attorney in fact from any obligation to furnish the
names and addresses of subscribers, the commissioners may not
even warn policyholders of their peril.

While we believe, as previously stated, that the interference of
the State with legitimate private enterprise through the establish­
ment of public mutuals operated by State officials is wholly unwar­
ranted, attempts are being made to operate such public mutuals, and
therefore our analysis of the qualifications of various carriers of
workmen's compensation insurance would not be complete without
more specific consideration of some of the economic and political
frailties, foibles, and fantasies of so-called State-fund plans.
Washington,—Let us take up first the most notorious example of
the monopolistic State insurance fund, as represented by the plan in
force in the State of Washington. There we find the term of State
insurance misleading, to say the least. Instead of a State-wide insur­
ance organization guaranteed by the State, in which the funds in en­
tirety are to pay the loss of any individual plant in the State, this loss
being transferred to all the plants in all the industries of the State, we
find the Washington plant constituting nothing more nor less than a
large group—47, I believe—of small mutual associations under State
control, and with obligation upon each mutual group of accepting
every plant in that particular class of industry within the State of
Washington, whether the plant is above normal or subnormal with
reference to safety conditions.
We find the assureds in each one of those groups utterly and com­
pletely helpless with reference to the proper management and selec­
tion of risks for the mutual fund into which he is arbitrarily thrown.
The inevitable result of this could be nothing other than insol­
vency for the group applying to an industry in which is to be found
a very limited number of plants in this or any other State. Either
insolvency stares such a fund in the face or arbitrary advancements
in rates must follow, which, if carried to the logical conclusion,
means prohibitive rates, so far as interstate competition with other
plants in that industry is concerned.
It goes without saying that any small industry in any one State
produces a volume of premiums entirely insufficient to afford an in­
surable average. That this statement is not a theory, but is actually
founded on fact gained from experience as applied to the Washing­
ton State plan, is known to everyone familiar with the history of the
four years’ experience with State-managed insurance in that State.
Keally, when this theory is applied to industries having an ab­
surdly small number of plants in any given State, as is true in some



of the mutual groups in the State of Washington, it constitutes in
effect a modified form of State-enforced gambling with self-insur­
ance, without the safeguard of proper financial qualifications which
is universally acknowledged to be necessary if the theory of selfinsurance is to be dealt with for a moment. Moreover, if consistently
followed, it may, and no doubt will, force these industries to leave the
State and move their plants to States in which a more adequate vol­
ume of their type of business is to be found, or where such suicidal
requirements are lacking.
This Washington plan (small mutual groups) has no State guar­
anty behind it, and if insolvency or inability to pay arises in any
fund the beneficiaries of that particular fund are the only ones to
suffer. In so far as this is true, the reason of economy for the crea­
tion of compensation laws is violated.
Not only has it no guaranty backed by the Commonwealth of
Washington, but it has no actual cash capital upon which to draw,
has no cash surplus, or at this time a mythical surplus at best.
The most damning point, however, of the whole scheme is the
lack of certain and adequate loss reserves, and one must bear in mind ,
the fact that compensation losses inevitably carry with them the ob­
ligation to meet both present and long-deferred payments. It is at
once apparent that lack of certainty as to the reserves with which to
meet those payments is sufficient to condemn any insurance plan, in
its entirety, violating one of the cardinal principles of insurance.
Moreover, this particular plan presents the absolutely certain
possibility of political exploitation, and it affords the most attractive
political bait to the self-seeking professional politician. The history
o f mismanagement in this fund best tells its own story and best de­
termines the attractiveness of the particular plan in question.
Thorough investigation of the experience of this Washington
institution is the best evidence of the wisdom of the critics of that
fund in the presentation of their arguments against its adoption, and
I only regret that space will not permit a complete discussion of the
dismal failure of this leading State monopolistic plan.
Ohio,—Probably the most discussed plan of State-managed insur­
ance operating in this country is that of Ohio—most discussed both
because of its novelty and because of the especially active proselyting
done by its advocates. It is interesting to note, however, that despite
all this discussion and proselyting the Ohio plan has as yet had no
imitators, the several States which have considered its possible adop­
tion for their own use having finally decided against it.
As the administration o f the Ohio State fund is subject to no
supervision and, undoubtedly for good and sufficient political rea­
sons, no searching inquiry into its operations has ever been made,


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c o m p e n s a t io n .

definite information regarding it is largely lacking. At the same
time, enough is known to indicate clearly that it is not pointing the
way to the millennium in workmen’s compensation insurance.
Its published financial statements are of themselves sufficient
proof. While, in the absence of actuarial examination, there is no
way of determining the accuracy of these statements, it is safe to
assume that even if they are estimates they are as favorable to the
fund as they can be made.
The statement of May, 1916, shows a net surplus (excluding ca­
tastrophe and other reserves) of $41,314, as against a net surplus in
November, 1914, of $433,126.
Among the assets we find $520,329 described as premiums in
course of collection; and while it is entirely in order to include pre­
miums in course of collection (not over three months due) among the
good assets, we must not overlook the fact that such nonledger assets
are far less dependable than real invested assets.
When a carrier’s net surplus, as in the case of the Ohio fund,
namely $41,314, amounts to less than one-twelfth of the assets claimed
as premiums in course of collection it is very evident that the margin
between solvency and insolvency is so narrow as to be scarcely dis­
Again, this small net surplus of $41,314 is obtained only by as­
signing to the contractors’ schedule alone a surplus of $244,619. As
contractors’ business is written under a different premium system
from other schedules, a maximum advance premium being collected
which is subject to possible refund or credit, it would be interesting
to know whether all possible refunds or credits have been deducted
in order to arrive at the figure claimed to represent the surplus as­
signed to the contractors’ schedule.
It would certainly seem from the above that the fund’s state­
ment of May last is not deserving of the same confidence as a state­
ment made in accordance with the rules prevailing among insurance
departments, and that, taking it at its face value, it does not show the
fund to be in that unquestionably sound financial condition which is
vitally essential for carriers undertaking to insure the obligations in­
curred under a workmen’s compensation law.
Consideration of the condition of the 27 schedules of the State fund
is also illuminating, as showing the lack of uniform fairness to the
different industries of the State. Fourteen of these schedules are
admittedly insolvent, the total of the deficits amounting to more than
$377,000 on the face of the statement. Undoubtedly within each of
these schedules in which a deficit appears there are classifications
showing a surplus, so the total of all deficits must be considerably
above the figure named. In the schedules showing a surplus, too,



there are undoubtedly classifications developing a deficit. The only
way in which a true statement of the condition of the fund can be
obtained would be to strike a balance in each classification. Only in
this manner could a true and fair basis for the payment of dividends
and the adjustment of rates be determined.
There can be no doubt that the administration of a State fund #
offers not only opportunity but incentive for unfair discrimination in
the matter of rates. Its managers are, whether justly or unjustly,
especially apt to be considered open to the influence of politics or of
strong business organizations. They are naturally eager for the con­
tinuance of the enterprise of which they are in charge, and the line
of least resistance is likely to have a special appeal to them.
Laboring as they do under this initial disadvantage, the only way
in which they can positively relieve themselves from all possible
doubt as to their honesty of both purpose and action is to seek the
white light of full publicity for all the features of their work—the
financial condition of the fund and its component parts, the complete
experience of each schedule and class, the basis for all adjustments
of rates, the workings of the claim department, in fact, everything
connected with the operation of the fund.
Returning to the matter of rates, it would certainly seem that
equity among employers has not been promoted by the operations of
the fund. Two instances are especially in point: One is the revision
of rates on January 1, last, after the surplus had reached its lowest
figure up to date. No explanation of this seems so rational as that,
despite the using up of the greater portion of the surplus, such revi­
sion was still necessary, in order to offset underestimating of deferred
losses and failure to collect premiums sufficient to take care of all
payments under claims.
The second instance is found in the fact that the schedules in which
employers with strong and influential organizations are listed almost
uniformly show a deficit, whereas those schedules including employ­
ers without organization show7 surpluses.
These are not the only instances, however, of apparent unfairness
to the employers subscribing to the fund. Another one is the strin­
gent conditions imposed upon an -employer desiring to withdraw from
the fund, imposed despite the fact that when an employer insures
with the fund he is charged what purports to be his insurance pre­
mium, which under stock insurance would, of course, end his obliga­
tion to his insurer. The system of penalties imposed upon employers
for certain losses is still another instance. To use a common but
forceful expression, the Ohio employer subscribing to the State fund
may think he is insured, but he is very likely to find that he has an­
other think coming. One employer found such thinking to be some70085°— Bull. 212— 17-------6



what costly, as he was under the necessity of paying $20,000 above
his premium rate in order to leave the fund. There is no doubt that
penalties and withdrawal conditions have a salutary influence in
keeping employers in the fund, but the question of their fairness and
of the propriety of their incorporation in a system which purports to
furnish insurance is another matter.
Incidentally it is perhaps not inappropriate to call attention to
the fact that the unfairness of the Ohio plan is not confined to
employers subscribing to the State fund. Each employer carrying
his own insurance is penalized for not coming into the fund by
the requirement that he pay to the fund 5 per cent of the premium
he would pay the fund were he a subscriber. The amount derived
by the fund from this source had in May, 1916, reached the very
respectable total of $192,624.
It is also pertinent to this consideration to view the Ohio State
fund from the standpoint of service rendered. So far as accidentprevention service is concerned, I think it may safely be said, without
fear of successful contradiction, that the service given by the fund
does not compare with that rendered by stock companies,, by wellmanaged private mutuals, or by the larger self-insuring employers.
Only a few months ago a member of the industrial commission,
at a labor meeting in Mansfield, Ohio, openly charged the governor,
of opposite political faith, with having destroyed the efficiency of
the safety-inspection department by distributing its positions in
reward for partisan service. Among others, he asserted that for
factory inspector in one of Ohio’s greatest industrial centers the
choice fell to a clarinet player, who, however, belonged to the musi­
cian’s union. On one occasion a public conference was called, under
the auspices of the industrial commission, for the advancement of
safety provisions. Several expert trained inspectors employed by
the insurance companies sought to participate in this good work, but
were bluntly told their presence was not desired, showing that even
the subject of accident prevention had taken on a political aspect
under this kind of government operation.
The commission is fond of citing the support and indorsement
of a group of prominent manufacturers. There is reason to believe
that the repeated indorsement of certain individuals is more than a
coincidence, and perhaps a salacious find will reward an inquiry as
to preferential rates enjoyed by some of these stalwart supporters
of “ insurance at less than cost.” No less eagerly do they proclaim
the support and indorsement of the State federation of labor, an
organization composed of many but consisting of few, and- even
this handful interested chiefly in claiming tribute in exchange for
political support. This does not come from any real benefit derived
by the mass of workpeople but rather because the jobs look good



to the hungry, including the ex-clarinet player. It is pertinent to
inquire why should the rank and file of workingmen prefer State
administration of workmen’s compensation as against private and.
experienced management. The State fund machine has “ sand in
the gear box,” and grinds so slowly and with such long delays in
giving aid to the injured sufferers that a comparison with those
insuring outside the fund is most disappointing to the advocates of
State administration.
In that service found in the prompt payment of claims, the fund
seems also to be lacking. The court records of Ohio show more than
200 complaints and appeals taken by injured workmen against the
awards of the State fund. In one such case recently reojjened by the
court Judge Grant criticized the action of the commission as a trav­
esty on justice. So far as I am informed, there is no single complaint
of like character against any private insurance carrier.
Perhaps the best commentary upon the character of the claim
service furnished by the fund is found in the November 24 issue of
the Cincinnati Enquirer, a newspaper which can hardly be accused of
being inimical to the Ohio plan. It says: “ I f the State is to have a
practical monopoly of the industrial accident insurance business there
will be insistence on the part of employers for enlargement of the
State industrial commission so that payments of compensation may
be made still more promptly. There has been a policy of niggardli­
ness with this most important bureau which can not be tolerated
longer, many employers believe. They wish to see the service im­
proved to such an extent that State awards can be made as promptly
as those made by employers who carry their own insurance.”
Summing up this brief consideration of the operations of the Ohio
State fund, they would seem to indicate the fundamental weakness
of government operation under our political system, evidenced, so
far as can be determined in the light of the facts available, by in­
equity to employers, by inadequacy of premium rates, by incomplete
coverage of the employer’s risk under the premium paid, and by ineffi­
ciency of the service rendered in connection with the insurance.
West Virginia.—West Virginia started with a compensation law
that bound the employer hand and foot to monopolistic State-managed
insurance, accomplished a high-speed record in bankruptcy, and then
as speedily discarded the monopolistic for the competitive plan, em­
ployers now being permitted free choice of insurance carrier.
New York.—In New York the State fund or public mutual created
by the compensation law, while optional in type, was endowed with
many special privileges denied other carriers in order to induce
patronage unfairly.



These special privileges consisted of—
(a) A subsidy of several hundreds of thousands of dollars from the
State treasury to cover administration expenses for the first two and
one-half years (since restricted by amendment to two years).
(b) Freedom from the rigid supervision imposed upon private
(c) Solicitors and agents not required to be licensed.
(d) Freedom from the heavy burden of taxes imposed upon pri­
vate companies.
{e) Authorization to offer employers immunity from future liabil­
ity to pay compensation regardless of the State fund’s ability to pay
or the inherent rights of claimants entitled to compensation.
While a 1916 amendment to the New York compensation law has
left this immunity special privilege very much in doubt, I under­
stand the managers of the State fund are still advertising same as a
competitive advantage over other carriers.
In commenting upon these special privileges, which in effect legal­
ized the gross and unwarranted violation of the antidiscrimination
laws of the State of New York, the managers of the State fund
frankly admit that otherwise their insurance institution would have
been an impotent competitor of other carriers and a negligible factor
in the insurance situation.
In defense of these special privileges they claim that otherwise the
stock companies would have had undue advantage of the State fund
(a) The stock companies had accumulated large surplus and re­
serve funds.
(&) They were in possession of the field, and had the assistance
of an army of insurance brokers and agents throughout the State.
(<?) They could write other forms of insurance needed by em­
ployers in addition to compensation insurance—public liability, em­
ployers’ liability, boiler insurance, elevator insurance, fire insurance.
Last and most important of all they had the advantage
afforded by the natural preference of most business men for private
enterprise as opposed to State management.
The managers of the State fund further asserted that in all these
respects the State fund was heavily handicapped at the start and
claimed that in order to enable it to make a fair start in the face of
these obstacles it was proper and indeed necessary to give the State
fund some positive assistance to offset these handicaps, and that the
provisions of the law which granted these most unfair and unjust ad­
vantages to the State fund were necessary in order to make compe­
tition between it and the stock companies really fair and equal.
To the fair-minded, the weakness and falsity of the above defense
will be self-evident, and is so obviously unworthy of serious con­



sideration that I merely ask what measure of justice and equity can
fairly be expected by either employers or employees in the adminis­
tration of an institution captained by State officials who have so little
respect for the intelligence and fairness of society in general as to
offer such weak and groundless excuses for the obnoxious provisions
of a law—in effect legalizing bribery—under the pretense of equal­
izing opportunity.
While the New York fund has disclaimed any attempt or desire
to operate as a monopoly or to deprive private companies from com­
peting, it was recently pointed out by a very able labor journal that—
There can be a m ore cow ardly m onopoly than a real definite and straightfrom-the-shoulder m on opoly; there can be a m onopoly that insidiously attaches
conditions to the “ com petition permission ” that makes it worse than a direct
prohibition. These conditions may be, some o f them really are, dastardly. The
public is not aw are o f these conditions as clearly as they would be o f an outand-out prohibition, and this is the reason that the handicap placed on the
so-called right to “ compete ” is a dastardly one.
The handicaps imposed on private companies are aimed at retiring them
from the bu siness; this means that those interested in the existence o f the
State fund are o f the opinion that under free and fair competition the State
fund would be a loser; and surely the only deduction w e can make from this
truth is that the State fund is not the equal o f the private companies under fair
and equal conditions. Let us definitely declare that this conclusion leads unerr­
ingly to the fa ct that w ageworkers under a State m onopoly o f a compensation
fund are not securing the best they can get. It is because o f this truth that we
urge that every effort be made to prevent the enactment o f any law that w ill
lead tow ard such a monopoly as we have just discussed.

While the State fund in New York was enjoying the subsidy
granted from the treasury of the State to cover administration ex­
penses, it was paying back substantial dividends to policyholders, not
because such dividends had been earned but merely because the oppor­
tunity existed, and it was considered good business to deceive and
mislead the public in order to retain and encourage patronage.
Since the State fund can no longer draw upon the treasury for
expenses, dividends have been discontinued. However, it has already
been suggested to the governor of the State of New York that if the
State fund was able to pass out such large sums as alleged dividends
to its subscribers during the first two years of its existence, then why
should not the money which the taxpayers were unwillingly obliged
to put up for expenses during the same period be returned to the
State treasury?
Pennsylvania.—The State fund scheme authorized by the Pennsyl­
vania compensation law is subject to practically all of the fundamen­
tal demerits applying to the New York act, but has been in operation
too short a time to justify extended comment upon methods of


w o r k m e n ' s c o m p e n s a t io n .

California.—There is another State insurance plan, State-wide in
its activities, much discussed at the present time, though still suffi­
ciently in its infancy to preclude the possibility of safe deduction
from experience, namely, the plan in operation in the State of Cali­
fornia. Theoretically, this particular State fund is being operated as
one State-wide company upon much the same basis as the ordinary
stock insurance company. The same relative individual industrial
defects, so far as volume of business is concerned, is, however, to be
found in this fund in exactly the same fashion as it is found in the
fund of the State of Washington. Therefore, it is at once apparent
that the State fund of California can not transfer ordinary loss, if
excessive through unfortunate accidents, from one plant to the
plants in that given industry alone, unless that industry is to face
the same competitive result through disastrous rate advances in com­
petition with the same class of plant in other States. As must neces­
sarily follow in the State of Washington, it must inevitably follow
here that the unfortunate experience which may be found in the
operations so frequently encountered in California, for instance, ex­
plosive exposures, may not be borne by those industries themselves,
but may be transferred to the fund as a whole. Eventually, this
will mean that the low-rated manufacturing industries in that State
will have their rates advanced by virtue of an abnormal proportion
of higher rated industries, which will mean inability for those nor­
mally low-rated industries to compete in nation-wide markets. That
this is the most overpowering fear ever present in the minds of the
sponsors for and managers of this particular fund is proven conclu­
sively by the fact that they have placed upon their prohibited list
types and classes of industries which have been freely written by
many stock companies in the State of California since the effective
date of the workmen’s compensation law in that State.
The question may very properly be asked why such a condition is
permitted to exist and what is the necessity for it, and the two ob­
vious answers are: First^of all, the managers of the fund must of
necessity freely admit an inherent weakness in their plan by virtue
of the fact that they are limited to one State, and it is therefore
physically impossible for them to transfer losses arising out of rail­
road construction work, for example, to all the railroad construction
work written or which could be written and which is written by
private stock companies in every State in America. Therefore, they
must either saddle the entire fund in the State of California with
the railroad construction work losses, including rock and tunnel
work, or they must entirely prohibit this business and not expose
themselves to a probable fatal calamity loss.
The ability of the private stock companies to further transfer this
loss beyond the confines of any one State, and the ability of private



stock companies to fall back on their capital and their surplus,
warrants such institutions in insuring a class of business that is to
the State fund absolutely and completely uninsurable. This com­
parison is not one of theory but is based upon absolutely authentic
Take sewer operations, for example. The State fund of Cali­
fornia refused in one instance to issue a policy to a contractor at less
than double the manual rate, and even then upon a limited rather
than an unlimited form of policy. Many instances such as this can
be found which we believe prove, conclusively, our claims that this
fear is present in the minds of the managers; and that it arises out
of the fact that even the smallest stock insurance companies doing
a nation-wide business nearly always have larger volumes of busi­
ness in any industry than is to be found in any average single State
in this country.
It is my judgment that the matured experience in California
may, and no doubt willy mean classified rate readjustments almost as
serious as in the Washington plan, although I grant freely the fact
that it will be very much longer delayed. I do claim, however, that
premature claims of success based upon localized experience, gained
in a period of twro to four years, constitutes the merest pettifogging
of those claims. In evidence of this we can cite the fact that the
California State authorities in other departments believe that 75 per
cent of earned premiums constitute a proper reserve which should be
maintained for a period of five years.
It is rather inconsistent to hear one department of the State say
that it know'S what its experience has been in a two-year period;
while another department, namely, the insurance department of the
State, claims that no one knowrs w^hat its experience will be, nor can
anyone intelligently judge what its experience will be, until the ex­
piration of five years from date of issue. However, American politics
are productive ofttimes of strange and conflicting claims.
Returning again to the principle upon which this particular fund
is founded, we find that it has no State guaranty behind it ; that it is
writing business upon an annual premium basis; and that it has an
agreement with its policyholders by contract not to resort to the de­
ferred assessment plan with which to make up deficits in this fund;
that it has a capital of $100,000 loaned to it by the State with the
statutory obligation to repay this $100,000 as soon as possible. And
what pray does this mean? Nothing more nor less than the fact that
this fund has obligated itself not to go to its policyholders in the
event of financial difficulty. It can not go to the State of California
legally for relief, but will be compelled to go there pleading for relief
from mismanagement in the event of future financial difficulty.



It has only such a surplus as it may be able to earn out of the
current income, and from which it may set aside a sum with which to
build up a catastrophe fund. That this fund is being created is
frequently claimed. The claim is just as frequently made that they
are complying with the loss reserve laws of the State of California in
exactly the same fashion as are the stock companies operating in that
State. I f this claim can be accepted at its face value, why, may I
ask, has no real examination been made of this fund by an actuary
qualified to express an opinion upon its actual condition ?
Advocates of this plan before the committee of the legislature
which adopted it made the claim that they would be subject to regu­
lation and examination by the insurance commissioner’s office, and I
am informed that immediately upon taking office administrators of
this new act and administrators of this fund immediately declared
themselves out of the jurisdiction of the insurance commissioner.
Now that the question is being raised, they declare themselves under
the jurisdiction of the commissioner, and cite as evidence of this fact
that they have filed a statement with his office in exactly the same
fashion as other insurance companies, and yet no statement of this
fund on file in any place is verified by outside actuaries qualified to
make this examination.
In justice to the California fund, however, it should be stated
that the present managers of that fund have given it an administra­
tion superior to that usually found in politically governed institu­
tions; and the fact that disaster has not already fallen upon this
fund is not to be attributed to the plan itself or to the theory of the
law itself, but rather to its having had fairly efficient and honest
I do claim without reserve, however, that the California plan
presents a greater possibility of political exploitation than the Wash­
ington plan, and that whenever California is again blessed with an
administration seeking perpetuation in office and self-aggrandize­
ment during tenure in office this fund will afford the quickest and
surest means of accomplishing that purpose.
A State temporarily blessed with competent, honest governmental
representatives may safely experiment with exceedingly dangerous
governmental innovations. But, may I ask, are we justified in rest­
ing on the assumption that any such condition of affairs is to con­
tinue indefinitely?
Notwithstanding the present able management in the California
fund, we have before us the earmarks of the desire to utilize for
political purposes the activities of that fund, as evidenced by the
extremely premature declaration of dividends earned during the first
year of its operation. I think I am safe in asserting that no new
insurance carrier, almost unorganized and completely inexperienced,



could possibly know that any particular surplus out of which to
declare dividends had been earned in that time.

To summarize, it will be observed that all of the various types
of carriers of workmen’s compensation insurance, except private
stock companies, are inspired by and have as a controlling motive
the mutual idea.
The so-called compulsory and exclusive State fund (public mutual)
is nothing more nor less than the mutual idea capitalized by the
authority of the State, designed to stifle competition, discourage
individual effort, and create an official collection agency to secure
the control and disbursement of large sums of money without
assuming any responsibility therefor.
This capitalization of the a authority of the State ” has led to the
false impression on the part of the public generally that the State
is financially responsible for the enterprise, whereas the State
assumes no responsibility whatever. The employer pays what is
demanded of him in premiums and must take whatever is given
him in the way of security and management.
In an altruistic age it is conceivable that the management might
be capable and honest and the funds handled with the interests of
the policyholders as of paramount importance. However, in the
light of past and present day experience with State-managed insti­
tutions, the reverse may fairly be expected in connection with the
great majority of State-managed funds.
Experience further teaches us that when, through casual circum­
stances or through limitations placed by law, there is only one way
of doing a thing or performing a certain kind of service, that
service will naturally, through lack of competitive interest and
effort, become arbitrary, inefficient, and expensive, since the com­
pelling incentive of self-interest is wholly lacking and the most
natural impulse to efficiency and economy has been destroyed.
Purely mutual insurance acts merely as an agency for the division
of losses between solvent members. Losses are paid out of a common
fund only so long as that fund may be replenished by assessments.
With an unlimited contingent liability, there is only the uncertain
and indefinite prospect that losses will be paid by assessments upon
solvent subscribers. Each subscriber becomes surety for the con­
tinued solvency of every other subscriber, and the survivors share
the losses to the extent of their individual financial worth.
With limited assessment losses are paid only to the extent of the
funds secured by such assessment, the deficit being borne by each
individual assured, who is primarily liable.


w o r k m e n ' s c o m p e n s a t io n .

Joining* a mutual association is something like signing a blank
check to be filled in later by some one else.
The mutual insurance company, like any other business, must be
run only by its owners, the employers who are members of it, if it
is to stand the barest chance of ultimate success.
Keen business men, however, will not spend their time on un­
familiar business which, at best, can giye them only a relatively
small return, but will devote their energies entirely to their own
Under compensation laws an employer becomes liable to employees
and dependents for periodical payments continued during many
years and in some States for life.
This long-continued liability makes it a matter of prime impor­
tance to the employer that he select an insurance carrier of such
solvency as to guarantee fulfillment of his obligations up to the date
when the last payment falls due.
Touching the vital importance of ultimate security, let me ask
whether the fantastic claims of continued low rates and future divi­
dends made by certain carriers are justified?
In those State funds or public mutuals in America guilty of this
sort of thing we find impaired funds, outstanding obligations, with
no apparent certainty of payment, and by a comparison with conti­
nental figures we are led to believe that systematic effort is being
made to defer payments. On the whole we are surely within the
bounds of truth in making the statement that experience in America
has been such as to cast serious doubt upon the validity and value
of such claims and promises.
Normally the risk of the insolvency of the carriers rests upon
the employer. Certain States in the establishment of 64public mu­
tuals” have undertaken to relieve the employer insuring in such
public mutuals or State fund from all liability for personal in­
juries or death suffered by his employees, and we claim that this
trading away of the inherent rights of injured workmen and their
dependents to induce patronage of a State fund is repugnant to every
principle of fairness and justice.
No good and sufficient reason can be advanced for denying to
an injured workman employed by a State fund subscriber the right
of ultimate recourse to his employer’s property in the event of the
carrier being unable to satisfy his claim, which is enjoyed fully by
the workmen of employers insuring in other ways or carrying their
own insurance.
Even if we assume that employees are limited to recourse to the
State fund for compensation, it is certain that employers can not
be legally relieved from other liability for personal injuries to em­



ployees entitled to compensation and also such liability to employees
not entitled to compensation.
Whatever may be the interpretation of such laws made by those
administering public mutual funds to the effect that the employer
is relieved from liability to the employee or to the fund for addi­
tional amounts of premium to make up possible deficits, it is certain
that the policyholder in an optional or compulsory State-managed
mutual has absolutely no certain guide to determine the ultimate
cost of his liability for compensation or for damages at common
law, i. e., penalties imposed in addition to compensation benefits
for failure to guard, or other unwitting or unintentional violation
of statutes.
The continued success of a mutual association, private or public,
is dependent upon constantly securing new members to take the place
of members retiring from the association. For one reason and an­
other insurers frequently change their insurance agencies if not their
methods of insurance, and there is a varying loss of membership due
to commercial failures and retirement from business.
Lapsed ratio in membership of a mutual compensation organi­
zation is a much more difficult problem to overcome by securing new
members than would be the case with some other line of insurance
where the liability is determined within 12 months or can be fixed
with practical certainty.
The contributed capital and accumulated surplus of stock com­
panies permit a positive fixing of premium.
To the manufacturer or other employer who bases the price of
his merchandise or labor in part upon the estimated cost of his com­
pensation and liability insurance, it is of primary inportance that
the percentage cost of such insurance shall be known at the time the
insurance is effected. It is objected that the positive fixing and pay­
ment of the premium in advance requires employers to start in ab­
ruptly to pay premiums sufficiently high to establish reserves to cover
the capitalized values of liabilities accruing during the period paid
for; that the premiums will be so much higher than actual cost
because of the element of speculation as to experience; that the
payment of fixed and positive premiums in advance puts the maxi­
mum strain upon industries at the start and withdraws a maximum
amount of capital from industry; and that the heavy premiums paid
into insurance reserves are withdrawn from industry.
Stock companies, by reason of guaranteeing full protection for a
fixed premium, in addition to securing average rates must pledge
contributed capital and acquire surplus to insure solvency.
The chief argument in favor of private and public mutual systems
upon the deferred-assessment plan is that capital is only withdrawn


w o rk m en 's

c o m p e n s a t io n .

from industry as needed to make payments as they come due, leaving
future payments upon accrued liabilities to be provided for by future
assessments and thus making the increase in premiums gradual.
Many years’ experience in Germany under the deferred-assessment
plan of mutual trade association insurance illustrates how the seem­
ing advantage of low rates in the beginning operate to the serious
disadvantage of industry with the accumulation of liabilities and the
consequent continued rise in rates.
We find that German rates were miscalculated at the outset any­
where from 100 to 400 per cent. It has taken 30 years to develop this
fact, and yet the end of the increased cost in Germany had not yet
been reached at the outbreak of the present war. Unfortunately
present tendencies in Germany are not available to us.
Current rates too lew to provide reserves to cover the capitalized
values of deferred payments result in shifting the burden of preestablished industries upon new establishments and impose upon
successful establishments the liability for deferred payments for
injuries incurred in operations of defunct and insolvent competitors.
Ultimately such a plan must result in dumping upon the survivors a
ruinous accumulated liability.
Value of uniformity.—In the United States there may be 49 dif­
ferent varieties of compensation acts, State and National, and, as
has already been noted, there are several methods, with variations, of
insuring the compensation obligations.
In the beginning, and we are now only in the primary state of de­
velopment, there is perhaps some merit in the contention that there
should be a variety of compensation plans so that there may be an
ample opportunity for experiment in the search for the type of act
and method of insurance best adapted to our needs.
The unfit^ plans will fail and be eliminated. The wisest will sur­
vive and be generally, if not uniformly, adopted.
It will no doubt be conceded that uniformity, all the States adopt­
ing the wisest law, and the best plan of insurance, would be highly
Viewing the mass of experience under the various State laws, we
contend that this social reform has made better progress under those
acts which are least repugnant to American traditions of democracy
and individualism, which permitted the employer the choice of guar­
anteeing the payment of his obligations in the way most suitable to
his condition, and which permitted private enterprise an honest and
equal opportunity to participate in the possible rewards of individual
ability and industry.
Five years’ experience has demonstrated that stock company in­
surance is the only method of insuring compensation .which ap­



proaches uniformity of security, service, and cost throughout the
entire country.
The educational work of securing the acceptance and furthering
the development of the compensation principle has largely depended
upon stock insurance, as evidenced by the fact that the great majority
(from 85 to 90 per cent) of employers have, where permitted, chosen
stock company insurance.
Stock company insurance has responded generously and effectively
to the needs of the people.
It has developed the practical application of the various compen­
sation laws to the requirements of the employer. The stock com­
panies individually and collectively have made liberal expenditures
in the development of a uniform system of accident prevention.
Many advantages and economies are derived from uniformity in
underwriting, accident-prevention work, and rating.
Stock company insurance alone has proven its uniform adaptability
and fitness to insure any variety of compensation or incidental obli­
gations without restriction or limit.
Through supervision and regulation on the part of the several
States, which has been brought to such a high degree of uniformity
and efficiency, stock casualty insurance has at once become the most
complete, secure, efficient, and economical medium for the adminis­
tration of workmen’s compensation benefits.
Value of universal protection.—The needs of industry in insuring
liability for workmen’s compensation and for claims for damages for
personal injuries arising out of accidents to employees and others
can never be completely served by any method of insurance which
does business with only one class of industry, with operations con­
fined to a limited geographical division, upon selected risks, afford­
ing only limited coverage, and restricted to responsibility in limited
Stock companies undertake to cover fully the insurance needs of
industrial enterprise.
Other forms of insurance falling short of affording universal pro­
tection fail to perform a perfect public service and are merely inci­
dental to the business of insurance as a whole.
Agencies which do not render a general service but merely serve
selected individuals or groups of individuals have a tendency to incite
discrimination and thwart attempts to establish order and system.
The State should not directly or indirectly favor a method of
insurance which does not undertake to satisfy the general universal
economic needs of industry as against a form of insurance which does
meet every demand.
Because it provides universal insurance protection with *complete
security stock company insurance is certain to survive«


In this country there are four generally recognized methods of
insuring payment of compensation under workmen’s compensation
laws: Stock company insurance, mutual association insurance, State
fund insurance, and self-insurance.
All these methods of insurance except self-insurance should be
conducted on a competitive basis, with equal opportunity for all.
The lav/ should not play favorites. All methods, including selfinsurance, should be under the supervision of the State insurance
department. None should be subsidized, not even as an “ infant in­
Stock companies, mutual associations, and State funds should be
required to maintain reserves on the same basis, subject to the ap­
proval of the State insurance department; and the compensation
payments of all three should be regulated by the same authority,
whatever that may be.
But the authority which regulates compensation payments, decides
disputes, etc.—be it a board, commission, or otherwise—should not
manage the State fund. It is not just that any administrative body
should also be the judicial tribunal to pass on claims against itself.
And it is demoralizing and unfair, in view of the controversies inci­
dent to competition frequently and unavoidably arising between pri*
vate companies and associations and a State fund, that the body
which operates the State fund should be permitted to exercise judi­
cial jurisdiction over the competitors of that fund.
Self-insurers—that is, those who carry no insurance—no matter
how many millions they may be worth to-day, should be required to
show that they are making due provision to secure the compensation
payments which will mature in the long-distant future, when per­
haps such self-insurers will be out of business and funds.
Thus each form of insurance would stand on its own *feet, and
there would be a fair opportunity to test the merits of each.
Assuming that mutual compensation insurance may be practicable
under proper conditions, it certainly is not secure in small associa­
tions, for the smaller the number of policyholders in a mutual asso­
ciation the greater the risk to each and to the employees of each.



Even the most ardent advocates of State-managed funds must
concede that if a State has not enough workmen to give proper effect
to the laws of average and of distribution and risks, then it will not
be wise for the lawmakers to authorize that method of insurance, for
no State fund may go beyond its own State for patronage.
Some advocate monopolistic insurance, managed by the State, in
connection with the administration of workmen’s compensation laws,
guessing that State management can give lower rates and as good
service as can private enterprise.
Why act on a guess when the facilities for a practical test are so
readily available?
Anyway, why not give those who pay the freight their choice
of conveyance ?
I f the State-managed fund can not give both lower rates and as
good service as can commercial companies, the lawmakers ought not
to create a monopoly for it, whereas if it can give lower rates and as
good service, it will not need a monopoly. In any event, such a
monopoly should not be created in the absence of conclusive evidence
that employers and workmen will be benefited thereby.
Monopoly is at best a dangerous expedient. Neither stock com­
panies nor mutual associations ask for a monopoly. I f a monopoly is
given to the State fund, employers must take what is given to them in
the way of management and give what is demanded of them in
the way of premiums. The management may be competent or the
reverse. It may be fair or the reverse. It may be conducted as a wellmanaged commercial enterprise is conducted or the reverse. It *may
have at heart the interests of the policyholders or of those to whom
compensation is paid, or its main object may be to build up a political
organization. Its character may change with every change in State
administration. And if the fund becomes insolvent, either injured
workmen and their dependents will suffer, or the taxpayers at large
must make up the deficit—an injustice in either case.
No part of the expenses of the State fund should be paid out of
the general treasury of the State, which would amount to payment by
the taxpayers at large, whether or not they are employers. That
would do violence to the cardinal principle of the workmen’s com­
pensation law, which is that the industry in the first instance should
bear the loss caused by work accidents and ultimately distribute it
among the consumers. Those who do not employ workmen cov­
ered by the compensation law should not be compelled in the first
instance to pay any part of the cost of compensation. They will
pay their share when they buy the products made by those who are
covered by the law. In answer to the claim that all State-managed
insurance funds must be subsidized while they are young, it may be
stated that the California State fund has never made use of its



subsidy. I f the State fund can give as good service as the stock
company and the mutual association and at a lower expense ratio,
it does not need to be subsidized. I f it can not compete on even terms,
it is not worth a subsidy. The State fund always has the advantage
of being tax free, whereas the stock company and the mutual associa­
tion are taxed for the general expenses of the State.
I f any part of the expenses of a State-managed insurance fund is
paid by the taxpayers instead of by the policyholders, then the fund
is subsidized to that extent; and it is evident, other things being
equal, that it would have an advantage in rates over its competitors
to the extent of the subsidy. In the long run, if its rates are lower it
will be because of the subsidy, not because of its superior business
The stock insurance company charges a fixed rate of premium
(agreed upon in advance) for the risk carried, thereby making the
cost definite for the pay roll expended; and without further liability
on the part of the policyholder, pledges all its resources to the ful­
fillment of its obligation, taking the place of the employer and as­
suming all his risk.
To make assurance doubly sure, a score of stock insurance com­
panies have joined their resources to establish the workmen’s com­
pensation reinsurance bureau, and so divide among all such com­
panies a u catastrophe ” loss which might prove serious for any one
In New York a stock company can not begin business unless its
surplus is at least equal to 50 per cent of its capital, nor until it has
made certain deposits with the State insurance department (usually
$250,000) for the security of all its policyholders. The statute also
regulates the amount of the capital of such companies, and those writ­
ing compensation insurance almost always have a capital of at least
$500,000. Other States have similar laws.
Capital and surplus form no part of the reserves required of stock
companies, but are in addition to such reserves.
The mutual association and the State fund must have reserves too,
but they make no deposit with the insurance department. They have
no capital. They may accumulate a surplus, but they do not start
with a surplus, nor, as a rule, do they ever accumulate a surplus
equal to that with which a stock company must start.
So stock companies have a security back of their obligations, and
an earning power by way of interest on their invested capital and
original surplus, which is not possessed by either mutual associations
or State funds.
Stock companies are, as a rule, managed by salaried officers and
employees who are trained in their work, who give that work their
whole time and undivided attention, and who are constantly striving



to excel in service—if for no other reason than that their salaries may
be increased. They are selected, retained, and promoted on their
merits, otherwise their companies are doomed.
Of course the officers and employees of private mutual associa­
tions will in time become trained also and have the same incentive.
But up to date there are very few experienced officers or employees in
mutual associations.
State fund employees are frequently political appointees. Their
salaries are usually fixed by law and often bear scant relation to the
services performed. Moreover, their tenure of office is not often
determined by their ability or attention to their duties. New and
untried men are frequently inducted into office. Hence, the employees
of a State fund have not the same personal incentive to excel as have
those of stock companies and privately managed mutual associa­
tions. The insecurity attaching to such employment makes it unat­
Do not overlook this human factor, either—stock companies, avow­
edly run for profit, will not be continued except on an earning basis.
They can not survive in the field of competition unless they furnish
service at least as good and at premium rates at least as low as those
of mutual associations (public or private). These two definite quali­
fying conditions of stock company existence mean that the manage­
ment of such companies must solve the problem of reducing their
costs to the practicable minimum consistent with the best service, with
some profit to their stockholders, even though that profit be kept
within the limits of the company’s interest income on its capital and
Mutual insurance charges a certain amount at the beginning, with
the right to collect more from the policyholder at some future time
if the first amount is not enough—that is, if all the premiums col­
lected are not enough to carry to final maturity (years hence) all
the losses incurred in the same class or group. In other words, the
policyholders insure each other, and the association does not really
insure anyone if the premium it collects is not enough. The real
strength behind mutual associations lies in the fact that the finan­
cially good policyholders can be compelled to pay at least a part
of the losses of the financially bad policyholders.
Mutual insurance advertises that it sells insurance “ at cost ” and
that it “ pays no agents’ commissions or stockholders’ dividends.” Let
us see about this.
Aside from the cost of agents’ commissions and of stockholders’
dividends, there is no way whereby a mutual association can carry
on business at less cost than can stock companies—most certainly not
if they give the same service.
70085°— Bull. 212— 17-------7

w o r k m e n 's c o m p e n s a t i o n


The maximum commissions paid to general agents who have admin­
istrative and supervisory responsibility is 17^ per cent of the pre­
Even if the law, in order to avoid agents’ commissions, should
compel everybody to insure in one association, that association would
find it necessary to keep on its pay roll employees enough to do much
of the work now being done by agents if it aims to give proper
service to its policyholders. Consequently, all of the commissions
paid by stock companies can not be saved by mutual associations.
In the long run any material saving can be accomplished only through
skimping the service. For—jot this down—the work done by agents
for the benefit of the policyholders, over and beyond the mere getting
of the business, is unceasing and invaluable. The agent sees that the
policyholder is properly covered, as respects his liability to the general
public (against which no State fund can insure him) as well as re­
specting his liability as an employer; sees that the policyholder con­
stantly complies with all the demands of the law; sees that all papers
required by the authorities (especially when accidents happen) are
properly filled out and filed; sees that injured employees and their
dependents promptly receive the full compensation due them; and
especially and particularly regards it as his duty (in cooperation
with the insurance company’s expert inspectors) to point out to each
policyholder ways and means of reducing the number and severity of
accidents, thereby saving life and limb and reducing the cost of his
compensation insurance. Stock insurance companies, through their
accident-prevention departments, are an aggressive and a positive
force in reducing the number and severity of industrial accidents,
and the prevention of accidents is worth more than all the compen­
sation for accidents in the wide world.
Stock companies are almost entirely responsible for the starting
of systematic scientific accident-prevention service.
Agents bring volume of premiums to their companies from sep­
arated sections and from diversified industries, and they also sell for
their companies many lines of insurance other than compensation, so
that proper effect is given to the laws of average and of distribution
of risks. Thus they make stock insurance the most scientific and cer­
tain. State funds must depend upon one State and one line, while
most mutual associations do only a small business.
As respects who pays stockholders’ dividends—suppose we call them
10 per cent, though that is much more than they have averaged—
do the policyholders pay these dividends? Let us see. The capital
of stock companies is nowadays sold at a premium to create a working
surplus, sometimes two for one, and practically never below one
and one-half for one. Remember, please, that a new stock company
can not be licensed by the State of New York unless it has a surplus



equal to at least 50 per cent of its capital. Therefore, if the capital
is $500,000 the stockholders must contribute in cash at least. $750,000,,
although they receive dividends on only $500,000. I f the capital and
surplus, $750,000, is invested so that it will draw 5 per cent interest,
$37,500 will come from that source, leaving only $12,500 to be other­
wise earned to make up the 10 per cent stockholders’ dividend. More­
over, if the company was in business during those years when there
was an underwriting profit in the business and had saved that profit
and added it to its surplus, as every well-regulated company did,
then it would now have a surplus at least equal to its capital, so that
all its stockholders9 dividends would come from interest on its in­
vested capital and surplus, and not a penny would be taken from any
other ^source.
Here are the figures concerning one stock company with which I
ought to be familiar, neither a large nor a small company, but fairly
typical: Its capital is $500,000, and its net surplus is $800,000^ mak­
ing a total of $1,300,000. It aims to pay its stockholders dividends
of 10 per cent ($50,000) on its capital. Its average interest earnings
on its investments are 4.45 per cent, which is $57,850 per year on its
capital and surplus, $7,850 more than 10 per cent on its capital.
So you see that this company (and other companies) can continue
paying stockholders’ dividends without making a penny of profit on
insurance operations—that the policyholders do not pay the stock­
holders’ dividends.
Speaking especially of State-managed funds, it may be said that
a certain percentage of our citizens think that anything with any
sort of governmental approval or indorsement must be superior to
any kind of purely private enterprise; if they are that foolish, they
will patronize the State fund. A certain percentage of our citizens
take it for granted that all the State’s resources are behind the State
fund, and that, therefore, its insurance is safer than commercial
insurance; if so deluded, they will patronize the State fund,
There are those who think that the State should carry on all
business enterprise, except their own; they should be compelled to
patronize the State fund.
There are others who believe that workmen’s compensation in­
surance is in the nature of poor relief, and therefore to be provided
for by a tax upon employers, and that such tax should be collected
and disbursed by the State, as are taxes for the maintenance of poorhouses, etc.; if convinced by that theory, they belong in the State
Still others maintain that competition is no longer the life of
trade, but, on the contrary, the death of trade; that if the insurance
of compensation risks is left open to competition, the cost of getting
the business for the various competitors will be very high—because



each competitor will spend large sums to get the business away from
other competitors; and that if all employers are forced by law to
insure in a State fund, then the waste caused by competition will
be saved. Of course, if they believe that and overlook the fact that
the chief competition between stock companies is to excel in service,
they will patronize the State fund.
But note the facts: State-fund insurance is merely ordinary mutual
insurance usually managed by officers appointed by the head of the
political party in power, instead of by business men responsible
to those who pay the premiums. The State is not responsible for a
penny to anyone in case of the insolvency of the fund. It is in no
sense a guarantor.
Public enterprise under our system of government has net yet
been and never should be substituted for private enterprises which
properly serve the public.
Compensation insurance premiums are not taxes any more than
life or fire insurance premiums; for compensation is not charity, it
is a legal right. It was substituted for the legal right to collect
accident damages.
Competition is still the best way to get good service and diminished
cost. Competition in service is not only the life of service but abso­
lutely essential to its well-being.
Service and cost are the real factors. Keep that in mind. Free
competition between stock company insurance, mutual association
insurance, State fund insurance, and self-insurance is the only right
way to find out which method furnishes the best service and at the
least cost.
However, say some would-be reformers: “ The time has come to
prohibit private insurance of workmen’s compensation; give the State
a monopoly ! ” What would that mean ? Simply this: Much of the
incentive to better service and lessening cost would be gone, for the
bureaucrat would then be in the saddle.
Service! My friends, have any one of you ever been so unfor­
tunate as to have a contract, for construction or what not, with the
Government ? How long did it take you to get your money, and did
the man in charge show judgment or fairness in settling disputed
matters? Delays, red tape, indifference—these are often the every­
day diet of the citizen who contracts with his Government. The
insurance company is a corporation, but in its dealings with its
patrons it is at least polite, prompt, and fair. It has to be. Com­
petition compels it.
Cost! Where is the experience upon which the would-be monopo­
list of State insurance bases his prophecy of reduced cost when the
State takes sole charge? Not in Norway, where the Government
has a monopoly of compensation insurance and put its rates so low



at the outset that a heavy deficit resulted. Not in New Zealand,
where the State fire insurance office did the same thing, and then was
forced to adopt the rates charged by the competing commercial com­
panies. Not in Italy, where, when commercial life insurance was
abolished a few years ago, the governmental monopoly fixed its rates
at approximately the figures which the companies had charged. Not
in Wisconsin, where the State fire insurance fund and the State life
insurance fund are fizzles. Not in New York, where the State fund
reversed itself between May and September of this year, offering in
May that those who insured with it would receive “ substantial div­
idends,” and deciding in September that no dividends would be
paid for that period. Not in North Dakota, where the State hail in­
surance fund is a fiasco. Not in Ohio, if the chairman of the Ken­
tucky Workmen’s Compensation Board is right in his pending con­
troversy with the actuary of the Ohio State fund. The former re­
marked on the vanishing surplus of the Ohio fund. The Ohio actu­
ary replied that they deliberately revised their rates and rating sys­
tem to secure just this result, so as to provide compensation insur­
ance at absolute cost. The chairman of the Kentucky board re­
joined that this was strange, in view of the fact that to get through
the fourth year’s period of the Ohio fund the actuary appeared to
have been forced to make substantial aggregate rate increases in spite
of sacrificing the entire previous surplus into the bargain. And
certainly not in the State of Washington.
By the way, a copy of the October 22 issue of the Post-Intelligencer
of Seattle has just come into my hands, from which I quote as fol­
A fter nearly 10 months, State Auditor C. W . Clausen, ex officio chief o f the
State bureau o f inspection, has completed his exam ination o f the industrial
insurance commission, w hich was begun immediately after the discovery o f
graft in the department, involving defalcations o f m ore than $20,000, by J. F.
Gillies, form er claim agent o f the commission. The report exhaustively out­
lines the changes which it deems essential to the practical operation o f the
compensation law in the fu tu r e ; severely arraigns the form er commissioners
for their lax methods in the handling o f claims, putting the responsibility
directly up to th e m ; scores the practice o f making political appointments in
an office where business efficiency is o f prime importance, and shows among
other things that the reserve fund set aside to pay pensions is more than
$500,000 short in the five years’ operation o f the law to care for accidents
occurring in that time.

As a matter of fact, although 32 States and 3 Territories in this
country have workmen’s compensation laws, not one of them has
placed the resources of the State behind any compensation insurance
method; nor has any Province of Canada.
Net insurance—that is, the money which must be paid for acci­
dents—should, in the long run, cost the same amount, whatever be


w o r k m e n 's

c o m p e n s a t io n .

the method of insurance employed. The actual ratio of losses in­
curred to premiums received depends upon underwriting skill in
avoiding or penalizing bad risks, constant scrutiny and expert advice
in improving the quality of all risks, lessening the number and
severity of accidents, and the insistence upon a rate that will correctly
measure the hazard of the average risks.
Where is the proof that State employees can do this work better
than the trained and skilled employees of the commercial insurance
companies? For, remember, insurance is not a commodity like corn
or coal. Instead, it is a business highly technical in character requir­
ing specialized ability. No half-dozen years is a sufficient period of
time to demonstrate that a State-managed fund can be successfully
conducted while ignoring the principles which govern the commercial
The.number of payments of compensation to injured employees and
their dependents is cumulative—as accidents happen—one added to
another, as the years go by. Many payments due to this year’s acci­
dents will begin this year and extend into other years, next year
another year’s series of payments will be added, the year following
two years’ payments will be added, the year thereafter three years’
payments will be added, and so on. The total of such payments per
year will start low and increase each year, even though the number
of workmen should remain the same.
The insurance rate should be sufficient to carry all payments to
maturity, otherwise the time will come with mutual associations and
State funds when the assessments collectible from policyholders will
not be sufficient to pay the accumulated losses.
No State fund should attempt to beat commercial companies on
loss payments, for any saving here would be made at the expense of
the workmen. No insurance method can be permanently successful
unless injured workmen and their dependents are dealt with in a
broad and liberal manner, not in a narrow and technical spirit.
And can a State fund beat private insurers—in cooperation with
the employers they insure—in providing good medical service at a
fair cost and in detecting and eliminating palpable abuses and im­
positions ?
Insurance service costs money, too. Should we reduce that cost
by turning this highly technical work over to public employees who
have not the incentive which spurs the employees of commercial
insurers to make their service the best in the land? Would we, for
even the same cost as now, get the same attention and fairness and
square dealing for which the organizations writing compensation
insurance in States like New York, Massachusetts, Illinois, and Cali­
fornia are now so justly praised?



But, say these reformers, you talk for insurance companies. Can
they be trusted? I answer, Yes. I could give many facts. One, hot
from the forge of recent human experience, will be enough. When
the New Yofk compensation law was passed, these same reformers
persuaded the legislature to require that all settlements of compensa­
tion should be made by the State commission and not by the insuring
companies—nay, more, that all payments of compensation should be
made by the commission itself. Thus the money that was due injured
workmen and their dependents was to be paid to them without delay.
What happened? The commission’s calendar of claims became
clogged beyond the possibility of relief for months and payments of
compensation delayed so that much hardship and distress resulted.
Then the legislature changed all this; it amended the law. What
has been the result? I call as the best witness John Mitchell, worldrenowned labor leader, known and favorably known by all men, who,
as a member of the first workmen’s compensation commission of New
York, had been familiar with the workings of the original plan, and
who, as chairman of the present commission, has put the new plan
into effect. In a recent report made to Gov. Whitman, Mr. Mitchell
(who conscientiously opposed the change when it was made), re­
ferring to the amendments passed in 1915 providing for direct settle­
ments of compensation claims and advance payments by insurance
companies representing employers, says:
The experience o f more than a year in the operation o f these laws has proved
them to be o f the greatest value to the wage earner. Compensation may now be
arranged between the employee and his employer by agreement, without w ait­
ing for the long and somewhat tedious process o f hearings by the commission,
follow ed by an award, with the possibilities o f appeal and other delays. All
such agreements, however, are inspected nnd carefully examined by the indus­
trial commission to make certain that in no case is an employee permitted to
compromise his claim for anything less than the full amount provided by law.
The advanee-payment feature has also worked a great advantage.

In a word, the creation of a bureaucratic agency of government
to handle the ordinary business transactions of citizens with each
other—in this case the payment by the employer or his insurance car­
rier of wages in the form of workmen’s compensation—had the usual
result of delay and dissatisfaction. But now the insurance companies
wThich protested against the original plan, but were and are in favor
of public control of compensation settlements and payments, have
been vindicated.
Let us not w^ear blinders as to another fact. The employer must
have other insurance than workmen’s compensation; in some States
employers’ liability insurance that he may be protected against loss,
where some of his employees are not within the scope of the work­
men’s compensation lawr; in all States, public liability insurance, that


w o r k m e n 's

c o m p e n s a t io n .

he may be protected against loss through injury caused to persons
not in his employ; and elevator, team, automobile, glass, burglary,
residence, vessel, and other liability insurance, as well. The employer
ought to be able to get all these kinds of insurance he may need
through one office or agency; otherwise he will be put to much avoid­
able inconvenience and additional expense due to duplication of in­
spection, audit, and other services, and to possible overlapping of
coverage, or to possible loss due to failure of all his policies, issued by
different carriers, to cover every feature of his risk. Therefore, if the
State is to have a monopoly of compensation insurance, it should also
undertake to provide all these other kinds of insurance. Is anyone
here ready for that—a 7-league step toward the assumption of all
insurance by Government ? It is not conceivable that the State will,
for a consideration, hold one citizen harmless from his liability to
another citizen when such liability arises from the infraction of a law
created for the protection of both citizens. And, until that step be
taken, let us not forget that, of the competitive methods mentioned,
commercial insurance alone can give complete protection to both
employer and employee, for as our constitutions now are no State
fund can insure against common-law liability.
Let us not shut our eyes to the fact, either, that, short of govern­
mental guaranty—abhorrent to every red-blooded American—State
insurance will always be a fraud and a sham. Nowhere is this put
more forcibly than by my friend, Walter G. Cowles, vice president
of the Travelers Insurance Co., in a recent address, as follows:
W e are accustomed to speak o f State funds and State insurance, but upon
analysis these organizations are not supported by the credit o f the States, and
in that sense are not State institutions, nor are they insurance companies,
because they fail in the fundamental element o f insurance, which is absolute
guaranty. Like a W elsh rabbit, it is neither W elsh nor is it r a b b it; it is a
piece o f cheese masquerading under a fashionable name.

Finally, if my company can not withstand an even-handed com­
petition wTith public and private mutuals, it has no right to exist,
and it will cease to exist from lack of patronage.
This is true of the other companies. But they should not be put
out of business to satisfy a theory. I f the theorists are right they
will die anyway. They have honorably conducted a legitimate busi­
ness for years. I f they die it will not bring loss to any policyholder
or to any injured workman; their reserves w^ill take care of them.
The only ones who will lose will be the stockholders. The stock com­
panies are willing that as many public and private self-supporting
methods of insurance as the people want shall compete with them.
They ask no favors. But they do ask that they be permitted to
remain competitors. Let the fittest survive.

CO ., A K R O N , O H IO .

I feel a good deal like the trick bicycle rider who was asked to
appear on the vaudeville stage after Eddie Foy and the seven little
Foys. I want to set your minds at rest also, and ask the judges of
the mutual admiration contest now in progress to exclude me from
their award. I have no ax to grind for any company nor do I desire
any political job.
I am rather at a loss to know from what particular angle this conference desires to hear the topic of “ Self-insurance ” discussed,
whether from the legal standpoint, in the sense of a comparative
analysis of the various compensation acts, as now in force through­
out this United States and abroad, in so far as they grant to employ­
ers the right to carry their own insurance; or from the standpoint of
a discussion of the generic term “ self-insurance.”
I have elected to approach the matter from the latter angle and to
limit my analysis to the theory as conceived in Ohio at the time of
the passage of section 22 of the workmen’s compensation law of that
The bill, as originally presented to the legislature, made no provi­
sion whatsoever for the employers who desired to carry their own
insurance. It will be remembered in passing that the bill was con­
sidered more or less as an assault upon the special preserves of the
old-line liability insurance companies, and that it tended distinctly
toward an absolute monopoly upon the part of the State. Organized
labor, through its authorized representatives, frankly asked for the
exclusion of the liability companies, and that the sole right to receive
premiums and disburse awards be vested in the State administering
board, and even more than this, that reinsurance upon the part of
employers be specifically prohibited.
All this was upon the theory that inasmuch as the cost of admin­
istration of the act was to be carried by the State out of the general
taxation fund, every cent paid in premiums would be strictly avail­
able for disability awards, and hence would find its way into the
hands of the proper recipients; further, that such supreme and final



w o r k m e n 's

c o m p e n s a t io n .

power as was proposed for the administering tribunal would pre­
clude the possibility of technical delays and the refusal to pay to the
injured of industry or the beneficiaries of those killed.
Personally, I have always contended that this rather severe atti­
tude and drastic stand upon the part of labor was a more or less
deserved rebuke to the liability companies. They had, through over­
keen competition, reduced the business to a basis where it became
imperative to hide behind every technical defense, and contest every
possibility in the effort to make even a small profit on an individual
risk. Often delay of years resulted, and in Ohio, at least, the courts
in counties of industrial complexion became literally clogged with
personal-injurv damage suits, to the partial exclusion of the regular
docket. Hence I maintain that these companies themselves mate­
rially assisted in the demise of the proverbial “ goose ” that laid the
“ golden egg,” and paved the way for the marked antipathy upon
the part of labor, which they were apparently so completely at a loss
to understand and so unsuccessful in combating.
This firm labor stand was immovable so far as the attack of
the insurance people was concerned, and out of this deadlock grew
the negotiations which led up to the compromise as between the em­
ployers and employees.
There were in Ohio a number of large and financially strong cor­
porations employing a large complement of labor, which concerns
had instituted prior to this time “ voluntary relief ” or “ compensa­
tion plans,” carried by said companies themselves as a straight risk
or charge against their business, without any insurance whatsoever.
They had adopted this policy for several very logical reasons, the
first in importance being that it returned to them again the per­
sonal-contact relation in all of its elements. It gave the opportunity
of dealing directly with injured employees on questions of settle­
ment, without the often-present necessity of negotiating through an
“ adjuster,” or other outside third person. It gave them the oppor­
tunity of maintaining their own medical and surgical equipment and
staff, where immediate treatment could be administered by com­
petent surgeons and nurses in the best-equipped hospitals, located
upon their own premises, and subsequent medical attention when
But more than all these practical benefits, it gave them the psycho­
logical reaction, which was considered by these forward-looking em­
ployers as the first great step toward the coordination of the manage­
ment and its employees; the building up of that then newer relation­
ship which is now more or less of an understood function, to wit, in­
dustrial relationship.
These same concerns had already started an organized campaign,
under special departments, for safety, for the reduction of industrial



accidents, and, as before intimated, had equipped plant hospitals and
dispensaries under the direction of full-time doctors and nurses; in
short, they had approached this problem with that same hard-headed
business logic which had made their own business a success, and they
were among the pioneers in what we now know so well as the “ safety
first,” “ industrial medicine,” “ social insurance,” and 44general wel­
fare ” movements.
I must pause at this point for a moment to assure you that I have
no patience whatsoever with the maudlin sympathy, or so-called
praiseworthy humanitarianism, that has been so plentifully supplied
by so many of our “ newly arrived ” economists, social and welfare
workers; nor was this idea of “ welfare in the sense of charity ”
present in the minds of the particular group of hard-headed em­
ployers of whom I speak. So, at the time when the present bill was
pending before the Legislature of Ohio, this group appeared before
both the liability board and the joint house committee, which had this
matter under consideration, and presented their case, together with
their proposed amendment to the pending bill. That amendment
was finally adopted, and with certain added safeguards was incor­
porated into the u Green senate bill ” and became section 22 of the
Workmen’s Compensation Act of the State of Ohio. This section
gives to the industrial commission the discretion to grant to an em­
ployer applicant the right to conduct self-insurance. The commission
have, under their duly delegated powers, promulgated certain rules
covering the matter, but they have been very willing and ready—yes,
generous almost to a fault—to grant the privilege. The self-insurer
must first satisfy the commission of his financial responsibility, not
only in the ordinary banking sense but in the sense of his ability to
weather an accident catastrophe; of his ability to provide proper
medical attention to his injured; of his ability to generally ad­
minister the compensation act in the spirit of its conception. The
commission, being satisfied, grants the request of the applicant and
allows him to carry his own insurance, but requires a bond in a fixed
and certain sum, and a sort of penalty premium of 5 per cent of the
regular State premium covering his particular type of hazard.
All action of the employer is subject to confirmation by the com­
mission, and if an award be made “ not equal to or greater than”
that specified by law, the matter can be reopened and proper award
made by the commission itself. No award is final, nor is a case
closed until approved and passed by the industrial commission.
The point may be raised in the minds of some of my auditors that
this seems an unnecessary and added* burden upon the law’s admin­
istration, but I believe that the members of our commission will
confirm me in the statement that the manner in which the employers
have cooperated has been of very material assistance in their labors,


w o r k m e n 's c o m p e n s a t io n .

and that, speaking for the original group at least, they have more
often been guilty of giving too much compensation than of giving
too little. It has reduced or entirely eliminated delay that is neces­
sarily incident to the administration of compensation solely by a
State board, with its necessary correspondence, examination by
special examiners, nominated medical representatives, and other
routine, whereas under self-insurance as conducted in Ohio, the em­
ployer is empowered to conduct the entire negotiation and close
the case, without consulting the industrial commission until he sub­
mits the closed case for confirmation or rejection at their hands.
The foregoing is, of course, a very general resume of the subject,
and I have been less specific, for the reason that I assume that most
of you are more or less familiar with the terms of the act itself (
and the special rules governing the same, as laid down by the com­
mission, but in closing I desire to call your attention to a phrase
or term that I endeavored to emphasize before in passing, to wit,
personal contact. The paramount importance of this personal-con­
tact relationship was, as I have said, appreciated by a few employers
several years ago, but its real necessity is just now being truly
recognized, and if proof of that statement be required, I will simply
refer you to the table of contents of the program of this conference,
which should be convincing enough, else you would not be here
taking part in its discussion.
Our wonderful industrial expansion, the consolidations and en­
largements of our various plants, have been sudden, tremendous, and
startling. We are no longer stunned at the thought of 20,000, 50,000,
or 100,000 men working for one employer. Go back, if you will, as
you do with your “ movie dreamer,” 15, 20 years (longer is unneces­
sary), to the day when the managing executive knew most of his
employees by name, many of their families, and, more or less, all of
their trials and tribulations, both with the company and at home.
Between the two was some bond, or at least the opportunity for it,
and many, many of our problems in the abstract to-day were simply,
pleasantly, and expeditiously handled in the concrete in those days;
but as business grew and expanded, or consolidated, and as the
managing executive receded farther and farther into the mysterious
seclusion of the large general office building (if not, in fact, to an­
other city), with the impending increase of his duties, his time and
that of his direct subordinates was required more and more by the
supposedly larger matters of the business, and the question of the
human element and the interrelationship was somewThat lost in the
As men progress in years and success they become more and more
calloused and impatient of the frailties of their fellow man, and
especially of their less fortunate fellow man, his selfishness, his



brusqueness, his unfamiliarity with larger problems of finance and
the difficulties of management and his concentration upon his own
little, particular problems; but the great mass of our people, the
backbone of our Nation, is made up not of executives, not of highly
educated or trained men familiar with all these things, but of wage
earners, who have only their wage upon which to live, and ve!;ry
often no outlook for the future. To-day few, if any, really big
employers are so obtuse as to be blind to the necessity or the
desirability of some return to the old basis of relationship, some
common meeting ground where the three greatest partners in the
world can meet and discuss and agree upon ways and means for the
common weal—labor, capital, and society.
What this country needs to-day is education and yet more educa­
tion. We had better even discard the old three R ’s and revise our­
selves upward somewhat, upon the most fundamental things; not so
much upon this 66new thought ” that is being peddled about our
country by self-styled economists, who yesterday 44we wot not of,”
but rather a little more common sense, a little more primary educa­
tion in the necessity of cooperation, in the partnership which controls
our destiny and the destiny of our country.
We should pause somewhat in our smug complacency, our selfnssured prosperity, our sublime American egotism, to consider for
a moment what the determination of this hellish business now going
on in Europe is going to bring to us. They have shown us an ex­
ample of cooperation, of national unselfishness, and of manufactur­
ing efficiency, which baffles word picture in its scope and depth
The three partners in the 44economic trinity ” in each warring
nation are pulling together with a oneness in which all discord is
eliminated, in a struggle for their very existence. Labor has for­
gotten its old demands, capital has been more equitable and just, and
the controlling partner, society, is insisting upon and getting from
the other two teamwork and efficiency such as the world has never
seen before.
When this war is over will the efficiency learned in the crucible
of war’s necessities be lost or forgotten ? No. Will we be in position
to compete with them all in their desperate battle to rehabilitate them­
selves in the world’s trade? Again, the answer must be 44no,” or, at
best, one of grave doubt, unless we waken to the fact very soon that
the two great oceans are not locked doors upon our land. This great
partnership in our country is trying to do business with no partner
in full sympathy with the others, with no partner knowing what
the other partners are doing, nor why. Could a business partner­
ship long stay afloat through 44insolvency shoals” and the 44reefs
of bankruptcy” where there was no understanding between the
partners and less than no cooperation ?



What has all this to do with self-insurance ? Only this, that ap­
parently everyone in this room feels more or less certain that all
is not well with this country’s partnership, and that many of the
things that are for discussion here have a very material bearing upon
this problem; more trust, more honest cooperation, more keen con­
ception of their interdependability, are absolutely essential in this
country between these partners in life’s business, and it occurs to me
that the theory of self-insurance, properly safeguarded and honestly
administered, has its proper place in the whole economic structure.
We overlook somewhat the fact that social insurance depends on
common sense. I f we did not have manufacturing plants, stock­
holders and directors, etc., we would not have any necessity for social
Question. Will you tell me what limits you set to the award of
self-insurance ? Or what you mean by self-insurance ?
Mr. K e n n e d y . Simply to convince the commission that he is ade­
quately prepared to meet any catastrophe that may happen to him.
The C h a i r m a n . The paper on “ Employers’ mutual associations,”
prepared by Mr. Walter S. Bucklin, will be given by Mr. David S.
Beyer, of the Massachusetts Employees’ Insurance Association.
Mr. B e y e r . This paper was prepared by Mr. Bucklin, president of
our company, and, as he was unable to be present, he asked me to
read it.

B Y W A L T E R S, B U C K L I N , P R E SID E N T , M A S S A C H U S E T T S


{Read by David S. Beyer, of the Massachusetts Employees’ Insurance Association.]

Manufacturers and other employers of labor throughout the coun­
try are in the midst of a crisis in workmen’s compensation insurance.
Under their very noses an organized effort is being made by a group
of stock-liability insurance companies to get control of the enormous
sums in workmen’s compensation premiums which employers are
pajdng under workmen's compensation laws. Profit taking for their
stockholders is the incentive for seeking this control, and the method
which they have adopted is the familiar one of combining to uphold
rates where there is little competition and to decrease rates below
cost, if need be, where they are confronted with competition which
they desire to eliminate.
While the method is old, however, the combination of stock-lia­
bility companies has not to its credit even the saving grace of the
methods adopted in the past by some large aggregations of capital;
that is, efficiency in operation. On the contrary, the commissional
agency plan of workmen’s compensation insurance which these com­
panies are endeavoring to establish, as I shall point out, is extremely
wasteful and inefficient.
The combination of stock-liability companies is nevertheless a pow­
erful one. It not only has large financial resources, but the ramifi­
cations of the influence of its thousands of agents and brokers go
into every city, town, and hamlet in the country. And although, as
I shall later show, the compensation insurance business can be effi­
ciently conducted by employers through their own mutual com­
panies at an expense of about 15 per cent of the premiums, this
colossal organization is endeavoring to crowd out all competitors and
establish at the expense of the employers of the country a wasteful
plan of insurance which takes substantially 40 cents of every dollar
of premium for expenses of doing business.
But let us see what evidence we have to substantiate these state­
ments, I f the employer is in the midst of a crisis, and his action
at this time is likely to influence the future cost of his insurance,




he will wish to act wisely. Before acting, however, he will wish to
be shown that a combination of stock-liability companies actually
exists and that its methods in the long run will operate against his
interests. He will also wish to be shown that in the present crisis
the mutual company of employers furnishes the best means for pre­
venting the stock-liability companies from establishing a monopoly
of the business. Let me present, therefore, some evidence bearing
upon the entire subject.
1. The National Workmen’s Compensation Service Bureau is a
stock-liability company organization, whose purpose is to fix insur­
ance rates and to eliminate all competitors from the field.
2. The stock-liability companies can only exist by combining to
eliminat their competitors and upon a system of commissioned agents
and brokers which takes substantially 40 per cent of every premium
for expenses.
3. Mutual insurance companies have demonstrated that the com­
pensation insurance business can be administered by employers
themselves, with high standards of efficiency, at an expense of about
15 per cent of the premiums. These companies provide for the
employer the only positive means for insuring permanent low rates
for workmen’s compensation insurance in America.
I, The N ational W orkm en’ s Compensation Service Bureau is a stock -lia b ility
company organization, whose purpose is to fix insurance rates and to
elim inate a ll com petitors from the field.

The insurance business differs from a commercial business in one
important particular. In a commercial business it is possible for
an individual concern to determine accurately the cost of its goods.
In insurance, however, few, if any, companies have sufficient statis­
tical data to enable them to determine from their past losses what
their future losses are likely to be. This condition, therefore, has
given rise to combinations of companies for the purpose of pooling
their experience and determining rates. In the workmen’s com­
pensation insurance business the organization which has performed
this function for the stock-liability insurance companies is the Na­
tional Workmen’s Compensation Service Bureau. This bureau'ap­
pears before the public as a scientific organization for the purpose
of collecting insurance statistics. As a matter of fact, however, the
underlying purpose of the bureau is to eliminate competition and to
increase the profits of the stock-liability companies which are its
If space would permit, I would produce here a complete copy of
the constitution and by-laws of this bureau, which clearly indicate
that its purposes are what I have stated. It will be sufficient, how­



ever, to produce section 4 of the by-laws (Exhibit A, hereto attached)
to show that it is not a scientific body; that it is really maintained for
the purpose of increasing the profits of its members, and that it
intends to eliminate all competitors from the field.
It was the knowledge of the competitive methods of this organi­
zation that caused the legislatures of several States to pass laws to
regulate compensation insurance rates. Many employers have won­
dered why it was necessary to pass laws in Massachusetts, Pennsyl­
vania, New York, and other States requiring State authorities to
compel the stock-liability companies to charge “ adequate ” rates.1 At
first one would think that it would be necessary to legislate to prevent
such companies from charging excessive rates. The reason, however,
is plain. The legislators had provided for the formation of mutual
companies for the protection of employers, and they well know that the
mutual companies, if given a fair chance in competition, could transact
the compensation insurance business at much less cost than the stock
companies. But they realized that the combination of stock-liability
companies would immediately attempt to reduce rates temporarily
below cost to eliminate their mutual competitors. To safeguard
against this the legislators of several States provided that the stockliability companies should be required to charge rates which should
at least be adequate to cover their actual losses and expenses. In
other words, the stock companies were to have a fair chance in com­
petition, through being permitted to write insurance at the lowest
rates that they could justify by their actual cost of doing business, but
they were net to be permitted to do business at a loss, solely for the
purpose of eliminating the mutual companies and later raising the
rates. This legislation in several States stands out as strong evidence
that the public had knowledge of the competitive methods of those
But even the rate regulatory law in Massachusetts did not pre­
vent the stock-liability companies from endeavoring to eliminate
their mutual competitors from the field. Massachusetts was one
of the first States to adopt workmen’s compensation, and the stockliability companies found in that State keener mutual competition
than elsewhere in the country. They therefore centered their ef­
forts upon either eliminating the mutual companies or rendering
their competition harmless for the future. Accordingly in 1914 they
made a successful effort to persuade the Massachusetts insurance com­
missioner to consent to a large reduction in compensation insurance
rates, under which they believed the mutual companies would be
unable to survive. Compensation laws were new, and the Massa­

See Massachusetts Workmen’s Compensation Act, Part V, sec. 3.

70085°— Bull. 212— 17------ 8


w o r k m e n 's

c o m p e n s a t io n .

chusetts insurance commissioner having no data before him at that
time which was conclusive of what the rates should be, was finally
persuaded in March of that year to approve the cut which the stcckliability companies had urged. That this rate cut was unwarranted
and carried the rates at least 15 per cent below the actual cost to
the stock-liability companies of doing the business is now well known.
Operating under these rates in 1915 the stock-liability companies
lost over $600,000 on a total volume of premiums of $3,846,657.1
Furthermore, immediately after the rate cut was approved, it be­
came apparent that the reduction, was accomplished through an im­
proper combination of the stock-liability companies, and an invest iga­
tion was made by the legislature. The Riley commission was ap­
pointed, and after a full investigation reported “ that nearly all
the stock companies entered into an improper agreement, giving one
man full authority to change compensation insurance rates in Massa­
chusetts alone for competitive purposes, a situation which is inde­
fensible.” 2
Any employer who looks carefully into this record in Massachu­
setts can not help being convinced of the organized effort which the
stock-liability companies are making to eliminate all competitors
from the field so that they may later raise the rates to a profitable
basis. Any employer who is interested to look further, however, can
find much additional evidence of this fact. He will find, for ex­
ample, that many of the stock companies have been unable to stand
the pressure of these intense competitive methods, and have recently
discontinued writing compensation insurance.3 He will also find
that the intention of the half dozen largest stock companies to get
control of the business has been inadvertently announced in news­
paper advertisements. (See Exhibit B, hereto attached.)
The situation which developed in Massachusetts following the
rate cut before referred to is also interesting evidence. When the
Massachusetts insurance commissioner found by the statistical re­
turns which the companies were required to make to him, that the
rate cut of 1914 was unwarranted, and that the rates must be in­
creased, he attempted to put such an increase into effect. The stockliability companies, however, hoping that the low rates, under which
they themselves were losing money, would seriously affect their
mutual competitors, endeavored to persuade Gov. McCall to prevent
the insurance commissioner from raising the rates to an “ adequate ”
1 See statement read by Insurance Commissioner Hardison before joint judiciary com­
m ittee of the M assachusetts Legislature, M ay 1, 1916.
2 See report of tlie commission to investigate practices and rates in insurance, Apr. 22,
3 W ithin a few months the following companies have ceased writing compensation
insurance : Fidelity & Deposit Co., New England Equitable Co., Massachusetts Bonding
Co., Casualty Co. of America, London & Lancashire Indemnity Co. of America, American
Fidelity Co., Prudential Casualty Co., and General Accident & Liability Insurance Co.



basis. Failing in this, they made a further effort in the legislature,
through the notorious “ Davis ” bill, to deprive the insurance commis­
sioner of much of the authority given him by law to regulate rates,
2. The stock -lia b ility companies can only exist "by com bining to eliminate
tlieir com petitors and by a system o f com m issioned agents and brokers
which takes substantially 40 per cent o f every premium for expenses.

Let us now see why it is that the stock-liability companies have
been forced to use the methods outlined above, to meet the competi­
tion of mutual companies. If stock insurance is as strong as its pro­
ponents would have us believe, why is it necessary for these companies
to combine to reduce rates below cost to meet mutual competition?
The answer is this: The stock-liability insurance plan depends
for its very existence upon a system of commissioned agents and
brokers which, from the viewpoint of the employer, is wasteful and
inefficient, and this system could not be maintained except by the
methods which those companies have adopted.
As I shall later clearly show by an actual record of business trans­
acted, mutual compensation insurance companies are now doing a
large volume of workmen’s compensation insurance business at a
total expense to the employer of about 15 per cent of the premiums
paid. The stock-liability companies, on the other hand, are charging
the employers of the country substantially 40 per cent of each pre­
mium received for expenses of doing business. It is obvious that
under these circumstances the stock-liability companies could not
hold their business if they did not combine to drive competitors from
the field, and if they did not employ thousands of agents and brokers
to interview personally each employer and instill in his mind vague
fears of mutual insurance. And there is a real touch of humor in
the fact that the stock-liability companies make the employer pay
the bills for employing insurance agents and brokers to persuade
him against the economy of mutual insurance. I f it were not for
this veritable army of insurance agents and brokers, however, who
are cleverly trained by secret and confidential instruction from their
companies to misrepresent mutual insurance, the entire structure of
the stock-liability business would immediately fall to the ground.
But let us see what evidence we have that should convince the em­
ployer that the commissions of IT\ per cent paid to stock insurance
brokers and agents are an unnecessary expense; that if the stockliability companies succeed in establishing their expensive system of
charging the employers 40 per cent of each premium for expense
alone, the employers will later pay millions of dollars in unnecessary
expenses for the administration of workmen’s compensation insur­
ance; and finally, that through their mutual companies employers
can conduct the workmen’s compensation insurance business at an
expense of 15 per cent of the premiums paid and with the very high­
est standard of service and insurance protection.


w o r k m e n 's

c o m p e n s a t io n .

No evidence of the truth of the above statements could be more
convincing than the record of the actual results accomplished by
mutual compensation insurance companies in the few years that
workmen’s compensation laws have been in effect. I will turn, there­
fore, to the record of the results which have been accomplished by
the mutual companies in Massachusetts, notwithstanding the com­
petitive methods which I have already shown were used in that
State by the combination of stock-liability companies.
In Massachusetts, since July 1,1912, 4 mutual companies have com­
peted with more than 20 stock-liability companies for the compensa­
tion insurance business of the State. Under the Massachusetts in­
surance laws each company has been required to make complete re­
turns to the insurance department of the volume of workmen’s com­
pensation insurance premiums received, the percentage of the total
premiums which was used by each company for expenses of doing
business, and, in the case of mutual companies, the amount of the
premiums which were returned to the employers in mutual divi­
dends. The record which I shall present for all the stock-liability
companies as a whole, and separately for all mutual companies as
a whole, presents a vivid and convincing comparative picture of the
efficiency of the two methods of transacting the compensation insur­
ance business.
The first part of the record, taken, as I have said, from the sworn
returns made by these companies to the Massachusetts insurance de­
partment, shows the volume of workmen’s compensation insurance
premiums earned by such companies between July 1, 1912, and De­
cember 31, 1915. In reading these figures the employer should keep
in mind that the stock-liability insurance companies, through their
thousands of agents and brokers, virtually controlled the old form
liability insurance, and practically all the employers of the State
were their customers when, July, 1912, the compensation law became
Earned prem iu m s: 1
4 mutual companies_____________________________________________ $4, 871, 571
Over 20 stock companies_______________________________________ 11, 064,169
T o t a l___________________________________________________________ 15, 935, 740
Per cent o f total premiums written by 4 mutual companies, 31.
Per cent o f total premiums w ritten by over 20 stock-liability companies, 69.
1 The premium basis of comparison is used bccause all companies charged the same pre­
mium rates with but one exception. One mutual company charged slightly higher advance
rates for some industries and slightly lower rates for others, but the average was
substantially the same as the other companies.
I f the factory pay roll insured by
each class of companies were used as a basis of comparison, the result would be the
same, 31 per cent insured by the mutual companies and 69 per cent by the stock


e m p l o y e e s ' m u t u a l a s s o c i a t i o n s — w . s. b u c k l i n .

Let me now add to the above the record of the expenses of each
of the two classes of companies for transacting, during the same
period, a total volume of workmen’s compensation insurance pre­
miums paid by the employers of the State amounting to $15,935,740.
These figures show how the mutual companies have successfully
eliminated profits to stockholders and the customary 17^ per cent
commissions to agents and brokers and have effected other econo­
mies, on one-third of the total compensation insurance business of
Massachusetts employers.

Total earned

4 mutual companies...........................................................................
Over 20 stock companies....................................................................



15,935, 740


Per cent of
expenses to

4 211,107


To show that the tendency of the stock companies’ expenses is
upward and of the mutual companies’ expenses downward, we may
look at the following similar record for the year 1915 by itself:
Total earned

4 mutual companies............................................................................
Over 20 stock companies....................................................................





Per cent of
expenses to

$220, 759


................ I..............

Let me finally introduce the record, which shows the actual saving
of $1,198,236 made by the employers of Massachusetts on one-third
of the business of the State through mutual insurance. It is obvious
that to this large sum, returned by the mutual companies in cash
to employers insured with them, there could readily have been added
substantially $3,000,000 in addition if the mutual companies had
written the entire compensation insurance business of the employers
of the State.


4 mutual companies.......................................................................................................
Over 20 stock companies...............................................................................................

returned to
Total earned policyholders
in cash divi­


What deductions may the employer fairly make from the above
record of several years of the keenest sort of competition in Massa­



chusetts? It is such results, and not theoretical arguments, which
will count in the minds of most business men. If this record can
be made in Massachusetts in a few years, it certainly can be dupli­
cated by employers in other States. Compared to such a record,
how ineffective seem the familiar arguments of the stock-liability
companies and their agents—that their system of paying commis­
sions to agents and brokers is necessary and of benefit to employers;
that the mutual companies can not acquire sufficient financial strength
to provide adequate insurance protection for employers; that em­
ployers will not find the service of the mutual companies in the
adjustment of claims satisfactory; and, in fact, that the stock-lia­
bility companies have a monopoly of the brains and ability to run
compensation insurance companies.
As a matter of fact the mutual companies are rendering to the
employers of Massachusetts a higher standard of service in the
adjustment of claims than the stock companies. They are accom­
plishing results in the prevention of accidents which the stock
companies can never accomplish, for employers who pay their pre­
miums to stock-liability companies are not inclined to spend time
and money for accident prevention. Why should they when they
know that the profits on their insurance will not come back to them
but will go to the stockholders of the liability insurance companies?
Furthermore, the results show that the employers of Massachusetts
are entirely satisfied with the insurance protection afforded by the
strong financial resources which the mutual companies have accumu­
lated, by the legal reserves which they are required to carry, and
by the strict supervision over them which is exercised by the State
insurance departments.
It is obvious that in a very short time a large percentage of the
employers in Massachusetts have changed from stock insurance com­
panies to mutual insurance companies. While the stock companies
proudly exhibit the names of a handful of employers who have left
the mutual companies to go with them, for each such employer the
mutual companies can show the names of hundreds of employers
who have left the stock companies to go with the mutuals. Em­
ployers are doing this because they are no longer taking at par the
statements of their insurance-broker friends; because they are learn­
ing from other employers that the service which the mutual com­
panies are rendering is highly satisfactory; because, upon investiga­
tion, they are becoming assured that the financial condition of the
mutual companies affords them the safest insurance protection; and
because they are anxious to take advantage of the large saving in
dollars which the mutual companies are making for their members.



3. Mutual insurance com panies have dem onstrated that the com pensation
insurance business can be administered by employers themselves, w ith
h igh standards o f efficiency, at an expense o f about 15 per cent o f the
premiums. These companies provide for the em ployer the only positive
means fo r insuring permanent low rates for w orkm en’ s compensation
insurance in America.

In the preceding pages I have endeavored to present to the em­
ployer some information regarding stock and mutual compensation
insurance which I believe is of vital importance in the present crisis.
But before drawing certain conclusions from the record which I have
presented the employer may wish, perhaps, to give some considera­
tion to two other available methods of insurance, namely, self-insur­
ance and State insurance. Neither of these plans, however, is des­
tined to play any considerable part in reducing the cost of workmen’s
compensation insurance.
Self-insurance is at best a dangerous experiment, except possibly
for the very few large employers (such as the United States Steel Cor­
poration) who have enormous financial resources and widely distrib­
uted plants and who employ upwards of 100,000 persons. For the
general run of employers self-insurance is -purely a gamble. Through
self-insurance such employers may save money for. a few years, but
in some one year they are almost certain to lose more than they have
saved in all the previous years. In reality, no employer who carries
fire insurance on his plant can afford to be without compensation in­
surance. Some employers are now carrying their own compensation
risks, however, who have learned, of the ever-present danger of fire
but have not yet learned of the many hazards of workmen’s compen­
sation. But sooner or later a number of serious disasters will occur,
and some self-insurers will find themselves in financial difficulties.
The public will also learn that self-insurers are frequently unable to
meet the claims of widows and orphans, and self-insurance will there­
after be confined, as is now the case with self fire insurance, to only
a few of the largest corporations in the country.
For similar reasons State insurance can not hope to play any con­
siderable part ultimately in reducing the cost of workmen’s com­
pensation insurance in this country. State insurance has serious in­
herent weaknesses. Employers insured in such funds receive no
financial guaranty of the State. In reality, through State funds the
State merely undertakes to collect and distribute the insurance pre­
miums paid by employers, either at the expense of the taxpayers gen­
erally or by charging the expense to the employers in the premiums
which they pay. In other words, the State fund is in reality a mutual
association managed by politically appointed State officials. Sev­
eral of these funds already have become financially involved, and it
is obvious that in the long run they can not hope to compete sue-


w o r k m e n 's

c o m p e n s a t io n .

cessfully with the mutual companies which are managed and con-r
trolled by business men and operated with modern business efficiency
and economy.
It seems pretty clear, therefore, that the employer must decide
between stock insurance and mutual insurance as a means for work­
ing out in the future the lowest cost for workmen’s compensation
The employer is not looking for temporary low compensation in­
surance rates. On the contrary he desires to see conditions estab­
lished which will assure him of low rates over a period of years in
the future. Do the stock-liability companies offer any hope to the
employer that if they obtain control of the business they will radi­
cally change their present wasteful methods. In deciding this ques­
tion employers will, I believe, keep in mind that the stock-liability
companies are organized for but one purpose—to make profits for
their stockholders, and obviously they must make the profits from
the premiums which employers pay to them. Employers will also
keep in mind that when they insure in stock companies they not only
receive no share of any profits which the company may make, but
also that they are not given the slightest voice in the management
of the company. The stockholders appoint the management, and
the management is held strictly by them to the duty of making
profits from the employer.
In a mutual company, on the other hand, the employers, who are
the policyholders, control the organization and shape its business
policy. There are no stockholders. The policyholders elect the di­
rectors, the directors elect the officers, and the officers in turn appoint
the employees. The entire organization, therefore, is responsible to
.the employers and is held by them closely to the duty of conducting
the activities of the company solely in the interest of the employers
with the efficiency and economy of modern business. Consequently
there exists one harmonious, concerted effort to accomplish for the
employers as great a saving as is consistent with the highest standard
of service and ample insurance protection.

As I have pointed out, the stock-liability insurance companies, by
combining through their bureau, are playing a big game for a big
stake. Although workmen’s compensation insurance is still in its
infancy the stake for which they are playing is now approaching
$100,000,000 in premiums annually. And to this enormous sum there
probably will soon be added further millions in premiums for sick­
ness insurance, old-age pensions, and unemployment insurance.
Will employers permit the stock-liability companies to get con­
trol of these funds for their own profit? This is a question which



must be answered, not only by employers collectively but by each em­
ployer individually, wThen he determines with what company he shall
place his workmen’s compensation insurance.
I f he gives his support to the stock-liability companies because of
his friendship for the insurance agent or broker who solicits his busi­
ness, he is in reality supporting a plan which if firmly established
will mulct the employer for larger and larger profits and larger and
larger amounts for expenses.
If, on the other hand, he gives his support to the already strong
mutual organizations, he will assist in building up in this country a
method of transacting the compensation insurance business which
will endure for all time, as an absolute protection to the employer
against excessive rates.
I believe that the manufacturers and business men of America are
commencing to realize these facts and the importance of their de­
cision in the present crisis in workmen’s compensation insurance. I
believe, furthermore, that they will decide to give their united sup­
port to their own mutual companies, and that America will lead the
world in the economy of its methods for administering social in­
surance funds.
Extract from by-laws of National Workmen’s Compensation Service Bureau.
Should com petitive situations o f a general nature (meaning thereby situa­
tions not involving a single risk or group o f risks, but involving entire lines in
certain territories) arise, the members o f the bureau shall adhere to the regu­
lations, rules, and rates o f the bureau or voluntarily resign from membership,
unless the member or members desiring to -be relieved from the disadvantages
o f the com petitive situation shall address a letter to the general manager relat­
ing the circumstances in sufficient detail to give the general manager a fair
understanding thereof, and the general manager shall thereupon send a copy
o f such letter to each o f the company members, accompanying w hich shall be a
notice from the general manager that the situation described shall be con­
sidered by the board o f referees at a session to be held at a date named, which
date shall be sufficiently in advance to give every member o f the bureau an
opportunity to attend. The general manager shall also transm it to each o f
the referees an additional copy o f such letter and notice o f hearing, and upon
the date stated, or any subsequent date to w hich the hearing may be ad­
journed, the matter shall be heard in fu ll by the referees, opportunity being
given to every company member interested to appear, offer evidence, or ex­
press its views upon the question under consideration. The referees, having
given the members full and adequate hearing, shall make such further inquiries
on their own behalf as they may see fit, visiting the locality where the competi­
tive condition exists, if that is deemed necessary, but shall speedily render its
decision. In rendering a decision the referees shall have discretion to the
follow in g extent when a com petitive situation has been sufficiently p rov en :
They may order that the competitive situation be disregarded and the
members not permitted to meet the situation by any departure from the regu­
lations, rules, and rates o f the bu reau ; or


w o r k m e n ’ s c o m p e n s a t io n /

B. They may order that such regulations, rules, and rates o f the bureau as
are necessary for the purpose o f adequately meeting the competitive situation
may be modified to such extent as to permit the companies to meet it. To ac­
complish this purpose the referees may issue emergency rules and rates which
shall, however, limit the extent to which the competitive procedure may go. In
this event the bureau members shall observe the emergency regulations, rules,
and rates for the territory involved in lieu o f the regularly adopted regulations,
rules, and rates o f the bureau. These emergency regulations, rules, and rates
may be withdrawn by order o f the referees at any time when, in their judgment,
the necessity for them has ceased, and they may be altered from time to time
by the referees by order when sufficient cause is sh ow n ; or
C. They may order that as to the line or territory involved in the competitive
situation all regulations, rules, and rate-; o f the bureau are suspended and the
members are at liberty to meet the competitive situation in such manner and
to such extent as each o f such members may desire. In this event the referees
may revoke this order o f suspension and reestablish the bureau regulations,
rules, and rates when in their judgment the situation justifies this course.

The rum or that the M aryland Casualty Co. contemplates discontinuing busi­
ness is absolutely false. W e w^ill continue and increase this class o f business
to the largest extent consistent with sound underwriting principles.
This rumor was manufactured out o f the whole cloth. There has never been
any expression from this office that would give the slightest color to any such
rumor. W e believe that this business will probably concentrate in the course o f
years in the hands o f com paratively few strong stock companies, whose re­
sources are sufficiently large and whose personnel is sufficiently skillful and
experienced to deal successfully with the many problems involved in its con­
duct. W e believe the M aryland is thus equipped, and we are earnestly apply­
ing ourselves tow ard the solution o f these problems. This is the best evidence
that we are not contemplating withdrawal, but are contemplating permanent
and enlarged interest in this class o f business.
J o h n T. S t o n e ,
President M aryland Casualty Co.
S a m u e l D a v i s , attorney at law, Boston, Mass. May I ask Mr.
Beyer a question at this time?
Mr. B e y e r . Yes; although I won’t promise to answer it.
Mr. D a v i s . I want to ask if this is a true statement, that the
report of the examination of your company as of April 1 of this year
shows a loss ratio from July 1, 1912, to October 1,1914, of forty-eight
and a fraction per cent.
Mr. B e y e r . I could not answer that. I f you care to address a
communication to my company, I am sure they will be glad to
answer it.
Mr. D a v is . Can y o u give m e the fig u re s for last y e a r ?
Mr. B e y e r . I can not.
Dr. F. S p e n c e r B a l d w i n , manager of the New York State insur­
ance fund. I am under strong temptation to file for printing the
paper which I have prepared and address myself to comment upon

e m p l o y e e s ' m u t u a l ASSOCIATIONS— DISCUSSION.


the papers of Messrs. Lott and Rowe. I shall not yield to that temp­
tation. I can not, however, pass to the subject matter of my paper
without commenting very briefly upon two statements made by Mr.
Lott. He has told you that the officials who manage State insurance
funds are usually political appointees, selected for political reasons,
and retained in office for their ability to render political services. I
challenge Mr. Lott to point to any political influence that has dic­
tated the selection of the manager of the New York State fund, his
assistants, and his working force. The only quarrel that Mr. Lott
has with me personally appears to be the fact that I did pay for a
college education for myself. I admit it. I am not sure that that
sort of an investment would not have been worth while even for a
person with the extraordinary capacity of self-education exhibited by
my friend Mr. Lott. In this connection I might also refer to the
evidence of the nonpolitical character of the administration of the
New York State fund conveyed by the fact that the assistant actuary
of the fund was selected for the position of manager of the Colorado
State fund and another assistant in my office was chosen for the
position of assistant manager of the Pennsylvania State fund.
Mr. Lott further stated that the manager of the New York State
fund in May of this year had promised substantial dividends to em­
ployers, and in September had reversed himself, declaring that the
State fund had passed dividends. The New York State fund has
never promised or assured dividends to employers.
Mr. L o t t . May I correct the gentleman ? I used the word a o f­
fered,’5o-f, of, f-e-r-e-d? offered.
Dr. B a l d w i n . The qualification is accepted, immaterial as it appears
to be. The management of the New York State fund has repeatedly
called attention to the fact that any surplus premiums remaining
after payment of insurance costs are returned to the employers as
dividends at the end of the policy periods. It is also true that the
New York State fund returned in the form of dividends to policy­
holders over $500,000 during the first 18 months of operation. In­
cidentally, I may add that the State fund has saved employers in­
sured in it not less than $1,000,000, as compared with what the in­
surance would have cost them with the old-line companies. Further,
the State fund might have saved at least $5,000,000 to other employers
of New York State who were influenced to place their insurance
with the old-line companies. It is true that the State fund passed
dividends on the last policy period which ended June 30, 1916. That
action was taken with special reference to the extraordinary business
conditions which had produced a sharp rise of the accident rate, and
consequently of the loss ratios for compensation insurance carriers.
In view of the fact that these conditions might be expected to con­



tinue, it was deemed wise to defer further dividends to policyholders,
and to set up an addition to the loss reserves.
Mr. Lott has mentioned the fact, as evidence of the superior se­
curity afforded by stock insurance, that one of the stock companies
of which he has personal knowledge has a paid-up capital of $500,000
and a surplus of $800,000. I might mention the fact that the State
fund of New York now has surplus and reserves for loss and catas­
trophe to the amount of over $2,000,000.
Mr. L o t t . May I interrupt? I spoke only of surplus. You now
also mention reserves—an entirely different matter.
Dr. B a l d w i n . I might suggest that opportunity will doubtless be
given for discussion at the end of my remarks.
That single fact—the size of the loss and catastrophe reserves of
the State fund, amounting to over $2,000,000—is an indication of its
financial strength and security. This sort of comment, however,
will carry me too far afield and I shall now return to the subject of
my paper, “ Competitive State funds.”



At the present time 13 of the 32 American States which have
passed workmen’s compensation laws have State insurance funds.
With respect to the form of organization and administration, three
classes of State funds may be distinguished: First, monopolistic;
second, quasimonopolistic; third, competitive.
Under the monopolistic form, which is found in Nevada, Oregon,
Washington, West Virginia, and Wyoming, the State fund is the
exclusive carrier of compensation insurance. In three of these States,
Nevada, Oregon, and West Virginia, the compensation law is elective,
and in the other two, Washington and Wyoming, it is compulsory.
In the elective States the employer has the option of accepting or
rejecting the law, but if he accepts he must insure in the State fund;
there is no alternative form of insurance permitted. In the com­
pulsory States acceptance of the law and insurance in the State
fund are alike obligatory. Under the quasimonopolistic form, which
exists only in Ohio, insurance in the State fund is compulsory, as is
the acceptance of the act itself, but is not absolutely exclusive, the
options of self-insurance and mutual insurance being permitted.
Under the competitive form, which is found in seven States, Cali­
fornia, Colorado, Maryland, Michigan, Montana, New York, and
Pennsylvania, the State fund is only one of four insurance options
open to employers, the others being stock insurance, mutual insur­
ance, and self-insurance. In three of these States the compensation
law is compulsory, California, Maryland, and New York. In the
others it is elective.
The competitive State funds, with the exception of that of Mich­
igan, have all been established within the last three years; the
Michigan fund began business in 1912. The plan of administration
provided is that of a board or commission, except in the case of the
Michigan fund, which is administered by the State insurance com­
missioner. The funds in California, Colorado, Montana, Maryland,
and New York are administered by the State industrial commission
or accident board. The Pennsylvania fund is administered by a State
workmen’s insurance board, composed of the State treasurer, the
labor commissioner, and the insurance commissioner.



w o r k m e n 's



Under a compensation law providing for compulsory insurance
a State fund is a logical implication, if not an absolute necessity.
I f the State forces employers, under penalty, to insure their liability
under the compensation law, it is bound logically to provide a public
agency of insurance to which employers may resort if they find
themselves unable to obtain insurance from a private company, or
if for any reason they are not disposed to patronize such a company.
A State fund is well-nigh indispensable under a compulsory insur­
ance law for the accommodation of employers who may be black­
listed by the commercial companies, as the latter are under no
obligation to take a risk which they may regard as uninsurable.
It is true that one State—Oklahoma—and one Territory—Hawaii—
which have a compensation law with a compulsory insurance feature
do not maintain a State fund. This situation, however, is clearly
anomalous. The State, in establishing a system of compulsory com­
pensation insurance, ought, as a matter of fairness and equity, to
establish a State fund for the convenience and accommodation of
employers. Aside from the plain necessity of a State fund to accom­
modate such employers as may not be able to obtain insurance on
any terms with private companies, it is further questionable whether
the State has any moral right to compel employers to contribute,
by insurance in commercial companies, to the payment of brokers’
commissions and stockholders’ profits. Employers may rightfully
demand to be relieved of this burden. The State should provide a
means of insurance that will furnish employers complete protection
under the compensation law at bare cost.
The objections to State administration of business in general are
not conclusive or decisive in reference to State administration of
compensation insurance. Whether or not it is desirable, as a matter
of policy, that the State should embark in business undertakings, it
is clearly expedient, if not absolutely necessary, that it should under­
take to provide compensation insurance for employers. For reasons
which have been stated, the establishment of a State fund is a logical
and expedient, if not a necessary and indispensable, measure under
any system of compulsory compensation insurance.
In this connection attention should be called to certain peculiarities
of this form of insurance which furnish additional reasons for
State administration. The first peculiarity is the compulsory nature
of this insurance. Even under the elective compensation laws in­
surance is practically compulsory, as the removal of the common-law
defenses is, in effect, compulsion to insure. That is, even where
the law does not directly compel the employer to insure, it applies
indirect compulsion, which is practically as effective. In the case of

C O M PE T IT IV E STATE F U N D S ---- F . S. BA L D W IN .


other forms of insurance the employer is free to insure or not to
insure, but in the matter of compensation insurance he has no
choice. This consideration alone is sufficient to justify the provision
by the State of a means of insurance that will enable the employer
to comply with the compulsory requirement at the lowest cost. In
particular the payment of brokers’ commissions lacks justification
in connection with compulsory insurance of this kind. If em­
ployers are compelled by law to take out compensation insurance,
it is unreasonable that they should be obliged to pay commissions
to brokers merely for placing such insurance.
The second peculiarity of this form of insurance is its collect!vistic character, to use a somewhat cumbersome term. It is designed to
serve a social purpose. TJie moneys contributed by employers in the
form of insurance premiums are disbursed under the supervision of
a State commission for the benefit of injured employees and their
dependents. The benefit of this insurance accrues not to the indi­
vidual insured or his family, but to the working population at large.
This is really saying that compensation insurance is one form of
social insurance, and as such is differentiated from other forms of in­
surance carried by employers.
In short, the premium for compensation insurance is in reality a
tax, or compulsory levy, for the purpose of indemnifying injured
workers and thus serving the ends of social justice. The natural and
economical method of collecting this tax is through the direct agency
of the State, precisely as in the case of other taxes. There is no
sound reason why the collection of this particular tax should be
farmed out to private companies, which in the role of tax collectors
levy upon employers an overtax to provide commissions for their
agents and profits for their stockholders. The administration of
compensation insurance through the agency of companies operated
for profit is analogous to the old discarded system of farming out
taxes in general.

It must be granted, in view of the considerations just presented,
that a State fund is a desideratum, if not a necessity, in the field of
compensation insurance. The question then arises whether the
monopolistic or the competitive type of State fund is preferable.
Should the State assume the exclusive administration of this form of
insurance, or should it give employers the option of insurance with a
State fund or with private companies?
The first argument advanced in favor of the monopolistic type of
State fund is found in the alleged unfitness of the casualty com­
panies to have an}^ part in the administration of compensation in­
surance. It is argued that the record of these companies under the


w o r k m e n 's c o m p e n s a t i o n


old liability system shows that they can not, in general, be trusted to
administer compensation insurance with fairness and justice and in
the humane and conciliatory spirit that should prevail here. Cas­
ualty companies, it is declared, have, as a rule, made a practice of
fighting claims, taking advantage of every device to circumvent the
claimant and to defraud him of his just dues, and resorting to legal
subterfuges and petty technicalities to defeat the ends of justice.
They are charged with exhibiting an entire lack of moral obligation
and social responsibility in their dealings with working people.
Their unsavory liability record, it is pointed out, has made them
most obnoxious to employees, and also unpopular with many em­
ployers. Their admission to the field of compensation insurance, it
is held, tends to defeat the larger humanitarian and social objects of
this legislation. One important purpose of compensation laws is to
promote satisfaction, contentment, and good feeling on the part of
labor. The success of the laws in this respect, it is maintained, is
jeopardized by permitting the casualty companies to write the in­
surance. It introduces an element of controversy, antagonism, and
discord into the administration of the compensation system.
Another argument for monopolistic State funds is found in the
high cost of insurance through the stock companies. State insurance,
it is pointed out, eliminates acquisition expense, notably the commis­
sions paid to agents and brokers. Profit taking on this form of
insurance is, furthermore, held to be indefensible. No one, it is de­
clared, should be permitted to make money out of the misfortunes of
workers; the moneys contributed by employers for the relief of
injured employees and their dependents should not be subject to any
toll of profit. The ideal compensation system, it is said, would pro­
vide the maximum of benefit to employees at the minimum of cost to
employers, and the realization of this ideal is impossible under any
plan which permits the administration of compensation insurance
through companies operated for profit.
In fairness to the casualty companies it should be stated that the
latter plead in answer to these arguments that the complaints con­
cerning their practices under the liability regime were due to the
shortcomings of that system itself and not to the faults of the com­
panies, and that the alleged expensiveness of stock-company insur­
ance is yet to be proved, as the superior efficiency of private enter­
prise will enable the companies to provide insurance at a lower cost
than it can be furnished under State administration with its attend­
ant laxity and waste.

In the first place, the principle of monopoly itself is attacked as
economically unsound and indefensible. Any legal monopoly, it is

C O M PE T IT IV E STATE F U N D S ---- F . S. B A L D W IN .


argued, either public or private, is dangerous and must lead to grave
abuses; in the long run, monopoly means high cost and poor service;
the mere existence of a legal monopoly raises a suspicion that the
monopolistic undertaking could not maintain itself without the force
of law, and if subjected to the test of competition would be driven to
the wall. The only form of monopoly that can possibly be defended,
it is reasoned, is a monopoly that is secured in open competition
through proved ability to render the best service at the lowest cost.
In the second place, then, it is contended that competition is the
only method of obtaining satisfactory results with respect to cost
and service. So, in the field of compensation insurance, competition
among the different forms of insurance—stock, mutual, and State—
will produce a healthy rivalry which must tend to reduce rates and
improve service. Each form of insurance is placed upon its own
merits and will succeed or fail in proportion to its ability to serve
the interest of employers and employees. I f any one form of in­
surance succeeds eventually in establishing a monopoly, complete
or partial, this can be accomplished only by demonstrating its su­
perior economy and efficiency. The test of competition will deter­
mine which is the fittest to survive. Under the competitive plan of
insurance the controversy as to the respective merits of stock,
mutual, and State insurance will be settled in the only con­
clusive manner possible—by the result of actual experimentation.
I f the experiment results in a division of the field among the three
competing forms of insurance, no one of them being able to secure
a monopoly, this outcome will prove that each form has its peculiar
advantages that enable it to meet the needs of certain classes of
employers, and that there is “ room for all.5’ In that event the
respective spheres of the different insurance methods w ill be deter­
mined by the natural force of competition, and the requirements
of employers will be met more satisfactorily than under any law
conferring a legal monopoly upon one form to the arbitrary exclu­
sion of all others.

The weight of argument here is on the side of the advocates of
competitive State funds, and the preference of public opinion, as
expressed in the general trend of recent legislation, is also on this
side. Right here, however, the question arises as to the extent to
which State funds should be permitted to compete for business with
private insurance companies. Two kinds of competitive State funds
are distinguishable, according to the degree of competition sanc­
tioned by the legislation and approved by the administrative officials
in control, namely, the passive and the active. The former takes
70085°— Bull. 212— 17------ 9



only such business as comes to the State fund without effort on its
part. The latter attempts to increase its volume of business by the
use of all legitimate means of competition.
It is clear that the only way in which a State fund can realize the
full measure of its possibilities of benefit to employiers and employees
is through a policy of active competition. I f State funds are to
exist at all—and their raison d’etre has already been set forth—it
seems advisable to utilize them to the- limit of their potentialities
for good. At any rate, they should be given a chance to prove or
to disprove the contention that a State fund is the most economical
and advantageous form of compensation insurance. It is apparent
that a State fund can not perform its function properly, or even
demonstrate conclusively its success or its failure, unless it is per­
mitted to compete actively with the insurance companies. In short,
the right to compete on the part of the State funds must be recognized
and defended.
I f the right to compete is denied and repressed in the case of a
State fund, while private companies are left free to employ all
resources of competition against it, the former will in the long run
be reduced to playing the role of carrier for the undesirable business
and bad risks not wanted by the latter. A passive policy in the ad­
ministration of a State fund must result in abnormally high loss ami
expense ratios, as a State fund so administered will secure only a
comparatively small volume of business made up of the least desir­
able risks. It is not possible under these conditions to secure a fair
test of the respective merits of the different forms of insurance per­
mitted to employers. Nor can a State fund fulfill its purpose of
furnishing to employers compensation insurance at the lowest cost,
if its freedom of competition is curtailed. In order to become a
really safe and cheap insurance carrier for employers at large, a
State fund must be an active competitor for business and not merely
a passive receiver of damaged goods for private companies—although
this is the role which the latter would naturally prefer to see a State
fund play.
This issue has been raised squarely in connection with the adminis­
tration of the New York State fund. The right of this State fund
to compete has been challenged by representatives of the casualty
companies. In his work on Employers’ Liability and Workmen's
Compensation, Jeremiah F. Connor, Esq., questions whether it was
ever intended by the legislature that the New York State fund should
be an active competitor of the private companies. He writes:
An active competition for business is conducted between the State insurance
fund on the one hand and the stock and mutual insurance companies on the
other. This situation w as probably never contemplated by the fram ers o f the
act, w ho regarded the State fund more as a check upon the rates w hich might

C O M PE T IT IV E STATE F U N D S ---- F . S. B A L D W IN .


be charged by insurance companies and as a safe method o f assuring compensa­
tion to the injured employee.

The State industrial commission, which administers the State
fund, does not hold this view. In a statement issued in October,
1915, the commission declares that the State fund must do a large
volume of business in order that the rate of expenses for administra­
tion may be kept as low as possible and that the State fund may be
of the greatest service to the industries and the people of the State.
For this reason the commission holds that the manager of the State
fund is right in making such efforts as he can to increase its volume
of business, and that they will support every effort of the manager
to present the exact situation to employers, whether by interview or
by correspondence, so that the manifest purpose of the legislature
to provide a perfectly safe method of insurance at bare cost may be
understood and employers given every opportunity to avail them­
selves of this means of insurance.
The competitive activities of the New York State fund have been
attacked most violently by Mr. J. Scofield Rowe, vice president of
the iEtna Life Insurance Co., in letters addressed to the governor
of the State, and later reprinted, with additional matter, in pamphlet
form. Mr. Rowe refers to the competition of the State fund as
“ the confiscation of an established insurance clientage through legal­
ized bribery.” The assumption on which Mr. Rowe proceeds is that
the casualty companies have a vested right to conduct the business
of workmen’s compensation insurance upon which the State may
not rightfully encroach. This can not be conceded for a moment.
The historical fact is that the advocates and promoters of'workmen’s
compensation legislation intended that this insurance should be pro­
vided exclusively by State funds or State mutuals. In fact this
legislation was bitterly opposed by the casualty companies, and the
latter by this course alone forfeited any claim to be intrusted with
the administration of insurance under the compensation laws. The
casualty companies secured admission into this field only in the face
of vigorous protests on the part of labor and persons sincerely inter­
ested to secure the best possible administration of compensation in­
surance. The representation that the State funds are invading a
field that legitimately and rightfully belongs to the casualty com­
panies is sheer effrontery. It is rather the casualty companies that
are attempting to seize a business which was designed to be con­
ducted on a nonprofit-taking basis. It can not be held that the pre­
sumption is in favor of stock-company administration of this new
form of insurance simply because the companies possessed a monopo\y of insurance under the old liability regime. Compensation in­
surance is essentially different from liability insurance. As has
been previously pointed out in this paper, it is compulsory and


w o r k m e n 's c o m p e n s a t i o n


collectivistic in character; a compensation premium is in reality a
tax, the proceeds of which are disbursed under the supervision of a
State commission for the benefit of injured workers and their de­
pendents. The State fund stands for a system of direct collection
and payment of this tax, as opposed to the wasteful method of farm­
ing out, represented by stock-company administration of insurance
in this field. The alleged vested interest of the old-line companies
in this business can not be recognized as paramount to the plain
interests of employers and employees at large which should always
control legislation with respect to compensation insurance.

The difficulties in the way of making any State fund a really
effective competitor of the private companies are numerous and
formidable. These difficulties are partly external, resulting from
advantages enjoyed by the old-line companies and the tactics adopted
by them in competition with State funds, and partly internal, grow­
ing out of conditions surrounding governmental administration of
a business enterprise.
The initial advantages over the State funds enjoyed by the stock
companies are very great. They have large reserve and surplus
funds, which enable them to make appeals to employers on the
ground of established financial strength; they have possession of
the field at the start and can reach employers directly and easily
through their agents and brokers; they are able to write other forms
of insurance needed by employers in addition to compensation in­
surance—public liability, employers’ liability, boiler insurance, ele­
vator insurance, etc.; they profit finally from the natural preference
of the average business man for private enterprise as opposed to
State management, and his consequent natural disposition to hold
aloof from a State fund until it has fully demonstrated its ability to
administer compensation insurance economically and efficiently. In
all these respects a State fund is heavily handicapped at the start.
The connection of the stock companies with an army of insurance
agents and brokers throughout every State is the most important of
these advantages. The State fund pays no commissions to agents;
consequently not only does the State fund receive no assistance from
this source, but it encounters positive opposition and antagonism.
The activities of the great business-getting organizations of the stock
companies are concentrated directly against the State fund. Every
conceivable argument against State-fund insurance is exploited and
circularized. Policyholders of the State fund are constantly solic­
ited to place their insurance with stock companies. Misrepresenta­
tions, concerning the State fund, of the most flagrant and shameless

C O M PE T IT IV E STA TE F U N D S — F . S. B A L D W IN .


character are spread before employers. The State fund is unable
to correct the misrepresentations and to place the facts before em­
ployers, as it has not the facilities for reaching them at first hand.
Many employers who would place their insurance in the State fund,
if they were correctly informed as to the comparative expense and
benefit of State-fund and stock-company insurance, are deterred from
doing so through misinformation instilled into them by their brokers.
Thus the elimination of the agent and broker, economically beneficial
as it is, places the State fund at a tremendous disadvantage in com­
peting for business.
The competitive advantage afforded the stock companies in New
York State through their ability to write other forms of insurance
for employers appears particularly with reference to public liability.
An employer who desires insurance to protect him on liability aris­
ing out of injuries to persons other than employees is unable to ob­
tain this form of “ coverance ” from the State fund. The rates of lia­
bility insurance, moreover, are not subject to supervision by the
State insurance department. It is possible, therefore, for a stock
company to offer a special reduced rate for public liability insurance,
on the condition that the workmen’s compensation insurance is
placed with the same company. In the case of contractors carrying
on operations that involve a high public liability hazard, this con­
sideration is of great importance. The ability of the stock companies
to offer a low rate for public liability insurance, if combined with
workmen’s compensation, may be the decisive factor in determining
that the business shall be given to a stock company rather than to
the State fund. It is obvious, moreover, that the stock companies
could, if they chose, refuse to write public liability insurance for any
State-fund policyholder. It is denied by the companies that dis­
crimination of this kind is practiced against an employer insured in
the State fund, but it undoubtedly exists, nevertheless, to a consider­
able extent. One of the companies has sent out a notice to its agents
instructing them not to apply for quotation of rates on public liability
for any employer insured in the State fund. The situation clearly
calls for some legislation to relieve the State fund of this handicap.
The effective remedy would be an act authorizing the State fund to
write public liability insurance for any one of its policyholders desir­
ing this form of protection. The constitutionality of such a meas­
ure has been questioned, but it would seem to be justifiable as a
grant of supplementary power to the State fund needed in order to
carry out fully the intent of the legislature in its creation. In any
event the State insurance department should be given authority to
supervise rates for public liability as well as those for compensation
insurance, since the practice of offering cut rates for public liability
in combination with compensation insurance really menaces the


w o r k m e n 's c o m p e n s a t i o n


adequacy of the compensation rates, which the plan of rate super­
vision was designed to guarantee.
The inability of the State fund to write insurance on the commonlaw liability of an employer in connection with injuries to employees
was a great handicap to the New York State fund during the first
two years of operation. Employers were told by representatives of
the old-line companies that the State-fund policy gave only partial
protection, since it insured only the liability for compensation and
did not cover the liability arising from suits at common law brought
by employees not included within the scope of the workmen’s com­
pensation law. The extent of the liability at common law was ex­
aggerated grossly in the literature of the stock companies, and em­
ployers were led to believe that, if they placed their insurance with
the State fund, they would lay themselves open to civil actions
for damages brought by injured employees. The State was flooded
with stock-company literature designed to show the shortcomings
of State-fund insurance in respect to the protection of the employer.
Every decision handed down by the courts, which could be construed
as recognizing the existence of a liability not covered by the policy, was advertised widely in the effort to throw doubt upon
the protection afforded by the State fund. As a matter of fact, no
single instance could be cited in which the State-fund policy had
failed to give complete protection to the employer. In all the cases
of alleged liability not insurable in the State fund the insurance of
the employer was actually carried by a casualty company. The argu­
ment as to incomplete “ coverance,” however, industriously and in­
geniously impressed upon employers in the voluminous literature
of the stock companies, had much influence and undoubtedly deterred
many employers from taking insurance with the State fund.
This question was settled once for all by the amendments of the
workmen’s compensation law in 1916. These amendments perfected
the “ coverance ” under the State-fund policy, making it absolutely
complete beyond possibility of successful challenge. The definition of
employee was amended to include not only a person engaged in one
of the hazardous employments enumerated in the law, but also a
person in the service of an employer carrying on such a hazardous
employment as his main business. This amendment brought squarely
under the law employees such as stenographers and clerks, who,
although not themselves engaged in hazardous occupations, are in
the service of an employer conducting a hazardous employment.
Under the amended definition all employees of an employer whose
business is hazardous within the meaning of the law come within its
provisions, irrespective of whether or not their individual occupations
are specifically covered by the law. Another amendment permits an
employer to elect to accept the law for all his employees, even if his

CO M PE T IT IV E STA TE F U N D S ---- F . S. B A L D W IN .


business is nonhazardous, and thus to bring them squarely within the
scope of the law, regardless of the character of the employer’s busi­
ness or the employee’s occupation. Finally, the provision of the law
defining the exclusiveness of the liability for compensation was
amended in such a way as to abolish every trace of liability outside
of the law in connection with injuries to employees of employers pro­
viding compensation through insurance in one of the prescribed ways,
including those specifically covered by its provisions and those volun­
tarily electing to accept the law. These amendments relieved the State
fund from the disadvantage under which it had labored, in conse­
quence of the^ limited scope of the original law and the hypothetical
possibility of actions at common law instituted by employees not cov­
ered by its provisions.

The tactics adopted by the stock companies in their campaign
against the New York State fund aggravate the disadvantages under
which it is placed. In the effort to discredit the State fund with em­
ployers representatives of the old-line companies do not scruple to
resort to misrepresentations of the most shameless character. The
State fund can take no action with respect to rates, dividends, or any
other matter that is not seized upon by its competitors and distorted
and misinterpreted in statements issued to employers. One of the
companies, for example, recently sent out a circular in which em­
ployers were told that, if the surplus of the State fund were wiped
out, they would be subject to assessment and would also be liable to
have judgments, good for 20 years, entered against them by their
employees for the collection of unpaid awards. As a matter of fact,
the law contains no provision authorizing an assessment by the State
fund, and it has been officially ruled, both by the State industrial
commission and the State attorney general, that employers insured
in the State fund are not subject to any assessment liability. It is
true that the section of the law relating to withdrawal from the State
fund provides that, in the event of the withdrawal of an employer,
his liability to assessment shall continue for one year. But, in the
absence of definite and affirmative provisions creating an assessment
liability and prescribing a method of enforcement, this sole refer­
ence to assessment in the law is absolutely nugatory. Nevertheless,
in the face of the formal rulings of the commission and the attorney
general on this question, the unqualified assertion that State-fund
policyholders are subject to assessment is repeated in the circular
mentioned and in other literature issued by the stock companies.
With respect to the matter of judgments for unpaid awards, the fact is
that, while such judgments may be entered by employees against em­
ployers insured otherwise than in the State fund, the policyholders


w o r k m e n 's c o m p e n s a t i o n


of the latter are exempted from this procedure by the section of the
law releasing an employer who pays a premium to the State fund
from all liability on account of personal injuries or death of em­
ployees, and further providing expressly that his employees shall
have recourse for the payment of compensation only to the State
fund and not to the employer. When the State industrial commis­
sion sent to the company that issued this circular a letter of pro­
test, calling attention to the misrepresentations concerning the law
contained in it, the commission was informed that the use of the cir­
cular would be discontinued. But meanwhile the damage had been
done, and brokers to whom the circular had been sent continued to
repeat its harmful misrepresentations.
The insurance interests have not hesitated even to attempt to dis­
credit the workmen’s compensation law itself by raising the ques­
tion of constitutionality, in the desperate effort to throw doubt upon
the protection afforded by the State-fund policy. In New York, and
in other States having State funds, employers have been led to be­
lieve that the courts would probably refuse to sustain the constitu­
tionality of the workmen’s compensation law, and wTould eventually
wipe out the whole body of this legislation, including the State fund.
The big outstanding fact that the constitutionality of workmen’s
compensation legislation has been sustained by the highest courts
in 12 States and by the United States Supreme Court in the case
of the Ohio and Washington laws is ignored or suppressed in the
stock-comp any literature issued to employers. The course taken by
the old-line companies for the purpose of discrediting the State funds
by throwing doubt upon the constitutionality of the workmen’s com­
pensation laws can not be too harshly characterized or too severely
condemned. It is distinctly against public policy, as it tends to con­
fuse the minds of employers with reference to the soundness of this
legislation and to alienate their support and cooperation.
No candid person well informed concerning the trend of judicial
opinion with respect to workmen’s compensation legislation can have
any doubt that these laws will be sustained by the United States
Supreme Court. The constitutionality of the Ohio and Washington
laws, as previously stated, has already been passed upon by this
court. The decision in the case involving the constitutionality of
the Washington law, Meese v. Northern Pacific Railway, 239 U. S.
614, is of particular importance as throwing light upon the probable
attitude of the court toward the New York law in the cases now
pending. The precise question of constitutionality raised in connec­
tion with the New York law is whether the provisions of the law
making the liability for compensation exclusive and depriving the
employee, on the one side, of his common-law remedy and the em­
ployer, on the other side, of his common-law defense are in conflict



with the equal-proteetion clause of the fourteenth amendment of the
United States Constitution. The language of the Washington act
in abolishing common-law liability is very broad and sweeping.
Section 1 of the act provides that 44all civil actions and civil causes
of action for such personal injuries and all jurisdiction of the courts
of the State over such causes are hereby abolished, except as in this
act provided.”. In the Meese case, the widow and children of a de­
ceased employee sued the Northern Pacific Railway, in a third-party
action, for his alleged negligent killing. This case thus raised the
question of the right of the surviving dependents of a deceased em­
ployee to bring action against a third party. This was a very broad
issue. The Supreme Court of the United States held that this right
had been abolished by the Washington workmen’s compensation law.
In the light of the Washington decision it seems practically cer­
tain that the New York law will be sustained by the United States
Supreme Court. The New York State court of appeals in its
opinion sustaining the constitutionality of the law, in the case of
Jensen v. Southern Pacific Co., did not hesitate to declare that the
amendment of the New York State constitution and the decisions
of the United States Supreme Court made it reasonably certain that
the New York law will be found by that court not to be violative of
the Constitution of the United States. I f the highest court of New
York State ventures such a prediction it is hardly presumptuous for
a layman to contend that there is no reason for the slightest appre­
hension that the general question of the constitutionality of the New
York law or the law of any other State will be decided adversely by
the United States Supreme Court.
It has always seemed to the writer that it is a mistaken and short­
sighted policy on the part of the casualty companies to resort to
such tactics in their campaign against State funds. The use of com­
petitive methods that do not square with the standards of fair play
and public policy must react harmfully upon those who countenance
such practices. Moreover, the best protection against the creation
of a State-fund monopoly, dread of which haunts the private com­
panies, is the existence of strong successful competitive State funds.
I f in New York State, for example, the casualty companies should
succeed in their attacks upon the right of the State fund to compete
and should prevent it from getting and keeping a fair proportion
of good business, making it a negligible factor in the insurance
situation and reducing it to play the role of a carrier of last resort
for otherwise uninsurable business, an irresistible demand would
arise for drastic legislation in the direction of a State-fund monopoly.
One thing is plain, the business of compensation insurance will not
be left to be monopolized by the old-line companies. I f the com­
petitive State fund should fail, then a monopolistic State fund



would be practically inevitable. By raiding and baiting the State
fund with the fatuous hope of driving it out of business, the casualty
companies pursuing this policy are simply inviting measures of re­
prisal and jeopardizing their own tenure of the compensation

The internal difficulties confronting competitive State funds re­
main to be considered. These arise from the defects of a govern­
mental machinery that was constructed without reference to the
peculiar requirements of a State department carrying on a com­
petitive business enterprise. The cumbersomeness of this machinery
is proverbial. The operationsi of governmental bureaus naturally
take on a rigid routinelike character. The tendency is to run in
ruts and the ruts grow deeper and deeper. A system of checks and
counterchecks is developed with the object of preventing dishonesty,
but with the result of hampering efficiency. An able writer speaks
of “ the languor of the Government stroke and the slow mechanism
of a State department ” as unfavorable to efficient administration.
Another distinguished publicist points out that the State is ham­
pered in the conduct o f any enterprise, first, by considerations of
policy which dictate or forbid certain kinds of choice, and, next, by
stringent rules which it has been forced to lay down regarding the
admission to certain public functions by examinations, grades, and
the like, which were designed to prevent the possibility of a shame­
less favoritism. The civil service, in particular, is a serious handicap
in the administration of a State fund. The necessity of civil-service
rules arose from the fact that economic competition was excluded
in State departments. Consequently, in order to keep out political
abuses, the civil-service system of examinations and grades for
selection and promotion of employees was adopted. The best that
can be said in its favor is that civil service is a necessary evil, de­
signed to prevent the worse evil of political interference and corrup­
tion. The necessity o f applying civil-service rules to a department
like a State fund is not clearly apparent, however, as such a depart­
ment is subjected to the action of commercial competition. The
enforcement of these rules places the administration o f a State fund
at a serious disadvantage in competition with private companies
not similarly restricted. It is extremely difficult to secure and
retain the services of the most competent men under the hampering
conditions of the civil service. New employees must be selected, not
from the best men available, but from certified lists of eligible can­
didates. It is impossible to promote employees and increase salaries
according to the judgment of heads of departments, which should
be decisive and .final in such matters. Promotions and increases can

C O M PE T IT IV E STA TE F U N D S ---- F . S. B A L D W IN .


be granted only on the basis of competitive examination. The
method of examination, at the best, is a crude and unsatisfactory
way of determining the fitness of a person for employment or for
promotion in a business organization like that of a State fund.
Examinations do not test the qualities of industry and resourceful­
ness, readiness to take orders, capacity for cooperation and team
play, ambition and loyalty, and, above all, that complex of quali­
ties that go to make up personality, which has so much to do with
determining the ability of a person to make himself a useful factor
in a successful commercial organization. In view of the fact that
a State fund, unlike other departments of government, is subjected
to the spur of competition, which furnishes a practical guaranty
of businesslike management, there seems to be no good reason why
it should not be relieved of the crippling restraints of the civil
service, designed to protect State departments that are entirely re­
moved from the sphere of commercial competition.
It will, of course, be argued in opposition to this suggestion that
the exemption of a State fund from the civil-service regime would
open the door wide to political abuses. This objection overlooks the
fact that the interests of employers and employees at stake in the
management of a State fund are too large to permit them to view
with indifference or easy-going tolerance any attempt at political
interference with the administration. The possible menace of po­
litical control or manipulation seems less serious than the actual
handicap to administrative efficiency entailed by the rigid enforce­
ment of civil-service rules. As the writer has pointed out in a
previous discussion of this subject, it is not likely that politics will
be allowed to creep into the administration of State funds, because
the interests of employers and employees alike lead them to demand
a nonpolitical administration. A State fund is in reality a trust
fund made up of money contributed by employers for the benefit of
injured employees and their dependents. The interest of employers
and employees is that State funds be administered solely with regard
to economy and efficiency, in order that the benefits prescribed by the
law may be provided for employees at the lowest cost to employers.
The cooperation of employers and employees may be depended upon,
therefore, to support an administration of State funds in accordance
with sound business and insurance principles, and free from the
blighting influence of partisan politics.

Notwithstanding the difficulties 'with which competitive Statei
funds have had to contend, they have already made substantial
progress and have secured a large share of the business in the States in
which they have been permitted actually to exercise the right to com­


W O B K M E n ' s CO M PEN SA TIO N .

pete. In the three largest States having competitive State funds—
New York, Pennsylvania, and California—these institutions have
rendered indispensable service to employers and have won their con­
fidence, cooperation, and support in constantly increasing measure.
The State fund in each of these three great industrial Common­
wealths is fulfilling its mission, which is to reduce the cost of com­
pensation insurance, directly by furnishing such insurance without
superfluous overhead charges for commissions and profits, and in­
directly by contributing to the reduction of rates through the com­
petitive pressure which it exerts upon other carriers.
It would be venturesome at this time to offer any definite predic­
tion as to the future of compensation insurance and the ultimate
division of the field between the competing plans of stock, mutual,
and State insurance. One result of this competition, however, is
already making itself evident, in the elimination of the weaker or less
successful competitors and the concentration of the business in fewer
hands. The stress of competition has become keener during the last
year and a half of abnormal business activity, with the consequent in­
crease in the frequency and severity of industrial accidents. A rise
in the accident rate is a natural and inevitable accompaniment of
any period of rapid industrial expansion. At such times plants are
run overtime and under high pressure, new and inexperienced em­
ployees are taken on in considerable number, working space is
crowded by the installation of new machines, and less attention is
paid to safety requirements. The recent intense activity of business
has resulted in higher loss ratios on compensation insurance. Thir­
teen of the stock companies lost money on their 1915 compensation
business in New York State, and the 1916 experience will doubtless
be even worse. The pressure of these conditions has accelerated the
natural tendency toward concentration of compensation business
through the reduction of the number of companies writing this
insurance. Already three mutuals and seven stock companies, which
started writing compensation insurance in New York State in 1914,
have withdrawn from the field.
This process of elimination may be expected to continue. Gradu­
ally the less capable and resourceful competitors will find it in­
creasingly difficult to hold the pace and will drop out of the running.
The eventual outcome of this sifting process would naturally be
the survival of only a small body of carriers, including a very few
large companies, stock and mutual, and the State funds.


Mr. Chairman, I never realized the importance of time as much
as I do now. I wish I could have my 20 minutes to reply to some
of the arguments set forth by the representatives of stock companies.
Their arguments in favor of the desirability of competition reminded
me of a story I told yesterday at the boiler-inspectors’ convention:
An Irishman and his wife could not get along well together. One
night they were sitting in front of the fire, and a cat and a dog were
in front of the grate. Biddy looked over at Pat and said, “ Isn’t it
a shame the way we quarrel; look at the cat and dog sitting there so
peacefully. Why can’t we live in peace and harmony the way they
do? ” Pat says, “ That is no comparison at all. Just tie the cat and
dog together and see how they like it.”
The statement was made to you that Ohio State insurance had
been a failure, if the chairman of the Kentucky Compensation Board
was right in his contention. I want to answer that by quoting Bill
Nye, who said that “ it is better not to know anything at all than
to know so many things that ain’t so.”
I might also call your attention to this fact: That every effort is
made to cast reproach upon State insurance by implying that politics
make it impossible to succeed. While I have not time to go into it,
1 hope you will not misunderstand my motives, as I do not wish to
throw any slurs, but I will say there are just a few State officials in
some of the States in this country who cater to the insurance com­
panies just as much as some State insurance officials cater to the poli­
ticians, and they do it in the hopes that they will be rewarded for
their political services, not by the State but by the insurance com­
panies themselves.
In speaking on this subject it might be well to explain that the
State insurance feature of the Ohio workmen’s compensation law,
strictly speaking, is a mutual insurance plan administered by and
at the expense of the State. The law provides that each separate
class of industry shall bear the burden of the cost of its own indus­
trial accidents. But instead of leaving the separate classes in iso­
lated groups, with no bond of unity to inspire confidence and give
reinforcement in time of stress, the Ohio law links the separate
groups together into one great mutual insurance association.



w o r k m e n 's c o m p e n s a t i o n


Under the Ohio plan the premium rate for each class of industry
is based upon its own accident experience, but the employers of each
and every class pay their premiums into one insurance fund. This
plan gives the employers of each class all the advantages of the
ordinary mutual association. But, in addition to that, it gives the
various groups the advantage of a big insurance fund to protect
them against the embarrassment of catastrophe losses. This means
a great deal to the smaller groups'. It does not mean that any por­
tion of the burden of cost of one group shall be thrown upon the
other groups. It does, however, permit the distribution of catastrophe
losses over a longer period of time and a larger exposure of pay
roll than would be possible if each group were in an isolated mutual
association of its own.
With this explanation, it must be admitted that the insurance
feature of the Ohio workmen’s compensation law is a monopoly,
since it is the principle and intent of the law to exclude private
insurance companies from participating in the business of work­
men’s compensation insurance.
It might be well to note here that the Ohio law provides that em­
ployers who are financially able to do so may carry their own risks
by complying with the lawful requirements in that respect. There­
fore, in speaking on this subject, I do not wish to be understood as
opposing what we commonly call self-insurance.
To pass fair judgment upon the merits of State insurance we must
keep in mind the fact that one of the principal objects in changing
from the employers’ liability system to the workmen’s compensation
system was to eliminate the wasteful expenditure of money for the
cost of an insurance that neither protected nor benefited the injured
worker, and which fomented undesirable and costly litigation between
employer and employee. If, in the elimination of this wasteful ex­
penditure of money, there is good reason why we should stop at the
point where it interferes with the insurance companies’ profits, there
is equally as good reason why we should stop at the point where it
interferes with the lawyers’ fees. The ambulance-chasing lawyer
was no greater evil than the insurance adjuster.
To be a permanent and substantial success a State insurance fund,
in my opinion, should be a monopoly. I have not much faith in a
competitive State insurance fund as a regulator of the rates of the
private insurance companies. Under an exclusive State insurance
fund the enormous overhead expense for salaries or commissions of
soliciting agents is done away with. I f a competitive State insurance
fund is to be an effective factor as a regulator of the rates of the
private insurance companies it must go about it in a businesslike
manner, and must have a force of soliciting agents equal to those of
its competitors. In doing this it would be compelled to take on the

STA TE M O N O PO LY OF IN S U R A N C E ---- T. J . D U F F Y .


same overhead expenses as the private insurance companies. The mo­
ment it does this it deprives itself of the advantages which an ex­
clusive State insurance fund possesses.
Either Mr. Rowe or Mr. Lott—I forget which of the two—prac­
tically supports me in that when he says that employers will not
go to seek information as to rates, etc. Therefore, you have got to
carry it to them, just as he said, provided there are several alter­
natives. But where there is only the one plan, there is nothing left
for the employer to do but get the information, and he is going to
get it.
The advisability of State insurance is not going to be determined
by those who flippantly assert that the State can never conduct any
business with the same degree of success as a private concern. A
more thorough and accurate knowledge would convince these critics
that there are certain things which the State can do better than
private individuals or corporations can do. In these matters the
State has natural advantages which make it impossible for private
concerns to give the same service as economically as the State can
give it. Even the opponents of State insurance would hardly be
willing to encourage the reestablishment of competitive water-supply
plants to take the places of the monopolistic municipal water-supply
plants that have been established in the various cities.
O f course the State can not make a success of anything if it goes
about it in a slipshod, unbusinesslike manner; neither can a private
concern. Whether it be public or private business its success neces­
sarily depends upon honesty, efficiency, and faithfulness. I have
had experience in both public and private business, and my experi­
ence leads me to remark that if the searchlight of public criticism
were constantly turned upon private business as it is upon public
business, it would be found that as a general rule there is as much
efficiency and far more honesty in public business than there is in
private business.
In Ohio we have not attempted to administer a State insurance
fund by slipshod, unbusinesslike methods. Ours is not a mere as­
sessment insurance plan. We aim to administer our State insurance
fund with the same businesslike methods and the same actuarial
science as the best-conducted private insurance company does. We
are willing to let our record speak for itself for the sake of com­
parison with the private insurance companies from the standpoint
of economy, efficiency, and solvency.
Our last financial statement, issued under date of May 15, 1916,
shows that after making liberal allowance far all pending and un­
reported claims, we have a total reserve fund amounting to
$875,572.77. It also shows what we call a net surplus, amounting to
$41,314.42. This net surplus is the amount we would pay out as



dividends if we were a private insurance company. To put it in
other words, if we had quit business on May 15, 1916, we could have
met all of our obligations and had left to our credit $916,887.19.
This report shows that the cost of administration, covering the
entire period since the fund was established, has been equivalent to
11 per cent of the earned premium collected. I f we take the year
1916 alone the cost of administration will not exceed 6 per cent.
Compare this with the 45 per cent overhead expenses of the private
insurance companies and you have one of the reasons why Ohio
employers favor the State insurance fund.
The report also shows that the premium rates of the private insur­
ance companies are from 40 to 100 per cent higher than the rates
which we have charged the employers of Ohio.
On this question of State insurance many business men are allow­
ing their judgment to be warped by an appeal to the prejudice against
State ownership. They do not realize that they are the victims of
a systematic propaganda carried on by the liability insurance com­
panies, who have their representatives in every chamber of com­
merce and business men’s club throughout the country, urging busi­
ness men to oppose State insurance on the ground that it is an enter­
ing wedge for Government ownership of all kinds of business. This
is but a trick to divert attention from the real merits of State insur­
ance. The advocates of State insurance are no more in favor of the
Government taking over “ other lines of business ” than are the
opponents of State insurance itself.
A manufacturing business or an agricultural business exists because
it supplies the natural wants of mankind. The same may be said
even of life, accident, or fire insurance. But wherever employers’
liability insurance or workmen’s compensation insurance exists it is
because the proper legislative tribunal has imposed a legal obligation
upon employers or conferred a legal right upon injured employees
and the dependents of employees who are killed in the course of
employment. The very existence of such a business depends upon
legislative enactment, and when the State enacts such legislation it
does it as a matter of public policy. When the very existence of a
business depends upon the public policy of a State, how can it be
said logically and consistently that such a business should be left
to private enterprise rather than public control? I am not now
speaking of that public policy which restricts or regulates a busi­
ness already brought into existence through the natural needs of
man; I am speaking of that public policy which gives life or exist­
ence to a business which would not exist at all if it were not for
legislative enactment.
Do the. men in the manufacturing and the agricultural business
want their business to be put in the same class as the employers’

STATE M O NO PO LY OF IN S U R A N C E ---- T. J . D U F F Y .


liability insurance business? Do they want to be considered such
superficial observers and such shallow thinkers as to say that there
is no more reason why the State should have a State insurance fund
in connection with a workmen’s compensation law than there is
reason why the State should take over the manufacturing and the
agricultural business of the country? Are we willing to confess
that our present 46individualistic system ” will not permit us to
provide for the victims of industrial accidents without permitting
a private enterprise to make profits out of the broken bones, ampu­
tated limbs, and crushed-out lives of our laboring people?
While I concede that State insurance, as a general proposition,
is still in the experimental stage, yet it is indisputable that the ex­
perience in Ohio, thus far, has been so favorable as to justify the
claim that it is an established institution so far as Ohio is concerned.
There is room for honest difference of opinion as to the advisability
of State insurance, but there is no justification for the conduct of
those who willfully and persistently misrepresent the facts as to the
Ohio State insurance fund in order to prevent its introduction into
other States. The fact that in Ohio hard-headed business men, who
are bitterly opposed to State ownership of industries, are ardent ad­
vocates and champions of the State insurance fund should cause the
business men of other States to* look with suspicion upon the repre­
sentations of those who, for selfish reasons, set up the scarecrow of
paternalism or socialism in order to prevent men from studying the
true facts and considering the real merits of State insurance.
Perhaps it is to be expected that insurance men will resist en­
croachment upon their business, but that is no reason why the march
of progress should be stopped. When labor-saving machines were
first introduced in the world of industry, the handicraftsmen pro­
tested. They said that they had spent the best years of their lives
to acquire the skill of their trade, and that it would be unjust to
supplant them by machines. But they were told that this new
invention would confer great benefit upon the people, and that they
must step aside and make way for progress. So I say to the in­
surance men that this new legal invention, known as a State insur­
ance feature of a workmen’s compensation law, will confer great
benefit upon the people, and the insurance men, with their old
methods, must step aside and make way for the progress of humanity.
70085°— Bull. 212— 17-------10

[ T h is p a p er w as su b m itted bu t n o t re a d .}

It is unnecessary here to review the arguments advanced by those •
favoring the various methods of carrying workmen’s compensation
insurance. This paper will, therefore, be confined to a brief ex­
planation of the Oregon law, a review of our experience, and a
comparison of that experience with other methods of providing this
form of insurance.
The Oregon law is an optional one of the presumptive-elective
type, and it is estimated that between 80 and 85 per cent of the
industries of the State subject to. the act are operating under its
provisions. Although not automatically subject to the law, farmers
are coming under it, by application, in such numbers that it is be­
lieved when the law is made a compulsory one little opposition will
exist to including agricultural operations.
No minimum premiums are required, nor are employers with less
than a certain number of workmen excluded from the protection of
the act. Insurance as to all employers becoming subject to the law
is restricted to the State fund. Employers rejecting the act are
subject to the employers’ liability act. Payments of premium are
made by employers between the 1st and 15th of each month on
account of the pay roll of the preceding calendar month, thus ob­
viating the necessity of tying up of vast sums of money in advance
During the first year there were 5,088 employers subject to the law,
and at the end of the second year, June 30, 1916, the number' was
6,532, an increase of 28 per cent. Provision is made for reduction
in the individual employer’s premium for favorable accident ex­
perience, and at the present time a very large proportion of em­
ployers operating under the law are securing the reduction.
The industrial accident commission administers the insurance fund
and also passes upon claims for compensation. Each claim is con­
sidered by at least two members of the commission, and of 14,535
cases disposed of by the board there have been but 9 appeals from its
decisions, 3 of these being for the purpose of securing judicial inter146

STA TE M O N O PO LY OF IN S U R A N C E ---- W . A. M A R S H A L L.


pretation of some provisions of the law. No appeals have been
taken by employers from the decisions of the commission, and in
only a few instances were the operations of the employer disturbed
by requiring the attendance of fellow employees of the injured
workmen before the commission or the courts. The number of cases
where the claimant was represented by an attorney was also small.
We believe our experience has been favorable, if we are justified in
comparing it to the litigation existing in some of the States.
During the first year the law was in operation the injured work­
men received in compensation benefits 88.3 per cent of all moneys
expended for every purpose, and during the year following this was
increased to 91.3 per cent. The ratio of administrative expense to
moneys handled by the commission the first year was 8.69 per cent,
while the second year it was 8.71 per cent, the increased ratio of ex­
pense resulting from decreased income through reduction in premium
Save for several specified permanent partial disabilities, compensa­
tion is made by monthly payments, and future payments in all fatal
cases and in permanent-disability cases extending over two years are
secured by capitalizing the liability and the establishment of a segre­
gated fund. The moneys in this fund have been invested solely
within the State of Oregon in school and municipal bonds.
One of the arguments used against the State fund in Oregon has
been the claim that the rates would be found to provide insufficient
income to cover liability. It will be conceded, I believe, that from
the standpoint of security no other method of providing for future
payments in fatal and permanent partial disability cases can com­
pare with capitalizing the full liability in such cases and placing the
required sums o f money in a reserve or segregated fund. As to lia­
bility in pending claims, if the premium income should prove in­
adequate at any time in the future, I see no reason why this condi­
tion could not be remedied as satisfactorily by State funds as by other
insurance carriers.
As to the catastrophe hazard, this is minimized where, aside from
the reserve to cover the liability in closed cases, all premium income is
in one fund and available to cover catastrophe liability.
Another point urged against an exclusive State fund in Oregon is
the possibility of political appointments of commissioners and assist­
ants destroying efficiency in the administration of the law and the
fund. Although the Oregon law has been in force under two dif­
ferent administrations and has not experienced the difficulty pre­
dicted, it can not be denied that such a condition could arise. This
objection could, however, also be raised against every other govern­
mental activity, and yet we do not hear anyone advocating the opera­


w o rk m en 's

c o m p e n s a t io n .

tion o f our public schools and police or fire departments as business
My observation of the methods of handling insurance and settling
claims under both the employers’ liability and workmen’s compensa­
tion systems has brought the conviction that the providing of insur­
ance under workmen’s compensation laws is properly a function of
the State. Formerly the injured workmen were too often partici­
pants in unequal contests with skilled adjusters, whose mam con­
sideration was the securing of settlements at the least possible cost.
The large number of technical objections involved in appeals to
compensation boards and the courts at the present time is also evi­
dence that the settlement of claims of injured workmen should not
be provided for by a method where financial considerations are bound
to be the controlling influence.
It has also been urged in Oregon by the advocates of other methods
of insurance that accident prevention will be greatly encouraged by
the application of merit-rating principles. One can not deny the
force of these statements, but I fail to see any obstacle in incorporat­
ing this feature in the laws providing for State funds. Uniformity
in the application of the merit-rating principle is, of course, essential,
and it must be conceded that this could not be handled less efficiently
by State fund officials than it is at present in some States where
merit rating is regarded largely as a vehicle for rate cutting.
Aside from the moral consideration, it seems to me that the plan
of carrying workmen’s compensation in a State fund exclusively has
an advantage as to cost of acquisition which can not be met by any
other method save possibly self-insurance. As before stated, the
ratio of benefits to total expenditures in Oregon in the second year
was 91.3 per cent. As a basis of comparison there should properly
be added to the expense factor the estimated value of services fur­
nished by the State without cost to the fund and a sum equivalent
to the State tax required from certain insurers. This would increase
the ratio of expense to all expenditures to 11.1 per cent in a State
where the industrial operations are comparatively small and scat­
tered over a large area.
In conclusion, I deem it fortunate that under the different State
laws, at the present time, opportunity is offered for the carrying
of workmen’s compensation insurance under the various methods,
and that it will thus be possible to ascertain by experience the best

[This paper was submitted but not read.]

Within a few short decades the United States has been trans­
formed from an essentially agricultural nation, homogeneous in
race and ideals, into a modern industrial community, with a mixed
population, with mammoth corporations on the one hand and organ­
ized labor on the other, and with a commercial system connecting
us intimately with the markets of the world. Fundamentally it is
this great change which has made the workmen’s compensation
system a need and a fact in our American life, and it is this change
which makes pertinent our discussion of the other forms of social
insurance at this time.
We may safely predict that if health insurance for workers, oldage pensions, maternity benefits, and unemployment insurance are
generally adopted in this country, their establishment will come as
the result of the pressure of tremendous economic forces, without
regard to the opinions expressed by any particular group of indi­
vidual citizens.
Apparently, then, the function of this conference is not to attempt
to influence public opinion as to the desirability or undesirability
of the several forms of social insurance, but rather by thorough dis­
cussion to bring out the facts now available as to each of these
forms in order that unnecessary defects and weaknesses may be
avoided in such soeial-insurance measures as are actually adopted.
This distinction applies with particular force to our discussion of
compensation laws and insurance, since the workmen’s compensation
system is already effective in the great majority of the States of our
Union. This general acceptance of the workmen’s compensation
principle brings our comparison of the several methods of com­
pensation insurance, in part at least, within the sphere of expe­
rience and fact. Moreover, it enables us to engage in constructive
criticism of the different types of insurance carrier operating in
the compensation field without fear of exciting prejudice against the
workmen’s compensation regime and without fear of endangering
the future of the compensation system.



w o r k m e n 's

c o m p e n s a t io n .

Upon the program of this conference I am designated for the
presentation of a paper dealing with the u Shortcomings of the
competitive plan of State insurance in workmen’s compensation.”
Since I feel that the competitive plan is a practical experiment which
will contribute much to the sound development of all forms of social
insurance, it will be my endeavor to discuss the present defects in
this plan from a constructive standpoint, and, frankly, I shall attempt
to emphasize certain advantages of this plan.

The competitive plan of compensation insurance may be defined
as a system whereunder the employer may choose as his insurance
carrier a fund administered by the State, or a mutual association of
employers, or a private stock company. In its broader meaning
the competitive plan includes those States where live competition
exists between mutual and stock companies, even though there be
no State fund. Much of the subject matter of this paper applied
not merely to California, Colorado, Maryland, Michigan, Montana,
New York, and Pennsylvania, where competitive State funds are
in operation but to all other compensation States where both the
mutual and the stock plans are effective.
Without a doubt the establishment of the competitive plan had
its origin in a general difference of opinion as to the best form of
insurance carrier of workmen’s compensation risks. On the one
hand it was felt that a virtual monopoly of the compensation field
upon the part of stock companies would not be desirable, since it
would be placing the employing class in the hands of the companies
both as to premium cost and as to the nature and quality of the
services rendered by the carrier. On the other hand, many felt
that it would be unwise to establish a State monopoly of compensa­
tion insurance for several reasons. In the first place, we would
be discarding outright the services o f well-established institutions,
many of them of great financial strength and well equipped with
officials and employees thoroughly trained in the business of liability
insurance. Secondly, monopoly of any kind was felt to be unde­
sirable as removing all incentive toward progress in method of han­
dling the business. Finally, grave doubt was expressed as to whether
our ideals o f public service have yet become so advanced *as to war­
rant the expectation that State management without the spur of com­
petition would prove as efficient as the conduct of a private enterprise.
From these considerations the concept of the competitive plan
was evolved. It was believed that competition between State funds
and mutual companies on the one hand and stock companies on the
other, would effectively prevent the collection from the employing




class of premium rates disproportionate to the actual cost of adminis­
tration plus the benefits accruing to injured workmen and their
dependents. Moreover, competition should place a premium upon
service, not only in the prompt and liberal adjustment of claims, but
in the matter of assistance rendered to employers in the installation
of safeguards against occurrence of avoidable accidents.

The competitive State fund has little in common with the monopo­
listic State fund. The competitive State fund can not hope to gain
or to hold a respectable volume of business without rendering serv­
ice equivalent to that rendered by competing stock and mutual com­
panies. On the other hand, the monopolistic fund would appear
to be in a position to decide for itself in great measure what service
shall be rendered to the employer. In either case the volume and
character of services rendered is limited by the amount of money at
the disposal of the fund’s management. Here again is a difference
in situation, since the monopolistic fund is generally dependent upon
legislative appropriation, while there is good reason to believe that
in the long run the competitive funds will be required to pay all
their expenses from the premiums collected from their policyholders.
Under a monopoly, temporary insolvency, however undesirable,
need not spell disaster, since the only contingency which can prevent
a monopolistic fund from eventually collecting sufficient premiums
to cover its losses is legislative action removing the fund’s exclusive
right to the compensation business of the State. On the other hand,
insolvency, or a condition approaching it, can mean little else for a
competitive fund than the winding up of its affairs, since its policy­
holders are free to avoid any increase in premium rates by trans­
ferring their insurance to other carriers. It appears therefore that
the management of a competitive State fund is a task requiring
greater technical skill than does the conduct of a State monopoly.
It is increasingly evident that these distinctions have not been
kept clearly in mind by legislators, for most inappropriately many
legal provisions applicable to the competitive State funds have been
copied well-nigh verbatim from the statutes which called into being
the monopolistic funds of Washington and Ohio. This confusion
is most apparent in provisions relating to the payment of expenses,
supervision of rates and reserves, and fundamental financial plan.
A majority of the competitive funds have had their expenses paid
by the State for the first two or three years of their existence. Ap­
parently it would have been more consistent with the functions of
these institutions to provide each of them with a surplus commen­
surate with the number and character of compensation risks in the


w o r k m e n ' s c o m p e n s a t io n .

State and to place the burden of the fund’s expenses upon premium
income from the very outset.
Since stock and mutual companies have to meet their expenses
from their premiums, the fund’s expenses can be met in the same
manner, without prejudice to the position of the fund as a com­
petitor. Probably it is not illogical that the State should contribute
some portion of the cost of the workmen’s compensation system; never­
theless it appears inequitable that the employer electing private in­
surance should pay a premium covering both the cost of the benefits
and administrative expense, while the State-fund policyholder is
relieved of his share of the expense of conducting the business of
compensation insurance. Incidentally, one important function of a
competitive fund is to furnish a criterion of the reasonableness of
the rates charged by private companies. Where the fund is subsidized
by the State, a comparison of the respective costs under the State and
private plans may be somewhat misleading as to the real expense of
conducting compensation insurance.
The Legislature of California granted the fund an appropriation
of $100,000 as a surplus with which to begin business. It can hardly
be gainsaid that in the other States lack of such a “ nest egg ” has
been something of a handicap. Expense subsidies have, however,
proven an advantage in business getting and have facilitated some­
what the accumulation of a surplus. From present indications all of
the competitive funds will soon be paying their own expenses, and it
seems therefore that these institutions are working toward a basis
well suited to their needs and functions. Meanwhile in States where
the hazards of industry are great as compared with population the
fund should not be expected to accept indiscriminately risks involv­
ing catastrophe hazard, and its right to reject extrahazardous
risks should in some cases be made more specific. In such States the
fund can hardly be expected to open its doors to all employers, unless
an adequate appropriation be made to augment its surplus. Such
provision might be made upon condition that the amount of the
appropriation is eventually to be returned to the State at such time
as the condition of the fund shall warrant.
The rates, reserves, and investments of competitive funds should,
of course, be subject to the same supervision as that exercised over
the rates, reserves, and investments of stock and mutual companies.
The entire future of the fund depends, of course, upon the collection
of adequate rates in the first instance. The fund’s management has
often found it necessary to compute reserves upon a basis more
stringent than that imposed upon the private carrier. Making the
fund subject to the State insurance department to the same extent as
are private companies is therefore no hardship whatever to a con­
scientious management. On the other hand, a periodical verification



of the fund’s financial condition on the part of the insurance com­
missioner is to be welcomed as a protection to the fund against unjust
attack and as a further guaranty of proper management to which
the public is entitled.

The existence of a considerable number of strong stock casualty
companies, managed by insurance men well versed in the experience
of liability underwriting, has undoubtedly been of inestimable value
to the establishment of workmen’s compensation insurance upon a;
stable and scientific basis. Especially have some of the stock com­
panies played a leading part in the development of the system known
as merit rating, whereunder the employer is given a powerful eco­
nomic incentive toward accident prevention by means of credits and
charges expressed in dollars and cents of premium cost.
As in the case of other commercial enterprises, the original purpose
of the establishment of a stock company is the realization of profits.
It is notable that within the last few months two leading companies
have ceased writing workmen’s compensation risks, apparently be­
cause they have found the transaction of compensation business to
be not merely unremunerative, but actually productive of financial
loss. In view of the present unsettled basis of compensation
premium rates, it is perhaps easy to attach too much significance to
these withdrawals from the field. There are, however, other con­
siderations which favor the conclusion that the compensation field
will not prove very profitable to the stock companies.
The compensation laws are fundamentally humanitarian and pro­
social in their purpose. Although the workers are the direct bene­
ficiaries of this legislation, its primary object is to stabilize the
foundations of society by removing the causes of industrial unrest.
Through their legislatures the people have gone so far as to make
workmen’s compensation insurance compulsory. In theory, at least,
the realization of profits from the conduct of workmen’s compensa­
tion insurance is hardly consistent with the underlying concept of
compensation legislation.
Competition in service is the outstanding feature of the competi­
tive plan of compensation insurance, and expert service can best be
rendered, generally, by men trained in the home office of an insurance
institution. From the experience of State funds and mutual com­
panies, it appears that a considerable volume of business can be se­
cured and maintained without the payment of commissions to agents.
The competition of State funds and mutuals whose employees are aW
upon a salary basis forces rates down to a point where no margin of
profit seems possible as long as the stock companies adhere strictly
to the agency plan and to the present scale of commissions.


w o r k m e n 's

c o m p e n s a t io n .

A moderate return upon the capital invested is without doubt the
most that the stock companies can hope to realize on the compensa­
tion business in view of the conditions of competition and of public
sentiment. Some companies undoubtedly have an interest in writing
compensation because of the hold which it gives them upon other
lines of insurance. The companies which remain in the compensa­
tion field may find it necessary to reduce the present commissions on
compensation business, and to depend almost altogether upon salaried
employees in the rendering of service to policyholders.
A partial list of the classes of insurance conducted by stock com­
panies includes accident and health, fidelity and surety, employers’
and public liability, steam boiler, plate glass, flywheel, and automo­
bile. The most advanced legislation looking to the establishment of
stock casualty companies upon a sound basis requires that the com­
pany shall have a capital in direct proportion to the number of lines
of insurance it proposes to conduct. Unfortunately this very im­
portant principle has not been carried out in a considerable number
of States. Periodically examinations are made as to the financial
condition of all insurance companies, but the standards imposed by
the different States are regrettably lacking in uniformity both as
respects substance and interpretation.
It follows that not all stock companies are in the same class as
respects financial responsibility. In fact, it has not been pos'sible up
to the present time always to cut short the career of a company before
insolvency has occurred. In view of the complicated nature of the
affairs of stock companies engaged in a miscellaneous business, the
interests of employers and workmen under the compensation acts
demand that the present requirements as to capital be universally
raised to the high standard already set in certain States. The en­
forcement of adequate rates and the maintenance of adequate reserves
are matters o f great immediate importance, to which I shall refer

The laws of most compensation States authorize, or at least per­
mit, the organization of mutual corporations for the purpose of
insuring the liability imposed upon employers by the compensation
acts. In most instances such corporations are permitted to write
certain other lines, such as public liability, elevator liability, and
certain classes of automobile and team insurance. Although the
number of mutuals is steadily increasing, the great majority of such
qpmpanies thus far established are comparatively small institutions.
However, in a few States, and particularly in Massachusetts, mutual
companies have already played a conspicuous and worthy part in
the compensation insurance field.



For several reasons it appears inevitable that these mutual asso­
ciations shall increase in number and importance for many years to
come. Under the mutual plan whatever excess there may be of
premiums over the insurance expense and compensation cost reverts
to the employers. Moreover, the mutual plan gives employers whose
establishments are above the average in point of hazard a means of
cooperation whereby premium cost can be kept to the minimum
through selection of risks and expert inspection service for the en- ,
couragement of accident prevention.
In this generation employers and employees alike have come to
regard organization as a necessity, and the general consensus of
public opinion favors organizations both of employers and employees
as in the long run productive of much good. In many industries
no organization has yet been established with sufficient prestige to
make the average business concern defer its individual interests to
the welfare of the entire industry. Without doubt a mutual insur­
ance corporation whose members, being engaged in the same or
related industries, are working together for the fulfillment of the
important public purposes of a compensation act, is a powerful influ­
ence toward cooperative effort along other important lines.
In a report dated February 28, 1916, the superintendent of insur­
ance of the State of New York says:
As to the mutual companies, if there were 7 or 8 such corporations instead
of 17, their cause would be the gainer. Eight of the mutuals receive less than
$50,000 per annum in premiums and the remaining nine are doing about 90 per
cent of all the mutual business. The department has taken over for liquidation
one mutual company with a total annual premium income of slightly more
than $7,000. Fortunately, this company has not experienced a single serious
Iqss, and will be able to pay off its outstanding obligations and return to its
members a substantial dividend.

The report goes on to state that the New York insurance law has
been amended to require that no mutual company shall begin business
unless it has a prospective yearly premium income of at least $25,000.
This report places a most appropriate emphasis upon the unde­
sirability of the creation of a multitude of mutual companies, each
with a premium income too small to absorb even minor fluctuations
in the accident rate. It might have been said further that only where
a mutual company is of fair size can employers realize any saving
under the mutual plan as compared with the cost of stock insurance.
Nothing could be more consistent with the sound advancement of
the mutual idea in compensation insurance than a general adoption
of high standards as to the amount of business which must be pledged
to a mutual company before it can begin actual operations. The
present New York standards require 40 employers, 2,500 employees,
and, as above noted, a prospective premium income of $25,000 a year.



c o m p e n s a t io n .

Requirements at least as stringent as these should be adopted in all
Mutual companies should be required, as are most of the competi­
tive funds, to set aside a certain percentage of their premiums as a
contribution to surplus until an adequate surplus has been accumu­
lated. The maintenance of proper rates and reserves is a matter
important alike to State funds and to all private companies, both
stock and mutual.



Under the workmen’s compensation acts the benefits for death and
for permanent disability are payable throughout a long period.
Soundness of the insurance system is the only guaranty to the em­
ployee or to his family that the payment of these benefits will be
eventually completed. The solvency of the insurance carrier means
nearly as much to the employer, since under many compensation
laws failure of the insurance company or fund does not relieve the
employer from liability to pay compensation to his workmen and
their dependents.
The collection of adequate rates is the first premise upon which
solvency of the insurance carrier depends. Accordingly not even
a brief survey.of the competitive plan is complete without some
reference to the statutes which have been adopted in several States
looking to the maintenance of adequate rates, for these statutes
strike at the very core of compensation-insurance problems. In
Massachusetts, New York, California, Colorado, Pennsylvania, and
possibly one or two other States, the premium rates charged by
private companies must be approved by some State official or com­
mission as to their adequacy. This means that no company can do
business unless in the opinion of some State official, generally the
insurance commissioner, it proposes to charge rates which will be
sufficient to meet expenses, the current compensation payments, and
to provide sufficient reserves. The practical effect of this legislation
is to make the approving State department fix a schedule of mini­
mum rates at which compensation business can be written.
There is an apparent contradiction between the effect of these
adequate rate laws and the intent of much of our so-called anti­
trust legislation. It is easy to establish, however, that unrestrained
competition in compensation premium rates is contrary to public
policy. Unrestrained competition means the survival possibly of
only the strong companies, but the weaker companies can not be
eliminated from the field without great hardship upon employers,
employees, and the public. I f we wish concrete evidence as to the
evils of unrestrained competition we need but to turn to the experi­
ence of the State of California, where not so very long ago two



stock companies were obliged to cease operations. It is believed
that the passing of these companies was caused primarily by the
charging of inadequate rates. One company was reinsured, the
other failed outright, leaving several hundred thousand dollars’
worth of unpaid claims—and let us not forget that in case of com­
pensation claims the injured workmen and their families bore the
loss. It is not surprising that since this experience the State of
California adopted its present minimum adequate rate law.
The competition of strong State funds and mutual companies is a
sufficient guaranty that premium rates will not be excessive. Ade­
quate rate legislation is a logical and necessary complement to the
competitive principle. The general adoption of laws under which
State authority can not only approve but effectively enforce the col­
lection of adequate rates is undoubtedly of the greatest immediate
importance to the future of the competitive plan. In fact, the value
of all well-managed insurance institutions, whether funds, mutuals,
or stock companies, is seriously impaired when these important serv­
ants of the public are embarrassed by the competition of companies
which are willing for reasons of their own to take compensation busi­
ness at rates which must inevitably result in eventual financial loss
to the carrier.
It is not sufficient that before writing compensation risks the
carrier must file with State authority a manual of rates and a meritrating plan purporting to be the systems which it will follow in its
underwriting. Experience demonstrates that some companies will
not adhere to the rates which they file, unless the underwriting of
every risk is checked by some State department or by some impartial
central agency backed up by the State. All inspections for meritrating purposes and the classification of all compensation risks should
be made either by an arm of the State Government or by a central
rating bureau cooperating with'the State and subject to visitation,
examination, and supervision on the part of State authority.
In the long run employers are bound to have to pay premiums suf­
ficient to cover the true cost of the workmen’s compensation laws.
Lack of adequate rate supervision means discrimination, most often
at the expense of the small employer. Improper classification of
risks makes the experience compiled under workmen’s compensation
acts of little value and destroys all possibility of an equitable distri­
bution of cost in proportion to the hazard of the industry.
The alleged purpose of schedule rating in compensation is to re­
ward the employer who protects his employees and to penalize the
employer who subjects his workmen to the hazard of preventable
injury. Under conditions of unrestrained competition, the meritrating schedule becomes a mere rate-cutting device removed of all
value from a humanitarian standpoint. It is only when merit-rating


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inspections are made by impartial inspectors responsible only to
a public or semipublic bureau that a substantial economic gain results
from the schedule rating of compensation risks.

The National Convention of Insurance Commissioners has this
year most advisedly taken under consideration the preparation of a
bill for the establishment of a uniform reserve basis in liability and
compensation insurance for both stock and mutual companies.
The country-wide need of standard legislation of this kind can
not be overemphasized. The insurance laws of some States do not
specify any basis for determining the liabilities of a casualty com­
pany. Such statutes as are in force respecting workmen’s compensa­
tion loss reserves are, with few exceptions, inelastic, unscientific, and
inadequate, although reflecting as deep an understanding of the needs
of the situation as was current at the time of their enactment.
The establishment of State funds and mutual companies for the
benefit of employers and employees avails but little if these institutions
and the best stock companies have to compete with concerns which
have no apparent interest in their own eventual solvency, which are
not required by law to maintain adequate reserves, and which are
able to evade the statutes which require that adequate rates be
collected. The most efficient and conscientious insurance commis­
sioners can not curb the operations of loosely managed companies
unless their efforts are backed by adequate legislation.

The advisability of the competitive plan has been challenged, on
the one hand, by the advocates of State monopoly, and on the other
by the champions of the 66vested rights ” of private enterprise. In
fact it was recently contended, in an article appearing in a leading
insurance journal, that if the State is to engage in the business of
compensation insurance it should take over the entire field, and that
while there is some justification for the monopolistic plan, the com­
petitive plan is a hybrid possessing the vices and none of the virtues
o f both State and private insurance.
I believe that this point of view bespeaks an artful juggling with
our concepts of the so-called moral rights o f the State, rather than
a sincere exercise of sound judgment as to what activities may in
practice be undertaken by the State with profit to the great majority
of its citizens. Moreover, I can conceive of no way in which greater
injury can be done to the interests of private insurance companies
than by the presentation of arguments of this kind. It is altogether
improbable that social insurance will revert entirely to private



agencies, so that opposition to State insurance, except upon a monop­
olistic basis, is perhaps the most likely way of eliminating private
enterprise from the social insurance field.
The American people will judge the competitive plan not from the
standpoint of theory alone, but principally upon the basis of its
practical achievements. Accordingly the public wants to know, first,
what the competitive State funds have accomplished and, second,
whether the competitive plan possesses any advantages over the mo­
nopolistic plan.
It has sometimes been stated that the competition of State funds
is not necessary, since employers generally have the right to organize
mutual corporations as a relief from possible monopoly on the part
of stock companies. This argument is comparable to the contention
that the mere presence of some millions of able-bodied men within the
boundaries of the United States constitutes an adequate preparation
for defense against foreign aggression.
Well-organized mutual companies do not spring into being over­
night. The competitive funds, being organized and sponsored by the
State, have been a- vital factor in the compensation business from the
very outset. In the campaign against excessive cost in the adminis­
tration of compensation insurance these funds have maintained a pro­
gressive and effective lead and their presence in the field has saved
employers hundreds of thousands of dollars.
The proponents of State monopoly point to the apparent economy
and to the simplicity of operation of the monopolistic plan. They
may say that the competitive plan is complicated, expensive, and
difficult, and that much time, money, and effort can be saved by
eliminating the companies from the social insurance field once and
for all. In answer, let me say that under the competitive plan diffi­
cult problems have a way of coming to the surface and demanding
immediate solution. The very continuance of the competitive plan
requires constant effort toward the calculation of adequate but equi­
table rates, the determination of a reliable and elastic system of re­
serves, and the development of an effective system of accident preven­
tion. The study which is being devoted to these problems under the
competitive plan can not but contribute much to the soundness and
usefulness of compensation insurance; and if under the monopolistic
plan there is no exchange of ideas along these important lines the
necessary implication is that the solution of many a vital problem has
been unduly postponed.
A small ratio of expense to premium income does not necessarily
spell economy, while a liberal expense ratio need not mean wasteful­
ness. Under the competitive plan insurance carriers are vying with
each other in service to the employer. Prompt handling of claims,
expert medical service, and inspections for safety purposes are all



expensive, but these things are productive of real economic gain.
From steam boiler insurance on the one hand to life insurance on the
other it is being demonstrated that true economy is brought about
by conservation of human life and property rather than by “ watch­
ful waiting” for the occurrence of the loss.
Very few, if any, of our State governments have progressed to the
point where merit is the sole criterion in the selection of employees.
Obviously it is not a good thing to conduct a State fund upon a
political rather than a business basis. Even professional politicians
may from self-interest desire to keep a State fund out of politics,
since mismanagement means loss of business and of prestige. On
the other hand, it seems possible that the employees of a monopolistic
State fund will be selected in much the same way as are employees
in other State departments, without due regard to the appropriate
requirements of technical knowledge and insurance experience.
The fundamental justification for the competitive plan is the out­
standing fact that we can not yet agree as to what kind of insurance
carrier is ideally suited to serve the high purposes of the compensa­
tion acts. Competition between insurance institutions of divergent
types is the logical method of settling this question, not merely for
workmen’s compensation, but for social insurance generally.

A l b e r t L. A l l e n , assistant manager, Workmen’s Insurance Fund,
Pennsylvania. The ideal theory of workmen’s compensation insur­
ance is equitable distribution of payments of compensation costs to
injured employees or their dependents at a minimum burden to the
employer. Modern efficiency means the elimination of waste. What
is waste in the payment for workmen’s compensation insurance?
Workmen’s compensation laws virtually compel every employer,
from the standpoint of financial self-preservation, to obtain protec­
tion against demands that injuries to workers may occasion. An
insurance medium for such a condition should be as nearly lacking in
waste, as high in efficiency, as may be possible to meet adequately the
requirements created by workmen’s compensation legislation.
Whether the process of transferring from the employer’s produc­
tion cost the stipulated compensation amounts to injured workmen
can be ethically regarded as a transaction to produce profit for en­
terprises capitalized for the purpose of giving that protection is a
question receiving nation-wide consideration. With that question
I shall not deal from the ethical standpoint.
Each individual method which has been presented to the conference
this morning has merit and demerit, but to the employer who pur­
chases compensation insurance the methods appeal only in the
manner in which they are presented by insurance representatives.
However, after experience for a year or two under compensation laws,
the ultimate decision of the employer will be based on service and
Is it equitable and just for the cost of production to assume a
burden of excessive cost for compensation insurance? Should not
the consumers protect themselves from the increased cost of com­
modities by influencing employers to accept the insurance method
which will give the result required under the compensation statute
with the elimination of the waste, for which there is no apparent
return ?
The different methods of compensation insurance—stock companies,
mutual associations, State monopolies, and competitive State funds—
are now all in the spot light of public scrutiny, and the final decision
will be made by a crystallized public opinion on the records of
70085°— Bull. 212—17------ 11


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efficiency and cost of each of the various systems or by combination
of two or more of the prevailing systems.
The merits of stock companies may be at this period outlined as
greater experience, possession of voluminous records based on that
experience, and capitalization for reserve strength. Opponents of
stock companies object to this form of insurance on the basis that
a large percentage of its premium income is distributed as commis­
sions and salaries to men who solicit for their individual concerns
an insurance commodity which the laws of various States say every
employer within those States, with few exceptions, must purchase.
This solicitation cost to divert into individual concerns something
that must be purchased regardless of solicitation is frequently con­
sidered as waste.
In return for the capitalization which stockholders have con­
tributed to strengthen stock companies, they properly expect an
adequate profit or dividend on their investment. Eeduced to its last
analysis, the dividends to stockholders and the commissions paid to
agents is an added expense for the distribution of compensation
payments from the aggregate cost of production and which does
not exist in other forms of compensation insurance protection.
Mutual associations have become a factor in the compensation
insurance field in an effort to eliminate a portion of the waste which
I have previously mentioned. The mutual association is meritori­
ous inasmuch as the final cost is subject to a distribution of dividends
to policyholders should the premium income exceed the cost of the
payment of claims, after setting aside adequate reserves and the
payment of necessary operating expenses. A properly managed
mutual association with sufficient number of members to accumulate
a large exposure and with sufficient premium income should be able
to offer employers a suitable protection against compensation liability
at a cost lower than that of the stock companies.
However, as a demerit, the employer who places his insurance in a,
mutual association is always in the shadow of a contingent liability
equal to the amount of his premium should an assessment become
necessary on account of excessive loss ratio. There is always the dan­
ger of a financial depression which would eliminate many members
from participation in such an association, thereby reducing the
premium income below an amount adequate for a proper exposure.
Self-insurance is virtually negligible in number of employers, but
alarming in amount of pay-roll exposure. Comparatively few em­
ployers can show to any compensation board financial soundness that
would be deemed adequate to meet any contingency that might arise.
The assumption of the risk by the employer, who may be granted
privilege to carry his own insurance, is a gamble against a possible
catastrophe or many serious accidents which may exhaust his in­



surance reserves. The large employer with a tremendous pay-roll
exposure who has adopted this plan of insurance may possibly find
his average cost over a period of years a satisfactory recompense for
taking the chance. This custom is not universal and should not be
allowed to extend unless the same requirements are placed upon the
self-insurer as those imposed upon private insurance carriers.
Supervision of self-insurers by the insurance departments of all
States where such privileges are granted is an important feature for
consideration. To encourage the accumulation of compensation sta­
tistics, all methods should be placed under the same jurisdiction in
order that complete statistics may be obtained upon a uniform basis
for the guidance of actuaries in compilation for insurance statistical
The legislatures of various States have recognized in passing work­
men’s compensation laws that they have virtually compelled the
employers to purchase an insurance policy to cover the protection to
State funds have been created by statutes in order that there may
be a medium through which this insurance may be obtained at net
cost to the insuring public. Many of the State funds so created
operate upon a system peculiar to themselves and different from that
adopted by other insurance carriers.
We have in Pennsylvania a State workmen’s insurance board com­
posed of the State treasurer, insurance commissioner, and the com/missioner of labor and industry. This board has no connection with
the workmen’s compensation board, and our claims are placed before
the compensation board in the same manner as any insurance carried.
We have the same right to appear as any insurance carrier, and it is
a very satisfactory medium. By this arrangement of the insurance
board the actions of the fund receive automatically the approval of
the insurance commission, and in all cases all activities of the insur­
ance fund, the reserves, the financial statement—in fact, rates and
everything which have to do with the administration—are under the
stated supervision of the insurance department, so it would be impos­
sible for the State fund to run wild if it so desired.
The organization of State funds, based on communal principles,
does not include stockholders or commissioned agents who exclu­
sively solicit a commodity which the law says every employer must
purchase. In the majority of cases an expense subsidy has been fur­
nished by the State or Commonwealth to pay operating expenses
until the fund has assumed the successful proportions which would
enable it to operate as an individual enterprise entirely self-supporting.
The legislatures have provided State funds as the popular medium
which the employers may utilize for compensation protection by mak­


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ing proper application. In some States it is a compulsory insurance,
but in others it is on a competitive basis in the open field, with the
altruistic view of furnishing the employer compensation insurance
at net cost and lower than it can be obtained through other methods.
Opposition to State funds is strongly voiced by its competitors,
using the argument of political management and inefficient service.
They assume that the office force will be loaded with political at­
taches who are incompetent to fulfill the duties of an ordinary insur­
ance clerk or inspector and also that the management will be politi­
cally controlled, to the detriment of the policyholders. The reference
to such practice is irrevocably repudiated by consideration of the
various State funds now in operation. The organizations show many
experienced men who have been obtained from other insurance offices
vested with the experience of which the competitors boast. The ma­
jority of State funds show conclusively that the final result relieves
the employer of excessive compensation cost and produces a lower
production item to be borne by the consumer.
In conclusion, it may well be stated that all systems of insurance
are sufficient for the protection of the injured employee and the indi­
vidual efforts will produce a situation which will result, after 3^ears
of experience, in the survival-of-the-fittest method or the fittest com­
bination of methods.
J o h n W. Mapel, of the Pfister & Vogel Leather Co., Milwaukee,
Wis. The theory of all compensation acts is that the industry should
bear the burden of the expense of repairs to the human machine.
There is an additional obligation on the industry or the employer,
however, which is more important than the mere money recompense
by the employer to the unfortunate workman. This is the obligation
of protection which the employer owes the employee, and this obli­
gation of protection is an underlying and essential feature of a com­
pensation act.
The method of operating under a compensation act which most
fully recognizes and most completely carries out this spirit of pro­
tection is self-insurance by the employer, by which the employer
assumes the liability of a compensation act rather than to delegate
liis obligations to an insurance company.
The function of an insurance company is to protect the employer
by limiting his financial losses.
The function of a compensation act is to protect the workman.
When an employer buys his compensation insurance protection
from an insurance company as a rule he turns over to the insurance
company the obligation of protection which a compensation act re­
On the contrary, when an employer elects to insure himself and to
assume the liability of a compensation act the success of his under­



taking depends first on his extending to his employees the fullest
measure of protection.
The insurance companies appreciate the value of protection as
keenly as do self-insurers, and so offer their customers the induce­
ment of merit rating, to secure better protection.
The personal interest between the self-insuring employer and his
workmen will, however, always overbalance that interest of an em­
ployer in protecting his men which is stimulated alone by the induce­
ment of merit rating given by an insurance company.
Employers who carry their own insurance realize that self-insur­
ance unquestionably furthers the employer’s interest by fostering
the personal contact between the employer and the workmen.
In addition, however, to the intangible but recognized advantage of
personal dealing with employees, there are substantial profits in selfinsurance, particularly during the experimental stage of rate making
by the insurance companies. Curiously enough, the incentive to large
employers to carry their own insurance was furthered by the insur­
ance companies themselves.
The rates quoted by the insurance companies for compensation
insurance were startling to the employer, accustomed as he was to
buying his liability insurance under the former common-law relation
between the employer and employee.
In Wisconsin, for example, immediately before the compensation
act took effect, the average manual rate of the insurance companies
for unlimited employers’ liability insurance was $2.84 per $100 of
pay roll. When, however, the compensation act went into effect,
September 1, 1911, the average rate for unlimited protection under
the compensation act advanced to $4.75, or an increase of $1.91 per
$100 of pay roll. In some instances the cost to the employer of
buying compensation insurance protection was increased more than
10 times the insurance rate paid prior to the enactment of the
compensation act.
The insurance companies were doubtless justified in these large
increases in the rates. They were without experience in operating
under compensation acts in this country. The experience of Euro­
pean companies was not applicable to American conditions or Ameri­
can compensation acts. The attitude of the industrial commissions
would necessarily affect the construction to be placed on the acts and
their administration. The tendency might be to increase the indem­
nities paid under the acts and make them more costly in their opera­
tion than they were originally intended to be. New classifications
might be construed to come under the act, such as industrial diseases
and the like, which could not be foreseen and anticipated by the
insurance companies in basing their rates. Hence the base rates



which the insurance companies fixed were largely a matter of con­
jecture and were of necessity placed conservatively so that they
would be on the safe side in assuming the risk.
The very material increase in the compensation rates immediately
suggested to employers the possibility of insuring themselves against
their liability under compensation acts. This alternative, however,
was not open to all employers. Only the employer whose financial
condition was sound could consider self-insurance. State authori­
ties, rightly enough, were unwilling to jeopardize the payment of
indemnities to injured workmen unless the financial responsibility of
the employer was proved and his ability to meet a severe loss was
assured them. The employer had to judge whether or not he had a
sufficient number of employees over which to distribute his risk. The
hazard of the industry had to be taken into consideration, as well as
whether the hazard could be lessened by safeguarding machinery and
the many other methods of preventing accidents and reducing conse­
quent liability. The character of materials handled, the location and
construction of the plants, and any other conditions which would affect
the risk, entered into consideration.
As an inducement to the employer to insure himself the compensa­
tion act fixes and limits the amount of indemnity payments for any one
accident. The employer reasoned that it was probable that the in­
surance companies, while compensation insurance was in its initial
experimental stages, would unquestionably be well on the safe side
in their quotations. The employer knew that there was a margin of
at least 15 per cent which the insurance companies had to pay for the
cost of the acquisition of business, and which expense the employer
would not have to meet. The insurance company also had a mate­
rially higher percentage of overhead charge for actuarial and sta­
tistical expense, adjustments, inspections, etc., which also would not
have to be met by the individual employer. In fact it was believed
that there should be a good margin for the employer, particularly in
the experimental stages of insurance under the compensation acts, and
that it would be a favorable time for the employer to accumulate a
reserve at the start, when the margin was large, before competition
had forced close competitive prices for compensation liability insur­
It is impossible from the statistics at hand to state with even ap­
proximate accuracy the exact saving which large employers are mak­
ing by carrying their own insurance.
But the experience of the Wisconsin employers who carried their
own insurance during 1914 and 1915 is suggestive as a practical
demonstration of the results of this kind of insurance. Mr. W. H.
Burhop, chief statistician of the Wisconsin Industrial Commission,



has courteously furnished the following data, showing the cost to
self-insurers for the years 1914 and 1915 in comparison with the cost
of purchasing insurance based on the same pay rolls at the present
bureau rates. These figures, covering $108,000,000 of pay roll, show
that the aggregate premiums of the insurance companies (computed
after allowing an average reduction for merit rating) amounted to
about three and one-half times as much as the total compensation
expenses to the employers who carried their own insurance.
Mr. Burhop states, however, that among the self-insuring indus­
tries many of the most hazardous occupations are included, for which
the insurance rates were very high, and which either by good for­
tune or excellent safety work had shown very favorable experience
and very large savings. Mr. Burhop includes in this list powder
and dynamite making, heavy machinery manufacturing, logging and
lumbering, work in sawmills, construction work, work on coal docks,
electric railways, and stevedoring. By excluding all of these unusual
risks, we find that the expense to the self-insuring employer was
$411,000, in comparison with a computed insurance premium of the
insurance companies of $1,263,000; or, the expense of the self-insurer
was one-third the cost of the computed premiums of the insurance
Table IV of the bulletin of the Industrial Commission of Wiscon­
sin, August 1, 1916, shows the percentage of expense to earned
premiums of all the insurance companies operating under the Wis­
consin Workmen’s Compensation Act for the year 1915 to be 35 per
cent. Assuming that many self-insurers did not make an adequate
estimate of the overhead charge in connection with carrying their
own insurance, let us add 100 per cent to the compensation expenses
of self-insurers to cover any omitted cost, thus bringing the cost to
the self-insurers to $800,000, which would seem to be a conservative
estimate. There would still be a difference to self-insurers of 33^
per cent less than the cost of the computed insurance premiums of
the insurance companies.
Let us, however, not view self-insurance from the narrow view­
point of comparative cost alone. The large employer who himself
carries the liability of a compensation act is consistently carrying
out an enlightened policy of present-day business.
As Mr. Kennedy has pointed out, the trend of large business,
where many thousands of workmen are employed by a single com­
pany, has been toward the divergence of personal relationship of
employer and employee. But the far-sighted employer now realizes
that close personal contact is essential for the best advantage of
employer and workmen. To secure this advantage the large em­
ployer offers various “ employees’ service ” and “ welfare ” plans, such
as medical and nursing service, group insurance, and the like, to


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maintain the spirit of personal contact with his men. These efforts
are invariably along protective lines. For example, when an em­
ployer realizes the disadvantage of a large labor turnover, his
remedy includes the protection of his employees against irregular
employment by furnishing steady work at fair wages in safe and
sanitary plants; by protecting the health of his workmen; and by
generally furthering their interests, as well as his own, by protective
In conclusion, self-insurance established on the'underlying princi­
ple of protection produces the soundest relationship between the large
employer and his employees under a compensation act, and when an
employer in a position to carry his own liability under a compensa­
tion act contracts away this privilege to an insurance company he
loses an advantage in successfully dealing with the human element of
his business. S a m u e l D a v i s , attorney at law, Boston, Mass. I think you can hear
me from here. I only represent myself as an insurance student. I
came down to listen and look on, but the extraordinary statements
made in the paper sent down here by the president of the Massachu­
setts Employees’ Insurance Association—Mr. Chairman, I can not
allow those statements to go without rebuke. It is a pity the gentle­
man is not here himself in order that he might be interrogated on
some of the statements that he made concerning the situation in
Massachusetts. That is my State, and I am able to claim some ac­
quaintance with what has gone on there in the matter of compensation-insurance rates. He made the statement that an enormous sum
of money was lost—I can not recall how much—by the insurance car­
riers in Massachusetts, because the rates had been deliberately made
so low that mutual companies and the weak stock companies might
be crushed out. Now, we have some official statistics on that mattei*
which are conclusive. The most important fact is this: The Massa­
chusetts Employees’ Insurance Association was examined this spring
by the Massachusetts insurance department. The report of that ex­
amination states that the loss ratio of that company from the begin­
ning of compensation in Massachusetts down to the 1st of April of
this year, Mr. Chairman, was just 48.35 per cent. Now, I ask this
intelligent audience how that company could have been frozen out
of existence, even though the insurance rates were low, if the entire
loss ratio for the whole period was less than 50 per cent. Now it is
true that some companies have lost money in Massachusetts. I do not
claim to speak with any knowledge of the inside conditions of these
companies. I know nothing but what I gathered from public state­
ments and formal reports. But this much is true, and appears from
the last insurance report issued by our commissioner of insurance:
About 75 per cent, perhaps a little less, of all the workmen’s compen­



sation insurance in Massachusetts last year was underwritten by a
group of five companies, of which two were stock and three were
mutual. It is true that the loss ratio of that group was 102.51 per
cent, but, Mr. Chairman, in 1914 the rates were increased some 40
per cent over what they had been formerly and without any increase
in rates whatever; moreover, on the 1st of May of this year new rates
wrere put in force in Massachusetts which took into account the in­
crease of benefits as of the previous October, and there is no doubt
that ail the companies will be able to make good on the new rates.
Moreover, the sixtieth report of the insurance commissioner contains
this statement, that from July 1, 1912, when the act went into effect,
up to October 1, 1914, the loss ratio of all the companies was less
than 40 per cent. Now I submit to you gentlemen who are accus­
tomed to handling figures whether this tends to show that the rates
were made so low as to exclude mutual companies from operation in
our State. During all that period the company in question increased
its volume of business until it is now the next to the largest insurance
carrier in Massachusetts, and during all that period it has paid divi­
dends of 30 per cent.
T. H. Ca r r o w , of the Pennsylvania Railroad Co. I want to say a
word for the self-insurers. For more than 36 years the Pennsyl­
vania Railroad has assumed its own risk of loss from fire, and for
16 years it has assumed the risk of loss from personal injuries. It
is at the present time assuming these risks and it proposes to continue
to do it as long as the law will permit it. It has a well-organized
force of safety inspectors and its insurance department is equipped
to handle the business in a thoroughly intelligent manner. And there
is no reason that we can see why the question should even be agitated;
that is, the question of restricting private companies as to self-in­
surance. I had no intention of having anything to say until I read
the subject of this morning’s session, “ Merits and demerits of differ­
ent methods of carrying workmen’s compensation insurance,” and
then I read over in the back of the program under “ The purpose of
the organization ” : “ It will be a sufficient accomplishment if the
problems considered can be clearly defined and definitely stated for
the information of legislators and administrators.” And I assumed
that the proceedings of this conference will be published and spread
broadcast, and I simply want to go on record as representing one
company that has been for more than 36 years a self-insurer against
fire loss, and for 16 years has also been a self-insurer against injury
to persons; and not only that, it obeys the laws implicitly; and it
proposes to do so, and all it wants in the matter is a fair chance to
continue self-insurance, and I merely say that so it will go on record.


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W . G. W i l s o n (of Cleveland, Ohio), iEtna Life Insurance Co.
I beg to correct the introduction; I am not standing on the floor
as a business representative of my company. I presume that this
meeting is a forum where we are expected to drink from the fountain
of truth, and so I feel that everyone may speak frankly. A gentle­
man made a statement which I believe should not pass unchallenged
and upon which I feel competent to address myself. Commissioner
Duffy, of the Industrial Commission of Ohio, has been an acquaint­
ance and a friend of mine for many years. He has been on the
commission ever since the introduction of the compensation system
in Ohio. I think that it is but simple justice to say that in the judg­
ment of myself as well as the judgment of many other people in the
State of Ohio, Mr. Duffy and his several associates on the commis­
sion have striven to the best of their ability and with no small
measure of success to give the benefits of workmen’s compensation
to the people of that State. In so far as he has rendered that service,
I feel that he is entitled to recognition and praise. I had not sup­
posed, however, that he had been so preoccupied or had gone so far
awry as to misstate and misjudge the attitude of the insurance men
in the State of Ohio, of whom I happen to be one, and I know very
well and clearly the attitude of insurance men in that State.
Mr. Duffy made the claim this morning, rather gratuitously, that
the insurance men of Ohio had striven desperately to defeat the
workmen’s compensation law at the recent election. I want to say,
on behalf of myself and a large number of people who are jointly
interested with me in this subject, that any such statement is entirely
misinformed, absolutely inaccurate, and made out of whole cloth.
Workmen’s compensation was not even an issue in the recent elec­
tion. Far from opposing workmen’s compensation, the insurance
men in Ohio have resented and resisted an effort to exclude legitimate
insurance companies from an active participation in that business.
Mr. B e y e r . As manager of the accident-prevention department of
the Massachusetts Employees’ Insurance Association I hesitate to
attempt to give figures from memory as to the record of the associa­
tion. However, I am sure Mr. Bucklin will be very glad to go iiito
any details of that sort upon request. I hardly feel like letting the
statement by Mr. Davis go, though, without some comment. Mr.
Davis states that he is a student of insurance, and as such he un­
doubtedly knows the answer to his own question, which is simply
this, that the rates in Massachusetts to begin with were high; they
were higher than need be, and they were cut successively two or three
times. The last cut was approximately 25 per cent. This is the cut
to which we referred as having carried the rates below actual cost,
and the fact that the rates were carried below cost is borne out by the
statement of the Massachusetts insurance commissioner, mentioned in
Mr. Bucklin’s paper.



I omitted several paragraphs from this paper in order to bring it
within the 20-minute time allowance. I should just like to read one
of the omitted paragraphs now which refers to this last cut. [Reads ] 1
Mr. D a v i s . I claim the privilege of replying to that adjective. I
asked Mr. Beyer two questions as he was leaving the platform. He
announced that he was unable to answer either of them, because he
was not acquainted with the facts. I f you believe that statement what
do you think of his second statement, when he says that the last cut
made in Massachusetts was a 25 per cent cut ? His first statement to
you was right. He did not know the facts; there were several reduc­
tions after the 25 per cent cut that he spoke of. His company adopted
the 25 per cent reduction. Now, as to the bill which he calls “ noto­
rious,” I am proud to have been the author of that bill. I drafted it
and I have copies of it here if anybody should want to see it. To
take this matter of rate making out of the realm of competitive dis­
cussion and to fix the rates by statute as they are fixed in Washing­
ton, and through the industrial commission in Ohio, I made the en­
deavor by my bill to have rate making in Massachusetts a matter of
statute. The company which that gentleman represents was one of
the most persistent opponents to a method of having rates fixed in a
stable manner.
Mr. D u f f y . I have no desire to do any injustice, even to a liabilityinsurance man. I f any statement that I made on this floor is incor­
rect as to the truth, then these insurance men must look to others
for correction, because my statement was made upon official state­
ments made by representatives of the insurance companies. During
the time of the campaign in Ohio I read in an insurance magazine
called the Insurance Field that they had an organization of 14,000
insurance men in Ohio, and the specific purpose of this organization
was to elect a governor and a legislature that would be favorable to
the insurance companies and against the State monopoly of insur­
ance. I know positively that this is true, although I can not give
the page and number of the magazine. Since the election I have read
in the same insurance paper that they deplore the defeat of Gov.
Willis as being a defeat for the insurance companies. I can get the
page of the paper where this statement is made. Furthermore, I
happened to be talking with the successful candidate for governor,
who told me himself that Mr. Willis sent him a letter of congratu­
lation as an opponent. He said, “ We did not think that you could
do it, but as a good sportsman I want to congratulate you.” I want
to do no injustice. Now, with this explanation, I am willing to
stand corrected.

1 See pages 113 and 114.


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S. H e r b e r t W o l f e , consulting actuary, New York City. I was
very much interested in Mr. Duffy’s paper. I don’t quite understand
his statement in which he said there was a reserve of $800,000 and a
surplus of $41,000.
Mr. D u f f y . I will explain. Under our law we are required to
take 5 per cent of the amount collected in premiums and set that aside
as a reserve fund. In addition to that we make reserves to cover
the pending obligations on death claims and permanent partial dis­
ability claims which have been secured by the full amount not yet
paid up. Now that is what I include in the reserve fund. Now this
surplus, as we call it, is the amount which is left over after all the
reserves are provided for, in other words, what we would pay out
as dividends if we were a private insurance company, amounting
to $41,000.
Mr. W o l f e . Y ou would have nine hundred odd thousand. How is
that ?
Mr. D u f f y . That is the reserve and surplus combined. We start
with 10 per cent and then 5 per cent, the figures that this is based
upon—I have a copy in my room that I can get. Anyway, I am posi­
tive of this, and I will bring that to-night to read more carefully, if
you want it. We will have over $960,000 left if we close up all the
obligations standing against our fund on May 15, 1916.
H a r r y A. M a c k e y , chairman, Workmen’s Compensation Board of
Pennsylvania. In view of the fact that this is Pennsylvania’s first
year in compensation legislation we have felt that we have been break­
ing new ground in addressing ourselves to the solution of very seri­
ous questions that involve the welfare and the happiness of a vast
number of people. I have listened to the papers on insurance this
afternoon with great interest, and I am going back to Pennsylvania
with the firm belief that the policies that we have adopted are the
wisest and will make for the consummation of the highest justice be­
tween man and man. It seems to me to be unfortunate that those who
occupy at least a quasi-judicial position in the interpretation of the
law should at all be involved in the question of insurance. As has
been stated here, that has been the Pennsylvania conception of the
subject, so much so that the State fund was intrusted to the care of a
special commission, headed by the State treasurer, the insurance com­
missioner, and the commissioner of labor and industry. In the early
days when we were going about the State holding public meetings,
educating the people up to the standards of workmen’s compensation,
my colleagues on the compensation board and myself declined to enter
into the discussion of the merits of any kind of insurance at all. The
matter assumed such position a short time ago that certain elements
in the labor field were urging upon the members of the legislature



elect compulsory State insurance, and the insurance men felt perhaps
that the whole official family of Pennsylvania was devoting itself to
that purpose, so that in behalf of the board I issued the following
statement,1 which, I think, is the proper attitude of those who must
solve the questions that will be presented to them. In passing I want
to say that I would regret exceedingly any legislation that would
forbid the right of a man who has shown to our board perfect
financial ability to carry his own risk. We address ourselves to the
determination of that question with a great deal of care, realizing
that in so doing we are practically underwriting the ability of that
self-insurer to carry his risk for 16 years.
Mr. D u f f y . I f you give me a quarter of a minute, I can give you
the figures asked for by Mr. Wolfe. Our reserve fund is made up of
the following items: Surplus, $432,226.06. Same item from selfinsurers who are required to pay 5 per cent of what their premium
would be, $192,624.56. Interest received on premiums deposited,
$250,722.15. Total, $875,572.77. In order that you may know that
this is correct, here is an item in the list to show that before reaching
those conclusions, we set aside $749,398.67.
Mr. W o l f e . Do I understand that all those items, Mr. Duffy, will
be available for distribution ?
Mr. D u f f y . It is w h a t w e c a ll th e c a ta s tr o p h e fu n d .
Mr. W o l f e . I understood you to say that if the company went out
of business on May 15, you would have some nine hundred odd
thousand dollars to distribute among the policyholders?
Mr. D u f f y . Yes ; that is what we would have left if we discharged
all of the obligations that we had. You see there in the table every
possible contingency is allowed for.
Dr. M e e k e r . In regard to the session this evening, Mr. Pillsbury is
not present. His paper is available for distribution, however, and
you can^ get it in the registration room. I urge all of you who are
interested in the subject of schedules of awards to read this. It is
a most interesting and valuable paper. I am going to take the
liberty of announcing that Mr. Michelbacher will discuss the Cali­
fornia system in 10 minutes instead of 20 minutes allotted to Mr.
Pillsbury. That will cut the program down some, so we can make
more provision for the much-needed discussion from the floor. Mr.
Michelbacher had more to do with working out the California sched­
ule than anybody else, and is therefore the person best qualified to
explain and interpret that schedule.
1 See paper on “ The Pennsylvania System,” pages 44 and 45 of this report.




The C h a i r m a n . One thing upon which we who are administering
the compensation laws pride ourselves is that we have come down
from the bench and are getting on a level with the people, and, with
Dr. Meeker’s permission, your chairman will come down from the
platform on a level with the rest of you to-night.
As announced this afternoon, Mr. Pillsbury, of California, much
to our regret, is not here. Those of us who remember Mr. Pillsbury’s very excellent paper delivered at the Columbus convention
will regret his absence from this conference. Mr. Pillsbury’s paper
is printed, and I hope all of you will avail yourselves, if you have
not already done so, of the opportunity of reading it.

[This paper was submitted but not read.]


A chance remark made by one of the members of the Industrial
Accident Commission of the State of California to the effect that
the loss of the first phalanx of the index finger of the right hand of
a printer meant a very different thing from such a loss sustained by
a ditch digger was the initial incident which culminated in Cali­
fornia’s highly prized system for rating permanent disabilities by
It was perfectly obvious that such an injury sustained by a printer
would, in most cases, drive the printer to learn a new occupation,
whereas in the case of a ditch digger the injury would be practically
of no consequence. I f this were so with regard to the loss of the
part of a finger in these two occupations, what about all of the
permanent injuries which can take place in the human body from
the crown of the head to the sole of the foot in all of the occupations
in which men and women toil for a livelihood? This was the prob­
lem which was presented to another member of the commission, who
pondered over it not a little, and then called to his aid expert advice
in undertaking to find a workable solution.

A study made of the laws of other States and countries showed
that in only a few of them had any special interest been taken in the
effect of permanent injuries as related to the particular employments
of injured persons. In those countries that did take this element into
consideration it was only partially and indifferently done.
A study was also made of the schedules of benefits of personal
accident insurance companies with the view of ascertaining whether
the allowances for each of the injuries covered were related in any
way to the particular needs of the persons injured, with reference to
their employments, and it was found that the allowances were made
upon no rational basis whatever, unless possibly as u talking points ”
in securing business, and were purely arbitrary.



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Upon further reflection it also became evident that the effect of
a permanent injury was greatly dependent upon the age of the
injured person, that young persons can adapt themselves more readily
to their maimed condition than persons advanced in years.
The experience gained through one or. more hearings where per­
manent disabilities had been sustained, in an endeavor to prove the
loss of earning power resulting from such disability, made it apparent
that the cost of determining such issues was, unless some better method
than “ trying out ” the issues could be found, likely to prove extremely
costly in the operation of the compensation act.
Recourse was had to the experience of older countries where it was
assumed that the adjudication of hundreds of thousands of contro­
versies involving injuries must have resulted in the establishment of
dependable precedents and rules for measuring loss of earning power
resulting from permanent injuries, but it was found that if such
precedents and rules existed, they had not been so codified or cor­
related as to make them available for the work of the Industrial
Accident Commission.

Postulating that compensation is, in its essence, insurance and that
an adequate compensation law should furnish sufficient insurance to
tide the injured person over his period of adversity until he can re­
adjust his earning capacity to his daily needs, the commission under­
took to determine a measure for such insurance to apply to each
case of permanent injury arising out of employment in each industry.
The task was neither small nor lightly undertaken.
In striving to devise such a measure of insurance, the following
elements were considered:
1. Something for the injury itself—not adequate damages, to be
sure, but some recompense for the personal, rather than industrial,
handicap caused by the permanent loss of a part of the physical
2. Impairment of ability to compete in an open labor market. In
a case, involving the loss of an eye, coming before the commission,
the superintendent was asked in the event that, needing one work­
man, two presented themselves of equal apparent value in all respects
except that one of them had lost an eye and the other had not, which
of the two he would take, and he promptly answered, “ The man with
two eyes.” This made it evident that obvious permanent disabilities
would constitute a permanent handicap in obtaining employment and
should be considered as an element in fixing the amount of insurance
requisite to carry one through his period of rehabilitation of earning



3. Inasmuch as every permanent disability involves some tem­
porary disability, it was evident that some allowance should be made
to cover the indemnity payable during the average period of tem­
porary disability following each permanent injury.
4. Adaptability to a changed condition dependent upon age. For
this purpose it was assumed that a boy of 15 has complete adapta­
bility. The world is before him, and if by reason of a permanent
injury he may not follow one or more occupations he may still have
his choice from all other occupations. It was assumed, on the con­
trary, that a man of 75 years of age has no power of adaptability;
that he must do the work he has always done or not work at all. In
other words, that he is “ too old a dog to learn new tricks.” The
power of adaptability between these two extreme ages was made
merely a matter of computation in two-year periods.

The factors of age, occupation, and the nature and extent of
physical injury or disfigurement being settled upon, it remained to
fix a reasonable time during which, on the average, a man so injured
would readjust himself to his changed condition; and it should be
remembered in this connection that all insurance is based upon the
law of average. It will happen under any conceivable schedule for
rating permanent disabilities that some injured persons will re­
habilitate themselves in less time than the schedule allows, while
others will require more time and some will give up and fail to
rehabilitate themselves at all. Therefore the effort was made to
reach the requirement of what may be called the average man.
Having exhausted its resources for material to be obtained from
other countries and other States and other forms of insurance, the
commission availed itself of the tentative schedule of the Russian
Government outlined in the Twenty-fourth Annual Report of the
United States Commissioner of Labor, as a basis upon which to
build, and proceeded to organize a permanent-disability rating de­
partment under the general supervision of Prof. Albert W. Whitney,
then of the Department of Economics of the University of Cali­
fornia, now general manager of the National Workmen’s Compensa­
tion Service Bureau, New York City, but under the immediate super­
vision and management of Mr. G. F. Michelbacher, now actuary for
the above-named bureau.
Taking up first the problem of injury, it was found by consulta­
tion with the best medical, surgical, and statistical authorities avail­
able that there were some 300 permanent injuries which can be in­
flicted upon the human mechanism from head to foot, which could
70085°— Bull. 212— 17------ 12



be selected as a basis, with reference to which the infinite number of
possible permanent injuries could be rated.
There next followed a careful study of some 1,340 different occu­
pations with the view, of ascertaining the physical requirements of
each of these occupations, and it was found that all of the functions
performed in all of these industries were reducible to 52 physical
functions performed by the workman. These functions have various
names in the various occupations but are essentially the same. It
remained then to determine how each of these 300 permanent injuries
would affect a workman in the performance of each of these 52
physical functions, as modified by the training and peculiar circum­
stances in each of the 1,340 industries studied. This was no small
undertaking and it occupied a corps of bright young men for several
months and cost the State of California several thousand dollars.

As we know nothing in this world except through comparison, it
was necessary to fix upon a “ standard man” with whom all other
men should be compared in relation to these injuries. The statistics
gathered in the State of California showed that, in California, the
average workman was 39 years of age. A study of the physical
functions performed in the industries showed that the digger of
trenches for the laying of sewer pipes used all of his physical func­
tions but without specially training any one of his members. There­
fore the “ standard man ” was taken as a digger of trenches for the
laying of sewers, and 39 years of age. A careful study was made of
how each of the 300 possible permanent injuries would affect this
sewer digger in his occupation. As a result of this comparison it
was found that some of the injuries would prove more serious in
other occupations than they would prove in the case of a sewer
digger, while in other occupations the injury would prove much less
serious. Therefore, all injuries were rated according to occupation
on a plus or minus basis as compared with the “ standard man.”

But not all of those who are injured will be able to reestablish
an earning power. The Workmen’s Compensation, Insurance and
Safety Act of California provides that loss of both eyes, or the
sight thereof; loss of both hands, or the use thereof; total paralysis;
incurable imbecility or insanity shall be regarded* as involving 100
per cent permanent disability. Any scheme of compensation that
does not provide a life pension for such persons is inadequate and
only puts off the fatal day when such persons must become charges
upon public or private charity.



A question was, At what percentage of total permanent disability
should a life pension begin ? It was found by investigation that the
average workman spends approximately 40 per cent of his earnings
upon himself and 60 per cent upon his family. Now, one who by in­
jury is made totally and permanently unable to earn is, so far as
the support of his family is concerned, dead. Therefore, we thought
it fair to allow the full death benefit in such cases, which, under the
California law, equals three times the average annual earnings, pay­
able at the rate of 65 per cent of the weekly wage per week, which
would continue the compensation for 240 weeks, at which time the
death benefit would be exhausted. Thereafter it would be necessary
only to provide for the injured person’s own support and not that of
his family; that is, if, on an average, three times the average annual
earnings is sufficient to tide the family over its period of adversity
until it can reach a self-sustaining basis. Very many compensation
acts assume this to be so, but the assumption is more or less open to
doubt. It was also concluded, after investigation, that, on an aver­
age, a workman who had lost 70 per cent of his physical efficiency
would not rehabilitate his earning capacity and would need some
pension for life. In the case of a person who has lost 70 per cent of
the efficiency of his physical machine, he has 30 per cent of earning
power left and will, therefore, need only a 10 per cent wage pension
for life to make out the 40 per cent necessary for his support. Like­
wise, the person who has lost 80 per cent of his physical efficiency
has 20 per cent of earning capacity left and needs a 20 per cent life
pension to provide for his support during the remainder of his life.
But if the disability be total and permanent, the injured person re­
quires 40 per cent of his average annual earnings to provide for him­
self for the remainder of his days, and the California pension system
was based upon the foregoing assumptions and conclusions and, we
may say, has given satisfaction so far.

To make it a little clearer as to just what our schedule means we
may say, for the purpose of illustration, that a 1 per cent perma­
nent disability would be for the loss of the little finger at the second
joint of the minor hand of a foreman of a rock quarry, aged 50 years.
For each per cent of permanent disability an allowance of four
weeks’ compensation is made up to and including 69 per cent. A
70 per cent permanent disability would be for the loss of all fingers
and both thumbs, at or above the second joint, of a laborer aged 39
years. The schedule worked out on the foregoing lines was printed
in a paper-bound book, 9 inches by 12J inches, and containing about
70 pages, comprising 12,711,240 possible combinations or ratings,


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which have been carefully computed and made readily understand­
able by a person mentally competent to find in a railroad time-table
when a train leaves, and with practice it can be done with a less
expenditure of time.

Following is a description of the schedule and its various sub­
divisions :
There is, first, a 2-page introduction on “ How to use the tables
for rating permanent disability.” This sets out a certain definite
procedure to follow in order to arrive at a proper rating when the
essential items—*
(a) The nature of the physical injury or disfigurement,
(h) The occupation of the injured person at the time of the
(c) The age of the injured person at the time of the injury—
are known. In order to assist the beginner several practical ex­
amples are given.
There is also a table for determining the percentage of wage to be
paid as a pension for all percentages of permanent impairment from
70 per cent to 100 per cent.
Table I is a “ Table for the determination of the proper line to
be read for each injury and disfigurement.” The Roman numerals
under “ disability number ” refer to group numbers, the “ group ”
referring to the portion of the anatomy injured. For example, “ I ”
refers to the group of disabilities resulting from injury to the skull.
These group numbers start with the skull and end with the toes.
Under each group the various degrees of disability are designated
by Arabic numerals. The whole of the disability number is there­
fore composed of a group number and an injury number; that is,
of a Roman and an Arabic numeral. The list of disabilities given
is not intended to be complete.
Some disabilities are of such varying degree that it has become
necessary to introduce three ratings to fit the degrees of slight,
moderate, and severe.
Table II is a u Table for the determination of the proper table
to be read for each occupation.” This table consists of two separate
and distinct divisions; the first enumerating occupations by name,
arranged in alphabetical order and giving the correct form in
which the occupation is to be classed by reason of its physical re­
quirements; the second giving for each form the correct table to be
consulted for each disability. Disabilities are here designated by the
disability numbers, which numbers refer to the nature of the physi­
cal injuries and disfigurements as enumerated in Table I.



The symbol (*) wherever it appears in the second division of this
table shows that the disability is not considered as permanent for
the form in question.
Table III contains “ Eating tables A to Q.” There are 17 of
these tables in all, Table A being the mean or standard table, with
8 tables, B to I, or plus tables, in which the disabilities increase over
Table A, and 8 tables, J to Q, or minus tables, in which the disabili­
ties decrease as compared with those of Table A. In the rating
tables A to Q the age factor is introduced, the percentage of dis­
ability in general increasing with the age.
The object of having 17 rating tables, consisting of a standard
table, 8 “ plus ” or “ above standard ” tables, and 8 “ minus ” or
u below standard ” tables, was that by grouping all occupations into
form classifications injuries could be more easily and accurately
rated by assigning tables above and below standard, according as
the work incidental to the occupation required greater or less use of
the part of the body to be rated than the work incidental to the
standard occupation.
Table I takes into consideration the question of injury; Table II
the question of occupation; Table III the question of age.

It has not been found advisable—and this is the only serious dis­
appointment encountered so far in the administration of the Cali­
fornia act by the use of this schedule—to encourage employers and
insurance carriers to apply the schedule rating system without the
vise of the rating department of this commission. There exists a
margin of discretion in most cases, resulting from a consideration
of the nature and extent of the injury. Not all possible combina­
tions of injuries have been covered by the schedule, and it is pos­
sible that no schedule can ever cover every possible combination of
injuries, but for practical purposes this schedule is, in California,
98 to 99 per cent efficient. When dissatisfaction exists with a rating
made by the schedule it is usually because of an inaccurate state­
ment of the nature and extent of the injury, and for this reason this
statement should be made by a competent and painstaking surgeon.
Adjusters for insurance carriers and employers are inclined to take
rather than give to the injured man the benefit of any marginal
doubt which may exist, and sometimes this leads to controversy.
For the reasons above suggested, it is better that all permanent dis­
ability rating be made by the rating department at the central office
of the commission upon carefully prepared descriptions of the nature
and extent of the injury.


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A schedule for rating permanent disabilities is only prima facie
evidence as to the correctness of such ratings, but when a dissatisfied
claimant or defendant undertakes to overturn a rating made from the
schedule, by the introduction of evidence, it is the custom of the
commissioner or referee holding the hearing to call in the superin­
tendent of the rating department, that he may give his evidence as
to the correctness of such rating. This serves to create conflict of
testimony, which empowers the commission to make its decision
final, and, unless the evidence against the schedule is very strong,
the commission sustains the schedule rating in its decision, and that
ends it.
However, experience has shown that the finger injuries especially
may have been somewhat too low in most cases, although not enough
experience has been had to make clear that many modifications
need to be made. The commission is endeavoring to keep track of
all persons seriously injured, with the view of ascertaining, after
the lapse of five years, what their experience actually has been in
the matter of rehabilitating their earning capacity, and, after five
years from the time the schedule went inttf effect, the commission
may desire to revise its schedule in the light of its own experience.

The value of the schedule in determining controversies may be
gathered from the fact that during the calendar year 1915 there
happened in California 1,264 ratable permanent disabilities, and
the permanent-disability rating department rated 866 disabilities,
in nearly all of which eases the rating was accepted as final without
controversy. To have proven by the introduction of testimony the
degree of disability in each of these cases, and the loss of earning
capacity dependent thereon, would have necessitated hundreds of
hearings, at great cost to the State, and would have cost the parties
thousands of dollars in expense of litigation.
I may say in concluding that the printed schedule for rating per­
manent disabilities which the California commission has created
and adopted is available to all other States in the Union free of cost,
and to make it applicable to such other States it would be necessary
only to make a study of the industries existing in such States which
California does not possess, and which therefore have not been cov­
ered by our investigations*



The California commission will be glad, on application of anyone
connected with compensation, to furnish a copy of the schedule on
receipt of request accompanied by 20 cents for postage.
The C h a i r m a n . The next item on to-night’s program is an ad­
dress by Mr. P. Tecumseh Sherman, of New York City, on the sub­
ject of 64The basis of compensation.”
Before Mr. Sherman starts his address I will say that I think
possibly we may have a little time after the papers to-night, because
there are two or three breaks in the program. It occurs to me that
we might spend a little time to our mutual advantage in discussing
practical problems in administration. All of us have in our minds
certain leading cases that have come before our various boards, that
have presented more or less difficulty. I rather think that if for a
little while we take ourselves into one another’s confidence in re­
gard to some of these cases, possibly we can get some words of
wisdom that will throw light on some of these difficult points; and
if any of you have such questions, you might jot them down on a
note, or in your minds, and after the papers are over we may have
the opportunity of discussing some of these problems for a short


What I propose to discuss is not whether the rate of compensation
should be 50 or 66| per cent, but the question: What is the basis
upon which the rate of compensation should be computed?
Legally the subject matter for compensation is the loss of earnings
caused by the accident. Whatsoever be the rate of compensation
it should be computed upon that loss. But that loss is prospective,
and can be measured only by application of the principle of average
probabilities. For practical purposes the formulas for measuring
that loss must be capable of prompt, certain, and ready application;
but in the absence of some substantial social advantage from a
departure, the principle should be closely followed.
The method generally adopted of estimating what the future earn­
ings would probably have been had the accident not happened is
to apply the presumption of continuity and to measure the }3roblematical future loss by “ average earnings ” (not wages) during
some period immediately preceding the injury, ignoring such un­
certain factors* as subsequent fluctuations in the wage scale, and on
the one hand the mere possibility that the workman might have
improved his position, or on the other hand the mere possibility that
he might have degenerated. To explain how, in my opinion, such
average earnings should be estimated, I will use as a basis for con­
sideration the rules applied under the German, French, and British
laws to the more common concrete conditions.
I f when the accident happens the workman has been employed
in the same establishment or employment and in the same grade
and at the same wages for the whole of the year preceding the acci­
dent (or, under the British law, for a shorter period if sufficient to
give a fair average), if the work was continuous rather than sea­
sonal or intermittent, and if the workman has lost no time: In this
case, under the French and British laws, the injured workman’s
actual individual earnings during that year or shorter period are
treated as the measure of his “ average earnings,” and are divided
by 52 or by the total number of weeks in the period to give his
average weekly earnings. But under the German law the possibility
that such year might have been abnormal is considered, for which



reason the earnings for that year are used only to compute the work­
man’s average earnings per full working-day, which average per
full day is multiplied by the customary number of working-days
per annum in the workman’s occupation—presumably 300—to arrive
at his average annual earnings.
Of these two rules the German is the fairer in so far as it takes a
longer period than the year immediately preceding the accident from
which to estimate an average, but it is a bad rule if the presumption
of 300 full days be arbitrarily adhered to where certainly not in
conformity with facts or if half holidays are common in the employ­
ment. In my opinion, the New York rule, which is based upon the
German rule, is so misapplied, and quite commonly gives untrue
2. I f the workman has lost time during the preceding year, the
other suppositions remaining the same as in the first case: In this
case, under the German law and under the British law as construed
by the courts (Anslow v. Cannock Chase Co., House of Lords, 2
Butterworth’s Workmen’s Compensation Cases, 365), the workman’s
average annual earnings are not reduced because he individually has
lost time, but his average daily or weekly earnings are estimated for
the number of days or weeks he has actually worked. In other
words, something like his average earning capacity, rather than his
average earnings, is taken as the basis.
Under the French law the average earnings with which an injured
workman is credited suffer no reduction for time lost “ exceptionally
and for causes independent of his will.” Consequently if he is a
chronic invalid and regularly loses a great deal of time, his average
annual earnings are computed to be just as much as if he had lost
no time. But if he is a chronic loafer the time he unnecessarily
stays away from work reduces his average earnings pro tanto.
This is a moral distinction. However much such a distinction may
appeal to our sympathies, it does not’ conform to any principle, and
it gives an untrue result in the case of the chronic invalid.
It is obvious that loss of time from all usual causes would probably
have continued, and consequently that only time lost from excep­
tional causes should be disregarded in estimating average earnings.
3. I f the wages have been increased or reduced during the pre­
ceding year, all the other suppositions of the first case remaining the
same: In this case, under all the laws mentioned, the actual earnings
for the preceding year are the basis for computing the average an­
nual earnings, unless under the German law there was a change of
trade and under the British law a change of grade—what is meant
by a change of grade being practically undefined. It is claimed
abroad that this rule works both ways and results in a fair average,
but it seems to me that it does not conform to probabilities. Where



there has been a fixed change in the wage scale the probabilities are
that the rate in effect at the time of the accident would have con­
tinued during the future; and consequently such rate should be used
as the basis of computation.
4. I f the work in the employment is not continuous—that is, if the
number of working-days in the year is so small that the employees
regularly perform work elsewhere in addition—all the other supposi­
tions in the first case remaining the same: In this case, under the
German law, the earnings for the days worked in the employment
are added to the standard local wage for ordinary day labor for the
number of additional days necessary to make 300. Under the French
law the actual earnings of the workman elsewhere during the re­
mainder of the year are considered in estimating the total earnings
for that year. Under the British law the practice is obscure.
In my opinion the German rule is better than the French rule.
Where a workwoman who is injured in a seasonal industry ordinarily
spends the rest of the year in an unremunerated domestic service,
the French rule is obviously defective. On the other hand, if a per­
son who is injured while filling out his year at some low-grade work
in a seasonal industry should, unknown to his employer, carry on
some highly remunerative occupation during the remainder of the
year, it would be an onerous construction of the contract of employ­
ment to hold the “ industry ” in which the accident occurred liable as
an insurer of his aggregate earnings. (This question will be taken
up more fully later when we come to consider concurrent employ­
ments.) Moreover, in some cases such supplementary earnings will
be mingled with income and profits and consequently will be difficult
to distinguish and determine.
5. I f the workman has not been employed for the full preceding
year (or, under the British law, for a sufficient shorter period to ob­
tain a fair average), all the other suppositions in the first case remain­
ing the same: In this case the general rule is to adopt the average
remuneration of other workmen—in Germany, of the same kind and
earning capacity; in France, of the same category; and in Great
Britain, of the same grade. In other words, the German law then
takes as the basis the individual workman’s earning capacity as dis­
closed by the actual earnings of other workmen of closely similar
capacity, but regardless of whether or not he has actually exercised
his full capacity continually. And the French and British laws dis­
regard individual variations altogether and assume that the injured
person’s “ average earnings ” are the average earnings in the grade
or category.
In my opinion all these rules—but more particularly the French
and British rules—are radically wrong. Nine times out of ten the
new hand is an irregular workman—a workman of the type which is



last taken on in rush seasons and first dropped when the pressure
slackens—and to assume that the average earnings of such a work­
man are the same as the average of regularly employed workmen of
the same grade, category, or even capacity leads far from the truth.
6. I f the workman has concurrently worked part of the time for
another employer than the one in whose employment he is injured,
all the other suppositions in the first case remaining the same: In
this case, under the German law, only the earnings in the employ­
ment in which the accident occurred are considered. Under the
French law the rule is unsettled. Under the British law—if the con­
current employment was also one of “ service ”—the earnings in
both employments are considered.
The German rule, which is reasonable because it applies only to
organized industries, would be harsh if applied to such occupations
as those of charwomen, gardeners, etc. On the other hand, the
British law is perilous for employers, for they have no means of as­
certaining the full measure of their possible liabilities, even to those
of their workmen who are engaged continuously and at full time,
because the latter may secure substantial supplementary earnings
in their evenings. Obviously some line of distinction should be
drawn according to the nature of the employment. I f the occupa­
tion is of such a nature that it is normally carried on concurrently
for two or more employers, earnings in both employments should
be considered. But where the concurrent employments are in two
distinct occupations, not usually carried on in conjunction, only the
earnings in that employment in which the accident occurred should
be considered. The principle upon which I would base this distinc­
tion is that equity requires that the responsibility of industry should
be limited to those earnings which may reasonably be deemed to fall
within the contemplation of the employer when he enters into the
contract of employment.
To the general rule of estimating probable future earnings upon
a presumption that past average earnings would have continued
had the accident not happened there are in principle four exceptions:
1. Where a youthful beginner is totally disabled either for a
long time or permanently, allowance should be made for the proba­
bility that his earnings would have increased had the accident not
This exception to the general rule is to be found in the British law
(Schedule I, 16) and in a number of our American laws.
2. Where a workman is disabled, allowance in proper cases should
be made for the probability that upon his reaching a certain age his
earnings would decrease, and that upon his reaching a certain more
advanced age his earnings would altogether cease, even if there had
been no accident.


w o r k m e n ' s c o m p e n s a t io n .

This exception to the general rule is partially provided for in the
Wisconsin law (sec. 2394—9 (5 )), but in no other law that I know of.
3. Where a workman already partially and permanently disabled
suffers an accident, the subsequent disability may not be entirely the
result of the accident, but rather the result of the accident and the
previous infirmity combined. A familiar illustration of this is where
a one-eyed workman loses his remaining eye. In such cases the com­
pensation should be computed upon what would have been the dis­
ability resulting from the accident if the prior infirmity had not
This exception to the general rule is to be found in the laws of Ger­
many, California, Illinois, Michigan, Minnesota, Nebraska, New
York, Nevada, Wyoming, and possibly other States. In the laws of
Indiana, Maryland, Montana, Oregon, and Washington it is pro­
vided that the compensation for the second injury shall be based upon
the degree of disability resulting from both injuries, but that the
amount of the compensation for the first injury, if any, shall be
deducted. This distinction is well intentioned, but, in my opinion,
it lacks any basis either in principle or sound public policy. The
compensation statutes of Colorado, Maine, Oklahoma, Rhode Island,
and Wisconsin also have provisions relating to this point, but what
they mean is beyond my ability to construe.
4. Where a workman is incapacitated or dies from a disease wrhich
is brought to a crisis by an accident, it is obvious that the accident
was not the entire cause of the injury, but only a contributing cause.
Consequently, to conform to principle, it is necessary in effect to
divide the injury into twTo parts—one part morbid and the other
part traumatic—and to base the compensation solely upon the trau­
matic part.
Under no law with which I am familiar is this exception to the
general rule in force; but it was in force in some jurisdictions in
France for quite a number of years until the highest court ruled that
where an accident—and by accident is meant any sudden event of
violence, however trifling—is the proximate cause of disability or
death, such injury is to be deemed to be entirely the result of the
accident. It is objected to the rule I have suggested that it would give
rise to excessive disputes and litigation, but the French experience
indicates the contrary. It is further objected to it that physicians
could not in practice equitably distinguish and measure the respec­
tive consequences of two causes of a single injury, but again experi­
ence indicates the contrary. It is difficult to arrive at a well-founded
judgment upon this question, but the best information I can obtain
is to the effect that the early French practice referred to was rejected
solely for theoretical and not at all for practical reasons, and, con­



sequently, that a reasonable opinion on the question may be based
upon the theoretical merits of the respective rules.
Once the average weekly or daily earnings are determined, ac­
cording to some proper formula, the measure of the amount of the
compensation due for total incapacity is the prescribed percentage
of such “ average earnings ” for the duration of such incapacity, dis­
counted for present value. (Note that I am not now concerned with
the time and manner of payment, but merely with the total amount
of compensation.) The French rule, which distinguishes between
temporary and permanent total incapacity and measures the former
by wages and the latter by average earnings, is, in my opinion, not
deserving of consideration. It does not conform to principle, and
the practical convenience it affords of having an immediately ascer­
tained standard for the first payments is more than offset by the
practical disadvantages of raising from the start the litigious ques­
tion whether or not incapacity is permanent or merely temporary.
Though, in my opinion, as I have explained, earning capacity is
an improper basis from which to estimate past average earnings,
reduction in earning capacity is, however, the proper measure of the
injury resulting from an accident. Total incapacity is simply 100
per cent reduction in earning capacity, and, consequently, the proper
amount of the compensation for partial incapacity is that part of the
full pension for total incapacity which corresponds to the loss of
earning power resulting from the accident, for the full period of the
incapacity. That is the rule under the French and German laws.
In this connection, however, “ loss of earning power59 must be
given a broad definition, so as to include reduced ability to secure
employment (caused by disfigurement, etc.), and reduced physical
value because of liability to aggravation from subsequent accidents
(as in the case of the loss of an eye).
Where partial disability is only temporary the practical aspects
of the case should control. I f “ light work ” is provided, according
to the conditions of the British rule, the difference between the actual
earnings at such work and the past u average earnings ” is, for the
tin^e being, the exact basis for compensation. I f “ light work” is
not so provided the disability is practically total and should be com­
pensated accordingly. Where, however, partial disability is perma­
nent the “ reduced earning power rule ” should be applied.
The difficulty then is how to estimate the reduction in earning
power. It can not be properly estimated upon the difference between
the individual workman’s “ average earnings ” before the injury and
his actual earnings thereafter, because what he will actually earn
afterwards may be seriously affected by many posterior causes.
Abroad it has been left entirely to the administrative tribunals
to estimate the reduction in earning power from all injuries causing



permanent partial incapacity. In America we have had recourse to
schedules in the laws arbitrarily fixing the amounts for the more
common injuries. The choice between these two methods—and I
know of no complete alternative—is a choice of evils.
Wherever this task of estimation has been left to the tribunals,
two very serious abuses have developed:
1. Some reduction in earning power has been attributed to almost
every trifling injury, regardless of the fact that in actual experience
there is really no consequent reduction in actual earnings, thereby
giving rise to those much sought after supplements to full wages
popularly known as “ drink-money pensions/’
2. The loss rates attributable to the various injuries have become
established from a priori estimates of maximum possibilities, dic­
tated by sympathy for concrete cases, with grossly insufficient allow­
ance for the mitigating consequences of “ accommodation,” and con­
sequently are absurdly exaggerated on the average. It is only a mild
hyperbole to say that it is almost the rule rather than the exception
that the recipients of partial disability pensions in Europe profit
from their injuries.
On the other hand the schedule system has proven even more de­
fective. Our American schedules are absolutely unprincipled. The
amounts fixed for specific injuries have been determined not by es­
timating the resulting loss of earning power but by simple com­
promise between opposing political influences, thereby excluding any
principle upon which to seek for finality or for uniformity between
the different States. Though the compensation fixed in such sched­
ules for the minor injuries is sometimes fairly generous, that allowed
for the major injuries generally is absurdly insufficient; whereas if
either class of injuries is to be favored over the other it certainly
should be the major class. No allowance is made in such schedules
for the variations in the loss resulting from the injured person's
particular occupation, skill, age, etc. Such schedules also are all
most insufficiently formulated. Many of them most inequitably
provide that the compensation for a permanent injury specified in
the schedule shall be exclusive of all compensation for temporary
total disability immediately following the accident. It is contended
that these schedules operate for certainty and for the prevention of
disputes and litigation. So far as the schedules now in force are
concerned I think that longer experience will demonstrate that the
contrary is nearer the truth. They have served to avoid some initial
uncertainty; but after the initial period they will probably increase
the uncertainty of awards for the reason that they simply bristle with
doubtful questions of definition and classification.
But can not proper schedules be devised? In my opinion, if the
schedule system is to be maintained, a proper schedule would be about



as long and complicated as the usual manual of insurance rates.
Not only would such a schedule not appropriately belong in a
statute, but we have not yet the data requisite to formulate one. Con­
sequently the determination of the loss of earning power ought to
be left to the administrative tribunals.
To avoid the abuses characteristic of that method of determina­
tion, I would suggest for consideration statutory provisions some­
what along the following lines:
1. That all injuries resulting in a theoretical loss of 10 per cent or
less should be ignored, experience showing that there is seldom any
actual loss resulting therefrom. And the compensation for in­
juries resulting in a theoretical loss of 20 per cent or less should be
based upon the probability that the loss of earning power will be
terminated by 44accommodation ” within a short period to be fixed
in the statute.
2. As to the major injuries, that the commission or board should
be required to seek from all available sources data and statistics of
the wage losses resulting from permanent injuries in actual and
completed experience, and should be required to base its awards upon
such data regardless of precedents.
For fatal injuries the basis for computing the compensation
should be the past 44average earnings,” just as for disability,
though the rate of compensation may be governed by different prin­
ciples and vary according to the number of dependents, etc. But
in connection with death benefits it should be observed—
1. Where the workman is killed the loss of earnings to his de­
pendents is never as great as it would have been had he survived
totally and permanently disabled. Therefore the aggregate com­
pensation to dependents should be lower than for total incapacity.
2. The probable earnings lost by death are limited by the period
of the life expectancy of the deceased workman had he not been
killed, and pensions to dependents should be computed upon average
earnings for not to exceed that period; otherwise the result would
not be indemnification of a loss, but life-insurance annuities regard­
less of loss.
All that has been said leads up to my principal thesis, which is .
that the basis for computing compensation should always be so esti­
mated that the compensation itself shall never exceed the probable
loss resulting from the accident, lest the injury thereby become a
source of profit. Do any of the compensation laws provide com­
pensation in excess of such loss? Under many common conditions
the German, French, and British laws most certainly do so. And so
also do many of our American laws, as will become more and more
apparent as experience develops.
It will not do to say that the cases in which compensation exceeds
the loss are exceptional results of the application of a ready and con­


w o r k m e n ' s c o m p e n s a t io n .

venient rule of'average and are not important. On the contrary they
are, as I have pointed out, the results of departures from the basic
principle of the law and from the application of any consistent rule
of average, and are most important. With malingering an evil of .
such importance abroad that it is producing a reaction in philosophic
opinion against the compensation law, is it unimportant that the
usual method of computing average-earnings especially favors the
unindustrious, the “ bums,” and the “ ne’er-do-wells,” and offers them
a bonus as an inducement to malinger? With the natural handi­
cap in securing employment suffered by the aged, the infirm, and
those afflicted with acute diseases, is it unimportant that the usual
method of estimating the loss from accidents adds to such handicap
by imposing a heavy penalty for employing them in the form of an
extra liability to compensate for the consequences of their diseases
and infirmities? In my opinion these are vitally important defects
in the operation of the compensation law which we should strive to
correct instead of tolerating with indifference.
From a proposition I have advanced, that compensation should be
based upon “ average earnings ” for the full period of disability, it
dees not follow that all limitations upon amounts are wrong. When
the old idea of the common law, that by the contract of service the
workman assumes the risks of his employment, was practically re­
versed by the compensation statutes, it was proper to limit the scope
of such reversal and the extent to which the “ industry ” instead of
the workman should bear the risks, and to provide that beyond
those limits the old rule should still apply. Certainly a highsalaried official of a corporation may rightly be deemed to assume
all the risks of his employment. All the more, then, may he be
deemed to assume the risks of loss over certain limits. Where the
line should be drawn for lower-paid employees is a question of
policy. This observation applies to the weekly limitation, the ag­
gregate limitation, the exclusion of the waiting period, and, as re­
gards the maximum, to the Washington practice of low “ fiat rate”
compensation regardless of differences in earnings—to cite only a few
illustrations. But the rules of policy which, in my opinion, should
govern such limitations are beyond the scope of my present subject.
Neither does anything I have said imply that the compensation
due for an injury should be payable throughout the period of dis­
ability. The time and manner of the payment of the compensa­
tion-—whether it should be in the form of a pension, subject to com­
mutation in exceptional cases, or in the form of a lump sum, subject
to conversion into an annuity, etc.—are collateral questions that I
have tried to avoid in order to keep distinct the subject of my dis­
cussion, namely, the single problem of computing the amount of com­


The first essential in the establishment of an intelligent schedule of
compensation awards is the possession of a social philosophy. Not
only is it necessary to know the needs that arise from accidents and
how they may best be met, but it is still more fundamentally neces­
sary to know what the social response to need shall be.
The workmen’s compensation law brought in a new theory of social
adjustment, more radical in its nature than might at first appear.
The retributive system of individual responsibility was set aside be­
cause of its failure to meet modern industrial conditions, and, instead,
industry was made to bear the burden. In the face of actual need the
question of fault became of secondary importance; the point of view
shifted from the individual to society and from ethics in its narrow
sense to economics.
This pragmatic recognition of the responsibility of the industry has
had a wonderfully quickening and stimulating effect in the field of
the relations between capital and labor. It has not only led the way
to prevention—more important than compensation itself—but it has
helped to open the field of industry to welfare work of other kinds.
To-day it is generally admitted that industrial organization can not
be one-sided; for the sake of the highest type of efficiency—and there­
fore of social right—industry must be made use of to develop the life
of the worker as well as to do the work of the world. The concrete
recognition of this fact may go far in solving some of the problems of
labor and capital. Industry, in accepting a responsibility, has gained
a conscience. An ethics founded upon the basis of industrial re­
sponsibility must arise as did the ethics of individual responsibility.
Before a schedule of awards can be prepared one of these ethical
questions must be answered, namely, whether the rights that are
acquired under workmen’s compensation in lieu of the rights that
are waived under liability are to be based solely upon loss or upon
loss as affected by need, and if the latter theory is to prevail how
far shall such rights be determined by need. What I refer to, for
example, is this: I f a man of 25 loses his life it is possible to cal­
culate upon an actuarial basis the money equivalent of his expecta­
tion of future wages; that is, the value of the life that has been lost.
70085°— Bull. 212—17------ 13




The need may be very different for he may have no dependents, or
one, or half a dozen. There is no schedule, I believe, in which the
theory of abstract right, that is, right based solely upon loss of earn­
ing power, has been consistently carried out. Some schedules, how­
ever, go further than others in this respect. Two schedules, those of
Wisconsin and California, make the amount of compensation inde­
pendent of the degree of dependency. To grade the amount of the
award down to match the number of dependents is a backhanded
recognition of the modern theory which bases social justice not upon
cleverness in appropriating but upon ability to produce and worthily
to use. All schedules, I believe, contain minimum and maximum
limits of compensation, which again is a recognition of workmen’s
compensation as something different from simple indemnity. In
the preparation of a schedule, therefore, the first question to be an­
swered is, What shall be the balance between compensation as in­
demnity for actual loss and compensation as a social expedient to
meet need?
The second question that must be decided is, What shall be the
degree of beneficence of the given law ? In other words, what amount
o f compensation, measured in commuted form in terms of equivalent
week’s wages for an average worker, shall the law provide? This
will fall short of complete indemnity by an amount that depends
upon the social consciousness of the particular State. Doubtless the
temptation to malinger requires that the indemnity shall not be
complete. In practice the beneficence of the most liberal law is
probably not more than 50 per cent of full indemnity and the benefi­
cence of the least liberal law is not over half that of the most liberal.
After the general level of compensation awards has been estab­
lished, it remains to devise the details of a plan for distributing this
compensation in the most effective way; in other words, so that the
given compensation shall relieve to the greatest possible extent the
sum total of distress resulting from accident.
Four classes of needs must be met, namely, medical aid, and loss
o f wages due to temporary disability, permanent disability, and
death. The treatment of the first two of these classes is fairly evi­
dent. Parsimony in the amount of medical aid given is a short­
sighted practice. Experience seems to show that the best quality of
medical aid is an economy in the long run. This is not inconsistent,
however, with the fact that medical aid is proving to be a very ex­
pensive item, the explanation apparently being that there is much to
be done in the development of economical methods of administration
of medical service.
There appears to be little chance for an alternative treatment of
(temporary disability. The obvious action to take is to pay such
fa percentage of wages as is consistent with the general level of



beneficence of the law pending recovery and return to work. Perhaps
the only serious difficulty in this connection is the determination
of the proper waiting period.
The most serious feature of the modern transfer of emphasis from
the individual to society is its possible effect in weakening the sense
of individual responsibility. While the net effect of insurance in
the bearing of each other’s burdens and in the collective treatment
of risk is overwhelmingly good, there is no denying that it carries
with it a certain bad effect; if our houses are insured we are a trifle
less careful than if they are not, and if they are overinsured there is
the temptation to pervert the purpose o f insurance entirely. In­
surance, like most forces, has its possibilities for both good and evil,
and genius in the use of insurance as a social instrument consists
very largely in ability to develop its good effects, both direct and in­
direct, to the greatest possible extent at the same time that its bad
^effects are minimized.
In certain fields, as in life insurance, there is sufficient deterrent
effect to prevent abuse of full insurance or even of overinsurance,
but, in general, complete indemnity produces such a bad moral haz­
ard that it must be avoided. Compensation involves the principle
of insurance and therefore possesses this possibility of abuse. The
most effective deterrent to malingering is the expedient of requiring
the worker to bear part of the loss himself; in the case of temporary
disability the waiting period is designed not only to accomplish this
but in particular to make the worker bear the first part of the loss—
that part which he is best able to bear but yet that part which by its
proximity has the greatest deterrent effect. It is interesting to note
that a movement in this direction in the field of fire insurance has
been discussed, namely, to require that the first 10 per cent of the
value shall be uninsurable; since the average coverage is something
like 70 per cent of value, the penalty of having to bear part of the
loss does not in general become operative under the ordinary fire
insurance policy unless more than a 70 per cent loss occurs.
I know that there is constant pressure toward the abrogation of
the waiting period; while the pain of injury and the manhood of
the worker are powerful deterrents I think it would be a mistake
not to continue to make the worker a part sharer in the loss, and if
this is to be done by all means the most effective expedient and yet
the least disastrous in its effect upon the worker is the principle of
the waiting period. Incidentally in this connection attention should
be drawn to the fact that a serious moral hazard exists because of
overinsurance through channels outside the compensation law; I
refer to benefit funds of various kinds.
The problem of treating permanent disability and death is far
more difficult; so difficult in fact that it can not be treated in detail



in such a paper as this. The first step, however, appears to be the
establishment of a proper relativity between permanent disability
and death. First, however, let us premise that the ideal solution for
cases of permanent disability would be the individual treatment of
each case on its own merits both as to loss and as to need. This, how­
ever, as a matter of practice, is an impossibility. There doubtless
should be individual aftertreatment of cases by reopening them after
a certain period, but to meet the initial conditions it is practically
necessary to have some general method of treatment. Such a method
should be flexible enough to take the most important elements into
consideration, but it is inevitable that it should to a certain extent
be based upon average conditions.
To revert to the question of the relation between permanent dis­
ability and death: Substantial justice would seem to be done if, as
regards the economic loss produced, death were identified with per­
manent disability of a certain grade. From an economic point of
view death would seem to be the same as permanent disability of a
degree such that the diminished earnings of the injured worker were
sufficient only to pay for his own keep, for in that case the net effect
of his earnings would be neither a gain nor a loss to his dependents.
Death might, for instance, be considered the equivalent of a 60' or
a TO per cent loss of earning power.
This brings up the question of the rating of permanent disability.
It is curious that New Jersey, the first State to enact a constitutional
workmen’s compensation law, should have adopted a plan which so
far as I know was in use in no other country, and yet the plan in its
general features has been adopted, I believe, in the laws of nearly
every other State. This plan, which must have been suggested by
the practice of the accident insurance companies, introduces into the
law a schedule of specific awards for particular disabilities. The
only point in favor of the plan is its extreme simplicity, but it is a
simplicity which in its crudeness largely defeats the purposes of the
law. The loss of earning power occasioned by an accident is a mat­
ter of more than merely the nature of the disability produced;
there are doubtless a number of other elements, but of these certainly
two are of prime importance, the age and the occupation. The loss
of a forefinger is a very different proposition to a typesetter and
to a common laborer, and furthermore it makes a great difference
whether the age of the'injured worker is such that he can learn a new
trade if necessary.
The proper solution of this problem, it seems to me, is unques­
tionably to make the schedule of awards depend upon percentage
loss of earning power; this makes the law itself very simple. The
determination of what constitutes a given loss of earning power
should be a matter for the commission administering the law, but



the commission should not be required to deal with individual cases
but should issue a schedule by means of which loss of earning power
is rated as a matter of at least nature of injury, age, and occupa­
tion, at the same time ruling that a settlement made in accordance
therewith shall be valid unless appealed by either party and until
the commission at some future time shall see fit to* reopen the case.
A schedule of this kind will probably dispose of at least 90 per cent
of cases without appeal and will produce a far larger measure of
justice than is secured under the ordinary plan. Such a schedule is
being used in California.
Having brought the treatment of the economic loss due to death
into proper relation to the treatment of permanent disability and
having provided a method for measuring various disabilities in terms
of percentage loss of earning power, it remains only to decide, first,
what share of compensation shall be allotted to each grade of im­
pairment and, second, in what form this shall be dispensed.
An interesting question arises in connection with the first problem:
Shall the compensation be graded uniformly with the disability
rating or shall the more serious -disabilities receive proportionately
a larger share in view of the fact that theNneed here is more serious
and the utility of the compensation will therefore be higher ? This
again is a place where we must decide whether we are to be governed
by loss alone or by loss as affected by need.
Assuming that this question has been settled, it remains only to
decide how the compensation shall be dispensed. This necessitates
a theory of rehabilitation. In the California law it is assumed that
in case of any disability up to 60 per cent rehabilitation is possible,
and the compensation is therefore directed to be paid, for periods
increasing with the disability rating, to the worker in sufficient
amount to allow for the learning of a new trade or other adjust­
ment to the altered conditions. In the case of disabilities of over
60 per cent the death benefit is provided—since death is assumed to
be equivalent to a 60 per cent disability—and in addition, a life
annuity for the loss of earning power in excess of 60 per cent. This
plan, while it may not be the best possible, is at least based upon an
intelligible theory and seems to be consistent.
The workmen's compensation movement came on in this country
so rapidly that in general no actuarial analysis of the problem was
made. As a consequence the compensation in the various States is
widely different and to a very considerable extent it is unwisely
applied. Has the time not come when by conferences such as this
the States can draw together on a basis that will be more consistent
from a humanitarian point of view, fairer from a competitive point
of view, and more effective in the distribution of benefits?

H e r b e r t W o l f e , consulting actuary, New York City. It is not
quite clear to me what are the true functions of a leader of the dis­
cussion. I f you ask a plumber what a leader is, he describes it as
something connected with a spout on top of a building, and I do not
know whether you had that in mind when you asked me to be the
I wish to explain at the outset that while Mr. Sherman’s paper and
Mr. Pillsbury’s paper were submitted to me, Prof. Whitney’s paper
was not. So I am not so familiar with the details of his paper as I
am with the others.
I think we are particularly fortunate in having this topic treated
in this way by Mr. Sherman and Mr. Pillsbury. The former has
approached this subject from the realms of theory as it were, and
has given us the benefit of his wealth of knowledge and his intimate
study of the history of the subject, while Mr. Pillsbury has confined
his paper to practice, it being an explanation of the application of
the California method of treating compensation cases.
Neither Mr. Sherman nor Mr. Pillsbury devoted the attention
which Prof. Whitney did to the question of the waiting period or the
question of the proper percentage which should be allowed.
I think there are certain important questions which have been
referred to merely in a casual way to-night, which I may outline
in the hope of provoking discussion. There is a matter that was
briefly referred to by Prof. Whitney, namely, the question which is
dealt with in the New York law in a negative way. In the New
York law, when making the award, we are prohibited from taking
into account any benefits which may be paid to the injured workman
from any other source- I think that the conditions surrounding
workmen in this country will be found different from those in the
continental countries. The sociological conditions are entirely dif­
ferent, and I am of the opinion that we will find that the average
American workman, through his membership in lodges, sick-benefit
societies, and trade-unions, and organizations of that sort, is in
receipt of benefits which, when added to the payment made to him
under the workmen’s compensation act, result in his receiving a
larger payment each week when he is injured than when he is in pos­
session of all his faculties. Now, as we can readily see, this will
tend to malingering, and surely will result in an increase in the num198



feer of weeks of disability which will be paid. Shall we therefore
base the workman’s compensation upon his income from all sources?
Incidentally, this has a direct bearing upon the question of over­
insurance, to which Prof. Whitney referred.
We are also brought face to face with a rather peculiar and
illogical situation, in that we are basing future payments upon past
earnings. I realize the difficulty of trying to remedy that, and I
fully appreciate how easy is the present system, which provides that
the payments in the future shall be a percentage of the earnings in
the past; but there is a phase of it which is different from the one to
which Mr. Sherman directed your attention. I have in mind the
situation in this country at the present time. Owing to the European
war, there is a scarcity of labor. High wages are being paid in the
munitions plants. What is the result? A workman injured to-day
will have his future payments based upon this high scale of wages
which he has been receiving in the immediate past; if the wage scale
should be decreased, the condition can very easily give rise to a
situation where the injured workman will be receiving a larger
amount during his incapacity than his brother workman who has
not been injured will be receiving. Now, hand in hand with this goes
the question of the cost of living, which naturally rises during these
periods of high wages and falls when the wages are lower. Of
course, the other side of the situation is just as vital, namely, that
a workman injured during times of low wages will not be receiving
the proper benefits when the cost of living goes up.
The question of compensation for fatal injuries was presented in
an admirable way by Mr. Sherman when he called attention to the
fact that the German, French, and British laws, and some of the
American laws, provide for compensation in excess of the loss
sustained. There seems to be a very great difference of opinion
between Mr. Sherman and Mr. Pillsbury and Prof. Whitney as to
whether compensation is insurance or not. Mr. Pillsbury is quite
sure that it is, and Mr. Sherman is quite sure that it is not, and I
think Prof. Whitney is not quite sure whether it is or is not. I may
say that I sympathize with Prof. Whitney. I am not quite sure
either, whether under the compensation act compensation is really
insurance. This difficulty arises from the fact that instead of trying
to compensate in case of fatal injuries—that is, instead of trying
to compensate for the loss in the earning power—we are really pay­
ing an annuity to the widow, based upon her age and the ages of the
children, but disregarding entirely the age of the deceased. A con­
crete illustration of my point is the case of two workmen, both aged
35, who were killed. Now, it is evident that the damage to the
families of the two men is measured by the same amount in both
cases. We find, however, that in nearly every case the award is not


w o rk m en 's


based upon this measure of loss, but that it disregards everything
except the age of the beneficiary and the likelihood of the remarriage
of the widow. That phase seems to lend color to Mr. Pillsbury’s
repeated assertion that compensation is insurance. That is one
phase of it.
The point that Mr. Sherman raised in regard to the division of
the injury into two parts was a very pretty one. You will recall
that he wants to separate some of these injuries into two parts—first,
that, due to a preexisting disease which has contributed to the acci­
dent, and, second, the traumatic part of it, or that part which is due
entirely to the accidental injury. Now, while I think a great deal
could be said on that point, I fail to find any comfort from a reading
of the decisions of the various industrial boards. I do not find that
in any of the cases in this country the boards have taken into account
that matter to any appreciable extent. It is, of course, extremely
difficult to make the separation, but it is one of great importance,
and one that if disregarded must inevitably result in some form of
discrimination against the handicapped worker. Can we blame the
employer for refusing to employ a handicapped workman ? Taking
the case of the man who has lost one eye, referred to by Mr. Sher­
man, can the employer be expected to give work to him as promptly
as he would to a normal man ? That query is entirely independent
of the fact of this employer carrying his protection in a State fund,
or a stock company, or a mutual. The same principle applies. In
the first place he does not want to jeopardize the lives and safety of
the other employees, as he might by employing a handicapped work­
man, and, second, he does not want to increase his own loss ratio.
In referring to defectives it will not be amiss for us to inquire
whether some way can not be found whereby the employment of the
handicapped can be made more easy. Take the case of a man who
suffers from cardiac trouble. Is an employer justified in saying, “ I
will not have him in my employ, because if anything happens to him
I must pay to his beneficiaries the compensation which is awarded ” ?
Under the New York law, and I think the law of many of the other
States, there can be no waiving by the workman of his right to com­
pensation. I think that is a hardship, and one that should be
remedied. I think there should be some way in which this handi­
capped workman can waive his right to compensation. I am fully
alive to the fact that this is fraught with danger theoretically, but
it seems to me we can overcome that danger in two ways. In the
first place, by providing that an employer may have a certain per­
centage of handicapped workmen—that is, of those who waive their
right—in his employ, the condition of none of whom would jeopardize
his fellow workmen; and second, that those waivers could be given
only under proper supervision and control. If, for instance, we



should provide that only the industrial accident board may permit
a workman to waive his right to compensation, we would have over­
come that difficulty, it seems to me.
Prof. Whitney referred to the cost of medical aid. That is a very
serious problem to insurance carriers and to employers.. I think a
great part of it is due to the fact that at the present time, in some
jurisdictions anyhow, the injured workman is permitted to consult his
own medical adviser. That, in my opinion, inevitably has resulted in
an increase in the cost of medical service, and an increase in the
period of disability.
To crystallize the discussion, therefore, I suggest that we deal this
evening with the following questions: First, what is the proper
method for arriving at the percentage of earning power to be paid
to the injured workman; second, to what scale of wages should such
percentage be applied; third, in the case of a fatal accident, should
we disregard the probable life expectancy of the deceased in arriving
at the amount to be paid to the dependent; fourth, is it possible to
provide for a modification of the workman’s compensation act so
that defectives may be given employment; fifth, is the present wait­
ing period satisfactory, or should some modification be made in it?
G. F. M i c i i e l b a c h e r , National Workmen’s Compensation Service
Bureau. The California schedule for rating permanent injury is
predicated upon the fact that the specific dismemberment schedule
idea of rating permanent injuries upon the basis of physical loss only
can not with any degree of accuracy do full justice to the problem
of providing adequate compensation for permanently crippled
workers. To meet the requirements of any philosophy of permanent-disability indemnity a method must be used which will ade­
quately compensate permanently injured employees by taking into
consideration every factor which in any way contributes to the per­
manent loss in earning capacity and which is capable of arbitrary
The factors which affect the worker’s earning capacity may be
briefly stated as follows:
In the first place, the worker must have a certain amount of
skill or experience. The worker in any craft, whether the craft re­
quires skill or not, must have served a brief apprenticeship. Even
the laborer who digs sewer ditches for a living must know what he
is to do and how he is to do it before accepting work. The amount
of skill or experience required is a question, first, of the occupation,
varying from no skill at all to the highest type of efficiency, which
requires an elaborate training; and, second, of the age, varying as
the worker passes from apprenticeship to the status of a skilled me­
chanic or an efficient worker in any line of employment.


w o rk m en 's


2. In the second place, the worker must have a sound body in per­
fect working condition in order that he may put his skill and experi­
ence into practice. Here, again, we find the occupational factor a
most important one. The degree of skill required to perform the
work of a given occupation has a direct bearing on the requirements
imposed upon the various parts of the worker’s body. Thus it may
be pointed out that the leg of a structural-iron worker is more im­
portant in the performance of the work incidental to structural-steel
rigging than is the leg of a cobbler in the performance of the work
incidental to shoe repairing. The body, with its functions, is used
to interpret the worker’s skill. An ornamental modeler may have a
wonderful conception of ornamental art; still this conception of it­
self would be of little use without two unimpaired eyes and two
skilled hands with which to express it. A musician may have a won­
derful faculty for playing his instrument in company with other
musicians; still this faculty of itself is worthless without good
3. In the third place, the worker must be able to compete with other
workers of his class in the open labor market. The worker must be
able to secure employment wherein he can display his skill and expe­
rience. A disfigurement which hideously distorts the face of a
laborer may not interfere seriously with his power to compete with
fellow laborers in securing employment, for the reason that laborers
are chosen with reference to physical fitness rather than with refer­
ence to good looks. The disfigured laborer may have a powerful
physique and by reason of this fact secure employment in competi­
tion with other laborers who are less fortunate in their physical
make-up, but this same disfigurement would absolutely bar the worker
from certain classes of employment in which personal appearance
counts for more than evidence of physical strength. Again, the occu­
pational factor is most important. The power to compete varies
with such items as the nature of the work, the skill and experience
required, the supply of labor available, the general condition of
industry, all of which create the occupational factor which affects
the worker in competition with his fellow workers for a chance to
perform work.
The factor defined under section 1 may be termed the worker’s
occupational ability, the factor defined under section 2 may be
termed the worker’s functional ability, and the factor defined under
section 3 may be termed the worker’s competing ability. I f any one
of these factors is damaged, the worker’s earning power is damaged,
and if the damage is permanent the method of rating the permanent
injury should allow an adequate amount of compensation to enable
the worker again to assume his position in the open labor market with
as little disadvantage as possible.



The principal factors, then, tc be considered in rating permanent
disabilities are the following:
1. The nature of the physical injury or disfigurement;
2. The occupation; and
3* The age.
There are other important factors which should probably be taken
into consideration, as, for example, education, inherent adaptability,
general health, and so on, but while these factors are important it is
impossible to measure them arbitrarily, and therefore not practicable
to attempt to incorporate them into any scheme for rating perma­
nent disability. We must remember that the fundamental purpose
of workmen’s compensation is to extend to each injured worker a high
grade of average justice. The limitations of all workable methods
of administration make it impossible to do more than this.
Compensation values should therefore be based upon the require­
ments of an average man, of average education, average inherent
adaptability, average health. For this average man the* three items
enumerated above constitute the vital factors as far as the question
of permanent impairment of earning capacity is concerned.
The California method, briefly stated, involves the use of a table
which contains a rating for each permanent injury for a standard
age and occupation, and, second, tables whereby injuries for other
ages and occupations may be rated with reference to these standards.
The basic idea of the plan is the idea of schedule rating, the schedule
differing from schedules used for rating risks in connection with
fire and casualty insurance only so far as subject matter is concerned.
The standard rating for each injury is the percentage of loss of earn­
ing capacity for an unskilled worker of age 39. This occupation was
chosen for the reason that the worker employed therein performs
no work requiring specialization of the use of any part o f his body.
Because of this fact the problem of determining the effect of injuries
upon this worker’s body is reduced to its simplest terms. Age 39
was taken because it is the average age of workers in California.
Ratings in the first table of the schedule represent the degree o f
physical impairment produced by some 306 injuries upon the body of
the standard unskilled worker of age 39.
In taking the question of age into consideration it was necessary to
use reasoning more or less abstract. Age is an important factor in
rating permanent injuries for the reason that as the age varies the
power of accommodation likewise varies. Two limiting cases were
assumed in the first table. These limiting cases are represented by
the unskilled worker of age 15 and the unskilled worker of age 75.
A boy of age 15 is considered to have perfect power of accommodation
to injury; that is to say, if he receives an injury which bars him from
the standard occupation represented by this table he has every chance


w o r k m e n 's

c o m p e n s a t io n .

because of his youth to rehabilitate himself and to train his perma­
nently injured body to perform work in any one of a number of
occupations where the loss he has sustained is either of no importance
or of very much less importance. A man of age 75, on the other hand,
is considered to have no power of accommodation at all. I f he is
injured, he is, because of his age, required to remain in the occupa­
tion in which he receives the injury, which naturally causes him to fall
to a lower earning level in that occupation. The power of accommo­
dation of this old man in the extreme limit of industrial life may be
represented by 0. The power of accommodation of a boy of age 15
may be represented by 1. The California schedule then makes the
assumption that this power of accommodation to injury is a simple
function of the age, and that it varies with the age, so that the power
of accommodation of a man of age 45, midway between the extreme
ages of 15 and 75, may be represented by -J. It is sufficient for the
purpose of this discussion to state that the application of this law to
the question of producing a certain relationship between ratings for
age 15 and age 75 was simple. Intermediate values were supplied by
simple interpolation.
To study the effect of occupation five investigators were employed.
Each investigator was assigned a particular industrial group and was
required to make himself expert as to the work performed in the in­
dustry in general, and in particular by the occupations represented by
the industry. The investigator was sent into several different plants
where work incidental to a certain occupation was being performed.
In inspecting these plants he paid particular attention to the general
method employed in manufacturing the product and incidentally to
the work each occupation contributed to this general scheme. In this
way the physical requirements imposed upon each part of the worker’s
body by the work incidental to his occupation was studied. After
carefully investigating some 1,300 occupations it was found possible
to create 52 different classifications of occupations. In other words,
while investigators in the field found 1,300 different names for occu­
pations there were really no more than 52 different occupations, so far
as the question of physical requirement was concerned. All the occu­
pations grouped by classifications were carefully rated by assigning
them to tables above and below standard, according as the work inci­
dental to the occupation required a greater or lesser use of the part of
the body to be rated than the work incidental to the standard occupa­
tion. It will be found that structural-steel riggers are rated for lower
extremities in table plus 40 (Table I ), that bookkeepers are rated for
lower extremities in table minus 40 (Table Q). These two occupa­
tions represent the limits of physical requirements imposed upon the
lower extremities. The lower extremities are indispensable to the



structural-steel worker, but they have little or no importance in con­
nection with the actual work performed by the bookkeeper.
In closing I should like to quote from Mr. Pillsbury’s paper:
The value of the schedule in determining controversies may be
gathered from the fact that during the calendar year 1915 there
happened in California 1,264 ratable permanent disabilities, and
the permanent-disability rating department rated 866 disabilities, in
nearly all of which cases the rating was accepted as final without
controversy. To have proven by the introduction of testimony the
degree of disability in each of these cases, and the loss of earning
capacity dependent thereon, would have necessitated hundreds of
hearings, at great cost to the State, and would have cost the parties
thousands of dollars in expense of litigation.
D u d l e y M. H o l m a n , president, I. A. I. A. B. C. I shall have to
discuss these topics from the standpoint of practical experience as
a member of the Massachusetts board for four and one-half years,
and perhaps I may introduce some new thoughts with which some
of my friends may not agree.

In the first place, as I have always understood the theory of work­
men’s compensation, it is that the injured worker should not bear
the burden alone, as had been the case under the old law, but that
the burden should be distributed over the industry. Of course, that
is a very polite fiction in the case of a State like Massachusetts or
any of the other States where we do not have a compulsory law,
because some men may insure, most of them do, and some may not.
Jones is in a line of business in which I am also engaged. I pay
$20,000 a year for compensation insurance, and Jones says, “ I will
carry my own insurance.” We go through the year. I have no
serious loss and he has no serious loss. Am I going to pass that
along to the general consumer in competition with Jones, who has
not paid out his $20,000?
Again, I think some of the speakers have not taken into account
the actual conditions. We have in Massachusetts a minimum and a
maximum amount that is paid to injured workers. The minimum is
fixed at $4 and the maximum at $10. A worker who is earning
$30 a week is killed. The maximum that his widow and family
can receive is $10. Are you in any way giving to that widow an
equivalent for what she has lost when you pay her on a $10 basis?
Are you doing that, particularly when the time is limited, as it is
in Massachusetts and as it is in most States, to 6 or 10 years, par­
ticularly if the husband was a young man who had a long expec­
tancy of life, and his wife could have looked forward for a long
period of years to good support for herself and her children, and
by an accident in industry her husband is taken away and she is
left with a lot of little children to bring up on $10 a week ? Those


w o rk m en 's


are some of the things that I think our actuarial friends should
take into consideration when they are measuring whether it is for
the needs of these people.
I can not quite agree with my friend, Mr. Sherman, on the prob­
lem of the one-eyed man. How many of us know exactly what our
vision is, and how many men do you suppose are working in indus­
try to-day who have never had an accident to their eyes, so far as
they know, and who are yet blind in one eye? What are you going
to do with one of those men when he loses his good eye? He had
a working capacity. He worked along during all his life under
the supposition that he had two good eyes. When he meets with an
accident he finds that he has only one good eye; but in the industry
where he lost that eye, and which was responsible for the loss of
that eye, which took that sight away from him, is he any the less
disabled? Should he be treated on any different plan than a twoeyed man who has lost both eyes? Should he be awarded compen­
sation only for the loss of the sight of one eye ? All of his sight is
gone. Or, if he has met with a prior accident and has lost one eye,
he still has a good working eye until a second accident destroys
that. There are many, many occupations in which one eye is all
that is necessary. The physicians tell us that it does not take very
long, if a man loses the sight of one eye, for him to adjust himself
to his new conditions; and when he has become accustomed to judg­
ing distances and to the other adjustments that are necessary, his
incapacity is comparatively small, and he goes on and earns the
same amount of money that he was earning before. Take away thatremaining eye and the man can not work. In a certain way it may
be unfair to the employer, if it happens to be a new employee, that
the employer should be penalized for an injury to him which means
total incapacity; but these accidents are not so numerous as to
constitute any serious burden. I know in the early part of the
discussion of our act, our board was quite divided on the question
of whether or not we might not be providing an old-age pension in
the case of a man or a woman advanced in life who met with an
injury which in a younger person would not be disabling beyond a
certain period, but in the case of people well along in years, who did
not have the recuperative powers of a younger person, we would be
saddling the act with an old-age pension. My experience did not
bear that out, and I made up my mind I would find out whether I
was right, or whether some of the insurance companies were right
in the claim that this was giving an old-age pension where it should
not properly be given. So I asked our statistical department to run
through all the accidents during a year which had already been
completed. We ran through the machines 83,000 cards of male
workers, and I said, “ I want these separated out, and I want to get



the injuries to all the men of 50 and over, and I would like them
divided into age periods. I would like to have divisions of five
years, of men 50 to 55, 55 to 60, 60 to 65, and 65 and over, and then
I want to see when those injured people went back to work.” We
% found 7,500 injuries to men over 50 years of age in the Commonwealth
of Massachusetts. Now, I am going to ask some of you gentlemen
who have made a study of this subject how many of those men had
not returned to work at the end of 26 weeks? Well, you would not
guess in a thousand years, and I am not going to keep you guessing.
There were just 60, and when I boiled that down to the number of
men who had not gone back to work at the end of 52 weeks, there
were just 9. I think we punctured the old-age pension scheme right
Mr. Sherman spoke about aggravating or accelerating preexisting
conditions of disease. I think I had one of the first cases that was
passed upon by any supreme court in the United States on that. I
had the case of a man who was a cook on a lighter. His galley was
below deck. He had a very bad valvular disease of the heart. He
was just as liable to die at home in his bed as he was to die anywhere
else. An accident happened to the ship as she was tied up at a
wharf at Woods Hole, and the ship began to sink. Mr. Fisher—
that was the man’s name—started up a perpendicular ladder to the
deck to notify the captain that the ship was sinking. He then went
back again, took some of his clothing and went up the ladder, put the
clothing on the wharf, went back after more clothes, did the same
thing over again, went back and saved something belonging to the
ship, got back to the wharf, toppled over and died.
The medical testimony was very clear. The medical examiner
who investigated that case and made his report gave this testi­
mony: That the work which the man was doing immediately prior
to his death, the unusual exertion through which he went, plus the
excitement of the sinking of the ship, brought that man to a mortal
end sooner than he would otherwise have come, and I awarded the
widow $4,000. The insurance company appealed and went to the
full board. The full board sustained me. They went to the supreme
court and the supreme court sustained me.
A very similar case was the Brightman case, that of a stationary
The next case was that of a woman who was employed in the
Whitehall Manufacturing Co., a carpet-manufacturing company in
Worcester. She was a woman who was below par physically. She
had a bad heart trouble. The work which she was doing on the day
on which she received this injury consisted of repairing a carpet after
it had come from the loom. In order to do that the carpet was placed
on a horse, and she would draw that carpet over a table, perhaps as


w o r k m e n 's

c o m p e n s a t io n .

long as these three tables here, and repair any inaccuracy in the
weaving of the loom. Her work that morning consisted more of
pulling that carpet over the table than it did in mending the carpet.
Toward the end of the morning she had a bad attack of angina
pectoris. She finally gave up work that noon and was out some 18
or 20 weeks. The case came before me, and I heard it, and I listened
very carefully to the medical evidence. The gentleman who de­
fended that case is going to address you before this session closes.
I do not know that he will refer to> it, but he fought the case very
hard. I could not see that there w^as any new principle of law in­
volved there, any different than in the Fisher case or the Brightman
case, except that the woman did not die. I gave her compensation.
That case went the rounds. It went to the full board and then to
the supreme court, and the chief justice of the Massachusetts su­
preme judicial court wrote a very exhaustive opinion upon that
case. I am sorry I have not got it here to refresh my recollection
of his words, but in substance he said that the Massachusetts law con­
templated payment for personal injuries arising out of and in the
course of their employment to employees who were injured, and
he said the law does not state that these employees must be healthy
employees, or that they must be wise or foolish employees, the sole
requisite being that they be employees under the definition of our
statute. Consequently, if you took into your employment a person
who was below par physically, and the work that he or she was doing
aggravated and accelerated a previous condition of disease to such
an extent that that person became disabled, he was just as much en­
titled to compensation as} though he had lost a finger or a hand.
The chief justice did point out that this might mean a very serious
burden to the employer, and that it might put on industry a burden
which industry could not well afford. I was going to test that out,
but, unfortunately, before I completed my tests my term of office
expired and I was unable to complete my investigation. But I seri­
ously think that if you will study these cases to see how many there
are, you will find that they do not impose that serious burden which
we all of us feared.
The question of malingering has come up. In my experience in
four and one-half years on the Massachusetts board I can not recall
half a dozen genuine cases of malingering. Now, that may be ex­
ceptional, but I think there are some gentlemen here who have con­
siderable insurance interests in Massachusetts who will bear me out
in the statement that in Massachusetts we do not have very much
malingering. Am I correct, Mr. Lott?
Mr. L o t t . I think you are. I f I may be permitted to answer, I
think that the administration of the law in Massachusetts is better
than in any other State in the Union, and the fact that you do not



have malingering there is because of the efficient administration of
the law, and the good results that you have there in that regard
would not be attained in other States where they have a less com­
petent board to administer the law. You may take the credit to
yourselves, and not to the disposition of those who would malinger
if they were permitted.
Mr. H o l m a n . In other words, it is a question of efficient adminis­
tration, and not of a defect in the law.

Capt. W i l l i a m P. W h i t e , United States Navy, retired, treasurer
and general manager, Lowell Paper Tube Corporation, May I ask a
question of Mr. Holman?


h a ir m a n


What is the question?

Capt. W h i t e . I would like to know what the effect is in those cases
of partial disability, where compensation is awarded, or what the
effect would be if the employer knew of the disability.


olm an


That I can not say.

Capt. W h i t e . I f he had known of the disability, and the liability
of the individual to injury, would he have employed a person so dis­

Mr. H o l m a n . I think the answer to that is going to depend on the
state of the labor market. I notice that we frequently have brought
up the question of the physical examination of employees. Now, I
do not care to discuss the abstract proposition of the physical ex­
amination of employees, but I do notice this, that when your indus­
try is rushed to the utmost, and when you are searching for men
and women to work in your industry and can not get them, it does
not make a great deal of difference who they are, or what they are
physically, or what their physical condition is, if they can do a day’s
work. Consequently any physical examination would be waived
during those periods. I f we are going to have physical examina­
tions, you are going to shut out from industry a very large propor­
tion of efficient workers. 'That is true, is it not ?


h it e .

Not altogether.

Mr. H o l m a n . N o w , take that engineer, or take the cook on the
lighter. Previous to that incident he had done his work, and per­
haps but for the happening of that unfortunate combination of cir­
cumstances he might have gone on 5, 6, 8, or 10 years with good
working capacity^ as he had gone on before for 5, 8, or 10 years, in
exactly the same condition that he was in when he died. Are you
going to throw those people out?
Capt. W h i t e . I feel that that would be an unfortunate effect of
this law, unless we allow the physical condition of the individual
70085°— Bull. 212— 17------ 14


w o r k m e n 's

c o m p e n s a t io n .

employed to be discoverable, if possible, and allow it to be considered
in. the insurance.
Mr. H o l m a n . Some of the companies in Massachusetts undertook
to differentiate in that way, and I can recall one company that had a
physical examination made, and they threw out 22 people at one
time. But I notice that now they are employing men very much
inferior to those whom they got rid of, and they are employing
them now because of the rush of work. I am afraid that if by any
means men and women are legislated out of their jobs, by the same
token you must give them some other form of insurance, which will
be more burdensome, I think, upon the average employer than it
would be to take his chances now and then with somebody who was
physically a little bit below par. In other words, you are going to
have invalidity insurance, because, if a man is thrown out of work
on account of his physical condition, you have got to take care of
him, and you are going to have old-age pensions very quickly, be­
cause if you throw out people who, if they get injured, are going to
be a long time in recovering because of their age, you must make
some legislative enactment that will in some way take care of those
cases, and you will find that you will be jumping out of the frying
pan into the fire, because I do not think those things are of suffi­
cient account—it has not been my experience that they are sufficiently
common—to constitute any great or real burden on the employer.
Capt. W h i t e . What I feel in regard to the matter is that the
burden does not come so much upon the employer as upon the em­
ployee. I f the employee is able, by assuming part of the responsi­
bility of his condition, to obtain employment, why should not the
law permit him to do it ?
Mr. H o l m a n . It should. I am going to discuss that point a little
later in this conference, under the topic of the handicapped worker.
Capt. W h i t e . Take, for instance, the case of a man with one leg
engaged in an employment in which he could do a day’s work. Ought
not that man be allowed to assume the responsibility for the pre­
vious loss of one leg, so that in case his remaining leg is injured
the insurance company will not have to pay for the disability of
two legs?
Mr. H o l m a n . I am glad you brought that up. I do not wish
to anticipate something that I am going to say a little later in this
conference, when I am going to take up the problem of the handi­
capped workman, and I am going then to make some suggestions
that may be a little radical; but I think when you come to that,
when you come to think it all over, you will find that the sugges­
tions I am going to make are not as radical as they seem. Of course,
the instances of men going back to work after having'lost one arm,



all those problems come under the head of the handicapped worker; 1
and it makes no difference whether it is the physical loss of a mem­
ber, or whether it is a neurosis that grows out o f his employment,
like that of the cigar maker, or what not. There are a lot of cigar
makers who can not sit down at the bench and turn out a full day’s
work; and if they can not turn out a full day’s work they can not
get employment, because the employer expects that bench to turn out
so many cigars, and the man who can not turn out his share is
discharged. There are a number o f cigar makers in Boston who
are out of work because they can not turn out the full number of
cigars in a day, owing to this impairment that has come upon them.
Yet those men can do two or three days’ work in a week, or a part
of a day’s work each day, and some wlty has got to be provided so
that they can get that work.
Capt. W h i t e . I am interested in the case of the employee.
L. D . C l a r k , of the United States Bureau of Labor Statistics. I am
very much interested in the statement made by one speaker this even­
ing to the effect that the State legislatures have made the worst pos­
sible choice in enacting schedules for disabilities. When we con­
sider that of the 34 compensation .States and Territories 28 have
statutory schedules of awards for designated injuries, it is evident
that the error, if it be an error, is very widespread. I think that
since 1913 no State has passed a law that did not embody such a
schedule of greater or less inclusiveness. Furthermore, the impor­
tant States of Ohio and Wisconsin amended their laws by the incor­
poration of a schedule after some experience on a nonschedule basis.
The officials of these States assigned as reasons for the change that
it was demanded by both equity and administration, since a return
to work after recovery from a total disability following an injury
might be accomplished without immediate loss of wages, though with
a mutilation or maiming that might be detrimental to continued em­
ployment or an obstacle to the securing of other employment. The
fact that an employer receives such a workman into his service on the
recovery from total disability is no guaranty of continued employment,
while the maiming obviously produces a certain degree of disability.
Again, it was said that even if there was a reduction in wages and a
corresponding compensation award, accidental or personal causes
might influence such reduction, so that identical injuries would lead
to dissimilar allowances and produce in the mind of the workman re­
ceiving a smaller compensation the idea that he had been discrimi­
nated against. The need of a prompt and inexpensive method of
determining awards without hearings and operating as a guide for
direct settlements between the parties was another reason assigned.
It may be added that no State having once enacted a schedule has
abolished it.



Since 28 States and Territories have a schedule of this class there
remain the laws of 6 States and the Federal statute without such a
provision. These laws are sometimes said to contemplate awards on
a percentage basis, as distinguished from the schedule method, but
the fact remains that practically every law declares that compensa­
tion shall be based on the percentage of disability produced by the
injury, the schedule being available for the determination of the
more frequently occurring injuries, the direction frequently being
given in the law that other injuries shall be compensated for on a
commensurate basis. The laws containing no schedule direct that
compensation shall be paid on the basis of the difference between
the earnings before the injury and the amount that the injured
man is able to earn thereafter, or that he is probably able to earn.
The laws of California and West Virginia provide that the award
for partial disability shall represent the percentage that such dis­
ability is of a total disability, adding that account shall be taken of
the age and occupation of the injured person. The Washington
statute differs somewhat in language but not in apparent intent.
The question naturally arises as to the practical differences that
result from the differences in the provisions of the laws; that is,
whether the schedule system and the percentage system, if they are
distinguishable, really work out distinct results. Lines have been
drawn in discussion and the schedule system condemned as arbitrary,
“ cut and dried,” and likely to work injustice, leading to a disregard
of the individual physical and labor conditions of the injured per­
son, even though based on experience and often properly applicable.
One can but wonder what better criterion there could be for awards
than experience, or how an individual estimate of a particular case
is to be arrived at other than by an assumption of consequences based
on the cumulative experiences of persons in identical or approxi­
mately similar conditions. Again, it is said that the schedules are
drawn up on a basis of dismemberment rather than of disability, and
that compensation should not consider personal appearances but
economic needs. The question would be pertinent as to what atti­
tude of mind one could have that would fail to recognize in dismem­
berment a measure of disability; and as to appearances, a man with
but one eye or a mutilated hand is most assuredly at an economic
disadvantage in seeking employment in most establishments. No
one will question the principle of compensation as being economic
and for the purpose of preventing want rather than an assessment of
a penalty against the employer; but it seems possible at least, and
certainly desirable, that an injured man should not be required to
await the experiment of subsequent employment before he shall be
compensated for a certain and absolute physical loss, whether or not
it immediately manifests itself in a reduced wage. The name given



an award amounts to little, whether it be called compensation, dam­
ages, adjustment-period payments, or what not, if only there is
recognition in proper degree of a loss suffered. The Supreme Court
of New Jersey declared that the schedule of that State was based not
on an estimate of the time lost as by a temporary disability, but was
a method of ascertaining by statute the damages suffered by the
The New Jersey law was the first to establish a schedule and the
system is frequently referred to as the New Jersey method, while the
law of California is the most frequently cited as embodying the
percentage system. But, as Mr. Michelbacher has just explained,
the State of California has an elaborate scheme for determining
awards, claimed by its proponents to contain answers for 1,080,000,000 questions. Keys and finding lists are furnished in order to
show the exact rating of a man of any age or occupation affected by
any injury, and it is submitted that the answer is nothing more nor
less than a schedule award. To be sure, it has the great advantage
of accuracy and refinement of distinctions, as compared w7ith the
schedules of the other States, which are only suggestive and which,
it is admitted, are unduly rigid where applicable. With all its
breadth of inclusiveness, however, it is found in practice that con­
ditions arise not covered by the schedule which must be referred to
an expert for determination according to his judgment, using as
his guide the nearest rating presented in the schedule. Clearly,
what happens here is just what happens in any schedule State where
the administrative official reasons from the provisions of the stat­
ute to the conditions under consideration. In West Virginia, whose
law contains similar provisions to that of California, the commis­
sioner has worked out a list of 30 of the more common injuries
of a permanent character, establishing minimum, average, and
maximum allowances, while in Washington, another nonschedule
State, a list of degree awards has been established for 43 of the
more frequent injuries. In the Province of Ontario the same result
followed the enactment of the law without a schedule, the commis­
sion establishing a rating schedule for the commoner injuries of a
permanent nature.
It is obvious from the foregoing that administration tends to ac­
complish in the nonschedule States, so called, what the law accom­
plishes in the schedule States, and that there is no practical difference
in the results where,, for instance, the schedule declares that the loss
of a hand shall be compensated for by the payment of awards dur­
ing the term of 150 weeks, and where the loss of a hand is said to
incur a 52^ per cent loss of earning capacity, with 3 weeks’ benefits
payable for each per cent; and such a result is only an illustration
of general conditions.


w o r k m e n 's


Reference to the decisions of the courts only emphasizes the con­
clusion that there is no real differenci3 in the construction and work­
ings of the two types of laws. The Supreme Court of California
affirmed an award for the loss of a finger, even though there was
no actual reduction in earnings at the time, which was exactly the
position taken by the courts of New Jersey. In the nonschedule
State of Kansas an award was affirmed where there was no wage loss,
on the ground that the present employment might not continue for
the full period for which compensation could properly be allowed
and that the workman might be at a disadvantage in seeking to
make any change. Th^e schedule State of Michigan ruled by its
board that a man was entitled to an award, not because of the wage
loss, but because the injured man vas deprived for life of the use of
a member. Defects do appear in court construction by reason of
too literal a following of the schedule in some cases, but this seems
to be the fault of the courts or of the local construction rather than
of the phraseology of the law, since different constructions are
made in different States.
It seems to be clear, therefore, that instead of condemning sched­
ules and proclaiming the “ scientific character w of percentage awards
it is desirable that attention should be given to the development of
flexible and inclusive schedules, probably simpler in their method
and adaptability than that of California and certainly not so rigid
as to render impossible the exercise of a degree of discretion in view
of the peculiarities of the case, if any, while preserving the value
of an accumulation of experience and judgment such as will accrue
during the continued operation and extension of laws of this class,
The C h a i r m a n . With reference to the point that our friend has
just been discussing, I may say that last spring, in a moment of weak­
ness, I consented to prepare a paper which I presented at the Colum­
bus convention, in which I attempted to do just what our friend has
said, viz, to compare the 33 different compensation jurisdictions, and
I sought to present in dollars and cents a comparison of what each
of those jurisdictions would give in five different cases,'viz, loss of
an arm, an eye, a leg, a thumb, or index finger. I f the report of
that convention is ever published, that comparison will appear in it.
Mr. C l a r k . Ontario did not enact the schedules, but the commis­
sion made a schedule. Is that correct ?
The C h a i r m a n . That is the situation. Discretion was given in the
Ontario act, based upon that section which is in most of the acts, viz,
that permanent partial disability shall be 55 per cent of the difference
between what a man formerly earned and what he is able to earn
subsequently. Attempting to reduce that to a practical basis, we
simply adopted a schedule which we thought would be fair and right.


g !5

Ralph H. B l a n c h a r d , University of Pennsylvania. I think that in
connection with the discussion of the question whether we should
base compensation upon loss or upon need, we should go back to the
basic theory of compensation. Ordinarily compensation is advocated
on the ground that industry is responsible for the major number of
accidents, and that therefore it should pay for the loss from injury.
Now the loss from death is the loss of the probable earning capacity
of the person who dies, regardless of the need that arises from it.
That is really what the industry is responsible for, on the basis of the
reasoning that is usually applied It would follow logically that we
should pay the loss regardless of whether the man has any depend­
ents. We would pay it to his estate if he did not have any direct
dependents. On the other hand, from the social point of view., I
think there is no question at all that it is better to compensate in pro­
portion to the need that is created; that is, in proportion to depend­
ency—if there are no dependents, paying for the burial of the man
who is killed,, and if there are dependents, paying compensation in
proportion to their number and degree of dependency. Most of the
recent acts distribute the death benefit in proportion to need, but I
think we should recognize that we are following a different theory
than is usually urged in justification of compensation acts. That is,
we are using the industry as a practical means of attaining a social
end, payment according to need not being based on the theory that
the industry ought to pay the loss, because the industry is not re­
sponsible for relative degrees of need.
There is just one other point of which I desire to speak in connec­
tion with dismemberment schedules, particularly in connection with
what Mr. Clark has just said about the fact that a number of States
have adopted schedules. There are at least three States of which I
have been told where schedules wrere adopted, not because it was
thought they were well adapted to the end, but because the man who
drafted the act copied the schedule from a personal accident policy.
I think it is true that ,a great many of the acts which have been
passed have been drafted by slavish copying, without any proper
consideration of just what ought to be done under the circumstances.
While it is not an exact copy of the Washington act, anyone who
i;eads the Oregon act will find the same features running through it,
and I would be willing to wager that the man who drafted the,
Oregon act did not go back to basic principles and did not decide
whether each paragraph in the Washington act was a good thing to
copy. In the same way you find the English influence in the Massa­
chusetts act, and in a great many cases the authors of compensation
acts have adopted the methods pursued in drafting the old employers’
liability acts in the eighties, when we simply took over the English
act in this country. I think a great many provisions are traceable


w o r k m e n 's


p e n s a t io n


to this tendency, which does not add to the conviction that the pro­
visions of the various acts are ideally adapted to the purposes for
which they were intended.
W. A s h e , of the General Electric Co., Pittsfield, Mass. I just
want to say one word as to the objections which have been raised
to making physical examinations of employees. There seems to be
a general impression that the inspection of employees results in con­
siderable rejections in industry. I just had the privilege of going
over 4,000 cards of employees hired in about eight months in one
concern, and the total rejections in that number were 192. This you
will see is not large. A large percentage of these rejections were
acute cases of hernia. There were also some bad cases of heart
trouble and some tubercular cases and cases of venereal disease. I
have been much interested in all the discussions so far, and it seems
to me that the* only criticism I have to offer is that in all this work
there is a very great need of more concrete statistics. For instance,
in most States, if a man employed in an industry comes to the com­
pany and says that he has a hernia, the case has to be operated upon
and cured and the compensation paid. Now, I could get the state­
ment of at least 40 physicians and surgeons who have gone on
record as saying that it is practically impossible for a man to receive
a rupture as the result of an accident. Yet in 90 per cent of the
cases where the men claim that they have been ruptured in the
industry, under the compensation laws in a great many of the
States—not all—the individual had to be operated upon and com­
pensation paid. It would seem to me in cases of this character, where
concrete statistics are available, the laws ought to be a little more
lenient to the employer.
Mr. W o l f e . I wTant to ask Capt. White and Mr. Holman whether
in their opinion the waiving of the right to compensation by handi­
capped workers would have met the cases to which they refer? Ia
other words, if a handicapped worker presented himself for em­
ployment and you felt that he could be employed without jeopardiz­
ing the other employees, would you have accepted him if he had
been permitted to waive his right under the compensation act ?
Mr. H o l m a n . May I ask a question? Take the case you have in
mind; I want to get it down into a little more concrete form. In
other words, take the case of the one-eyed worker, that being the
only objection to him; would you mean that he should waive his
rights to compensation for anything except his eye ?
Mr. W o l f e . Mr. Holman has indicated his place of birth by an­
swering my question by asking me one. I wish he would ask his.
question again.



Mr. H o l m a n . In the case of a one-eyed worker whom Capt. White
would not want to employ, because if the man lost his remaining
eye Capt. White would be burdened with the total incapacity of the
man and would pay for that, would the man have to waive the right
of compensation for the loss of the eye, but not for the loss of his
hand, or for some other accident that might happen to him ?
Mr. W o l f e . Yes; only for that part which is affected by his in­
capacity, net for the loss of his hand or anything else except the eye.
Capt. W h i t e . For my part, notwithstanding the risk of the burden
to our industry, I did hire a one-legged man, and I have hired a
one-eyed man; but I do not think it is fair to our corporation to
leave us open to penalties* or having to suffer a loss that should be
partly borne by the individual, and for which we are not responsi­
ble. I took the risk in accepting him for employment, because he
was in need of employment. Now by doing so it seems to me that
we ought not to be subjected to the penalty of paying for total dis­
ability where the man had already been partly disabled before he
entered our employment.
Mr. A s h e . We have employed ruptured men at the Pittsfield
Works of the General Electric Co., but have made a record of the
fact that they were ruptured when they entered our employment.
Knowing that such a record exists, we have never had such a case
return for compensation. On the other hand, a large part of our
manufactured products, high potential transformers, are made of
heavy material, weighing many tons, and therefore out of 152
rupture cases where the hernia was of such a character that the risk
was great and the conditions might be aggravated, applicants have
not been employed until they have been operated upon and cured.
While a waiver of compensation has no legal standing, still if all
of these hernia cases had been able to carry their own risk, it is
possible that half of them might have been employed, the balance
of the cases consisting mostly of double hernia, too_ serious to
A l b e r t W . W h i t n e y , general manager, National Workmen’s Com7'
pensation Service Bureau. I should like to call attention to the fact
that a reduction in the amount of compensation, not a waiving of it
altogether, would be in line with the fundamental idea of compensa­
tion, provided compensation is looked at as indemnity. We indemnify
a man for the probable value of his life; if his life is impaired, the.
probable value of his life is not so great, consequently the indemnity
should not be so great, and therefore the compensation should not
l)e so great; if compensation is to be considered as indemnity, it is
just and proper that there should be a reduction of the compensation
in a case of this kind. I believe it would be possible to work out a



schedule applicable to eases of this kind, or at any rate to treat the
matter in some systematic way.
T. H. M c G r e g o r , chairman, Industrial Accident Board of Texas.
I did not intend to speak on this subject, because I did not think it
interested me; for under the fundamental and organic law of the
State of Texas this question would not arise there. Then, it occurred
to me that I had another interest here than the territorial interest of
the State which I represent. There is a fundamental objection which
obtains to the contention of Mr. Wolfe as a legal proposition, and
there is a reason why a waiver should not be allowed. There is a
just reason for the rule laid down by Mr, Sherman. There is a
fundamental proposition of compensation why a waiver should not be
allowed. All our compensation acts spring primarily from the police
power of the respective States, and the statutes look to that power for
their origin. Those which have been sustained by the appellate court
have carried with them the option on the part of employer and
employee to avail themselves of an employers’ liability act. In other
words, the employer had a right, and the employee had a right, and
they had the option to exercise that right. The doctrine of waiver
through all the ages has presupposed the existence of a right on the
part of the man who exercised the right to waive. Now, if the
statute gives to an employee the I’ight to avail himself of an em­
ployers’ liability act, and then gives to an employer the right to
coerce that employee to waive that right, then he did not have any
right. Therefore, it must fail for that reason. You can not give a
man right by one statute and say to him in another statute, “ Before
you can earn your meat and bread you have got to waive that right.”
So as a legal proposition there can be no such thing as a waiver in
this case.
There may be a coercive taking away from the employee of a right
that is given to him in most of the States by statute, and that has
later found its authority in the organic law of the State. So it is
not a waiver. It resolves itself into the question, Shall his right to
compensation be taken away from him ? That is the statement of it.
A one-handed man ought to have the same rights under our statute
that a two-handed man has, otherwise it would be a discrimination
against the weak. It would be saying, “ To him that hath shall be
given, and from him that hath not shall be taken away even that
which he hath.” This is not charity. I f this is charity that is dis­
pensed under the police power of the State through compensation
boards, then we are proceeding on the wrong theory, and we ought to
search out the weak and afflicted and administer charity to them.
But it is not charity. It is compensation, based upon a specific loss,
given to the man who has lost something in the accident or the in­
jury that he sustained. I f a man goes into a factory with two arms



and loses them both, he ought to be compensated for what he has
lost—his two arms. I f a man goes into a factory with one hand and
loses it, he ought to be compensated for that; not for total incapacity,
because it did not originate there; but the scientific and sound doc­
trine announced by the distinguished gentleman from New York
should obtain, that he should be compensated for the injury which
he sustained; not pensioned as a matter of need, not as a charitable
bestowal, but as compensation for the loss sustained. Therefore it
occurs to me that it is absolutely a legal anomaly. If I wrere in
Texas, where strong language is permissible, I might suggest that it
is a legal absurdity to give to a man by one statute a right from
which may spring the bread and meat that feed his babies, and his
house rent, and the clothes that his family wear, and then to take it
away from him by the soft and euphonious term of “ waiver,” which
can not obtain in countries where men are equal.
Mr. L o t t . When I said that the good results obtained in Massa­
chusetts were because of the efficiency of the board which adminis­
tered the law there I should have said the board as constituted when
Mr. Holman was a member of it, and I should have followed that by
saying that as soon as the board became really efficient the complexion
of the board was changed, following the political example prevailing
in this country. Therefore, by the splendid example that I had be­
fore me to-night, I should have proven the assertion which I made in
my paper, which many of you were kind enough to listen to this
afternoon, which I did not have quite time to finish, but which, with
your permission, I will finish now.
(Mr. Lott then read the concluding portion of his paper.)


The C h a i r m a n . There are two *addresses on the program for to­
night—one by Mr. William C. Archer, deputy commissioner, New
York State Bureau of Workmen’s Compensation, and one by Mr.
Robert E. Grandfield, secretary of the Industrial Accident Board of
Massachusetts, on the subject of “ Lump-sum settlements.” Mr.
Archer is not here, nor is Mr. Grandfield here, but his address is
printed, and we were going to have Mr. Donahue read it. Mr. Dona­
hue has just suggested that it be taken as read, and as it is now half
past 10, that the meeting adjourn. If it is the wish of the meeting,
Mr. Grandfielcl’s paper will be considered as read, and we will ad­
journ until to-morrow morning at 9.30 o’clock.
[This paper was submitted but not read.]

Workmen’s compensation for losses arising out of industrial acci­
dents is in no sense a charity or a dole from the State. Neither is
it provided in lieu of the cost otherwise to be encountered in the
maintenance of eleemosynary institutions. And its source is not a
tax upon industry, for it is not a levy in support of government nor
is it an assessment to support an improvement of property for the
benefit of the public. It is not even a burden.
But, as the word signifies, it is payment over and above ordinary
wages for losses sustained through the risks taken in hazardous em­
ployment. In a sense, it is a wage whose payment is contingent upon
loss from accident. The money for the purpose, through being made
a certain element in the calculation of the cost of production, is col­
lected as part of the selling price of finished goods or work.
It does not lay an added burden on industry after proper adjust­
ments to new conditions take place, but, on the other hand, produces
relief. Money hitherto paid for indemnity contracts would almost
effect full payment of compensation awards and benefits. Then there
are the attendant economies and incidental improvements of indus­
trial relations. All these much outweigh any estimate of compensa­
tion as burden.
The State in its attempt to further social justice has compelled the
adoption of the plan; has done it by the method of insurance, sijice



single industries do not alone develop the law of contingent losses;
has regulated it in commerce through rates varying as hazards vary,
and among workmen according to earning capacity, which reflects
living conditions; and, with conditions in mind of hitherto unallevi­
ated distress, has sought to guard against unthrift in expenditure by
means of installments of payments throughout the entire period of
disabilitjf or dependency.
This has been said in support of three propositions:
First. Awards and benefits of compensation are the workmen’s
as of right, as things earned, paid for in advance by all and enjoyed
by all, the better, be it said, in expectancy but perhaps with more
appreciation during disability.
Second. The State which enacted the law has the right and it is
its duty to safeguard its fulfillment and to realize its beneficent
Third. The employers have special rights through their duties
to their workmen and since they themselves are directly benefited
when the law is well administered.
Periodical payment during disability or dependency is the rule of
all compensation laws. The schedule of specific awards is no excep­
tion to the rule, for schedules have been adopted for the sole purpose
of certainty and convenience in administration, and under the
analogy of the general law are contingent rather than vested interests.
It may be said therefore that lump sums are not in the favor of the
law. Nevertheless, as has been shown, awards are the workmen’s as
of right, and may, under certain conditions, be made and still be kept
within the letter and the spirit of the law.
In fact, I should say that the single and only test is the good of the
recipient, which will always satisfy the interests of justice. I f this
may be effectuated, the State will instantly be obliged as a matter of
duty to grant the lump-sum payment. In doing so it need not be
deterred through consideration of the probability of the failure of
its purpose, for if it exercises a wise precaution it will have performed
its duty. For the State to go too far as overseer or protector would
be a violation of the workmen’s rights and a wrongful use of its own
Let us proceed to a consideration of the various kinds of cases in
their relation to lump-sum payments— and first, of those in which
lump-sum payments may well be made. Where the awards are small
and the disability of definitely short duration,* payments which may
become due after the award is granted may be made in a single pay­
ment. This for obvious reasons.
Where the claimants conform to a fine type of thrifty men, who
would likely know no dependency even were there no compensation
benefits or who give other evidences of thrift, payment should be


w orkm en 's

c o m p e n s a t io n .

made. In such cases the opportunity for a distinct betterment of
conditions is offered and should be encouraged.
In cases in which a reputable employer interests himself in the
welfare of his injured workmen and seconds an application for a
lump-sum payment it may well be made. The attitude of the em­
ployer is somewhat a guaranty that he will see the matter through.
Where sentiment through sympathy would support a small busi­
ness in a community in which the injured is known, a lump-sum
award should be granted.
Lump sums should be given to aliens who are nonresidents or who
are about to become nonresidents of the country. Every reason sup­
ports this, for abroad the award is worth more, our own States will
have discharged their duties to the inj ured and a more suitable en­
vironment is likely to be found in native scenes. There is justifica­
tion for discounting the present values of such claims.
Lump-sum payments should seldom be withheld when they go to
support children in school. Through education the disability may
be turned into a blessing. However, it may be said that an educa­
tion may be paid for in installments, but experience teaches that the
periodical benefits to children are too small for this purpose, though
when confined to a more limited period they prove sufficient.
In the granting of lump-sum awards administrators of the law
are bound to take cognizance, at least mentally, of the different char­
acteristics of various races. It is seldom indeed that the representa­
tives of certain races will lose or waste their awards if made in lump
sums, but on the other hand will proceed to turn them into increased
There is another class of cases in which lump sums are granted
which would not be thought of by those who merely read the law
or give but academic consideration to the question of compensation.
This class of cases arises out of injuries which we call permanent
partial and in which theoretically there is ability to do some work.
The law measures compensation in such cases by the impairment of
earning capacity. There are hundreds of such cases, but employees
as -a rule are totally disabled temporarily and when they are able to
work earn full wages. But where an employee has been injured,
has recovered as far as he will ever recover, and has not secured em­
ployment, or, if he has secured employment at the same wage, has
done so through the consideration of his former employer, who will
not turn away a faithful employee, and yet who, with any other
employer, could not receive so much wages, a commission in such
cases knows that it is either a question of continuing payment upon
an impaired earning capacity or of a purely theoretical considera­
tion of what a man is able to earn when, in fact, he is not earning
anything. Such cases afford peculiar difficulties and endless hear­

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ings and rehearings, with some show of ill will on the part of in­
surance carriers who have no sentiment in the matter and begin to
resist the claim, or a temptation to malingering in which the claimant
may seek to secure advantage out of doubt. So when claimant and
insurance carrier come before a commission with a prayer to end the
case by an award for a single amount, such amount being suggested
jointly by employer (or his representative) and employee, a commis­
sion should not hesitate to make awards and close the case if clearly
in the interest of justice. A commission need not be a party to any
dickering as to amount, nor need it enforce its opinion on either
party. It simply approves if justice is furthered. It is needless to
add that this function should be exercised with great care.
Finally, in certain cases lump-sum awards are justified to prevent
malingering, and especially is this true in cases of neurosis. I f the
psychic element tends to prolong disability, the quicker a case is
closed the better. There are also certain cases of real disability ac­
companied by malingering to the extent only of overestimating the
disability. I should say in the interest of justice that such cases are
better closed.
There are cases in which lump-sum payments should seldom, if
ever, be made. Since all payments should be made only for definite
purposes it follows that payments to satisfy sentimental reasons
should never be made. Claimants often desire their money that
they may see it and count it and put it in the bank. Their applica­
tions should be denied. Some desire to loan it or to speculate with it.
This is not sufficient reason.
Drunkards, the diseased of certain types, and the stupid and im­
becile should never be granted lump sums.
Lump-sum awards, except in very rare cases, should not be granted
when the injured is suffering a permanent total disability. In such
cases only when the periodical payments are too small to subsist upon
should serious consideration be given to the claimant’s application.
Each such case should and undoubtedly will have very earnest and
special consideration. t It is enough to say that such is needed.
Many applications are supported by the pleas of attorneys or next
f riends* In the maj ority of theser cases the suspicion is at once aroused
that the expectation of fees rather than the good of the claimants is
back of the application. Such claims should be denied.
Cases sometimes come on for lump-sum settlements at the instance
of the employer or carrier whose reasons may be found in a desire
to liquidate doubtful cases, to pull down reserves, or to save expense
of further handling. These are not justifiable causes for granting
lump-sum payments.
In death cases where payments are contingent upon life or re­
marriage or dependency or minority great caution should be exer­


w o r k m e n ' s c o m p e n s a t io n .

cised in the granting of lump sums. In some such cases the very
terms of the law itself would seem to prohibit lump-sum awards. In
cases of children who would be helpless against the improvident use
©f commuted payments their interests should be safeguarded. Lump
sums for the same reason should seldom be paid to the aged or in­
firm who have no hope of support outside the compensation benefits.
I have spoken now of cases in which payments may nearly always
be made and of cases in which they should seldom, if ever, be made.
For these and for all other cases the growing if not paramount impor­
tance of the question of compensation problems leads me to suggest
that where the volume of compensation business is sufficiently large
to warrant it, and it is likely so in all States, that a unit of
organization be formed for the special consideration of lump-sum
payments. There are many applications for money with which to
purchase businesses, to pay debts, to embrace and encourage oppor­
tunities, and to satisfy desires seemingly springing from proper mo­
tives. All such applications should be carefully examined, and the
administrative department might even go so far as to make investiga­
tions and pass critical judgment upon the proposed ventures as viewed
from every standpoint. Certainly the matter can not be treated with
haste or disregard without subverting the ends of justice. This is a
stern business and should be governed by a great deal of practical
hard-headedness. Necessity rather than enjoyment should be a gov­
erning rule, and there should be evidenced on the part of the claim­
ant enough foresight and thrift to justify the department’s action,
and it should be kept constantly in mind that the interest of justice
and the good of the claimant will in many instances justify lump­
sum awards. A consideration of this will fortify the department
with the proper patience to listen to the never-ending applications
for money.
Finally, I want to speak of one or two dangers to be guarded against
and avoided. The first is the tendency toward the practice of granting
lump-sum awards in order to get rid of cases. This tendency should
be curbed as entirely unworthy, and the importance of the suggestion
should not be overlooked, for it denotes a real and present danger
everywhere. The compensation business is new. Its volume has sur­
prised the public, who are even yet unaware of its real magnitude.
Man}^ departments administering compensation laws are starved and
compelled to work under strain. To close cases by lump-sum pay­
ments is a temptation, and especially so since this method satisfies all
parties concerned, at least temporarily. But it is one thing to be
tempted, another to fa ll; and we must not fall.
The greatest danger of all, however, is the danger of a single corr
rupt administration which would in a wholesale manner commute fu­
ture installments of outstanding claims and in doing so effect dis­

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counts in value. This would be the real calamity, for the injury
would be irreparable, the work o f years brought to naught, and it
would scandalize the State in its benevolent purposes in furthering
the great humane laws comprised in our various compensation stat­
Finally; let me conclude by saying that a discussion of lump-sum
agreements by emphasizing the details involved might lead to the
hasty conclusion that such payments should be made in a relatively
large number of cases. The very opposite should be the rule, and
the law, as has been said, generally looks with disfavor upon this
manner of determining claims.
70085°— Bull. 212— 17------ 15

[This paper was submitted but not read.]

The question of lump-sum settlements under compensation acts is
an important one with reference both to the purpose of such settle­
ments and to the administrative policy in connection therewith. The
subject may best be introduced perhaps by recalling briefly some of
the fundamental principles of a compensation act. One of the
objections to the former system, or lack of system under common
law or employers’ liability law, was the waste attendant upon lump­
sum settlements, owing to wasteful expenditure of the damages
awarded, the cost of attorneys’ services, and the lack of control over
the injury through medical service. The compensation act is not a
law of damages; it is a law, in theory at least, designed to return
employees to industry, either fully cured or restored as fully as
medical skill may accomplish. Compensation is intended to be paid
periodically, usually weekly, to relieve financial distress during the
period of rehabilitation, or in cases of permanent disability to sup­
plement the wage loss. In fatal cases the compensation is intended
to tide dependents over the period necessary for their adaptation to
new7 conditions.
The extent to which a compensation act provides adequate financial
relief in all cases is dependent upon the generosity of the compensa­
tion scale, both with respect to the amount payable periodically and
the length of time for wrhich these payments may be made. For
various practical reasons, largely the question of cost, present acts
in general do not pay 100 per cent of the wage loss, the period of
benefits is not based on the life or working-life expectancy, and
owing to the effect of the weekly limits even the percentage pro­
vided is not applicable to those persons whose wTages exceed the
limit established. Under the pure theory of a compensation act
there would be no apparent real need of lump-sum settlements if
the compensation scale were adequate in all respects to meet the
special requirements of each case.
In general, weekly payments should be the rule under the work­
men’s compensation act; lump-sum settlements should be the excep­
tion to the general rule, but under present conditions seem unavoid­
able in some cases. The burden of proof, however, to show why

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we should approve the payment of a lump sum in redemption of
liability should be upon the applicant, and the applicant in all cases
should be the employee or the dependent of an employee. The in­
surer may not, under the practice in vogue in Massachusetts, initiate
a lump-sum payment. This rule is intended for the protection of the
employee and as a safeguard against the premature termination of
the rights of an employee by the lump-sum process. Another reason
for the practice is the desire of the industrial accident board to limit
the number of cases in which employees may be tempted by the
dangling of the lump-sum bait to accept a settlement proposed and
arranged by the insurer. The desire of the insurer to terminate lia­
bility is not recognized as a legitimate reason for the approval of a
lump-sum settlement. It may be added, also, that many insurers
accede to the wishes of the board in regard to liability redemption
cases and freely cooperate with the commission in their investigations
and conferences in regard to such settlements.
In passing upon these matters certain fixed principles can not be
ignored, if settlements by lump sums are to be approved in accord­
ance with the spirit of the law. Briefly, the main points to be
considered are as follows:
First. The case must be exceptional or unusual.
Second. The settlement must be for the best interest of the em­
ployee or his dependent.
Third. The amount agreed upon must be adequate.
It is difficult to define concisely an exceptional or unusual case.
Generally speaking, however, the exceptional case may be defined
as that of an employee, or a dependent of a fatally injured employee,
in which a lump sum may be used to better advantage than the
weekly payment. Thus the employee who is the father of a family,
and who receives a permanently disabling injury, such as the loss of
a foot or hand, may be much better off financially and socially if the
future weekly payments are commuted and he is allowed to depart
for Italy. A lump sum of $2,000, or even of one-half that amount,
becomes almost a fortune when translated into Italian lire, and the
employee and his family will be able to live in comparative comfort
and even luxury in their native land. Contrariwise, the weekly
payment of $8 or $10 leaves the employee only a small balance, and
at the end of the compensation period the permanently disabled
workman has little or no prospect of becoming self-supporting unless
a philanthropic employer creates a place for him in his business.
Such a case is not only exceptional or unusual, but it is also an excel­
lent type of case in which the facts show that the settlement is for
the best interest of the employee and his family.
Probably the idea of whether a case is or is not unusual may best
be conveyed by means of actual examples taken from our experience.



Typical cases are shown below illustrating the unusual and the kind
that is not considered unusual. First, we shall consider some unusual
A Brockton shoe worker lost his left hand while engaged in shoemaking, and as a result his usefulness in that particular industry
was terminated. This employee had been brought up on a farm and
had received his injury while helping to augment the family income
by working in a near-by factory. By reason of his long connection
with a farm the employee knew its requirements thoroughly and
applied for a lump-sum settlement so that he might purchase adjoin­
ing land and till the soil. He was granted a settlement, purchased
the land, and has become a successful one-armed farmer. The man
is assured of a comfortable living for the remainder of his life.
This was an unusual case, the settlement was for the best interests of
the employee, and the amount of the settlement was adequate for
the injury suffered.
A stonemason desired to go into business on his own account,
making cemetery urns from his own patented molds, and showed
orders for several thousand dollars’ worth of stock; a grocer’s clerk
wished to operate a small business of his own; a young widow,
formerly a stenographer, whose husband had been fatally injured
and left her with a good income-producing property, mortgaged for
about the amount of the commuted compensation, wished to pay off
the mortgage and go back to stenography; a metal worker desired
to open a business of his own in a small way and promised well in
such an undertaking; a widow wished to convert her single house
into a revenue maker by the addition of another apartment—cases
of this nature are both unusual and promise permanent revenue to
the employee or dependent.
Types that are not unusual and do not give promise of perma­
nent income are:
That of a widow who wished to buy a certain parcel of real estate
which proved upon investigation to be greatly overvalued and whose
lump-sum payment would have been irretrievably lost if the trans­
action had not been carefully inquired into by the board. In this
specific case the widow would have owed more for the real estate,
after making a payment of $3,000, than the parcel was worth on the
The case of a widow who desired to obtain a lump-sum payment
solely for the purpose of purchasing a single house, and whose family
income was not adequate to support herself and children.
The case of an employee who wished to get a redemption for the
express purpose of placing the fund in the bank.

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The ease of an employee who wished to gamble on his prospects of
recovery and concerning whose chances of improvement the surgeons
were unable to give a definite opinion.
The day laborer who wished to conduct a bakery, the widow who
wished to use the compensation fund to buy a piano and other
luxuries for her children, and the employee who could not live within
the income provided by the law and wished to commute his payments
so that for a time at least he might have ample funds, these and
scores of others—most of them having for their object the desire of
the employee to get what appeared to be a large final settlement,
without definite, promising plans in mind—are types of cases which
should not be approved under the workmen’s compensation act.
An inadequate lump-sum redemption should not be approved.
This is so because the inadequacy of the payment will defeat the aim
which underlies the request for approval and makes it unwise to
sanction such approval. In Commonwealths where the administering
body has the right to fix the amount of the lump-sum payment the
tendency toward inadequate redemptions may be avoided. In other
instances where an agreement between the parties is necessary before
the commission may pass upon the matter, the practice followed in
Massachusetts, that of withholding approval until the sum to be
paid in redemption is increased to an adequate amount should be
adopted. The powTer to fix the amount of the settlement probably is
the better method of insuring adequacy.
In death cases, the question of adequacy is simplified by the pass­
ing of a rule that a final settlement w7ill not be approved for an
amount less than the present value of the payments, at a stipulated
rate of interest. In Massachusetts, the rate is
per cent, and in­
surance companies generally have accepted this rule as a basis to be
used in computing settlements. Some difficulty is experienced in
passing upon cases of probable permanent disability. Medical
opinion, the experience of the individual case, when work has been
obtained and performed, and experience derived from general
sources, are aids to be used in passing upon the legal aspects of a
settlement. In Massachusetts, it is the invariable practice not to
pass upon the adequacy of a lump-sum settlement, except after
having received competent expert medical advice, a full considera­
tion of the particular requirements of the case before the board, and
a determination of the fair value of the future benefits, under all the
circumstances of the specific case.
Thus, in the case of a one-eyed man, who sustained an injury which
destroyed the vision of the other eye, and whose wife wished to make
his future certain by taking up a line of business with which she was
familiar, the redemption fund was figured as in a fatal case, on the
present value of the amount due for total incapacity or dependency


w o r k m e n ' s c o m p e n s a t io n .

for the full period of 500 weeks. In the case of a man who lost the
fore part of his left foot, reference was had to Imbert’s standard
table, the disability computed as 30 per cent of total, and the em­
ployee allowed to return to his native land to take up farming on
his father’s farm. The employee who suffered a shortening of his
left leg, due to a compound fracture, who wished to become a barber,
and whose prospects of success were exceptional, under the circum­
stances, was given a settlement of $800, arrived at arbitrarily, because
the settlement agreed upon by him and the insurer, in amount $3,00,
was inadequate. Yet, the insurer agreed to this adjustment, upon
the advice of the board member, because it was shown that it would
be unsafe and unwise to attempt to learn a new business and under­
take to build up a tonsorial patronage with a lesser sum in view.
When an employee can earn a definite sum, and his compensation is
on a partial incapacity basis, there is no difficulty at all in agreeing
upon a proper and adequate redemption figure. I f an employee
earned $18 a week prior to the injury, has sustained a permanent
partial incapacity, and is able to earn $6 a week thereafter, the lump­
sum value of the future payments is the present value of a weekly
sum representing two-tliirds of the difference between the old rate of
wages and the new, for the balance of the partial incapacity com­
pensation period.
The approval of lump-sum payments should be hedged about with
every reasonable safeguard. When attorneys are employed in these
cases their fees should be either ascertained and approved, or deter­
mined and approved by the administrative body. Otherwise the set­
tlements agreed upon may be diverted in large part to improper chan­
nels through the medium of improper and exorbitant fees. Every case
should be investigated thoroughly before receiving the consideration
of the commission or a member of the commission. No lump-sum
redemption should be approved hastily on the plea that the applicant
“ must leave at once for Italy,” or that “ this is an urgent matter,
which must be approved immediately, or the employee will lose the
chance to buy this business,” or for any of the many real and manu­
factured reasons that are offered for the purpose of getting a redemp­
tion settlement “ by the board.” Reference of each request to the
investigating department, first; consideration of the report and all
the facts in conference, second; and approval or disapproval, third—
are the steps which invariably should be followed in every lump-sum
case. This may be regarded as overzealous care, partaking of pater­
nalism, but the rights of injured employees and their dependents are
precious and should be safeguarded as a matter of paramount duty
by the administrators of our workmen’s compensation laws.




Dr. Meeker read the following telegram from the California
Social Insurance Commission:
Hon. R o y a l M e e k e r ,
Chairman Com m ittee on Social Insurance, I . A . I. A. B. C
W ashington, D . 0..*
The California Social Insurance Commission sends its cordial greetings to
the national conference on social insurance with best wishes for a successful
meeting, w hich can not fail to result in a better understanding o f the great
value o f the social-insurance movement by the people o f this country.
B a r b a r a N a c h t r i e b , Secretary.

It seems to have been the custom yesterday for the principal
speakers to preface the reading of their papers with a sort of pro­
logue. I can assure you that I have with difficulty restrained myself
in my desire to refer to some of the things said yesterday, but
I have reached the conclusion that if ever the cause of stock in­
surance was advanced, it was advanced yesterday by its enemies.
Therefore I shall resist all temptation in that direction and offer
my trifling contribution to the program.
The subject assigned to me is briefly expressed. Its complete dis­
cussion would do violence to the most tolerant ideas respecting
Some things carelessly called insurance rates are really not rates
at all. The results obtained by the theoretical rate maker for pur­
poses of publicity or agitation are not rates; they are merely figures.
This sort of a rate maker is nimble and plausible with complicated
algebraic formulas. He has no connection with insurance in any
form ; he never wrote or administered a policy; he never faced a criti­
cal superior, a dissatisfied board o f directors, or a disgruntled policy­
holder. His apparent learning impresses some, but his results are
without value to the serious business of insurance. Then there is



w o r k m en 's

c o m p e n s a t io n


the mutual rate maker. It is of no importance to him whether there
are any basic principles involved in rate making or not. He may
produce his rate by dense and laborious algebraic methods or by rule
of thumb. Under the laws of some States his rate must be adequate
and he must uniformly propose the same rate for the same hazard.
Neither of these requirements is difficult. As his rate is not final
but merely experimental, accuracy is unnecessary. I f a customer
thinks the rate is too high, the ready answer is that any excess will
be returned to the customer in the form of dividends. Customers
seldom claim that a rate is too low, hence this rate maker escapes
the further explanation that if the rate proves to be too low the cus­
tomer will be assessed for the deficiency.
I f a rate may be roughly defined as the money value of a given
hazard, then a mutual rate maker does not produce a rate. There
is no pretense that the money value of the hazard is expressed by this
rate. The rate is actually determined after the policy expires. It
is the bookkeeper and not the rate maker who produces the actual
rate. Unless restrained by competition or by law the natural tend­
ency of the mutual rate maker would be toward wholesale rate mak­
ing with rates pitched above the money values of the hazards for the
purpose of assuring dividends.
Glowing dividend promises are looked upon by some as good sell­
ing arguments. Why should the mutual rate maker pay any atten­
tion to the ethics or fairness of the system of dividend distribution ?
There is evident unfairness involved in a plan which permits the
good and bad members of a dividend group to share the dividends
equally. The same is true of assessments. Why should the good
risk, which during a substantial period has cost the mutual nothing,
enjoy equal dividends and pay equal assessments with the bad risk
which has cost the mutual a good deal? The rate maker talks glibly
about the necessity for distribution, but this is not distribution. It
is pure imposition.
There is probably not a business man in this room who would join
in a community or other mutual plan to provide food for his family
for a period of ten or more years in the future, deliveries to be made
every w^eek or every two weeks, the price to be paid now to be cor­
rected at the end of a year possibly by a dividend if commodity
prices were reduced, to be increased possibly at the end of another
year by an assessment if commodity prices increase, and then during
the remaining eight years have to await the result with no degree of
confidence that he had really paid the final price for the goods he
expected to receive. The final price has not been paid. It is only
determined when the last consignment has been delivered at the end
of ten or more years, when the subscriber may be called upon, because
of the failure of earlier mathematics, not to pay an assessment but



to pay for himself the actual deficiency in the cost of the goods when
finally delivered. We have here dealt with the delivery of commodi­
ties in the distant future upon present prices. In insurance we deal
with the delivery of indemnities rather than commodities, but other
conditions are the same.
The mutual cycle, so called, ends in two years when the right of
assessment usually expires. This is the last opportunity for the book­
keeper to correct the work of the rate maker. Liquidation is pro­
jected into the far distant future, frequently ten or more years. A
mutual rate, therefore, even when corrected by the bookkeeper, is not
the rate. It is merely the basis upon which each member of the
mutual group insures himself and all of his fellows. The mutual
itself insures nothing; therefore to find the mutual rate as it directly
affects the policyholder we must await the completion of liquidation,
perhaps ten or more years hence. The* rate maker has no control
over the rate at that time. Neither has the bookkeeper. I f the origi­
nal rate with the bookkeeper’s corrections has not produced a suffi­
cient fund to meet the long-deferred obligations, then each mutual
subscriber is responsible for any deficiency on his own risk at least
and that cost must be added before the real rate as it affects the
policyholder is determined. Hence we may naturally go a step
further and say that the mutual rate maker makes no rate. The
bookkeeper makes no rate, but the cost of the insurance as it affects
the policyholder is determined only upon complete liquidation in the
distant future.
It is the stock-insurance system and that system alone which re­
quires a real insurance rate. This rate must not only be adequate
and undiscriminatory but it must be absolutely accurate, or as nearly
so as human skill and knowledge can make it. This rate as respects
the policyholder is a finality. A rate upon a given risk is subject
to no change or correction during the life of the policy. How does
the stock rate maker go about it? I shall omit the mathematics.
Others will profusely supply this element.
Perhaps I should have stated earlier that my comments are di­
rected particularly to the workmen’s compensation insurance field.
Our rate maker turns to his manual of classifications. He finds there
some 1,500 classes expressed in the terms by which industrial under­
takings are usually known. He finds “ Machine shops,” uCotton
mills,” “ Rolling mills,” and so on through the list. He finds some
subdivisions, but not many, as subdivisions have been found to be
dangerous in practice. Because of possible misapplication, manuals
must be kept within the narrowest practical limits. Our mathemati­
cal friends will tell you how the classified or basic rates are pro­
duced. Let us suppose our rate maker produces a perfectly accu­
rate basic rate for machine shops. Is his work done? .Not at all.


w o r k m e n 's


He has barely started. The' hazards involved in the operation of
machine shops differ, infinitely, each from the other. I f it is true
that rates for the same hazard should be the same, it is equally true
that rates for different hazards should not be the same.
Our rate maker must analyze his hazards ; he must dissect them
and provide a rate measure for each part. This leads to a discussion
of practical procedure which time limits will not permit. We may
comment briefly. Let us say that a hazard is divided into three
elements—moral, physical, and inherent. Exact scientists may note
their exceptions, but this general division will answer our present
purposes. The inherent hazard is not within human control; it is
wholly governed by the law of average, and is properly distributable
as a whole without regard to the events in any particular risk. This
element of hazard must be further divided. A part of it is the hazard
peculiar to the classification. In this part alone the differential is
found. Another part of it is the hazard which is common to many
or perhaps all classifications. An elevator in a powdermill, if such a
thing exists, presents of itself no different hazard than the same
elevator in a silk mill. Passing along rapidly we encounter the
physical hazard. Certain physical hazards are inherent and ap­
parently uncontrollable. Otherwise this hazard is within human con­
trol. Running along with it, often so closely as to be inseparable, is
the moral hazard which is, or at least ought to be, entirely within
human control. One writer at least has announced his conviction
that the term “ moral hazard ” is offensive. He concludes that, if we
are to call anybody or anything bad names, we ought to do it in a
foreign language. If we are seeking to obscure something, a foreign
language furnishes a convenient means. When we use foreign words,
they never quite carry with them a true meaning and often carry
quite a false meaning. To many Americans the well-known title
“ Gotterdammerung ” sounds like vivid liquid profanity, but as a
matter of fact it is not. It is a highly refined allegorical expression.
I confess that I can see nothing offensive in the expression “ good
moral hazard,” and if the reverse expression “ bad moral hazard ” is
offensive, I should say the offense was justifiable. A bad moral
hazard should be offensive to those who are responsible for it. It
certainly is offensive to those who come in contact with it. Our risk
never presents a fixed condition. We are not dealing with so-called
u still life.” We deal with operative activity, with brain, muscle, and
skill in action. Controllable conditions may change every day, every
hour, or every minute during the rush and hurry of work. We have
here the human element. How shall we measure it ? These changing
conditions are governed by no law, not even the law of average. The
rate maker undertakes the measure of physical hazard seriously, per­
haps too seriously. He proposes rate reductions for the installation



of safety appliances. This is desirable and proper if not overdone.
Has the rate maker finished his work? By no means. The mere
installation of a safety device does not of itself improve the hazard.
The safety device which becomes ineffective because of incompetent
supervision or improper use frequently constitutes a distinct menace.
The safety device suggested by the inspector and upon Avhich a rate
reduction is obtained ceases to improve the hazard when it is laid
aside by the workman or is neglected by the superintendent. The
constant and proper maintenance and use of the device are infinitely
more important than its mere installation. This points directly to
the responsibility of the individual, a responsibility which should be
brought home to the offender in some compelling way.
This is a phase of the moral hazard. There are many other
phases. In two plants with identical equipment and product the
losses may persistently differ. This is not all due to difference in
moral hazard, but some of it doubtless is. The only sure method for
measuring this difference is by the application of the experience of
the risk to the process of rate making in a well considered and
thoughtful manner.
Our rate maker then must distribute the cost of the inherent
hazard, properly loaded for expense, to all risks in a chosen group
of essentially the same degree of hazard in equal proportions. He
must measure the physical hazard upon the visible evidence presented
by the inspector, and he must measure the moral hazard by the actual
experience of the risk. This experience must exhibit real loss in real
dollars and cents. We do business in money, not in events. Similar
events may produce different results. We must measure results only.
Our problem is one of cost, purely. A piece of heavy material may
be dropped a considerable distance without injuring anybody. Under
other circumstances the same piece of material dropped a similar
distance might kill or injure a dozen. The result is controlled by
the law of average. The cause is not. The result is not controllable,
while the cause is. We know, of course, that an uncertain number of
pieces of heavy material will be carelessly dropped in an uncertain
number of industrial plants of varying classifications and varying
inherent hazards, and that in many instances at least these events will
have no relation to the classification. If, given a sufficient exposure,
we should deal with such an element of cause alone, the results in
deaths and injuries could be made amenable to the law of average,
but the cause never could be. The cause exists because of a control­
lable human element. It is capable of entire or practically entire
removability. It is the cause, then, which affects the rate only in
its proportion to the actual, and not the theoretical, results. The
untoward event which costs nothing has no effect upon the rate. The
inspector may pronounce a few solemn words of caution. The agent
will probably call and warn his customer that he should exercise



unusual care to avoid repetition which might affect his rate, but other­
wise the incident makes no impression on the situation.
We must require a substantial exposure over a considerable period
that the result may be fairly indicative. We must deal with a given
risk and that alone. We can not deal with groups or measure one
risk by means of another. We must never lose sight of the large part
of the rate which is properly distributable and upon which the events
in a given risk have no bearing. We must avoid undue refinement by
the recognition of a neutral zone just beyond the distributable zone in
which equal distribution must be maintained irrespective of events
because the inherent and the controllable hazards are not clearly dis­
tinguishable at their borders. We must not charge our whole loss to
the risk which produced it because in the kaleidoscopic activity which
constitutes our risk we will always find more or less of the hazard
which is theoretically controllable, but actually inherent.
We must make some thoughtful provision for the abnormal expe­
rience. We must remember that our business is that of insurance, not
of banking. An abnormally bad experience not infrequently results
from practically uncontrollable conditions which furnish no criticism
of moral hazard. Proper discretion must be used in distinguishing
between such events and others which are strongly marked with the
indisputable evidence of personal culpability. It is a sound under­
writing conclusion that a single large loss on a risk may not, and
often does not, reflect upon the moral hazard equally with a number
of trivial losses on another risk of the same character with an
aggregate loss much less. These principles, however, are not ap­
plicable except in cases of abnormality. Abnormally good experi
ence is reasonably limited in its application to the rate by a propei
limitation of the maximum discount. Abnormally bad experience
must be similarly treated. The question at this point is rather an
underwriting than a rate-making question.. Abnormally bad experi­
ence might indicate cancellation. The inherent risks of all hazards,
no matter how serious, may be properly insured under stock-insurance
systems with their wide distribution of loss, but we occasionally
encounter such complete disregard and indifference to the moral and
physical hazard as to render risks uninsurable because an insurance
rate is incomputable. The remedy is wholly within the control of
the employer, and one very effective way by which the interest of the
employer may be awakened is through the denial of insurance pro­
tection until improvable conditions are improved. Then and then
only can the rate maker do his work.
We must reflect our loss in its proper relative degree, and thereby
furnish a warning which will serve as a deterrent to the culpable
individual, be he employer, superintendent, or workman. A goodly
share of industrial accidents is fairly chargeable to the personal
fault of some one. We can best correct the evil by reflecting its cost



in the rate for the risk. This involves no violation of the best prin­
ciples of insurance, no disregard of the fundamental law of average,
but provides a reward for the careful and competent or a penalty
for the careless and incompetent, depending upon the point of view.
The development of this plan must be by means of slow evolution.
.The earlier efforts will be imperfect, but if in the right direction we
should not condemn them; rather we should strive to improve them.
The plan will be unfairly applied, but should not be judged by its
abuse. We must keep ever before us the fundamental fact that no
rate maker will ever produce a real rate until he includes these basic
principles among others.
Speaking generally, the rate of the future—and, I hope, the near
future—must be a rate for a risk rather than for a classification.
For some time at least rates for classifications must serve the pur­
pose as to risks which in themselves provide an insufficient experience
to make it indicative. This does not penalize the small risk. The
small risk has just the natural disadvantages of any small con­
sumer; no more and no less. I paid more for my Thanksgiving
turkey than the steward of my club did, and yet both his turkeys
and mine were used for the same purpose. This is a recognized
condition. It would be difficult to call it unfair. There is an un­
doubted ultimate advantage even to the small risk, which for the
present may be compelled to struggle along with an average rate.
That advantage lies in the fact that by improving the distribution
of cost by an improved method of measuring hazards wTe reach an
ultimate improvement in the basic rate itself, which inures to the
benefit of the small risk incapable of producing its own indicative
On the whole the plan seems to be free from fault. The objections
made to the recognition of individual experience are largely specious
or unreasonable. The mutual rate maker has the same regard for
experience rating as the devil is said to have for holy water. It does
not fit into his scheme. He prefers the allurement of a general
dividend unfairly distributed to the cold, calculating, discriminat­
ing method of levying insurance contributions upon policyholders
on the basis of merit. I f we are to deal adequately and fairly with
our peculiar kind of risks, we must recognize the influence of indi­
vidual experience as a prominent factor in rate making, more promi­
nent than physical conditions. It should not be trivial. It must be
substantial. When this condition has been recognized and the means
for its application thoughtfully established, we will be able to give
the insuring public what it has a right to demand, which is a fixed
rate at the inception of the contract which enables the employer
to distribute the cost of his insurance as a known quantity to his
product, and by that means to the consumer, where it belongs.


It is quite difficult to discuss the subject of rate making after such
a distinguished authority as Mr. Walter G. Cowles, who has probably
devoted a quarter of a century to the problem. I think my friend,
Mr. John T. Stone, of the Maryland Casualty Co., made a statement
some time ago that workmen’s compensation insurance is so intricate
and so complex that no individual can possibly make himself familiar
with all the different phases of it. Now, the subject of rate making
is the special phase to which I have devoted myself for the last
three years. I believe that I can simply lay down the a-b-c of the
problem within the limited time at my disposal, and I shall proceed
upon the assumption that a statement of the fundamentals involved
will suffice to provoke interesting discussion.
It is my purpose to present a review of the principles and methods
that have been adopted in establishing rates for workmen’s compen­
sation insurance. Notwithstanding the comparative youth of the
workmen’s compensation laws and this form of insurance, tremen­
dous progress has already been achieved under the leadership of im­
portant industrial States. Except in the States where the ad­
ministration of the insurance system is vested exclusively in the
hands of State funds, the legislation for the supervision of ratfs
has taken the tendency of requiring the establishment of adequate
rates under the supervision of insurance departments and the pro­
hibition of methods that discriminate unfairly between risks of
essentially the same hazard. In discussing the principles of rate
making the important thing to bear in mind is the fact that adequate
rates are absolutely essential for the maintenance of sound insurance,
for upon the adequacy of rates depends the sound financial condition
of the insurance carrier and the assurance that the injured man or
his dependents will receive in full the benefits provided by law. The
principle of adequate rates established by legislation has brought
with it a responsibility of great magnitude imposed upon the super­
vising authorities. Efforts in the direction of creating sound rating
systems, initiated by company organizations and subjected to the
review and approval of insurance departments, find ultimate ex­
pression in the manuals of basic rates and in merit-rating systems
administered through independent rating organizations. In estab238



m eth o d s


m a k in g

-----L . S. SEN IO R,


lishing rating systems insurers are guided by the purpose, first, to
provide rates sufficiently high to enable the payment of all in­
surance obligations and sufficiently low to appeal to the reason of the
assured who stands in the advantageous position of selecting from
various forms of participating or nonparticipating insurance; second,
to avoid unfair discrimination in the rating of risks according to class
experience and physical analogies of hazard; third, to provide dis­
criminatory systems for the measurement of individual risks so as
equitably to distribute the cost of insurance; fourth, to encourage
accident prevention by creating definite standards for safeguarding
industrial plants, thereby reducing the accident frequency and the
insurance cost.
This, you will observe, is a large program. You are interested in
this program because* the questions involved are most intimately
related with the economics of social insurance. The present the­
ories for rate making may be imperfect; indeed there will be no
difficulty in finding critics both of the destructive and constructive
type. Such criticism is helpful if based upon scientific study and
research and should be received in a spirit of broad tolerance. Ratemaking systems must have science in the form of mathematics as. the
foundation and art in the form of judgment as the superstructure.
The greatest skill must be exercised in the analysis of figures, and
the best judgment must be used in determining analogies of hazard.
Industrial enterprises will vary greatly, depending upon the raw
material, the process of manufacture, and the finished product.
For rate-making purposes industries must be arranged in groups
in accordance with the similarity of process of manufacture or oper­
ations conducted. In creating homogeneous groups of this type it
is possible to develop large-group experience to serve as an index
from which to derive pure premiums. The groups must be further
subdivided into classes for the purpose of developing class experi­
ence for specific products or operations. The pure premium derived
from a division of pay roll into actual losses paid and incurred
represents the amount necessary on the average in the payment of
loss claims, including within that term, of course, the money awards
allowed to the injured or his dependents and medical benefits.
Accepting the law of averages as the underlying principle, and
adopting the retrospective method of analysis, we assume in a some­
what prophetic manner that the experience of the past is a suffi­
cient guide for the future and that the quantitative volume of
losses sustained in the past will inevitably recur in the future. It
is the same principle that has been adopted in life insurance. The
grouping of industries, as previously indicated, and the consequent
application of the method described in deriving pure premiums,
assuming, of course, that we have a sufficiently large exposure in the


w o r k m e n 's c o m p e n s a t i o n


form of pay roll, will give us so-called basic pure premiums for
the various industries in the State for which we propose to establish
rates. It then becomes necessary to load the basic pure premiums
with certain factors in order to obtain the rate which is intended to
be charged for each form of enterprise. Scientific rate making must
recognize definite elements which enter into rate computation in
order to provide adequate rates. The student of rate making must
familiarize himself with the entire history of the workmen’s com­
pensation movement throughout the world in order to appreciate the
factors that enter into the final rate. I shall briefly refer to the
principal factors.
First in importance is the law differential. The paucity of Ameri­
can experience for any one State makes it impossible to determine
rates upon the experience of any individual ’ State. Furthermore,
it is doubtful whether any one State will produce sufficient expe­
rience to enable that State to make rates for all of its industries.
Then again, the compensation movement is spreading rapidly
throughout the country, and new States that have entered the field
require the establishment of rates upon the experience of their
neighboring States. It is, therefore, obvious that for rate-making
purposes it is at present absolutely necessary to combine the expe­
rience of various States on a common basis so as to afford a suffi­
ciently broad exposure. Benefits under various compensation laws
differ in various States. In order to make possible the combination
of experience it is necessary to adopt the law of a given State as a
basis and analyze the provisions of the laws of other States in rela­
tion to the law of the basic State and to determine the degree of varia­
tion. Until the present time the law differentials for the different
States have been determined upon an assumed table of distribution of
accidents derived largely from an analysis of European accident
statistics. It is generally recognized that as soon as American expe­
rience provides sufficient material a new table will be devised
to reflect the distribution of accidents upon the basis of American
experience. To illustrate the method, I may cite as an example
the State of Massachusetts. The original law of that State has
been used as a basis of measurement. The value of benefits, there­
fore, provided under the original Massachusetts law being equal to
unity, such benefits are compared in value with the benefits provided
under the New York law. The valuation of the New York benefits
as compared with the Massachusetts benefits indicates a value twice
as great as that provided by Massachusetts. It would, therefore,
follow that the pure premiums derived from Massachusetts expe­
rience require to be multiplied by a factor of 2, representing the
New York law differential, in order to obtain pure premiums for
New York rates. By similar process the law differential for Illi-


241 -

nois is equal to 1.37 and for Wisconsin to 1.50. The differentials
thus determined should, of course, be periodically modified in ac­
cordance with accumulated experience.
In estimating reserves for outstanding losses on a judgment basis
the companies invariably fall into the human error of underestimat­
ing the probable liability. This human error will be found preva­
lent in the estimation of losses on fidelity and surety bonds as well
as on employers’ liability and workmen’s compensation policies.
For evidence one need only examine the history of the workmen’s
compensation business in Great Britain and what little experience
is already available in the United States. In addition to this error
of human judgment, the liberalizing tendencies of courts and com­
missions must be taken into account. It has been historically proven
that with the increasing age of every workmen’s compensation law
there has been an increasing cost of insurance. It is therefore very
clear that a factor of loading must be provided for insufficient esti­
mates and for the rising cost of workmen’s compensation with the
age of the act. There are other factors which I will briefly pass by,
such as the loading necessary to provide for catastrophe hazard, for
variation of accident frequency in different States, and for awards
made to cover industrial diseases.
In addition to all these factors a definite margin must be provided
to cover expense of acquisition and home-office administration. The
factor representing home-office administration may vary materially
among the various insurance companies. The loading necessary for
acquisition expenses may differ with the particular form of insur­
ance. Thus it is well recognized that the acquisition expense in the
case of stock companies is greater than the acquisition expense re­
quired by mutual companies and State funds. Assuming, however,
that the portion of premium which represents the claim cost and
home-office expense is alike for all companies, the only variation in
the cost of insurance will be found in the factor representing acqui­
sition expense. . In order to maintain position in the competitive
field, companies which are suffering under the disadvantage of
a high acquisition cost are inevitably forced by the logic of the
situation to bring that cost down to the minimum amount. The
important advantage claimed for participating insurance lies in
the ability to pay dividends, and the payment of dividends by
participating companies is possible only through judicious selection
of risks, low loss experience, and freedom from acquisition expense.
The competitive element, therefore, between stock and mutual insur­
ance is not without its advantages; in mutual companies I include
State funds, for the reason that organizations of that character are
usually conducted on a participating basis. The question is fre­
70085°— Bull. 212— 17------ 16



quently asked as to the desirability of making initial rates equal for
all forms of insurance, It is to the interest of all three forms of
insurance to have the rates upon an adequate basis. It is to the inter­
est of the mutual companies to have initial rates with a sufficient
margin of safety, enabling the return of a dividend under favorable
experience, and it is to the interest of stock companies to have the
rates sufficiently low in order to enable them to compete on a satis­
factory basis with the participating form of insurance. Assuming
that the participating carriers adopt the rates adequate for stock
insurance, the difference in acquisition cost will permit dividend re­
turns, provided, of course, the loss expectancy is not violently ex­
ceeded by actual losses, and provided the office is conducted on an
expense basis not exceeding the marginal loading.
We have now reached the point in our discussion where our system
of rates obtained from experience and analogies of hazard applies
to industrial groups or classifications. These are so-called manual
rates—rates which may be applied to each risk within a given in­
dustry. From this point on, our discussion takes on a somewhat
different form and will deal with the question of rates for individual
risks. The pure premiums which we have determined are average
pure premiums, and if our experience has been correctly analyzed
and our judgment is sound, and if the law of average as applied to
accident insurance maintains on the whole the same true level as it
has historically maintained in life insurance, we shall be able to
collect an adequate amount of premiums to meet all of the losses for
the given period for which the rates are determined, together with
the expenses required in the conduct and administration of the
business. But if we enforce these rates against each individual
employer in the State insured under the workmen’s compensation
act will we deal justly with him? Will we deal equitably with him?
Is it proper to charge the same rate, reflecting the average experience,
for every risk within a given industry ? The modern philosophy of
rate making gives a negative answer to these questions. While the
sum of the projected losses may exactly measure up to the sum of
the losses to be realized in the future for the entire business or for
any given industry, the average projected pure premium will differ
materially from the actual pure premium of any risk. That, of
course, is to be expected, but it seems to be the duty of the actuary
to analyze the difference between the average projected pure premium
and the actual pure premium for the risk. The analysis of the de­
parture leads to the conclusion that the departure is due partly to
chance and partly to other causes. In the general process of rate
making we have adopted a number of imperfect classifications which
can not with any degree of accuracy describe every risk assigned to
the classification. We have been obliged to select pure premiums



on judgment basis in cases where the experience was insutticient to
give us a pure premium based upon experience. We have included
in a given group a great number of risks, some of them constructed
in accordance with modern ideas, equipped with safety devices, pro­
vided with safety appliances, and generally organized along the lines
of preventing accidents. Bisks of this -character may be expected to
show favorable loss experience. On the other hand, we have also
included within the same group a number of antiquated plants, badly
constructed, poorly equipped—risks which have given no attention to
the safety movement and have taken no steps to prevent accidents—
in other words, risks which may be expected to incur a very unfavor­
able loss ratio. What must be done to correct our rates with respect
to risks varying so materially in their inherent hazard ? The answer
to that question will be found in the merit system of rating compen­
sation risks.
The term “ merit rating ” expresses in a measure the purpose of the
rate maker to appraise each risk according to its merits, and includes
both schedule and experience rating. When we speak of schedule
rating we having in mind the physical inspection of the risk and its
appraisal according to a definite schedule providing values for con­
ditions above or below the average. The object o f schedule rating of
workmen’s compensation risks is to secure an equitable distribution
o f the insurance cost by discriminating on a sound economic basis
between industrial plants of the average, superior, or subnormal type.
To secure satisfactory results under a schedule-rating system so
as to produce rates approximately close to average for the average
plants, higher rates for the inferior risks, and lower rates for the
superior risks, it is necessary to provide the following methods:
First. A definite system of standards which will serve as a guide to
employers in correcting defective conditions and in pointing out under
what terms insurance rates will vary. The system of standards must
be devised by safety engineers familiar with causes that contribute
to accidents. Such standards must provide for the character of the
building, condition of floors, wall openings, hoistways, stairs, ele­
vated runways and platforms, pressure apparatus, steam engines,
electrical equipment, explosive hazard, power transmission, methods
of safeguarding machinery, and the organization of welfare and
safety work. Definite values must be provided in the form of charges
for hazardous conditions and credits for superior conditions. There
is a certain theory underlying the method of applying charges and
credits in the schedule now in use in a number of compensation
States. To illustrate, for conditions that indicate the extent of the
catastrophe hazard, a flat amount is applied to the rate for the entire
pay roll on the theory that all employees are exposed to the catastro­
phe hazard in an equal degree and without regard to the particular




classification to which the risk has been assigned. For conditions that
affect only a portion of the employees a flat amount is applied to the
premium; this on the theory that it would be unjust to charge or
credit the entire pay roll if only a portion of the employees are ex­
posed to the hazard. For conditions that reflect the hazard of the
entire plant, such as safety organization, first aid, and hospital
equipment, the premium is modified by the application of factors ex­
pressed in the form of percentage; this on the theory that the pre­
mium should be modified in a variable manner for each classification in
proportion to the loss expectancy indicated by the pure premium.
Second. In order to have a successful application of the schedule
it is important to have uniformity. The standards to be adopted for
any one State must be uniform standards to be applied by all com­
pensation carriers. Inspections to be made in any one State must be
uniform inspections for all compensation carriers. The values of
the schedule must be of a uniform character, and the spirit in which
the schedule is to Be applied must be impartial, disinterested,
and* free from competitive influences, It is quite evident that it
would be absurd to have individual standards for various com­
pensation carriers, varying values in several schedules, or vary­
ing systems of inspection. Variation in standards, methods of
inspection, or methods of application of the schedule would result
in utterly confusing the employers and in bringing about chaotic
conditions. It requires, therefore, no lengthy argument to convince
impartial minds that the schedule-rating system, to be effectively
applied, must necessarily be a uniform system with a single set of
standards, uniform inspection methods, and administered by a dis­
interested authority. In recognition of this self-evident fact com­
pensation States that have adopted the principle of adequate rates
with auxiliary schedule-rating systems have also brought about the
organization of independent rating institutions administered under
the supervision of State authorities with rating systems that apply
uniformly for all compensation carriers within a given jurisdiction.
Third. While the history of schedule rating is still in its infancy,
the fact that it has been in successful operation for a period of over
two years in a great industrial State like New York indicates the
tremendous possibilities of the system. The adoption of definite
standards, the specific enumeration of defects in accordance with re­
spective merits, and the direct pecuniary reward which the system
offers to the employer has a dynamic force in stimulating accidentprevention work. In this fact, undoubtedly, will be found the secret
of its success. Accident-prevention^ work has been carried on by
companies for a long period of years under employers’ liability in­
surance. It is, however, well recognized by all students of the sub­
ject that the greatest amount of progress in the direction of accident



prevention has been made during the past few years since the intro­
duction of workmen’s compensation laws. With the introduction
of such laws and forms of compulsory insurance, the rate question
has become of an acute character. Employers have been made ac­
quainted with the possibilities of reducing cost dependent upon ef­
forts for accident prevention. Exact statistics are not available as
to the actual effect of schedule rating upon loss reduction and no
method has yet been discovered to measure that effect in a mathe­
matical manner. It is, however, well known that advocac}^ of safety
measures has been gaining steadily in strength and that physical and
moral conditions are constantly improving. To satisfy oneself one
only needs to review the safety publications issued by insurance com­
panies, industrial commissions, large and well-known industrial plants,
and special associations organized for the purpose of extending the
scope of the propaganda. The rating schedules published by 1STational
and State rating organizations, setting forth definite standards, values
for correcting defects, and methods for organizing safety commit­
tees are being widely distributed among employers. In this age of
industrial efficiency, the lesson taught by these schedules receives in­
stant recognition; the great army of insurance solicitors helps to
bring the lesson home to the employer. The sj^stem must appeal to
the employer with an effect that no other appeal can possibly have.
The establishment of safety conditions promotes efficiency, encour­
ages confidence in the workmen, improves relations with the em­
ployer, reduces the number of accidents, promotes the general welfare
in the shop, and lowers the cost of insurance. It would, therefore,
be idle to deny the value or effect of this appeal. There are some
of us who believe that whatever has been accomplished in the pro­
motion of safety ideas has been due not SO' much to the economic
forces' of schedule rating as to the humanity of the employer who is
imbued with the responsibility for the welfare of his workmen.
I am not at all disposed to take issue with the statement that em­
ployers who possess
consciousness of their social obligations to
their workmen and to the community at large will readily respond
to the humanitarian appeal for safety in the shop, nor will I assume
to attempt to divide the honors among the various types of advo­
cates who make their appeal to the employer; I maintain that the
foundation upon which schedule rating is built possesses forces which
naturally appeal to the employer’s mind,* whether that mind is of the
idealistic or materialistic type. I f the particular employer to whom we
address ourselves is an individual with high ideals, he will respond to
th® demand for correction of unsafe conditions regardless of whether
his work will result in financial reward. I f the employer is of the
impersonal or corporate type, the material forces of schedule rating
offering pecuniary rewards must necessarily have the desired effect.
Anyone who has given attention to the safety movement and its


w o r k m e n 's c o m p e n s a t io n .

workings within the past few years must have inevitably run across
a great number of corporate employers, many of them carrying their
own insurance, who have given a great deal of time and thought to
safety methods and whose herculean efforts in this direction have
produced remarkable results. Industrial preparedness has now be­
come the slogan for action, both in Europe and America. In this
work of industrial preparedness all social forces that tend to promote
efficiency will become recognized factors. The principles embodied
in schedule rating must necessarily produce an effect upon industrial
efficiency in preventing the needless waste and destruction of human
lives with their consequent economic loss to society. The system will
take its proper place as a recognized force for the betterment of
industrial conditions.
There is another method of merit rating which I have not touched
upon yet. So far we have discussed the principles underlying
schedule rating, which is .the accepted term for individualizing risks
upon physical inspection and conditions of the plant. The theme of
experience rating has afforded a large field for controversy within
the past year and has resulted in a revision of experience-rating plans
which were in vogue prior to July, 1916. Experience rating at­
tempts to appraise the morale of the risk by an examination of the
accident frequency during a given period of years. It has been
claimed, and not without good reason, that physical inspection alone
is insufficient to produce an accurate appraisal of each manufacturing
plant. Take, for instance, a plant that has been perfected in accord­
ance with standard recommendations but where the workmen per­
sistently refuse to employ the safeguards which have been provided.
Evidently there is something wrong with the discipline in that plant.
It is quite true that an effective safety organization will remedy condi­
tions of that character, but it is extremely difficult to gauge the* effec­
tiveness of safety organizations through mere inspection. The only
effective way to check safety organizations is by results, viz, a review
of the actual accident experience of the risk. *The experience of the
risk, therefore, may be employed as the final test in determining the
value of the preventive measures which have been put into operation
by the assured. Furthermore, there are certain industries described
as contracting risks and public-service enterprises which do not lend
themselves readily to appraisal by any system of schedule rating. In
the case of operations of this type, experience rating is the form of
merit rating applied for the purpose of setting an individual value
upon the risk as distinguished from the class value provided by the
average manual rate. In its fundamental conception, therefore, ex­
perience rating does not differ from schedule rating, and it is even
claimed by its advocates that it possesses an incentive for accident



prevention in that it offers reduced cost of insurance to employers
who are able to maintain a favorable record of accident experience.
Conceptions of the principles o f experience rating differ so widely
that in a discussion of the subject it is well to confine one’s ideas to
certain prescribed limits. For the purposes of this paper X will
neview the fundamentals of the experience-rating plan which is
now effective in New York. In the first place it has been recognized
that experience rating is intended to correct that departure of the
actual pur$ premium from the expected pure premium which is due
largely to error caused by iinperfeet rate-making judgment, in­
complete statistics, improper classifications^ and fluctuating indus­
trial conditions. This departure becomes increasingly important
with the increase in the size of the risk, the size being measured by
volume o f pay roll exposed or, preferably, by amount of premium
earned. Admitting this principle as the underlying basis for the
New York plan, risks become eligible for experience rating only if
the pay-roll exposure amounts to at least $50,000 and the premium
to at least $500 for a period of two years. The valuation of the
loss experience is not based upon the actual losses sustained by the
assured under observation. A table of average values derived from
the total experience has been created, such values to be applied
without deviation to each risk and the same prospective method
which obtains in determining pure premiums for industrial groups
is also used in determining the rate modification to which the risk
is entitled on its current policy. Full recognition is also accorded to
the principle that the deviation of the actual from the projected
pure premium grows increasingly important with the increase in
the size of the risk. The application of this principle has resulted in
the adoption of a schedule of debits and credits subject to maximum
limits, depending upon the volume of earned premium.
Those who have made a study of the merit-rating system now in
vogue seem to be agreed that there is no denying the fact that the
system brings about the education of the employer and provides a
tremendous economic incentive. The only tenable exception that is
offered is contained in the critical inquiry as to whether the values
provided correctly represent the measure of hazard that may be
eliminated by compliance with the standard recommendations, and
to that inquiry we can offer the answer that judgment values must
necessarily be maintained until such time as American experience
will furnish sufficient statistical data to enable the substitution of
mathematical values in place of judgment values. There is, how­
ever, a larger question involved—as to whether the schedules are so
framed as to permit statistical analysis. This point is elaborated
upon in a very valuable paper by Mr. Downey, published in the last
proceedings of the Casualty Actuarial and Statistical Society of


w o k k m e n 's

c o m p e n s a t io n .

America [November, 1916]. That subject deserves care*ful study and
earnest consideration.
It is admitted that the statistical data in America is not suffi­
ciently large to establish workmen’s compensation rates upon a
strictly mathematical basis, nor do I conceive that the time will
ever come when judgment will be eliminated from the process of
rate making. Perfect rate making involves not only the possession
of statistics but the ability to analyze such statistics with good judg­
ment. It involves a knowledge of the history of the workmen’s
compensation movement throughout the world, a knowledge of
processes employed in manufacturing and contracting industries,
an understanding of machinery and the safeguards that make the
operation of such machinery least hazardous; but beyond and above
all, it involves that character of judgment which is competent to
study and analyze the history of the past as a guide for future


The conditions from which accidents may result are not identical
in any two plants. Since workmen’s compensation insurance is in­
tended to make a fair distribution of the cost of such accidents over
all the plants insured, the idea of giving each plant an individual
rate, which is determined by its own conditions, appeals to us at once
as being desirable. It seems self-evident that the employer who has
done everything he canto safeguard his employees will have relatively
fewer accidents and should accordingly pay less for insurance against
these accidents than the careless employer who is indifferent to the
safety of his workmen. Hence “ individual ” rating is desirable from
the standpoint of equity between employers.
It is equally desirable from the standpoint of accident prevention.
The employer who is asked to spend money in installing safeguards
for the purpose of reducing his accidents may hesitate to do so when
he knows that he will have to pay precisely the same rate for in­
surance against these accidents as that paid by his competitor who
spends nothing on accident-prevention work. When he is told that
his expenditure for safeguards will give him a lower insurance rate
than can be secured by the man who does not install safeguards, he
is naturally more willing to make this expenditure. Hence individual
rating stimulates accident prevention.
“ Experience ” rating is an attempt to modify the rate of the indi­
vidual plant in accordance with its accident experience. “ Schedule ”
rating is an attempt to modify the rate of the individual plant in
accordance with its physical conditions, as determined by inspection.
In other words, both “ experience ” rating and “ schedule ” rating are
forms of “ individual ” rating; hence they may both be judged by the
degree in which they contribute to the fundamental purposes of indi­
vidual rating, viz:
(1) Equity between employers.
(2) Inducement for accident prevention.
In deciding whether or not a given plan of individual rating should
be adopted there are other points that must be considered also, such
as the difficulties involved in placing the plan in operation, its cost to
the insurance carrier, the ease with which it can be explained to the
employer, etc. The two great aims of individual rating, however, are
equity to the employer and prevention of injuries; these considera-



w o r k m e n ' s c o m p e n s a t io n .

tions accordingly furnish two definite standards by which we may
judge the value of any form of individual rating.

Schedule rating takes into consideration the accident hazards pre­
sented by the buildings, equipment, and operations of each plant, giv­
ing charges for certain conditions that have been shown by practical
experience to produce accidents, or credits for conditions that are
known to be superior from the accident-prevention standpoint.
The plans of schedule rating that have been developed up to the pres­
ent time are undoubtedly capable of improvement in certain respects.
For example, the values assigned to the individual items of charge
or credit in these schedules are based, to a considerable extent, on
judgment. There is no statistical method by which it can be demon­
strated that the charge for a set screw or the credit for a belt guard
bears an accurate relation to the cost of the accidents that would re­
sult from the presence of the set* screw or from the lack of the belt
guard. Probably such values can never be verified in absolute detail.
There is a growing feeling, however, that it should be practicable to
divide the charges and credits into a number of groups and through
general comparisons of the results shown by plants falling within
these groups determine the group values with considerable accuracy.
Two interesting papers along this line have been presented at a
recent meeting of the Casualty Actuarial and Statistical Society
[November, 1916], one by Dr. E. H. Downey and the other by Mr.
Albert H. Mowbray. The writer recently had the privilege of look­
ing over a third paper presenting a similar line of thought, prepared
by the safety engineer of one of the large casualty companies. With­
out taking time to discuss the merits of these proposals iA detail, the
writer thinks it probable that some such plan can be developed by
which values for the items included in the rating schedule may be
determined much more accurately than is possible at present, thus
placing schedule rating on a more sound statistical basis.
Some of the rating schedules now in use may be criticized because
they include certain items of an intangible nature for which there are
no definite standards, such as sufficient light, insufficient ventilation,
and freedom from rubbish. The question as to what constitutes
sufficient light, insufficient ventilation, or freedom from rubbish in a
given plant must be left to the judgment of each inspector, and as
differences of opinion are inevitable, the item can not be interpreted
uniformly. A premium variation of approximately 8 per cent is
possible for these conditions as now included in the industrial com­
pensation rating schedule. It is natural that the agent or solicitor
should make a strong effort to get the lowest possible rate, and thus



retain the good will of his clients. In States where there is no central
rating bureau, each company making its own rating inspection, it is
evident that this furnishes a competitive advantage to ,the company
giving the greatest credits and accordingly tends to bias, either con­
sciously or unconsciously, the judgment of the inspector or agent.
Inequity between employers will result to the extent in which the
interpretation of these conditions varies. This source of inequity
may be removed by omitting such items from the schedule (which has
been done in Massachusetts),
An additional shortcoming of the schedules now in use is due to the
fact that they are too general; the same schedule is applied to a cigar
factory, a cotton mill, and a blast-furnace plant. A slight attempt
has been made to distinguish between these industries by including
certain safety devices for the point of operation of different types of
machines and for goggles, leggings, etc. .Much additional wTork along
this line is necessary, however, before an adequate distinction can be
made between special hazards found in the widely varied industries
to which schedule rating is applied.
It is evident, however, that these defects are not fundamental ob­
jections to schedule rating as such, but rather they are faults of ex­
isting schedules, which should be eliminated as time goes on. Mean­
while it can be said without hesitation that schedule rating complies
with both of the tests we have outlined for individual rating plans.
Schedule rating brings about greater equity between employers,
inasmuch as it gives the plant having good safety conditions a better
rate than the plant having poor safety conditions, thus meeting the
first test; it also meets the second test, since it gives a definite finan­
cial return for the elimination of accident hazards, and thus stimu­
lates work in accident prevention,

When these two tests, viz, equity between employers and induce­
ment for accident prevention are applied to so-called “ experience
rating” the desirability of this form of individual rating is less
There is no doubt that experience rating will give valuable assist­
ance in accident prevention, provided a plan can be developed that
will appeal to the employer as being fair and will not arouse his
antagonism. Since every accident will affect the experience of a
plant adversely, and thus increase its insurance cost, the employer
can be shown that it is to his advantage to adopt all practicable safe­
guards. This not only furnishes an inducement for accepting those
safety provisions which are included in the rating schedule, but also
furnishes a further much-needed argument for the adoption of addi-



tional Important safeguards, which are not in the present schedules,
and all of which can probably never be included in a schedule with­
out making it too cumbersome for practical application.
When we consider experience rating from the standpoint of equity
between employers, however, we are immediately confronted with
the fact that a large percentage of all accidents is purely the result
of chance, for which no one can be blamed. Yet a single serious
accident, in even a fair-sized plant, may have a radical effect on the
insurance rate of that plant for a number of years under experience
The principal examples of “ experience-rating ” plans in use at
the present time may be designated as the “ Massachusetts ” plan
(from the State in which it is used), the “ service bureau” plan
(adopted by the National Workmen’s Compensation Service Bureau
for use in 13 States, effective Oct. 1, 1916), and the 64Ohio ” plan,
used by the Ohio State fund. A fourth plan, which may be called
the “ Pennsylvania ” plan, has been developed, by a committee, for
possible adoption in that State. These plans have been described
in various publications, and will not be taken up in detail here;
reference will be made later, however, to certain features which seem
worthy of special comment.
The following study of accident frequency in Massachusetts, where
conditions may be considered as fairly representative of the average
industrial State, throws interesting light on the application of experi­
ence rating.
According to information secured from the Massachusetts Indus­
trial Accident Board, the 96,891 accidents included in the second an­
nual report of the board covered about 900,000 employees, located in
approximately 18,000 establishments. This would indicate that the
average-sized plant in Massachusetts contains about 50 employees.
These accidents included the following:
F a t a l__________________________________________________________
Total permanent disability, say______________________________
(Conservatively estimated by the board at 20.)
D ism em berm ent______________________________________________ 1,115

This gives the following ratios:
One fatal Injury to 1,770 employees.
One permanent total disability to 30,000 employees.
One dismemberment to 810 employees.

Applying these ratios to the average plant of 50 employees, this
means that under the general law of averages in Massachusetts during
the course of a year—
One average plant in 35 would have a fatal accident.
One average plant in 600 would have a permanent total disability.




Under the Massachusetts experience-rating plan dismemberments
are divided into Classes A to E, according to seriousness. These
classes range from the loss of both feet or one eye and one hand to
the loss of one finger or one toe.
Considering the dismemberments specifically on the basis of this
classification, the following results are shown during the course of
a year :
* One



in 2,800 would have a Class A dismemberment,
in 4,500 would have a Class B dismemberment.
in 180 would have a Class C dismemberment.
in 150 would have a Class D dismemberment.
in 21 would have a Class E dismemberment.

The Massachusetts experience-rating plan gives the following
values for various injuries:

Fatal accident___________________________________________________285
Total permanent disability_____________________________________ 350
Dism em berm ents:
Class A _____________________________________________________ 100
Class B _____________________________________________________
Class C_____________________________________________________
Class D _____________________________________________________
Class E _____________________________________________________

Taking the average annual wages of $550, at an average insurance
rate of $1, we find that under the Massachusetts experience-rating
plan one fatal case would give the maximum charge of 30 per cent1
in a plant of 80 employees with $440 annual premium for the entire
experience period of five years, One total permanent disability case
would give the maximum charge in a plant of 100 employees and
$550 premium for the entire experience period of five years.
In an average plant of 50 employees—
One Class A dismemberment
three years.
One Class B dismemberment
two years.
One Class C dismemberment
one and one-half years.
One Class D dismemberment
nearly one year.
One Class E dismemberment
about four months.

would give the maximum charge for
wrould give the maximum' charge for
would give the maximum charge for
would give the maximum charge for
would give the maximum charge for

When we compare these charges with the preceding accident fre­
quency studies and find that only 1 average plant in 21 will have
any injury of the kind in question during the course of a year it is
1 Reduced by a factor of four-sevenths when applied to schedule-rated plants.



at once apparent that chance is the greatly predominating factor in
the application of large experience-rating charges.
Perhaps some one may say, “ But, after all, the average plant of
50 employees is a comparatively small plant; if we take a larger
plant the results will be different.”
Of course a single accident has less weight relatively as the pay
roll of the plant increases. In a plant having a pay roll of
$10,000,000 per year the effect of chance in varying the accident rate
may be so slight as to be negligible. Let us take, however, a plant
with $1,000,000 pay roll and $10,000 premium, developed in three
years’ experience; assume this plant is just on the border line, but
does not receive a charge. Under the Massachusetts plan a single
permanent total disability case would immediately impose a charge
of 28 per cent.1
Since, on the average, not more than 50 per cent of all accidents
are preventable there would seem to be at least an equal chance that
this charge is entirely undeserved, and represents no fault on the
part of the employer. As safety work progresses the percentage of
accidents that may be charged to fault on the part of the employer is
still further diminished.
Not only is the occurrence of an accident in a given plant due
largely to chance, but the cost to the insurance carrier after an acci­
dent occurs may vary widely from matters of pure chance, such as
whether the injured employee draws high or low wages, his physical
ability to recover promptly from the shock, the number of dependents
in fatal cases, etc. An effort has been made in some of the experiencerating plans now in effect to reduce the variation in cost of different
injuries by using fixed factors instead of the actual payments in each
case. For example, the Massachusetts plan contains a factor of 285
weeks’ wages (averaging about $2,280) for each fatal case, the actual
cost of which may vary from $200 to $4,000.
This does not materially improve the general result from the em­
ployer’s standpoint, however, since one serious accident, for which he
is entirely blameless, may involve a heavy penalty. Furthermore, the
use of factors introduces some inconsistencies that are very difficult to
explain to the employer, since the theoretical loss ratio from which his
“ experience ” rate is computed may be different from his actual loss
ratio. This discrepancy is well illustrated by the following cases
which represent conditions actually found in rating risks under the
present Massachusetts plan:
1 Reduced by a factor of four-sevenths when applied to schedule-rated plants.






Pay roll.

No. 1.......................... 2 years..................... $1,986,875
No. 2 .......................... 2 years 6 months..
No. 3 ........... .............
.......................... ........d o . .................. No. 4354,13&
No, 5 , ........................ 2 years 8 months..
774, 784





Credit * Theoret­
sponding (experi­
to actual



1 Reduced by a faotor of four-sevenths for risks subject to schedule rating.
2 Charge.

It will be noted that where the actual experience of a risk was
good, and if used in the experience rating wTould have given the
risk a credit, the result of the application of experience rating with
its accident factors was to apply.a charge which caused a total
change in the rate varying from 14 per cent to 40 per cent.
In cases Nos. 2, 3, and 5, the average rates on which the actual
loss ratio was computed were practically identical with those on
which the experience rating was based, so the change in results is
due entirely to the use of factors and not to changing rates. In
No. 1 the rate under which the experience wTas computed showed an
increase of about 35 per cent, otherwise the 14 per cent credit, instead
of merely being eliminated, would have been changed to a 22 per
cent charge. In No. 4 the rate to which the experience applied was
lower than the actual rate, otherwise the theoretical loss ratio would
have been 85 per cent and the charge 20 per cent instead of 30 per
It might be inferred that these heavy charges are caused by the
fact that the accident factors used in computing the loss ratio are
too high; it is evident that this is not the case, however, since 977
risks, with a total of $51,000,000 pay roll, which have been experience
rated by the Massachusetts Rating and Inspection Bureau, show
a net credit of approximately 3 per cent, indicating that the factors
are, if anything, too low to maintain the desired balance of charges
and credits in the experience-rating plan.
It is obvious that such discrepancies can not be readily justified
to the employer and tend to confirm him in the belief that insurance
is a game in which the cards are “ stacked ” against him by the
insurance companies.
The Massachusetts plan of experience rating is understood to be a
trial plan, subject to revision on January 1, 1916. This study of the
Massachusetts plan is of value, however, in indicating the sort of


w o r k m e n ' s c o m p e n s a t io n .

results that may develop from the use of a similar plan recently
adopted by the National Workmen’s Compensation Service Bureau
for application in 13 other States.
The factors used in the Service Bureau plan for the more serious
accidents are so large as to give an even greater penalty for a single
accident in some States than those shown in our study for Massa­
chusetts. In Ohio, for example, an experience value of $7,488 is
possible for one accident, and in Illinois a value of $7,296. Under
these conditions a single accident of the kind in question would
result in a plant of $148,000 pay roll, at an average rate of $1, pay­
ing the maximum experience charge for five years, even though
without this accident it would receive the maximum credit.
The accident and medical cost factors vary for the different States,
but, as in the Massachusetts plan, the cost per accident is based on the
actual wages of the injured employee. This means that in spite of
the use of accident factors the value of an accident to one employee
may be placed at twice or even three times the value of identically
the same accident occurring to another employee, simply because one
of the injured men happened to be earning higher wages than the
other. Surely this is “ chance ” rating rather than “ morale ” rating.
The discussion thus far has been confined to the value of ex­
perience rating as measured by the two tests of (1) equity between
employers and (2) inducement for accident prevention. The effect
of experience rating on the level of rates is equally important, how­
ever, both from the standpoint of the compensation insurance com­
pany and from the standpoint of the State authorities on whom is
imposed the duty of maintaining the adequacy of rates.
The plan of experience rating as originally adopted in New York
has been criticized on the ground that it was used largely as a com­
petitive measure, being applied almost exclusively to those risks
which had a favorable experience.1 This resulted in a material
reduction in premium income, which had the effect of lowering rates.2
I The objections to this plan as a competitive measure have been
reduced considerably by modifications recently made in the plan at
the request of the New York insurance .department. These objections
have not been eliminated entirely, however, since great A^ariations
are permitted in the cost of an accident, depending on its serious­
ness; thus the person who is making up the statement of experience
for a given risk can often vary the result several thousands of dollars
1 See brief of Theodore E. Gaty, presented at hearing on experience rating before the.
superintendent of the New York Insurance Department, “ Journal of Commerce,” Feb.
31, 1916.
2 See paper by Leon S. Senior, in Proceedings of Casualty Actuarial and Statistical
Society, No. 1, p. 227 et seq., particularly p. 237.



merely by taking an optimistic view or a pessimistic view of the
termination of a single outstanding accident.
The revised New York plan will probably reduce the level of rates
less than the former plan, since it requires risks to be experience rated
regardless of whether their experience is good or bad. As the present
plan is constructed, however, it is impossible to determine in advance
just what its effect will be; it may reduce rates, but this reduction
can be demonstrated only after the plan has been in effect for some
length of time. I f either the credits or charges should prove to be
too great, a further change of factors, etc., would again leave the
results in doubt until many risks had been rated.
An excellent feature of the proposed Pennsylvania plan is that it
provides automatically for a balance in charges and credits, thus
giving positive assurance that it will not disturb the average level
of rates. This is done by providing a system of charges for ex­
perience worse than the average, the amount of these charges being
distributed in the form of merit rewards to the plants having ex­
perience better than the average. This means that the premium
income after the experience rating has been applied will be exactly
the same as though there were no experience-rating plan in effect.
This arrangement is highly desirable from the standpoint of making
certain that the adequacy of rates will be unaffected by the experiencerating plan.
The Pennsylvania plan has a further advantage in that it limits
the experience period to the current year. This gives the maximum
incentive for accident prevention.
From the standpoint of reducing the effect of chance as expressed
in death cases, it is also an improvement over the Service Bureau
and Massachusetts plans in that a death case is treated as a catas­
trophe, the principal cost of which should be distributed over the
general class of insurers and not concentrated on the plant in which
it happens to occur. The Pennsylvania plan gives each death case
a nominal value of $200.
The Ohio plan carries the matter still further, rating each acci­
dent by factors, the relative value of which is as follows:
Permanent total disability______________________________________
Other in ju rie s_________ :________________________________________


This further reduces the effect of chance and also simplifies the
rating considerably from the standpoint of getting the data and
making the calculations. It still leaves the difficulty, however, of
deciding when an injury shall be considered to involve permanent
total disability and thus take the highest rating. In order to remove
variations in results due to individual judgment in cases of this kind
70085°— Bull. 2 1 2 -1 7 ------- 17


w o r k m e n ' s c o m p e n s a t io n .

as well as to minimize the effect of chance as a factor in accident
results, it would seem to be desirable to give all compensable acci­
dents the same value.
From the preceding discussion it would seem to be clear that
what we have been speaking about as “ experience ” rating is, at best,
a combination of merit and chance, in which chance preponderates
in the majority of cases and is a serious factor, even in the large
plant. When once we recognize this fundamental characteristic of
the accidents on which experience rating is based the whole ques­
tion is. clarified.
It has been pointed out that experience rating is a valuable aid in
accident prevention, and for this reason alone some form of rating
that will take into consideration the number of accidents in each
plant may be amply justified.
Since it is recognized that the cost of accidents, however, is de­
termined largely by chance, and since it seems unfair to penalize an
employer heavily for something that he is powerless to control, it
would seem desirable to keep the limits of such charges moderate—
say, not over 10 per cent. In order to maintain the balance of
charges and credits, a corresponding limit would apply to the
I f it is conceded that the chief justification for experience rating
is the incentive for accident prevention which this form of rating
affords, it immediately becomes apparent that to extend the benefits
of experience rating to the large employer and deny these benefits
to the small employer is unfair.
While a single accident in a plant can not be said to indicate poor
morale for which an employer should be charged, even though this
accident is a costly one, frequent accidents in the same plant may
indicate poor morale. The way is thus pointed to the adoption of
accident frequency rather than accident cost as an indication of
morale and an incentive to accident prevention. When an employer
is having more accidents than the average plant of the same size in
his industry, this can be readily explained to him and justified as the
basis for a charge, where it is impossible to justify a heavy penalty for
one or two serious accidents for which the employer is not to blame.
The number of compensable accidents per thousand employees
(or per unit of pay roll) in a given plant, compared to the corre­
1 A move in this direction has been made in the new Service Bureau plan which limits
the credits and debits for schedule-rated risks to 5 per cent for plants with a premium
of $500. This limit is increased proportionately, however, to a maximum of 20 per
cent for plants with a premium of $5,000 or over. In some States one permanent dis­
ability case might entail the full 20 per cent charge for at least one year in a plant
having an earned premium of $5,000. In the Ohio plan, which consists of charges only,
the maximum of 24 per cent would be equivalent to charges of 12 per cent above and
credits of 12 per cent below the average ra te; thus it exceeds the limit suggested above
by a slight amount only.



sponding average for the entire industry in which the plant falls,
furnishes a practical basis for accident-frequency rating. A formula
for this purpose, proposed in a paper by the writer printed in the
Economic World of April 15, 1916, and rewritten in accordance with
a suggestion of Mr. Winfield W. Greene in the Economic World of
June 17, 1916, is as follows:
Credit or charge (in per cent of ra te)=

.10 R

W hence, If R ' be the rate o f the individual risk
R /= .9 0 R-j- y (.10 R ), not to exceed 20 per cent.

In this formula 10 per cent is assumed to be the maximum permis­
sible charge or credit—
F = Frequency o f compensable accidents for the industry.
j? '= F r e q u e n c y o f compensable accidents developed in the •experience o f the
individual risk.
R = Manual rate for the classification in which the plant falls.

Since minor injuries which are not compensable may play an im­
portant part in some industries (particularly from the standpoint of
medical cost), an additional factor of less weight might be added for
tabulatable accidents (those involving more than one day’s lost
Some employers have already adopted the plan of keeping a “ score
board,” by means of which the different departments in their own
plants are compared on the basis of accident frequency. This has
proven to be an excellent incentive for safety work in the depart­
ments, each one of w*hich is eager to stand at the head of the list with
a low accident record.1 Accident-frequency rating, in which the
accident rate of each employer is compared with the average for his
industry, should have a similar beneficial effect on accident-prevention work throughout all the plants insured. Accident-frequency
rating should further appeal to the insurance carrier, since it is
simpler and less expensive to apply than most of the. forms of ex­
perience rating that have been proposed.
From this study of experience rating it would appear that, while
there are certain advantages in each of the plans now in effect, they
also have certain defects. By taking the best points of each and com­
bining them a new plan might be developed that would be superior
to any of these now in use, from the standpoint of the employer, the
insurance company, and the State authorities having supervision
over compensation insurance.
1 See “ Friendly Competition in . Promoting ‘ Thinking First,’ ” by Melville W. Mix,
Safety Engineering, March, 1914.


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The conclusions of this paper may be summarized as follows:
1. While schedule rating as applied at present is subject to improve­
ment along certain lines, such as the determination of charges and
credits on a statistical basis, the elimination of intangible items which
can not be interpreted uniformly, and further provisions to cover the
special hazards of particular industries, it complies, in general, with
the two tests proposed for any plan of individual rating: (1) It con­
tributes to equity between employers, and (2) it affords inducement
for preventing accidents.
2. Experience rating as at present applied in most States is in­
equitable to employers for the following reasons:
(a) It imposes a serious penalty (in some cases varying the rate 40
per cent for a period of five years) for a single accident, for which
the employer may be entirely blameless.
(h) Its benefits are given to the large employer but denied the
small employer; probably the majority of all plants insured are not
permitted to share in experience rating on account of their size.
( c) It applies to past experience, penalizing the employer for some­
thing that has gone by and can not be changed, even though conditions
may have been improved in the meantime and the hazard eliminated.
3. Experience rating is valuable as an accident-prevention incentive
and for this reason some plan of “ experience*5 (or preferably “ acci­
dent frequency ” ) rating is desirable. Such a plan should include the
following features:
(a) The maximum charge should be moderate>say not over 10 per
cent, since the result of experience rating in the average plant is de­
pendent largely on chance, and it does not seem fair to penalize all
employer heavily for something over which he has no control and for
which he is not to blame.
(&) All compensable accidents should be rated at the same value,
so as to minimize the effect of chance on the seriousness of the acci­
dent. (In order to give some weight to the effect of varying medical
cost, an additional factor might be added for tabulatable accidents.)
(c) The plan should apply to all employers in order to avoid dis­
(d) It should apply only to the current year, so as to offer the
maximum incentive for accident prevention.
(e) The charges and credits should be balanced in some fixed man­
ner—for example, as suggested in the proposed Pennsylvania plan—
so as to make sure that the adequacy of rates will not be disturbed.

Dis c u s s i o n .
E a l p h H. B l a n c h a r d , of the University of Pennsylvania. Mr.
Beyer has referred to the proposed Pennsylvania plan. I think that
it is of enough value to explain it more at length.
Of course, one objection in the past has been that experience-rating
plans have reduced the average rate as applied to the entire classifi­
cation. It was stated in a report made for the year 1915 that the
experience and schedule rating plans had reduced rates by about 15
per cent in New York. The Pennsylvania plan does away with that
objection through the following process: In the first place, the nor­
mal loss ratio of-the entire State for all classifications is calculated
for the period for which experience rating is to be applied. Having
calculated the normal loss ratio, say 40 per cent, this plan penalizes
every employer who has a loss ratio greater than normal. He is
charged one-half of 1 per cent for every per cent in excess of nor­
mal, with a maximum charge of 20 per cent; that is, an employer
having an 80 per cent loss ratio, 40 per cent normal, would be charged
the maximum of 20 per cent. Then the entire amount received from
charges is distributed among those whose loss ratio is below normal
and who are therefore entitled to credits, and the insurance company
retains the rate which they have originally quoted. Credits are
allotted in proportion to the amount of premium and in proportion
to the saving below normal.
In the original plan fatal cases were to be eliminated from con­
sideration, but under the revised plan, $200 is to be charged for each
fatal case. This plan has been evolved by the statistical and actu­
arial committee of the Pennsylvania bureau, and will come before
the bureau in December.
One other point regarding Pennsylvania experience with schedule
rating: A report (Nov. 23, 1916) has just come from the bureau
which shows that, on 6,810 risks there was a variation from the
manual rate of only one-tenth of 1 per cent, and that an increase.
On reinspection, that is, inspection made after the first inspection
of the same plants, there was a net decrease of 4f per cent from the
manual rate. This decrease might very well be justified by the
actual decrease in hazards because of improvements in the plants.



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In closing, I would suggest that anyone interested in schedule
rating read “ The Experience Eating and Eating Schedule,” by Mr.
E. G. Eichards, of the National Board of Fire Insurance Under­
writers. Mr. Eichards proposes to secure adequate statistical bases
for the making of fire-insurance schedules. I do, not see why his
excellent idea might not be eventually applied to schedule rating of
workmen’s compensation risks.
J a m e s H i g g i n s , of the Maryland Industrial Accident Commission.
I am not an expert by any means on the question of rate making or
merit rating, and have no intention of discussing the subject. I rise
simply to ask a question, particularly of Mr. Beyer or Mr. Senior,
whose papers we have just heard read. Mr. Beyer, in his closing
words, advanced some ideas which I have been giving some consider­
ation recently because of some proposed changes in the rates and
merit-rating plan for the Maryland State accident fund; that is,
a combination of the best features of the schedule-rating and expe­
rience-rating systems into a system that might prove more beneficial
than either of the present systems, particularly with reference to
their influence on accident prevention. There is unquestionably
some merit in the experience-rating system, but I fail to see how
that system can be profitably substituted for the schedule-rating
system. It seems to me that the good features of experience rating
can only be made useful in connection with schedule rating, and I
have been thinking that the experts on merit rating might develop,
from the two, a new system better than either now in use. As Mr.
Beyer has well pointed out, it would be largely a matter of chance
to adjust rates solely upon the basis of experience, and therefore such
a plan of basing the rates to be charged for any one year upon the
experience of the preceding year or even several preceding years
would be too hazardous. Speaking from the standpoint of the State
fund or the mutual association it would be equivalent, in a measure,
to declaring a dividend before it was earned. Now, the question I
wish to ask is, that so far as the State fund or the mutual associa­
tion is concerned, could not all the benefits to be secured by the
adoption of any of the distinct features of the experience-rating
system be attained through a modified system for returning divi­
dends? My idea is, could not all of the beneficial features of the
experience-rating system be taken care of by a system of credits to
be given to the meritorious individual after he had actually earned
the credit, in addition to his proportion of the return dividends that
might be given in any classification of industries? Such a system,
it seems to me, in combination with the schedule-rating system,
might greatly strengthen the latter system for accident prevention,
and at the same time the element of chance, which is so predominant
in the experience-rating system, would be entirely eliminated.



I have not given any particular thought as to what these credits
should be or on what basis they might be worked out, but I should
think the merit-rating experts, who are much more familiar with
merit rating than I am, could work them out.
Prof. W. C. F i s h e r , New York University. I have never faced a
disgruntled policyholder, nor a dissatisfied board of directors, and it
seems to be the assumption that one must have done one of those
things to qualify to discuss the question or even to hold an opinion.
I suppose by the same token a man who has eaten most of the turkey
is best qualified as an expert on diet. I supposed 1 came here with
a fair understanding of this matter. I have heard a number of
statements made which I can not quite reconcile with the knowledge
■which I had acquired, not by reading books, but by word of mouth
from men who had actual experience. I shall touch but one and
that an extremely simple matter. Now in Mr. Cowles’s statement
of stock companies, I gathered that on the whole he did not think
quite as well of mutual insurance as of stock insurance, and in par­
ticular he did not think well of mutual insurance for several reasons,
and among them that mutual insurers did not take adequate account
of experience or of merit rating. I recall specifically a statement
that the mutual insurers are as fond of merit rating as the devil is
of holy water. I had been of the opinion that the mutual companies
did not abhor merit rating. I should like to ask if there is not some­
body here who has had experience with the mutual companies, who
can answer whether the mutual companies do particularly abhor
merit rating or favor it one way or the other. I am sure there are
those here wTho have had experience and can answer that question—whether or not they do abhor merit rating as the devil abhors holy
water. I believe Mr. Beyer has some experience with mutual com­
panies, and I would appreciate a reply to my question.
Mr. B e y e r . I will answer it later i f agreeable.
M. W i l s o n , department of inspection and safety, The Associ­
ated Companies, Pittsburgh, Pa. The makers of this program evi­
dently knew very well the substance of the papers. They have been
admirably arranged. Mr. Cowles’s paper, read this morning, gave a
very clear and scientific statement of the principles of rate making
pure and simple as distinguished from schedule or merit rating, or
experience rating. Mr. Senior also made an equally clear and
scientific differentiation between the principles of rate making and
the principles of modifications of the base rate as a result of inspec­
tion and merit rating based on standards. The last speaker referred
to Mr. Cowles’s remarks regarding the abhorrence of merit rating, as
I understood it, by the mutuals. I think that was rather clearly
brought out in Mr. Beyer’s paper. As I recall it, Mr. Beyer’s paper


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did not refer to rate making at all. He rather proved the point
which I gathered Mr. Cowles made—that the mutuals do not make
rates on'a particularly scientific basis. They were especially in­
terested in having a fairly high rate; in other words, they rather
abhor rate making, and if they had much use for merit rating it was
of the kind known as experience rating, and Mr. Beyer did devote
most of his paper to answering the question of the last speaker by
showing that the mutuals are governed largely by experience rating*
Mr. Senior stated that exact statistics are not available as to the
actual effect of schedule rating upon loss ratios, and no method has
yet been discovered to measure that effect in a methodical manner.
I am to have the honor of presenting a paper in a few minutes on a
title very closely akin to that of the paper we are now discussing,
namely, on the subject of the effect of schedule rating on accident
prevention, and therein I make no remarks whatever regarding the
schedule-rating method from which those results are produced. I
want to state therefore, in closing my discussion of the preceding
papers, something which will be in the nature of an introduction to
my paper, namely, that the method of modification of the base rate
as a result of inspection for the purpose of relatively appraising the
safety or hazard in various plants of the same industry and the cor­
responding deduction or increase in the base rates, based on the stand­
ards governing the same, is on a schedule-rating principle some­
what different from any of those discussed here to-day.
T. H. Ca r r o w , representing the Pennsylvania Railroad. Gentle­
men, I do not know anything at all about rate making, but it is so
closely related to accident frequency that I could not resist the temp­
tation to ask one question, and I would like to address my question
to Mr. Cowles, because he is the first on the program. Is there any
material possibility of further reducing accidents in any well-regu­
lated and scientifically managed plant ? I ask that question simply
because there is such a tremendous amount of exaggeration of the
possibility of reducing injuries, and so much is said that is mislead­
ing, and I would like to be permitted to ask you, as a practical rate
maker, as a man who has to account in a large measure for the pro­
ceeds of your company, that question—whether in any well-regulated
and scientifically managed plant to-day there is any reason to ex­
pect a further material reduction in accidents?
Mr. C o w l e s . I f I may answer that question very briefly, I shall
take great pleasure in saying I hope there is. There are many
plants that are approaching practical perfection, but I do not think
they have quite reached it. I hope that further improvement even
in the best of the plants is quite possible and may reasonably be
hoped for.



The C h a i r m a n . I would say that that is the next subject and may
more properly come up at that time.
Prof. W. M. A d r i a n c e , Princeton University. From merely lis­
tening to Mr. Cowles’s paper I should receive the impression that rate
making in general and also the method of measuring this moral
hazard have been reduced to a highly accurate science. From other
sources I have been led to entertain a certain skepticism as to the
degree of accuracy attained in both these things. Mr. Scattergood,
of the Fidelity Casualty Co., of New York, in his article on the
“ Synthesis of rates for workmen’s compensation,” with which no
doubt you are all familiar, has pointed out some particulars in which
the principles of rate making in general are still in the stage of u i i certainty. He indicates, for example, one difficulty in the calculation
of the law differential as between States, where the question of vary­
ing distribution of industries as between States would make the cal­
culation of the law differential somewhat questionable; and he sug­
gests an accident-frequency differential in regard to which I under­
stand there is not entire agreement among the people who are actually
making these insurance rates. And in other particulars this article
is very suggestive as to the limits of accuracy in the present methods
of rate making, even on the part of insurance companies. I remain,
therefore, even after hearing Mr. Cowles’s paper, somewhat skeptical
as to the degree of correctness with which these rates can at the
present time be calculated. I am making these points mainly in the
search for information and in the hope that some adequate answer
will be brought out. I am also skeptical as to the possibility of
measuring this moral hazard of which Mr. Cowles and others have
spoken, and I think I may put my inquiry in this form : Regardless
of the question as to the degree of skill in estimating such moral
hazards which individuals may attain by their experience in the in­
surance business, is there a possibility of establishing a generally
applicable scheme for measuring this moral hazard, and for making
adequate provision for it in the rate? Is it possible not merely as a
matter of “ underwriter’s judgment ” in the particular case, but as a
part of a generally applicable scheme of rate making, to distinguish
between those hazards which Mr. Beyer pointed out are so largely a
matter of chance, and those hazards which can be characterized as
moral ?
Mr. C o w l e s . Was that question addressed to me? I will say very
briefly that I agree perfectly with the gentleman. I believe I stated
that the system of experience rating was not perfect. We should
tolerate it because it will eventually be perfected, and I will say that
I do think it will be possible to work out a perfect system of apply­
ing experience to rate making.


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The C h a i r m a n . I f Mr. Beyer
wishes to avail himself of the two
and one-half minutes left by Prof. Adriance, he may do so.
Mr. B e y e r . I do not know whether I can say what I want to in
that time or not. The question was raised as to whether in Mr.
Cowles’s statement the methods of applying experience by the mutual
companies were fairly presented, and I think I can perhaps illus­
trate that question by a story. Probably you have all heard it, but
I shall risk boring you by repeating it. It is about the man who
saw two negro boys quarreling; a big boy was very much provoked
at a small boy and called him all sorts of names. This the small
one did not seem to mind at all and appeared to be rather enjoying
it. He waited till the big one was through and then said, “ All dem
tings what you said I am, you is yo’self.”
Any criticism applied to the mutual companies of disregarding
experience, or carelessness in making their rates, applies equally to
the stock companies, since the rates for both classes of insurance are
based on “ pure premiums ” prepared by a committee of both stock
and mutual companies that met in New York about a year ago.
Massachusetts some of the mutual companies which had been paying
a 20 per cent dividend adopted those rates as they stood; other mutual
companies paying 30 per cent dividend charged 10 per cent higher
rates than the stock companies, but the rates of the Massachusetts
mutual companies, at least, are based on the same figures and on the
same experience as those of the stock companies.
I was present at some of those committee meetings and know it
was agreed that the Massachusetts experience should be given prefer­
ence in determining the pure premiums, and a large percentage of
the Massachusetts experience was contributed by the mutual com­
One of the speakers spoke about the mutual companies having
about the same feeling in regard to merit rating as the devil has
toward holy water, but I think a better expression might be that
they have the same attitude toward some plans of merit rating as
an individual would have toward being immersed indefinitely in a
tank of holy water. The objection is not to merit rating as such, but
to some methods of merit rating that have been employed. The plan
of “ experience rating” that was originally adopted in New York
was used largely as a competitive measure and gave a rate reduction
of some 15 or 20 per cent if I remember correctly the data given in a
statement published by Mr. Senior. That plan was undoubtedly
one of the things which hastened the retirement of a good many stock
companies from the compensation field. As a matter of fact one
of the first plans of merit rating in the country was introduced in
Massachusetts in 1912 by the Massachusetts Employees’ Insurance

[This paper was submitted but not read.]

Every member of an industrial accident board or commission
thinks that the law he is helping to administer is the best, or one
of the best, that can be enacted. Consequently, it is appropriate
to discuss the subject assigned me in connection with California’s
experience. We are all agreed that the true science of workmen’s
compensation is accident prevention. From the experience of Gov­
ernment and State officials, and a study of the laws they are operat­
ing under, we can make the best advances in preventing industrial
injuries. The National Safety Council states that one worker is
killed every 15 minutes, day and night, in the United States, and
one worker injured every 16 seconds, day and night. This is a
record of which the citizens of this land have no reason to be proud,
and every organized effort to remove the reproach will meet with
the cordial approval of all.
When the Workmen’s Compensation, Insurance, and Safety Act of
California became effective on January 1, 1914, the industrial acci­
dent commission decided to secure the very best men available to
organize the safety department. No qualifications were asked or
considered other than engineering ability and the possession of tem­
peraments that would enable the men to cooperate with employers
and employees. From the beginning the result has been gratifying.
The primary object of reducing the number of deaths and accidents
in the industries of California has been attained as a result of support
tendered by employers and employees. During 1915 there were
158 fewer deaths than in 1914.

For the first time in the history of any of the States the United
States Government was asked to cooperate with a State commission—
the Industrial Accident Commission of California—in the work of
accident prevention. Dr. J. A. Holmes (deceased), director of the
United States Bureau of Mines, was delighted at the proposal



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that came from the Pacific Coast. An agreement was drawn up
and signed in behalf of the Bureau of Mines and the industrial
accident commission. It was immediately approved by Franklin
K. Lane, Secretary of the Interior. It provided for the dele­
gation of a highly skilled mining engineer of the Bureau of Mines’
staff to take charge of the mine-safety work in California. H. M.
Wolflin was selected. He had charge of the mining department
until December 31, 1915, when he resigned, to become the minesafety engineer for the bureau. He had the advantage of going
into the field with the support of both Federal and State Govern­
ments. Mr. Wolflin was very successful in his efforts and or­
ganized a small force of deputy mine inspectors, chosen as a re­
sult of a thorough examination conducted by the State civil-service
commission. Half of Mr. Wolflin’s salary and expenses was paid
by the Federal Government and the other half by the State of
California. He made a careful survey of mining conditions and
recommended numerous changes, that have been followed in prac­
tically every instance, so that the work of mining may progress
without the drain heretofore considered necessary on human life
and limb. Mr. Wolflin was succeeded by Edwin Higgins, also a
United States Bureau of Mines engineer and a man exceptionally well
qualified to continue the work. He has organized a Miners’ Safety
Bear Club among the miners of California. On November 1, 1916,
this club had 5,378 members, and each wTeek brings additions to
the roll.

On June 11, 1915, there was held in San Francisco a public hear­
ing to consider mine safety rules. These rules had been prepared by
a committee representing the California Metal Producers’ Associa­
tion and miners’ organizations. It was impossible for the employees
to attend the committee meetings. They presented their views
through the mail. The result was that the employers were very
largely instrumental in presenting a splendid set of rules for con­
sideration. After full opportunity for discussion, the rules were
made permanent by the industrial accident commission and became
effective on January 1, 1916.
The advantage of the system before described is that the em­
ployers and the employees in an industry prepare their own orders,
rules, or regulations. This takes the preparation out of the domain
of politics, gives time for careful consideration, and places the work
in the hands of men who know the business requirements and who
are best qualified to act intelligently. This method has proved all
that could be desired.

A CC ID EN T P R EV E N T IO N IN CA LIFO R N IA ---- W . J . F R E N C H .


The industrial accident commission wants to secure a maximum
of safety at a minimum of cost to the employers. This is not as
difficult a task as might be considered at first glance. Homemade
safeguards are advocated. Our safety engineers have the ability to
show employers how to construct these guards, or to use waste wood
or iron to protect men from dangerous places or from coming in
contact with moving machinery.

The California law calls for public hearings to consider safety
requirements, and the industrial accident commission has full au­
thority to make proposed orders permanent after hearings are held.
Recognizing that it is impossible for three busy men to acquaint them­
selves with the needs of diversified industries, the California Em­
ployers’ Federation and the California State Federation of Labor
were asked to appoint small committees to supervise the preparation
of safety orders, rules, and regulations. There was an immediate
and favorable response from both organizations. Subcommittees of
those engaged in the different industries are now busily at work as­
certaining what is needed to make employment safe. Care has been
taken to see that employers, employees, insurance men, and others
who may be specially interested are given representation on the sub­
committees. The central committee meets in San Francisco. In
Los Angeles the Merchants’ and Manufacturers’ Association and the
Central Labor Council have selected energetic committees to co­
operate with the committee in the north. The same applies to the
subcommittees. General safety orders became effective on January
1, 1916, and many of the industries have been cared for by orders
specially prepared to meet their needs.

The United States Bureau of Standards, another department
of the Federal Government, has kindly referred to the activities
of the safety department. Dr. E. B. Eosa has complimented the
industrial accident commission on the thoroughness of its opera­
tions in the field of electricity. All the large and nearly all of the
small electrical plants have been carefully examined by our expert,
and Dr. Rosa said that his recent visit to California led to the con­
clusion that this State was probably the equal of any State in the
Union in its intelligent effort to provide industrial safety. Last
year our electrical expert visited New York and Washington, D. C.,
to consult with representatives from other States so that there may
be adopted standards for electrical construction.


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John E. Brownell was selected to head the safety department.
He studied at the Massachusetts Institute of Technology, and had
wide experience in safety work in the industries. Just prior to
accepting the offer tendered him by the industrial accident commis­
sion, he had 7,000 men under his care at the Pennsylvania Steel Co.’s
plant at Steelton, Pa., where he was the safety expert. He brought
to California a knowledge of the latest developments in his particu­
lar field. Four engineers were selected in San Francisco and one in
Los Angeles during 1914, and the force was increased during 1915
after the State civil-service commission had conducted competitive
examinations. These men are experts in their different lines.

A safety museum has been installed at 529 Market Street, San
Francisco. It is operated under State auspices and has approxi­
mately 150 exhibits and a department showing photographs and
pictures appropriate to such a museum. No recommendations are
made to employers as to the best devices obtainable, but all exhibi­
tors are given an equal chance and employers fully advised as to
what is available in their particular vocations. Some of the largest
industrial concerns in California have “ circularized ” their employees,
urging them to visit the safety museum so that they may keep in
touch with the latest inventions for saving life and preventing acci­
dents. Many of the exhibits have been sent to California from the
Atlantic Coast. The second safety museum has been opened in the
Union League Building in Los Angeles.

The industrial accident commission has held “ safety first ” con­
ferences in the principal cities in California, to let the citizens
know what was being done, to impress upon them the need of coop­
eration, and to show a number of pictures that vividly impress upon
the mind the importance of 46safety first.” Nearly all these pictures
deal with California factories and workshops. Some of them show
the “ before and after ” effects of safeguarding.
Employers have frequently asked for the suggestions of our
safety engineers. The compulsory compensation features of the lawr
drew special emphasis to the need of preventing accidents. Insur­
ance is not compulsory in California, and many of the larger estab­
lishments do not carry coverage. This means a lively interest in
industrial safety, and those employers that do insure realize the
effect accident reduction has on the rates. The insurance companies

A CCID EN T P R E V E N T IO N IN CA LIFO R N IA ---- W . J . F R E N C H .


have well-equipped safety departments, and are operating in con­
junction with the State safety department wherever possible. An­
other important factor in “ safety first ” is the reductions in rates
that are given for the installation of safeguards. This merit-rating
plan has proved advantageous.

Ihe industrial accident commission-is a member of the National
Safety Council, and secures the bulletins that are issued weekly.
One of the officials of the United States Bureau of Mines was dele­
gated early in the year to give first-aid training to the miners of Cali­
fornia. Several hundred men have been informed of the best way to
treat their injured fellows. Plans are under discussion to enlarge
this feature of our activities.
Last year there were more than 60,000 industrial accidents re­
ported in California. This number is altogether too large. One of
the main purposes of the industrial accident commission is to reduce
this heavy toll on the workers to a minimum, and to get the best
results that come from sanely and intelligently cooperating with all
those interested in any given industry. Accident bulletins have been
sent out to employees. They have been printed in different lan­
guages. Special attention has been given to the formation of shop
committees, so that the men may take that interest that is so im­
portant in order that the desired end may be attained. The use of
signs and general methods of publicity have also been urged in this
Looking back over the operations of the last 2 years and 10 months
the California Industrial Accident Commission has the satisfaction
of knowing that its plans have worked well and that there is every
prospect for a continuance of united effort to remove the reproach
from industry that human life has not been given the considera­
tion that it deserves.

The industrial accident commission has issued figures giving the
number of deaths in the industries of California during the year
1915, and draws attention to the list as compared with the statistics
for 1914. In the latter year there were 691 workers killed, and, in
1915, 533 workers gave their lives to the industries of the State.
The following table shows the reductions in the death list by occupa­
tions (the word “ service” includes employees of men in the profes­
sions, as well as those engaged in hotel service, apartment houses,


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restaurants, domestic servants, and amusement or entertainment em­
ployees) :




T ota l__________________________________________ 533


A g ricu ltu re _______________________________________
C on stru ction ______________________________________
E xtraction (m ining and q u a rry in g )_____________
M an ufacturin g ____________________________________
S erv ice____________________________________________
Transportation and public utilities_______________
U n know n __________________________________________

This effective work in behalf of “ safety first ” has been accom­
plished as a result of cordial support from employers and employees,
the public generally, and the press of California. It is a striking
result to be able to show a reduction of 158 in the death roll of 1915
as compared to 1914. That this reduction comes as the result of
careful planning is shown by the decrease in the main industries of
the State, excepting “ service,” where the record shows an increase
of one death in 1915 over 1914.
It is the hope of the industrial accident commission that statistics
will show a substantial reduction for each succeeding year. The aim
is that no preventable death shall take place. The 158 lives speak
in terms of breadwinners saved to wives and little children and an
enrichment to the State’s citizenship.




I think that, in a measure, certain of the facts presented in this
statement will answer a portion of the questions of those last par­
ticipating in the discussion, not including Mr. Beyer, as to whether
or not schedule rating and its purpose affect the accident ratio. I
am unfortunate in having to give, before an audience of this sort,
my illustrations of the subject from the mining industry, which is
but one of the many industries in which you gentlemen are con­
Nothing more clearly accentuates the hazard of the mining industry
than does a review of legislative activities with respect to it. The
protection of the men who dig in the dark, underground, for the raw
materials from which all modern industry is constructed, has long
been a matter of State and Federal concern, surpassing even that
accorded ocean and railway transportation. Safety in mining has
always received the attention rightly due the most hazardous of all
the industries.
Due to the relatively high accident ratio in mining, this industry
was one of the first to receive State and Federal assistance for the
purpose of increasing the safety of the workmen. Industrial accident
statistics prepared .by Dr. Frederick L. Hoffman for the Federal
Bureau of Labor Statistics showed in 1915 a fatality rate, per 1,000
employees, of 0.25 for general manufacturing; about 1 per 1,000
among draymen, teamsters, and street railway employees; 1.5 among
soldiers in the United States Army; 2A among railway employees; 3
among those who toil on the seas—fishermen and the merchant ma­
rine; 3.5 in coal mining; and 4 per 1,000 in metal mining.
These figures speak volumes for the need of aid to this hazardous
industry. In spite of and in a measure because of its high accident
rate the mining industry with much justice claims the right to wel­
come and to guide the other industries now entering the safety-first
movement in the methods to be pursued. Nearly half a century ago,
70085°— Bull. 212— 17------ 18




or long before the operation of Federal or State commissions for the
protection of railway employees, and before the development of
modern life-saving methods at sea, the State of Pennsylvania created
a State department of mines and appointed inspectors whose duty
it was to aid in the protection of mine workers. Other States and
the Federal Government in its Territorial possessions rapidly fol­
lowed this example, until to-day there is no mining State of any
importance which has not its inspection department, and which has
not for many years been gathering statistics and studying the causes
and investigating the means of preventing accidents in mines.
The effect of this effort by the States and the more recent activi­
ties of the Federal Government, through its Bureau of Mines, is
clearly reflected in the statistics of mine accidents so admirably
assembled by A. H. Fay, statistician of the Bureau of Mines, in his
reports for 1915.
The average number of men killed per thousand in coal mines
showed a rapid decrease from 1869—the date of the earliest mine in­
spection—when it was nearly 6 per 1,000, to less than 3 per 1,000 at
the end of the first five years of State inspection. Little change in
the fatality rates was then evident for nearly 20 years, when an in­
crease resulted from the large production per man and the intensive
activities due to the introduction of mining machinery and elec­
tricity, coupled with deeper mining. As quickly as the causes of
this accident increase were determined remedies were applied, with
the result that the fatality rate in coal mining has fallen rapidly
from the second maximum reached in 1907 of 4.08 per 1,000 to 3.22
per 1,000 last year, and in metal mining from 4.19 per 1,000 in 1911
to 3.54 per 1,000 in 1914.
That there is much yet to be done in the way of safeguarding
the miner is evidenced from a very brief comparison of this acci­
dent rate with that of two European countries where intensive gov­
ernmental and private attention has been given to safety in mining,
but in which the natural hazards of mining, due to depth of opera­
tion, character of roof, occurrence of coal formation, and presence
of explosive gas and dust, are even greater than in the average mine
of the United States. Thus, in England the fatality rate per 1,000
is but little over 1, and in Belgium a little less than 1. In other
words the fatality rate in the United States is still about three times
as great as in the countries named, measured by the number of men
employed, a condition which should encourage us to believe that,
with continued and renewed effort, we may yet hope to reduce the
fatality ratio for the mines of the United States to one-third the
present rate.
That such a result is possible is evidenced by the great reduction
of accident frequency effected in the coal mines controlled by the



United States Steel Corporation through its department of safety.
The methods and the result of this work have blazed the way for
others to follow. For example, in the most dangerous coal field we
have, the Pittsburgh district of Pennsylvania, the accident ratio of
the large group of mines operated by the H. C. Frick Coke Co. was,
a few years ago, as great as that in neighboring mines operated by
other companies. A year ago the fatality rate in the mines of this
company was 1.52 per 1,000 employed, as compared with a rate of
2.36 per 1,000 of underground workers in neighboring mines. In the
West Virginia mines of another subsidiary of this corporation,
namely, the United States Coal & Co., the fatality rate last
year was 0.75 per 1,000 employees, compared with the average of 7.04
for the State.
The latest agency injected into this situation, and one which at once
gave an increased impetus for further improvement of conditions,
has been the enactment in many mining States of workmen’s com­
pensation legislation with, unfortunately in but two or three of
these States, effective insurance provisions.
Workmen’s compensation legislation is a powerful instrument for
greater safety in the industries, from the fact that special stress is
not laid on how the accident occurred, but only upon how badly the
employee is hurt by it. The injured person does not have to employ
lawyers to prove his case, because the fact of his employment alone
is a proof of his right to compensation. The immediate effect of such
legislation is the certainty confronting the mine operator that he
must pay out large sums for every accident, regardless of its cause,
thus adding to the cost of production of his coal or ore. This furnishes
the strongest incentive to him to reduce the causes of accidents; not
that the operator has ever lacked reasonable consideration for the
welfare of his employees and a proper human interest in their safety,
but because of his engrossment in earning his daily livelihood he
has not felt that he had the time to devote to safety of operation
which he must now find as a result of the actual cash cost of injuring
This agency has alone, however, proved inadequate to bring about a
material improvement for the simple reason that mine operators have
always been willing enough to improve safety conditions if they only
knew what further they could do than they were doing within reason­
able limits of their financial ability. The requirement in the work­
men’s compensation laws of Pennsylvania, Colorado, and Kentucky,
for example, that the mine operator shall insure as a guaranty of his
ability to meet his compensation obligations, has furnished the added
incentive, moral and, financial, necessary to the prompt and effective
dissemination of a more general knowledge of the causes and means


w o r k m e n 's

c o m p e n s a t io n


of preventing accidents and of the cash value and the cost of removal
of each mining hazard.
This latter condition is the result of the extension of the intelligent
and scientific safety engineering service of several well-known stock
casualty insurance companies and its application to the mining
industry. To Chairman W. G. Cowles, of the Associated Companies,
is largely due the credit for bringing together 10 of the strongest
stock casualty insurance companies for the organization of a depart­
ment of inspection and safety for the insurance and protection of
coal mines. With farseeing vision, born of a knowledge of the splen­
did results achieved in the prevention of accidents in other indus­
tries through the safety engineering departments of the several mem­
ber companies constituting the Associated Companies, these felt that
they could safely undertake the insurance of mine operators against
their workmen’s compensation obligations, providing they could de­
velop a system of inspection to determine the safety condition of each
mine insured and the premium rate which it should bear according
to the hazard revealed by such inspection, supplemented above all
by a safety engineering service which should devote itself to the im­
provement of the safety condition of each mine, coupled wTith the
financial incentive of a reduction in insurance rate for every improve­
ment made in the safety condition.
The result of this undertaking has been the standardization of
inspection methods on the basis of accident causation. The effect
of this new element in the mine-safety problem has been felt in
some measure in all of the coal-mining States in which there are
workmen’s compensation acts which encourage private insurance
enterprise. These are the States of Illinois, Indiana, Iowa, Mary­
land, Kansas, and Michigan. In Pennsylvania, Colorado, and Ken­
tucky, under legislation more favorable to compulsory competitive
compensation insurance, the effect has been more strongly felt.
In Pennsylvania the law has been in effect only since January 1,
yet in the brief interval of nine months there is no mine operator in
Pennsylvania, be he insured with the State fund or with the Asso­
ciated Companies, who is not thoroughly familiar with the safety
standards of the Associated Companies. The nearly 2,000 mines in
Pennsylvania under the observation and protection of the inspectors
of the insurance companies have in these few months been twice, and
sometimes three to ten times, reinspected. A splendid cooperation
has been built up among the operators, the State mine inspectors,
the Federal Bureau of Mines, and the insurance inspectors, to the
end that all are working harmoniously along identical lines for the
improvement of the mines concerned. The measure of this is to be
found in an examination of the reports of the inspections.

S C H E D U L E RATING OF COAL M IN E S ---- H . M . W IL S O N .


The average safety condition of the bituminous coal mines in
Pennsylvania on January 1, 1916, was 75 per cent perfect on the
standard scale of measurement adopted* The average safety condi­
tion of the same mines on July 1, 1916, only six months later, was
92 per cent perfect. This condition corresponds with an improve­
ment of from 25 per cent below standard to 8 per cent below
standard and represents a condition of safety which should corre­
spond with a reduction of fatalities from a little over 3 per thousand
to one-third this number, or something over 1 per thousand. It is
rash to predict that the statistics of accidents in the mines affected
by this inspection and safety service will be reflected in the statis­
tics for this year or next. It is, however, reasonable to believe that
such a result will be effected within the next three or four years,
providing as good relative progress in the improvement of the
condition of the mines is made during the next few years as during
the past few months.
A concrete example of the manner in which insurance inspection
for fixing merit rates under workmen’s compensation has effected
improvement in the condition of mines and the consequent safety
of the workmen will doubtless make this more clear. The following
is selected as representative of conditions occasionally encountered
among the more dangerous gaseous and explosive mining districts:
Inspection was made of one of a group of large mines controlled
by a powerful nonresident owner. The inspector found the mine in
a very hazardous condition on account of the presence of large quan­
tities of explosive gas and of fine coal dust. All of the elements
necessary to a violent gas and dust explosion, which would destroy
the 200 underground workers, were present. The mine was other­
wise in a most unsafe condition because of lack of protection to men
from falls of roof and coal, careless handling of explosives, bad
condition of haulage ways, and general neglect of the safety of the
mine workers—this condition in spite of the fact that the controlling
corporation had employed an experienced mine manager with ex­
perienced superintendent and foremen. The trouble lay in the fact
of pressure from a distant executive department for economy in
operation and cheapness of production or tonnage cost of coal, and
consequent absorption of the local management in getting out poal
as cheaply as possible, to the neglect of safety conditions.
Immediately upon receipt of the report of the insurance inspector
the head of the nonresident corporation, in a metropolitan city several
hundred miles away, was called on the telephone and notified of the
condition, and that unless the immediate hazard were removed within
48 hours the insurance policy would be canceled. The result was an
immediate conference with the head of the inspection and safety de­
partment of the Associated Companies, who presented to the owner


w o r k m e n 's c o m p e n s a t i o n


a detail report, with the main facts of which the mine manager con­
curred in substance, to the effect that explosive coal dust was found in
large quantities throughout the entries, rooms, and old workings;
gas in large quantities was given off in one entry to such an extent
that it was in highly explosive quantities at points two or three
hundred feet distant, passing rooms in which miners were working
with open lights. The only warning to prevent the men from com­
ing in contact with these accumulations of gas was an old railway
tie marked “ Danger ” lying across the rails but a few feet from the
beginning of the gas area and scarcely perceptible in the utter
darkness of the mine, covered as it was with dust and coal. One
miner was found to pass this with an open light, and asked if he knew
of the danger, said, “ Yes; fire boss told me to always watch and
keep my lamp low.” In another entry containing explosive gas
there were no warning signs to keep out men with open lights. The
men working in the gaseous area had safety lamps, but on examina­
tion two of these were found not locked and one in bad condition,
so that all three were liable at any moment to have their flame come
in contact with the gas. In this area the men were using such dan­
gerous explosives as dynamite and pushing it into the borehole with­
out tamping. In other cases inflammable coal slack was being used
for tamping black powder, and squibs, which emit showers of sparks,
were used in igniting the explosives. The explosive was so carelessly
handled that dynamite, black powder, lamp oil, detonating caps,
fuse, a file, old paper, and pieces of metal were found intermingled
in one box.
The result was that orders were issued by the owner for the imme­
diate removal of all workmen from the explosive district, and also
that work be promptly begun to improve the ventilation, roof con­
ditions, and methods of using powder, and otherwise place the mine
in a safe condition, as recommended by the Associated Companies.
This condition is not uncommon in such regions. It is one which
has caused disastrous explosions, killing in some instances hundreds
of men. It is one to which the Federal Bureau of Mines has re­
peatedly called attention through its publications and its safety
propaganda. The Bureau of Mines had, however, no jurisdiction
ancj no influence to improve such conditions other than by attracting
attention to them. The State mine inspection department had the
lawful power to correct such conditions, but though they were known
in this and other cases to the State inspectors, the latter found it
impossible to effect improvement, partly due to conditions beyond
their control. A State inspector can point out and suggest improve­
ments, but he has no power to enforce them in case the owner makes
an appeal to the courts, for it is usually almost impossible for the
inspector to prove his case if his orders are contested. Even then

S C H E D U L E RATING OF COAL M IN E S ---- H . M . W IL S O N .


the State inspector can, as a rule, secure only the improvement of
the most obviously dangerous conditions. Even when these are
improved they remove only a portion of the accident causes, and the
mine will yet remain a serious menace to the workmen as to minor
injuries, due to generally bad conditions.
The power possessed by the inspectors of the Associated Com­
panies is of two kinds: First, as concerns the immediate catastrophe
hazard through the threat of cancellation of policy. The effect
of such action is instantaneous in the many cases where a mine
is mortgaged with some trust company. The demand of a trustee,
that the danger be immediately removed and the opportunity for
insurance made available or the mortgage will be canceled, is
necessarily productive of prompt compliance. The second source
of power to improve dangerous conditions, other than from catas­
trophe hazard and the threat of cancellation, consists in the high
premium rate for insurance for an unsafe mine, which is developed
by a schedule-rating inspection, and the consequent fact that the
money earned by the mine owner in premium reduction on a large
pay roll would frequently, in the first year alone, nearly pay for all
the improvements demanded, and would at the same time place the
mine* in a more safe and efficient working condition.
Take, for example, an inspection report made shortly after the
workmen’s compensation act went into effect in one State, which
showed for a group of mines employing nearly a thousand men an
annual pay roll of half a million dollars and a premium rate on first
inspection of nearly $6 per hundred dollars of pay roll, or a total an­
nual insurance premium of $30,000. The improvements recommended
would, if complied with, reduce this premium to less than $3, and
actually did so, with the resulting premium reduction from $30,000
to $15,000 per annum, a sum larger than w^as expended on all improve­
ments made.
Let us examine in detail the condition of these same mines. The
inspection charges are on a basis of 100 per cent perfect for each of
the 12 groups of hazards in a mine. The surface charges were
charged 25 demerits out of a possible 100, this for unguarded gears,
dangerous railway crossings, bad floors, etc. Shaft hazards were
charged 37 demerits; underground haulage system, 61 demerits; haz­
ards from falls of roof, 51 demerits; use of explosives, 60; electricity,
50; mine gas, 63; coal dust, 77; mine fires, 65; miscellaneous under­
ground hazards, 37 demerits. The human element, or moral hazard,
was charged 90 demerits, and absence of safety organization 62 de­
merits, a total average for the whole mine of 70.6 demerits out of a
possible 100, whereas the average number of demerits which corre­
sponds with the average condition of a mine in the State was 25.


w o r k m e n 's c o m p e n s a t io n


The easy, obvious, and safe thing for the insurance carrier to have
done would have been to cancel the policy. This has, however, been
done in no case out of 2,500 mines under the protection of the Asso­
ciated Companies against workmen’s compensation obligations, for
the reason that the purpose of the law being the protection of the
worker, a system of inspection and schedule rating has been devised
which charges an average insurance rate adequate to protect the car­
rier against losses, however serious or extensive they may be in iso­
lated cases. In this particular case, as in many others, the argument
of reduction in premium to be paid on insurance was such that within
four months a reinspection was requested by the assured on the
ground that they had improved all of the conditions on which there
were charges. The reinspection developed the fact, as shown above,
that in all mines operated by this company this had been done to an
extent represented by a total of 8.5 demerit charges revealed on rein­
spection as against 70.6 on first inspection and a reduction in premium
rate from over $6 per $100 of pay roll to $2.82 per $100 of pay roll.
This was equivalent to a saving of $15,000 per annum in insurance
premium, a sum more than sufficient to pay in one year for all the
improvements made.
The reinspection of these mines developed the fact that nearly
every hazard discovered within the mine had been removed, such as
improving the ventilation and thus removing the gas by diluting it
with large quantities of air, removal of all coal dust, use of only per­
missible explosives properly fired by shot firers with electric detona­
tors, removal of all open lights and substitution therefor of permis­
sible electric cap lamps, removal of inflammable material and sources of
ignition, improvement of the haulage ways, guarding of all machinery,
increase in the number of foremen, employment of inspector, organi­
zation of safety department, and other protective measures which
have not only removed any immediate source of catastrophe, but all
reasonable sources of minor accidents.
I regret that it is not possible for me to show what we believe to
have been the improvements in conditions in terms of the saving of
life and limb. Such data will not be available until the statistics
are received resulting from the study of workmen’s compensation
settlements; it will probably be two or three years before we knowr
where we stand in the matter. Wherefore, I have been compelled
to show these improvements in data represented by the premiumrate reduction or charges entered on it.
That this condition is not an isolated one is evidenced by the fact
that 774 mines inspected and schedule-rated in Pennsylvania, for
which reinspection results are available for purposes of comparison,
show an average premium rate on first inspection of $3.78 per $100
of pay roll and an average premium rate on reinspection of $2.82.

S C H E D U L E RATING OF COAL M IN E S ---- H . M . W IL S O N .


These sums correspond with and are an index to the improvements
made in the safety condition of the mines. They indicate a saving in
premium to mine owners of nearly one-half million dollars, and they
represent the power of that sum of money as a leverage to induce the
mine operators to make the improvements represented by such great
premium reductions, and the corresponding improvement to the
safety of the workers in the mines concerned.
Evidence that the moral hazard is due to carelessness of the miners
and the operators in about equal measure is furnished by statistics
recently compiled from the records of the Department of Mines of
the Union of South Africa. These indicate that about one-half of
the fatalities in mines are due to the so-called hazard of the industry
or what are sometimes called the dangers inherent to work or mis­
adventure. Of 2,497 fatalities investigated, including over 200,000
employees, for a period of over two and one-half years, it was found
that 17.5 per cent were due to disobedience of orders, carelessness,
or ignorance of the operator; 17.1 per cent to those of the in­
jured person; and 5.9 per cent through fault of others, including
fellow workmen. The fault of the operator is evidenced by failure
to give proper warning, failure to inspect, failure to furnish proper
equipment, and neglect to comply with the recommendations of the
inspector. That education and training of the mine operator as
well as of the mine worker is essential to any material improve­
ment in the safety of mining is beyond question, and the system
of schedule-rating insurance premiums under workmen’s compensa­
tion which has been adopted by the xlssociated Companies takes
cognizance of this to the fullest possible extent.
As evidencing the attitude of the mine operators to workmen’s
compensation insurance thus administered by private stock insur­
ance companies it is well to record that for the first several months
of this inspection service it was a subject of opposition and criticism.
Since inspections have been completed and reduced premium rates
have been promulgated in many cases as a result of improved condi­
tions, a much more friendly attitude has been shown.
I have a letter from a leading mine operator saying:
The operating officials at our different properties w ere first inclined to be a
little skeptical and critical, believing that no inspector acting under State or
insurance authority could tell them how to im prove the condition o f their mines.
Since w e have gone through it, however, it gives me great pleasure to say that
we have found your inspection has been o f great service to us. Y our inspectors
have disclosed conditions w hich have enabled us to remove hazards, so that our
properties are not only in far better condition as regards safety, but the change
we have made in our organization and our methods, itself, puts us in closer di­
rect touch w ith our working force, with the result o f increased efficiency and
economy in operation. W e w ill be more than repaid fo r the expense w e have
been put to in making the changes recommended.


w o r k m e n 's

c o m p e n s a t io n .

Another operator, controlling over 30 mines, says:
W e soon discovered, to our surprise, that w ith the actual correction and im­
provement o f the various dangerous conditions that your inspector commented
upon, our mine forem an became so enthusiastic, noting how it really improved
the mines, that we had in some cases to restrain him. The result has been, we
believe, not only cleaner, safer mines, but it has improved our general operating
conditions to a notable degree.

The chief mine inspector of one of the greatest mining States was
somewhat skeptical, as were others, as to the possibility of bringing
about further improvements than were practicable through his de­
partment, as a result of workmen’s compensation application and
the cost of insurance thereunder, and he wrote that:
I f all the suggestions contained in your safety standards are complied with,
a marked reduction in accidents would no doubt result. I have found saying
and doing are entirely different things, and if you can succeed in forcin g com­
pliance w ith these rules, you w ill accomplish what the State mining depart­
ment has tried to accomplish fo r years, w ithout complete success, and there
should be a reduction o f at lea#st 50 per cent few er accidents.

Since the suggestions contained in our standards have been very
fully complied with in a majority of cases, it is fair to assume that
his prediction will be in some measure fulfilled, and there will be a
marked reduction in the number of accidents under the system
adopted fpr the insurance protection of workmen’s compensation
As evidencing the attitude of the State industrial boards and the
State insurance departments toward this system of insurance and
schedule-rating inspection by the Associated Companies, it is neces­
sary to point only to the cordial relationship established in the three
coal-mining States in which the law provides for compulsory work­
men’s compensation, coupled with a fair attitude toward an en­
couragement of private insurance for the obligation, viz, the States
of Pennsylvania, Kentucky, and Colorado. In all three States the
technical value of the safety standards and the system of inspection
and of schedule rating the various hazards within the mine has re­
ceived official approval, and has been adopted for all insurance car­
riers in those States. In the States of Pennsylvania and Kentucky,
the department of inspection and safety of the Associated Companies
has been authorized to act as a central inspection and schedulerating bureau for all insurance carriers of coal-mine risks, with the
result that in those two States over 90 per cent of the mines are
insured either with the Associated Companies or the State fund, and
are under the inspection and safety service of the Associated Com­
panies, and that in consequence vast sums have been expended in the
improving of safety conditions in the mines of those States.

L e w i s T. B r y a n t , commissioner of labor, New Jersey.
I have
listened with a great deal of interest to the general discussion of the
regulation of rates and especially with reference to granting reduc­
tions for specific improvements in physical conditions. Of course,
I represent a branch of this movement which, in theory, would
eliminate the necessity of rating reductions for special improvements.
I know that in New Jersey, and I think in all other States of the
Union where there is a comprehensive factory inspection, if all the
regulations on the statute books were applied to the factories, of
course a nearly perfect factory condition would be reached. How­
ever, to those who have had years of experience in obtaining these
conditions in factories, we find that the human element is of the
greatest assistance in securing these improvements. There seems to
be an impression that the workmen’s compensation acts in themselves
have improved the morale of the factory management and have im­
proved the physical conditions in factories. Personally I have never
beei; able to see any particular relation between the enactment of the
workmen’s compensation schedules and factory conditions, except
in so far as may be accomplished by the reduction in rates given to
the manufacturer for any specific improvements that may obtain. I
know there are two elements among the factory managers; a large
number of factory managers are anxious to supply their operatives
with every possible means of protection; then there is a small number
who look upon the whole thing in a mercenary manner and wTant to
get by as cheaply as possible. Now, as to this latter class, if they are
covered by insurance, the inducement to make the improvements, is
removed, and they will be made only where the law compels the
change. Now, I think that in nearly all the Eastern States and most
of the Western States there is a very close affiliation between the
operation of the workmen’s compensation laws and the factory de­
partments. Anything tending to the reduction of accidents is of far
more importance than that which has to do with the compensation of
In our State we are at this moment confronted with the problem
of the best practical use to be made of the statistics which are
required under the operation of the compensation act. Some years




ago I had the privilege of studying factory conditions abroad, and
while going through the Manchester district I was very much im­
pressed with an English factory inspector and his methods. Later, I
was fortunate enough to have him come over and spend some time in
New Jersey and make inspections of the New Jersey factories, and
thus was able to get his viewpoint of conditions as they exist in this
country. The tiling which impressed me more than anything else
was the manner in which he went about the placing of exact hazards,
unguarded belts, etc. While I do not mean to defend an unguarded
belt, yet this inspector did not seem to consider that the most im­
portant hazard. His attention was called to an unguarded belt in
one factory, but he said he wanted to show the statistics compiled in
England on loom accidents, and showed a number of accidents in
looms from a small unguarded shaft at the back of the loom about
6 or 8 inches from the floor and partially under the loom. The num­
ber of accidents occurring from that little shaft was way above the
number occurring from the belts. In this very factory where he
pointed out this condition and within a few months after the con­
versation, on account of a rule prohibiting combing the hair, a girl
went around back of the loom to comb her hair and while combing it
a lock blew under the shaft, got caught and the girl was scalped.
Now, I want to illustrate the fact that the real scientific use
of statistics will be of the very greatest possible help in the preven­
tion of accidents. New Jersey was the first State where a compensa­
tion schedule law was passed. I have in mind a manufacturer
of linoleum who had been ordered by the factory inspector to put
six fire escapes on a factory. He came to me and complained of
the excessive number required. On analysis the factory did show
rather a remarkable condition, but six seemed like a large number.
Afterwards, when the inspector in question for this district was in
my office, I asked him why he ordered so many fire escapes at this
factory, and he explained conditions to me. In this factory they
had no means of getting to the upper floor except by a vertical
ladder placed at an opening in the floor, and the man was re­
quired to go up, hand over hand, on this ladder. Therefore he
ordered the fire escapes on the outside of the building, being prac­
tically outside stairways, to be used not only as a means of egress in
case of fire but as a method of getting from one floor to the next.
The manufacturer complained about the amount of expense, be­
cause he had only one or two men employed there, but I recalled to
him that when we went up there to inspect on the top floor we found
the man sound asleep. “ Now, in case of fire you will concede there
will be a great deal of smoke in this building. What if the man
slips in the smoke and falls downs the hole? Would any insurance
company carry your risk? Will you tell me what rates you have to



p a y ?” “ Just the same as any other similar company in New
Jersey.” That was previous to any specific rates for penalizing any
unusually bad conditions. Of course, we had the authority, which
we exercised, of making the building safe; but how much easier it
would have been to the executive force to have been able to say,
u Now, put up these fire escapes and you will get a considerable
reduction in your insurance rates,” rather than simply to depend
on the law.
A l f r e d W . D o n o v a n , chairman Massachusetts Board of Labor
and Industries. The discussion this morning in reference to rating
and prevention appears to be along the line of “ what shall we
do ” or “ how much shall we pay ” for the loss after the man or
woman is unfitted for daily work through loss of limb or for loss of
life? It would appear to the Board of Labor and Industries of
Massachusetts that the constant employment of men and women who
are obliged to work is of greater importance than trying to find
what we can do for the families or for the working man or woman
after injury. Prevention of accident, to our mind, is the greatest
possible work that confronts us to-day. The prevention of accidents
will in a measure conserve the wonderful asset which this country
has in the great amount of labor at our disposal at the present time.
But even with that amount so large we find that, through the
unexampled prosperity we are now enjoying, there is a job and a
half for every man and that dead ones are not worth near as much
to us as the real healthy workers. From our viewpoint and from our
experience we firmly believe that the health of the worker is 66|
per cent, at least, in importance. We have found that the health of
the man or woman employee at the time an accident occurs is the
great thing. Suppose that that woman or man is out of sorts
or in ill health just at that moment. I f that is the case, all of
the preventive measures, such as safety appliances and the various
things we are at work upon and which we are spending an enormous
amount of time and money on in order to assist in this great work,
may fail. Therefore we feel that the subjects of lighting and
ventilation and sanitation are much more important—two to one—
than any safety device. I know from a personal viewpoint and from
my own experience as a manufacturer that the policyholder, or the
man who pays the bill, is in a measure afraid of the policy or afraid
of having particular places protected. I want to state for the man­
ufacturer that we believe that it is money profit, if you please, in
our pockets to fi^ every place that it is possible to fix so that an
accident can be prevented. That is selfishness pure and simple.
All we manufacturers want is the correct method; we want you to
show us how to do it. I will assure you that the manufacturers will
be only too glad because, as I stated, the greatest asset of all is the


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worker. What could we do without good help? What can good
help do without good places to work in ?
There are two more suggestions: First, we must look out for the
health of the worker; we must study that from every viewpoint. We
must provide better places for the men and women in which to work.
We must not pay all our attention to the office room. I f it is toilets or
wash rooms or anything of that sort, let us begin in the workroom.
The office help and the managers can take an hour off if they wish,
but the poor old worker gets a “ call down ” or gets docked if he goes
away from the job. Let us figure as a practical proposition that for
any effective improvement in the workshops we must have rest rooms,
we must have health measures. When a man or woman is just below
par—and you and I know from long experience that at certain times
during the day accidents are more frequent—we know that at those
times if a man or woman could go around through the plant 10 min­
utes before the fatal hour, and could say to those people, “ Won’t
you go down to the rest room just a moment? Go and see the physi­
cian,” many times these accidents might be avoided. Those are the
facts I want to leave with you—the fact of health and the fact of
prevention—health two, accident prevention one. With that view, if
you work it out, there will not be very many deaths. Do you know
or do you realize that it costs $6,000 apiece to bring a man or woman
to the age of 20 or 21 ? Do you know that after that time, after we
have spent that money—either through his family, or the State or
city, or some friend—that that man has only his thirty-odd years to
earn his living? Now, let us give him an opportunity during that 30
years to earn the $6,000. He is worth only $5,000 dead anyway, but
he is worth $6,000 living plus the amount of profit he can earn, plus
the amount of good he can do, plus the amount of example he can set
by good living in the community. But the great asset is really the
human element. It makes me wild when I see them forgetting that
and protecting the insurance rates. Let us have an insurance com­
pany of some sort that will protect the health of the worker, so that
the worker can have a dollar or two in the bank himself. Now, then,
I believe it is a separate proposition when a man or woman is to be
compensated. I believe the man who sits on a case of that sort should
not be the man who inspects the proposition or who has to do with
the safeguarding of life. The settlement of that particular matter is
of so much importance to us and of such a wonderful importance to
the State that it ought to take on—and I believe it will take on—the
weight of a judge’s decision. I believe that the man who administers
any compensation decisions should be appointed by the governor of
every State for a term of years or for good behavior, or even for life,
and that this man should be a judge. Would we ask him to come



into the factory, mill, or mine to investigate? We would bring the
facts to him and get the decision and judgment.
I speak for my commission. I believe it is our ideal, our hope, and
our prayer that in the future the administration of the amount of
compensation to our workers shall be, as it ought to be, by judges
rather than by so-called commissioners. Give them the dignity of the
judgeship—give them the cloak, if you please, so that we will know
as workers and as manufacturers that there is a court; first, because
we want more speed, we wTant more efficiency, we want the particular
case settled instantly, if it is possible, or just as soon as we can have
it done, so that the worker may know that if he is injured he wTill re­
ceive his compensation in a reasonable time. Do not make the time
from 14 to 20 days or 3 weeks, or any amount, but make it just as
near the time when he is injured as possible, so that we can plan upon
continuous employment. In our State we have a crop, if we may
speak of crops in this connection, of twelve and one-half billion
human beings—twelve and one-half billion of workers in money
value. We put a sentinel on the soft-coal pile of 150 or 200 tons
to see that a neighbor does not steal it. We put a lock on the books,
and it would not make any difference if the books were on top of the
safe all night. But we do not attempt in any wTay to put the worker
in the right frame of mind, and that frame of mind is simply this:
To be in a condition and a position to be able to work the 6, 7, 8, 9, or
10 hours of the day. I do believe that a man or woman ought not
to be allowed to work the day or the hour that he is unfit.
I trust that I have brought a message to you. It is the question
of the health of the worker. We must do all in our power to im­
prove the physical condition of the workers, and then we will not
need so many safety devices.
Miss G e r t r u d e B e e k s , director of the welfare department of the
National Civic Federation. I want to ask a question of Mr. Donovan,
but first to call your attention to the fact that we have in New York
City a welfare exhibit, which promotes “ health through welfare” ;
that is the motto of the welfare department of the National Civic
Federation, composed of 600 employers of the United States working
for the improvement of wage earners. I urge you to find out how
to reach more employers and make it plain to them that health is
economically important to them. When we began this work in 1904
we were able to find only 25 employers who were doing anything at
all in this line, and now we have 1,100 whose humanitarian activities
are described in our welfare exhibit, on the thirty-fifth floor of the
Metropolitan tower.
The question that I want to ask you, as practical men, and I
address this question to Mr. Donovan and Mr. Beyer, is this: Do



you find that there is any special problem, or, rather, do our women
wage earners present any special problem in accident prevention as
distinguished from the safeguarding of workingmen? Now, I am
not saying this as a woman particularly, but as one interested in
society as a whole. I am not saying this as a suffragist, because
I am not one; but it seems to me that present indications are that
women are going more and more into industry, and at an appalling
rate; that the home is absolutely threatened because of that, for I
do not think a woman can be a wife, a home maker, a child bearer,
and a worker at the same time without being a menace to the welfare
of society, and I do think some of our practical men can give us
some suggestions as to how improvements may be made in the con­
dition of working women before they leave industry and marry. I f
there is anything particularly peculiar to the conditions of the
working women to which there should be some especial attention
given, it would be very pleasant to hear.
Prof. W il l a r d C. F i s h e r , New York University. I wish to correct
the statement which I have heard two or three times in this conven­
tion and have seen many times in print. It is that New Jersey was
the first State to have a compensation law. Her law was passed in
April, 1911, to go into effect July 1. The laws of Kansas and Wash­
ington were approved March 14, 1911, the Kansas law to go into
effect January 1 following and the Washington law October 1 fol­
lowing. The Wisconsin law was passed in May, 1911, to go into
effect immediately. As a matter of fact, the Wisconsin law was
purely voluntary until September.
Mr. D o n o v a n . I would like to answer that question that the young
lady asked with reference to women in work. We have found from
our experience in our factory that if we compel the woman worker
to report to the rest room or the hospital, so called, before leaving
on account of indisposition, and have her report to the physician in
charge, that the doctor has been able, 90 per cent of the time, to give
the particular woman the right sort of attention so that she has been
able to return to work. Ten per cent of the time the woman ought to
be at home, and she goes home. But just that sort of thing—asking
them to report to the physician before going out and seeing that they
get the proper attention—does relieve the situation and makes the
woman worker nearly equal to a man, so far as daily attendance is
Miss B e e k s . I s there anything special in regard to protecting
women workers different from men?
Mr. D o n o v a n . We have found in our work—shoe manufacturing—
that women are just as careful in employment as men; that they are
just as watchful of their safety; they do not care to have their hair


p r e v e n t io n




torn off; and they are, as a rule, very intelligent. And I say it now,
I would much rather have careful women workers in manufacturing
shoes than I would a great many of the so-called intelligent men.
S. W. A s h e , General Electric C o. Replying to our friend’s question,
I think that anyone who has made very much of a study of accident
prevention will find the accident rate of women is about one-third
that of men; that is, men are hurt three times as frequently as women.
Women are more alert and are naturally quicker than men, and will
not take the chances that a man will. And I know in our case in
Pittsfield, where we employ about 800 women, total number of em­
ployees being 6,500, there is with the women a much smaller per­
centage of accidents than with the men.
R o y a l M e e k e r , United States Commissioner of Labor Statistics.
Are the men and women employed in the same occupation or subjected
to the same hazards?
Mr. A s h e . The occupations are diversified; but if you take men and
women in the same department you will find the men get hurt about
three times as frequently as women, with the same sort of risks.
Dr. M e e k e r . Can you furnish me with any literature on the
Mr. A s h e . Yes; in addition to our own data there is a publication,
“ Accidents Abroad,” covering German conditions, and there you will
find it appears that the tendency in the same class of work is for men
to get injured three times as frequently as women.
Dr. M e e k e r . Please send me everything you have bearing on this
Mr. D o n o v a n . In regard to the statement that men get injured
three times as frequently as women, I think I am in a position to prove
that, because I am chairman of the committee of safety and health of
the National Association of Corporation Schools, and that is what I
want to say a word about particularly. You have heard a great deal
about insurance and about the installation of safeguards, but I want
to put in a plea for education in the reduction of accidents. One
thing that has been overlooked is the fact that the matter of labor
turnover has more of a bearing on accidents than any other factor.
In Pittsfield in three years, from 1913 to 1915, we reduced our casu­
alty tariff $15,000 a year, and we feel this is largely due to the inten­
sive educational work. In the proceedings of the National Associa­
tion of Corporation Schools you will find outlined systematic forms
of safety educational work which can be carried on. Last summer in
Buffalo we were taking up the subject of health and trying to outline
a form of systematic health instruction in the industry that could be
carried into the school by some means, and in which the local press
700S5°— Bull. 212— 17------ 19


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and newspapers would be interested. Thus preventive measures can
be carried on all the time. I think that other speakers have brought
that out, the importance of health protection work in the matter of
accident prevention, and if you can make a study o f that, coupled*with
the matter of labor turnover, improving on your systems of educa­
tional instruction for employees—first-aid methods, resuscitation, and
in the matter of prevention, how to keep from catching colds, etc.—in
such schools, you can do wonderful work. I know it can be done, be­
cause we have done it. But we have a great deal more to do, and
we are going to do it. I think we will spend five or ten thousand
dollars a year in safety devices, where we are going to spend only three
or four thousand in educational work, when we ought to pend much
more in educational work and still continue to spend the same amount
in safety devices, because I think that is well spent, too. And if any
of you are interested in this whole subject, we will be very glad to
have you at our convention next summer at Buffalo, at which we
hope to go into the matter of health more fully than is possible here.
Mr. B r y a n t . I would like to say a word in regard to the attitude
toward women workers. I think one of the fundamental principles
of safety engineering is the prevention of loose flowing garments,
long sleeves on the worker, and loose jumpers, or anything likely
to get caught in the projecting machinery. Of course a woman’s
dress itself presents a peculiar hazard, and requires at times more
safeguarding than would be required by a man. The loose hair
on a woman also presents a special problem. In some cases we have
had them wear something on their hair to keep it from flying. That
was impressed on my mind in connection with the safeguarding of
sewing machines in my early experience in accident prevention. I
made inquiries from a number of women who had worked around
the machines, and I could not find anyone who had had an accident
other than getting a skirt torn off. But the English experience
shows that many women have had their hair caught in the shaft
of the machine through stooping to pick up something from under
the machine. The fact, however, that I believe should be borne in
mind in the employment of women is the question of requiring them
to stand for long hours on their feet. Many of you who have read
the brief presented to the Supreme Court by Mr. Brandeis in the
State of Washington case, as to regulating the hours of employment
for women, will be thoroughly convinced of the fact that the peculiar
anatomy of woman makes it very harmful for her to stand for
continuous long hours on her feet, particularly at certain periods of
the month. I was much impressed with the possibilities of eliminat­
ing these conditions by the intelligent inspection of factories. In
a factory in Nashville, Tenn., my attention was called to that fact by
a woman inspector who brought to my notice a girl standing and



feeding a sort of printing press, and required to stand there for the
entire 10-hour day, or whatever they worked in that State. One of
the women inspectors said to me, “ Don’t you think it would be
possible to arrange a seat swung from a certain part of the machine
so it will permit this girl to sit down and feed the machine at the
same tim e?” That is just one actual case. I f scientific or intelli­
gent factory inspection made it possible for that girl to be pro­
vided with a seat so that she could sit down the 10 hours there is
no question but what the health of that girl would have been very
much conserved.
I want to indorse everything said regarding certain phases of
welfare work, as against ordinary accident prevention. I think the
prevention of physical injuries is by comparison the least important
of all the problems and responsibilities which rest upon those charged
with the conservation of the health of factory operatives. But the
so-called welfare work is nowhere near so important as the problem
of providing proper air for the operatives to breathe while work­
ing. It is all right to have the welfare work, and I would not say
a word against it, but aTter all is said and done, in a large number
of factories, the number of cases you are going to have where a
physician goes around among the workers to find those who need
a little rest or toning up is going to be very few by comparison.
But where they are required to work long hours, they have got to
breathe the air that is there. The elimination of dust, whether harm­
ful—all dust is harmful—whether poisonous, injurious, or harmless,
is one of the problems which should be approached with very much
more care. There is not only the question of the elimination of
dust, but also the question of stagnant air. At one time I visited a
shirt-waist factory, where the air was perfectly stagnant, which con­
dition could very easily have been bettered by simply installing a fan
to keep the air moving. Of course, it would be better if the stale
air could be taken out and fresh air brought in. I think this is the
welfare work which should receive the greatest attention.
The C h a i r m a n . I would respectfully call the attention of the mem­
bers of the conference to the importance of the subjects to be dis­
cussed this afternoon. I know from personal acquaintance with
the speakers that we will get the best thought in the United States
to-day on these subjects.. The meeting begins at 2 o’clock, and I wish
you would all be present at that hour.




The C h a i r m a n . The function of the chairman, as I understand it,
is to hold the chair, precisely as the name implies, and, incidentally,
to hold the watch on the speakers, and not to hold the floor himself.
I shall, therefore, give the full time to the speakers of the afternoon.

When requested by Mr. Meeker to prepare a paper on this subject
I realized that with the time limit necessarily enforced the paper
would be exceedingly sketchy and incomplete.
After spending several days in an effort to gather up such facts
and observations as might be interesting, the sketchiness and incom­
pleteness of the result became still more apparent to me, and doubt­
less will be so to you.
Although the American States did not begin to pass workmen’s
compensation statutes until many years after the principle was recog­
nized in Great Britain, such statutes now constitute an important
part of what may be designated as distinctly American law, and in
one very important respect the American States with very few ex­
ceptions have made a distinct advance on the British system.
No medical services seem to be provided for in the British act of
1906 except in the relatively unimportant case of a fatal accident to
a person having no dependents, in which case the reasonable expenses
of medical attendance and burial, not to exceed £10 [$48,665], are
payable by the employer. This is copied in part in some of the
American States and doubtless can be justified on the grounds of
public policy, on the theory that the industry generally was responsi­
ble for the injury resulting in death and should bear this expense
rather than that it should be a burden on the general public.
Practically all of the American States which have legislation on
the subject have taken a much higher ground. They have proceeded



on the broad theory that public policy demands that the industrial
injury bound to come to the workman under modern conditions should
be added to the cost of production, paid by the employer, and passed
on to the general public as an added item of price in the finished
product which each who uses it must help to bear.
It has been recognized by every thoughtful and fair-minded man
whose attention has been directed to the subject to any material
degree that the one class least able to bear the burden of industrial
accidents is the industrial worker, whose only capital is his ability to
So much is too elementary for discussion and too familiar to be
even interesting to an assembly like this made up of specialists in
this field of thought.
The main purpose of this and similar meetings, however, is to
consider how the burden of unavoidable injuries, of apparently unpreventable accidents, may most justly and wisely be distributed.
A workmen’s compensation law, however carefully and liberally
drafted, never has and never can prevent the heaviest part of this
burden from lying where it falls—that is, on the shoulders of him who
lias met with personal injury, who has suffered bodily hurt. There
is no payment that really and truly can be compensation for loss of
limb, loss of sight, or loss of ability to labor. No one is striving to
reach a goal whose attainment is known to be impossible, however
desirable. No one has or probably ever will seriously consider the
passage of a law providing for even complete pecuniary compensa­
tion for loss of earning power due to any serious permanent bodily
Payments to injured employees or their dependents are based on
a percentage of loss of earning power varying roughly from one-third
to two-thirds and usually for a limited period of time. Any com­
pensation act, however, is a distinct advance from the timehonored negligence suit with the common-law defenses and the at­
tendant circumstances which had gradually come to surround this
class of litigation.
It seems, on looking at the field broadly, that the two most bene­
ficial features of the system of workmen’s compensation laws, as
existing in the great majority of American States to-day, are, first,
their tendency to bind employers and employees closer together by
the ties of a common interest to prevent accidents as deeply harmful
to both sides, and, second, those wise and humane provisions in most
of these statutes which deal with the subject of medical and sur­
gical aid to the injured employee at the expense of the employer.
Before I commenced the preparation of this sketch I had neces­
sarily from some years of experience on the subject a more or less


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indefinite idea of the detail of the various American statutes, their
points of resemblance, and their lines of difference, but, although
having a pretty fair libraiy on the subject, I found I had no treatise
to which I could go for elementary authorities needed. Prof. Boyd’s
work was finished in December, 1912;. the second edition of Mr.
Bradbury’s treatise was finished in April, 1914. Manifestly neither
of these treatises could shed much light on the important legislation
since those dates.
A third edition of Mr. Bradbury’s book is in preparation, but it
has not even reached that stage where I could borrow his manuscript.
I had therefore to procure all these different statutes and examine
their provisions. It took some time just to read them, and it has
occurred to me that it might be convenient to make a brief sum­
mary of their provisions on the particular subject under discussion.
I do not dignify this by the name of digest, but it covers in a
rough way all the statutes I could find up to date, and includes 35
different jurisdictions. This summary will be prepared as an appen­
dix to this paper, and may save some one else who is interested some
hours of time.
It will be seen that one State, Texas, provides for medical and
surgical services during the term of 1 week; that one State, W y­
oming, makes no provision for medical services; that 5 States,
Alaska, Arizona, New Hampshire, Washington, and Kansas, have
no provision for payment of medical services except in fatal cases
where there are no dependents; that 10 States have a 2-week
period, 2 States a 3-week period, 1 a 60-day period, 4 a 90-day
period, 1 an 8-week period, 1 a 4-month period, and the United
States statute for Federal employees and the Connecticut statute
for all employees covered by it are the only ones that provide services
unlimited both as to time and amount; 5 States provide services
unlimited in time, but limited in amount.
Connecticut has in its statute a so-called “ standard of living ”
clause, which reads as follows:
The pecuniary liability o f the employer for the medical, surgical, or hos­
pital services herein required shall be limited to such charges as prevail in the
same community for similar treatment o f injured persons o f a like standard
o f living when such treatment is paid for by the injured person.

Several of the other States seem to have followed the language
just quoted. Probably it would be interesting if I could tell you
what that language means. Frankly, I don’t know, and have been
able to find no authoritative decision of any court of last resort
that is conclusive on the subject. I have had occasion to express
my views on the subject in one case, Christophson v. Turner Con­
struction Co., First Conn. Compensation Decisions, 591. In this
case the hospital bill was $259.36 for less than four weeks’



services to an injured employee earning slightly less than $14 per
week. The insurance carrier contended that the bill was manifestly
in conflict with the standard-of-living clause. The facts were that
the services were necessary to save the life of the patient, were with­
out substantial pecuniary profit to the hospital, and would have been
rendered precisely as they were, no matter what the patient’s earn­
ing capacity had been. I allowed the claim in full, and stated that
whatever the clause in question might mean, I did not believe that
it imposed on a hospital or doctor an obligation to render services
to an injured employee of a responsible employer or the insured of
a responsible insurer at a financial loss or as a matter of charity.
I suppose it to mean that the hospital or physician can not in fixing
a charge take into consideration the wealth of the employer or the
insurer, and use this wealth as a means of raising the charges for
the particular services, as is said to be customary in fixing the
charge against private patients of large means. The opinion in
Milwaukee v. Miller (4 N. & C. C. Ann. 156) is the authority most
directly in point, and seems to support the view above indicated.
It is, of course, entirely impracticable to attempt any resume of
decisions of commissioners or industrial accident boards on this sub­
ject, and it is almost equally impracticable to attempt to digest the
adjudged cases of last resort in any exhaustive or even thorough
Perhaps no circumstance has more impressed my mind with the
enormous growth of the workman’s compensation; law than this:
Some three years since, I was requested to address the State Bar
Association of Connecticut on the general subject of compensation
law, and found it entirely possible to run through hastily all the
leading cases in the country. To-day that can not be done.
On the direct subject of medical services and medical fees there
seems to me to be two leading cases, one of which is Panasuk’s Case
(217 Mass. 589), where the court lays down in considerable detail
what is fair notice to an employee of the course to be pursued by him
if he is injured, and what will*and will not operate to relieve the em­
ployer of his statutory duty to provide or furnish medical, surgical,
and hospital services. This case should be carefully read by every
insurance adjuster who has occasion to visit the factories of his com­
pany’s assured, and by the responsible executive officers of every
manufacturing company.
The other case which I have found most helpful in determining
in a given instance whether an injured employee was justified in
leaving the physician or surgeon provided by his employer and hir­
ing one of his own choice, and which is also the leading authority
from which to derive the general principle of what makes up the
proper elements of charge in a doctor’s or hospital’s bill, is the



case of the City of Milwaukee v. Miller (144 N. W. 188; 4 N. & C. C.
Ann. 149).
The elementary principles of law laid* down by the courts in
these two cases are applicable to the statutes of most of the States,
and it would seem quite evident that in those States where they
are not applicable the statutes need changing. One naturally be­
lieves in the propriety of the features of the particular act with
which he is most familiar, and has a natural tendency to criticize
the laws of other States in proportion as they differ from the laws
of his State. The new Federal act has not yet been in force long
enough to afford basis for comment. That is substantially the only
law outside of the Connecticut statute providing for surgical and
medical treatment of an injured employee at the expense of the
employer or insurer, and making such service unlimited both as to
the time and amount, the only limit being the reasonableness of the
charge as fixed in the first instance by the administrative tribunal
having original jurisdiction, subject, as is the case in all of our
States, to review on appeal by the proper court. It is a matter of
note that during the period since May 20, 1915, when this provision
of the Connecticut statute became effective, no appeal has been
taken to any court, so far as I am informed on this particular sub­
ject. Probably you would be interested in knowing something of the
cost of unlimited medical and surgical services in this State. The
only figures available for the entire State are those contained in
pages 16 to 18, inclusive, of our second annual report. These are
necessarily incomplete for a variety of reasons. Our act provides
for permitting those concerns who make a proper financial showing
to carry their own risks under the act, or to, be, in common parlance,
“ self-insurers.” These concerns keep us very fully informed of
what they do and give us exact figures. It appears that the selfinsurers, from the time when the law went into effect, on January 1,
1914, up to November 1, 1915, expended for compensation payments
$151,497.68, and for medical, surgical, and hospital bills, $104,765.72.
November 1, 1915, was the date to which figures were computed for
our second annual report. The figures since then are not yet tab­
The insurance companies doing business in this State have during
the same period paid out $1,002,139.96, but owing to the fact that
many of the insurance companies keep no separate figures for the
two classes of payments, it is not possible for us to say how much
of this represents medical and surgical services and how much direct
compensation payments.
Our best estimate at the time this report was prepared was that
the former amount would be about one-third of the entire amount
expended. In considering these figures, however, two additional



factors must be borne in mind, namely, that up to May 20, 1915,
we had a 14-day waiting period and a 30-day period for medical and
surgical aid, and it is only since that date that we have had a 10-day
waiting period and the provision for unlimited medical and surgical
We have had very few, if any, complaints about these amendments,
and so far as we are informed no effort is likely to be made by any
employer or insurance company to curtail the period for rendering
such service. It has been said in some jurisdictions that a pro­
nounced effect of the compensation law is to eliminate shyster law­
yers and substitute for them shyster doctors. Such has not been our
experience. The number of disputed doctors’ bills submitted to us
for determination is small numerically and relatively insignificant.
One experience in submitting an extortionate charge is usually
enough for any given practitioner, for two reasons, first, his bill is
cut down to a proper figure by the commissioner having jurisdiction,
and, second, the doctor making such a charge is given to under­
stand that if he desires this class of work he must take it at a fair
and reasonable figure. This does not mean that cheap doctors are
employed—quite the contrary.
For the reason so aptly laid down by the Wisconsin court in the
Miller Case, “ It is to the interest of the employer to furnish the very
best medical and surgical treatment so as to minimize the result of
the injury.”
Our experience has been that in each community those persons who
are employed to do the greater part of the work of attendance on
employees injured in the course of their employment are among the
leaders of their profession. Especially is this true of self-insurers.
These concerns are necessarily limited in number and, broadly speak­
ing, will include the largest and most successful manufacturers. It
is also noticeable that these are the concerns that are most particular
in providing medical and surgical services for injuries no matter
how slight. Perhaps some figures illustrating what has been done
by one concern which may be called typical of self-insurers would be
more illuminating than any amount of generalities.
These figures cover the experience from January 1 to October 1,
1916, all of which time was under the law as it now stands. The con­
cern had during this time an average of 11,500 employees. It paid
in straight compensation payments to injured employees, or the de­
pendents of those fatally injured, the sum of $12,138.70. It paid out
for the benefit of injured employees during this time, exclusive of
direct compensation payments, $15,142.03. This company maintains
a fully equipped emergency hospital on the premises. There are two
or more trained nurses constantly in attendance during the entire 24
hours. A first-class surgeon visits the hospital at fixed hours each


w o r k m e n 's

c o m p e n s a t io n


day for the purpose of making needed surgical dressings and is on
call for any emergency case. All cases which require any treatment
which can not properly be given in the company’s emergency hos­
pital are promptly sent to a general hospital for such time as is
The figures last given include all those items of expense other
than straight compensation payments, but do not include any item of
charge for use of building and equipment, easily worth $15,000 to
$20,000. They do include, however, an item of $547.50 for medical
and surgical services not really called for by the law. This means
that employees receiving injuries outside the factory or suffering from
some illness not connected with the employment were voluntarily
cared for.
There is also included in these figures an item of $889.31 for trans­
portation. No separation of items is made in this total between
charges for carrying patients so injured that they could not walk
and charges where some one was sent out to find some man who had
been told to report at the hospital for treatment and had failed to
do so. A large part of the transportation charge is for the latter
class of work. The company was not obliged to do this. It could
very likely have successfully resisted claims made by the workman
who refused or neglected needed treatment. It preferred, howeAxer,
to have its injured employees properly cared for, even if, like the
man who had prepared the feast, it had to go out into the highways
and hedges and compel them to come in.
In conversation with the executive officers of this company they
are careful to state that they regard all these expenditures as justified
by economic and not philanthropic considerations.
The company whose statistical experience is given above is one of
the largest in its line, and also, so far as we have occasion to know,
has conducted its business with as large a percentage of profit as any
of them during the period covered by these figures. It would per­
haps be idle to speculate as to whether there was any connection
between the large profit and the liberal treatment of workmen. We
believe, however, that if there be a basis of fact in the old adage that
a satisfied customer is the best advertisement there is just as much
basis for the statement that a group of satisfied employees is one
of the best assets of a manufacturing concern.
Men who are convinced that they are receiving fair treatment will
produce results that are entirely different from those produced by a
group of workmen who feel that they are being treated with scant
consideration and that there is a constant effort to stop just short
of what is fair.
By the courtesy of one of the great insurance companies their ex­
perience under the Connecticut compensation act as to the relative



cost of compensation payments and statutory medical-aid payments
is given here:


Amount paid up to June 30,
1916, for—
Year of issue.

1914 .............................................................................................


medical aid.


Ratio statu­
tory medical
aid to indem­
nity (per cent).


This company is uniformly fair in its treatment of its assured and
their employees, and the volume of its business and the market value
of its stock indicates that it finds that course of conduct profitable.
In the long run people who have occasion to purchase compensa­
tion policies will learn with a great deal of accuracy whether what
they have paid for results in prompt and fair treatment of those
injured employees as to whom no circumstance of doubt exists, and
prompt efforts to find out the facts and act fairly in those cases
where the circumstances do leave a doubt as to what ought to be done,
or whether, on the other hand, the policy they have bought provides
merely an opportunity to have a legal controversy in every case of
substantial injury.
I do not know if it is expected or desired that general suggestions
for amendments to or criticisms of existing State laws should be
offered in this paper. I can not, however, refrain from expressing
briefly certain beliefs which seem to me well founded: First, as to
those jurisdictions which make provision for medical or surgical serv­
ices only in the case of fatal injuries where there are no dependents:
It seems obvious that such a provision can only be justified for two
(a) It serves to save the public treasury from expense.
(b) It may be that some serious cases would not receive proper
attention except for such a provision, although this hardly seems
possible in any civilized American community.
The objections to such a provision are obvious. A person who has
a family dependent upon him becomes the victim of an industrial
accident, perhaps suffers a long illness, and then dies as the result of
the injury. It seems impossible to show the propriety on either
humanitarian or economic grounds of making his dependents pay
the expenses of his sickness, which is the practical effect' of such
a statute.



Still more impossible to justify, from either a humanitarian or
economic standpoint, are those statutes which either make no pro­
vision or an entirely inadequate provision for medical and surgical
treatment of the injured employee whose injuries are not fatal.
If the injured employee is ignorant, illiterate, or a foreigner un­
acquainted with the English language, he is very apt when left to
his own devices either to receive no treatment or to become the prey
of a totally incompetent practitioner.
Even if, as is often the case in States making no adequate provision
for medical aid, a larger percentage of wages is given as compensa­
tion, this money is apt to be wasted or worse than wasted if it is left
to the injured employee to select his own physician.
As is so aptly said in the case of Milwaukee v. Miller, the employer
is ordinarily best qualified to select the physician or surgeon and has
a direct pecuniary motive to select the best available talent.
It is, of course, advisable and so far as examination has shown has
been universally provided that the charge made by the physician or
surgeon should be subject to the supervision of the tribunal—either
administrative or judicial—charged with administering the law.
With such provision there is little, if any, danger of abuse by ex­
cessive charges. Without reasonably adequate means for compulsory
medical and surgical aid to an injured employee at the expense in
the first instance of the employer, or some insurer or fund repre­
senting him, it is impossible to carry out in any proper way the
fundamental ideas which are the well-known basis of the general
system of workmen’s compensation law as embodied in the various
statutes. The burden thus placed on the employer does not ultimately
rest there. It is finally shared by the public.
I have nowhere seen what may be called the conclusion of the
whole matter better expressed than by Justice Marshall, of the Wis­
consin supreme court, in that portion of the opinion in the Miller
Case which I take pleasure in quoting:
The right to have the employer regarded as an agency to make payment to
the employee and absorb the same as an expense o f the industry, regardless
o f whether the loss is attributable to any human fault, is a legislative creation
within the constitutional exercise o f the police power to legislate for the public
welfare. It is not a charity but the recognition o f a moral duty and the erec­
tion o f it into a legal obligation o f the public, not o f the mere employer, to
compensate, reasonably, those who are injured while in the employment o f
others as a part o f the natural, necessary cost o f production, that obligation
being discharged through the agency o f the employer.


In this appendix there are collected the several compensation laws
now in force, with the official description of each act, the place where



it can be found, and a brief outline of its provisions as to medical,
surgical, and hospital services.
1. F e d e r a l A c t .— Effective September, 1916. House resolution 15316, Sixtyfourth Congress, section 9 : Government must furnish to the injured employee
reasonable medical, surgical, and hospital services and supplies, w ithout lim it
as to time or amount, and, if necessary, transportation o f injured employee to
the place where he can be properly treated.

The States and Territories having statutes on this subject are
arranged alphabetically.
2. A l a s k a .— Effective July 28, 1915. Chapter 71, Law s o f 1915, section
1 (G ) : In fatal cases where deceased left no dependents, funeral expenses not to
exceed $150 and other expenses, if any, arising after injury and before death
not to exceed further sum o f $150.
3. A r i z o n a .— Effective October 1, 1913. T itle 14, chapter 7, Revised Stat­
utes o f 1913, originally enacted as chapter 14, Law s o f 1912, special session,
codified by chapter 7, senate bill No. 70, fourth session, Law s o f 1913, section
3170 (3 ) : Reasonable expenses for medical attendance and burial in fatal
cases where deceased leaves no dependents.
4. C a l i f o r n i a .— Effective as amended August 7, 1915. Chapter 176, Law s
o f 1913, as amended by chapters 541, 607, 662, Law s o f 1915, section 15: A
reasonable medical, surgical, and hospital treatment, including nursing, supplies,
and apparatus for a period o f 90 days, with provision that the time may be
extended in the discretion o f the commission. Reasonable burial fee, not over

5. C o l o r a d o .— Effective August 1, 1915. Senate bill 99, session o f 1915, sec­
tions 50 and 52: Medical, surgical, and hospital treatment, medicines and ap­
paratus as may be reasonably needed, but not to exceed 30 days or $100 in
value. B urial fee for fatal cases where no dependents, not exceeding $100.
Special provision in case o f hernia for special operating fee, not to exceed $50.
6. C o n n e c t i c u t . — Chapter 138, Public Acts o f 1913, as amended by chapter
288, Public Acts o f 1915, effective May 20, 1915, part B, section 7 : M edical and
surgical aid and hospital services as the injury requires, without lim it as to
time and amount. Section 9 provides in fatal cases for burial fee, $100. There
is also the usual provision that the commissioner having ju risdiction may
pass upon the reasonableness o f medical and surgical bills.
7. H a w a i i .— Effective July 1, 1915. A ct 221, session o f 1915, section 12:
Medical and surgical services during first 14 days not exceeding $50 in
amount. Standard-of-living clause. B urial fee not to exceed $100.
8. I l l i n o i s .— Effective July 1, 1915. House bill 841, session o f 1913, as
amended by senate bill 66, session o f 1915, section 8 A : Necessary medical,
surgical, and hospital services for a period not longer than eight weeks and
not to exceed in amount the sum o f $200.
9. I n d i a n a .— Effective September 1, 1915. Chapter 106, Law s o f 1915, sec­
tion 25: M edical services during 30 days. Section 26: Containing standard-ofliving clause. There is also a provision fo r not to exceed $100 burial fee in fatal
10. I o w a .— Title 12, Ch. 8A, Iow a Code, 1913 supplement, section 2477-m9 (b ) ;
Services during the first 14 days o f incapacity, not exceeding $100 in amount.
Also in fatal cases expense o f last sickness and burial not to exceed $100.



11. K a n s a s . — Chapter 218, Laws o f 1911, as amended by chapter 216, Law s o f
1913, section 11 (a ) : No provision for medical services except, in fatal cases
w here the deceased leaves no dependents, reasonable expense o f m edical attend­
ance and burial not exceeding $100.
12. K e n t u c k y .— Effective August 1, 1916. Senate bill 40, Law s o f 1916, sec­
tions 4 -6 : Reasonable medical, surgical, and hospital treatment for not to
exceed 90 days in time or $100 in amount, w ith special provision in case o f
hernia operations. Standard-of-living clause.
13. L o u i s i a n a .— Effective as amended August 11, 1916. A ct 20, Session Acts
o f 1914, as amended by act 243, Session Acts o f 1916, section 8 (4 ) : Reasonable
medical, surgical, and hospital services, unlimited as to time, not to exceed $150
in value and in fatal cases reasonable expense o f last sickness and burial, not
to exceed $100.
14. M a i n e .— E ffective January 1, 1916. Chapter 295, Law s o f 1915, section
1 0 : Reasonable m edical and hospital services during the first tw o weeks, not
to exceed $30 except in cases o f m ajor surgical operations, w ith special pro­
vision in fatal cases where there are no dependents for expenses o f last sick­
ness and burial not exceeding $200.
15. M a r y l a n d .— E ffective 1916 w ith amendments. A rticle 101, Annotated
Code o f Maryland, volume 3, B agby’s edition, section 37: Such m edical and
surgical services, etc., as required by the commission— unlimited as to time—■
not to exceed $150 in amount. Further provision fo r funeral expenses in fatal
cases where deceased left no dependents unless he left sufficient estate to bury
16. M a s s a c h u s e t t s .— Chapter 751, Acts o f 1911, as amended by chapters 172
and 571, Acts o f 1912; chapters 445, 448, 568, 969, and 746, Acts o f 1913; chapters
338 and 708, Acts o f 1914; and chapters 123, 275, and 314, Acts o f 1915, part 2,
section 5 : Reasonable medical and hospital services during first tw o weeks
after injury or incapacity, w ith further provision that in fatal cases w here
there are no dependents reasonable expenses o f last sickness and burial, not to
exceed $200, shall be paid.
17. M i c h i g a n .— Effective as revised August, 1915. A ct 10, Public Acts o f
1912; first extra session as amended by acts 50, 79, 156, and 259, Public A cts
o f 1913, and by house bills 298, 342, 345, and senate bill 268, Public Acts o f
1915, part 2, section 4 : Reasonable medical and hospital services during first
three weeks after injury. I f no dependents, reasonable expense o f last sickness
and burial, not to exceed $200.
18. M i n n e s o t a .— Effective as amended April 20 and July 1, 1915. Chapter
467, Law s o f 1913, as amended by chapters 193 and 209, Law s o f 1915, section
8 : M edical and surgical treatment, etc., for not to exceed 90 days in time or
$100 in value, with special provision that board may order such services for not
to exceed 100 days in time or $200 in value. Standard-of-living clause. In
fatal cases burial fee and expenses o f last sickness, not to exceed $100.
19. M o n t a n a .— Effective July 1, 1915. Senate bill 157, section 14: V arious
provisions for mutual contracts as to hospital benefits, etc., subject to supervision
o f the board. General provision, section 16 ( f ) , medical and hospital services
during first tw o weeks not to exceed $50 in value, and in fatal cases burial fee
riot to exceed $75.
20. N e b r a s k a .— Effective, by referendum vote, December 1, 1914. Chapter
198, Acts o f 1913, section 20: Medical and hospital services during 21 days after
injury, not to exceed $200 in value. In fatal cases, reasonable expenses o f last
sickness and burial not to exceed $100.



21. N e v a d a .— Chapter 111, Law s o f 1913, as amended by chapter 190, Laws
o f 1915, section 21 (c ) : Reasonable medical, surgical, and hospital aid as may
be required not to exceed fou r months, w ith provision fo r medical and hospital
agreements and assessments. In all fatal cases burial expense not to ex­
ceed $125.
22. N e w H a m p s h i r e .— Effective January 1, 1912. Chapter 163, aLws o f
1911, section 6, subdivision 1 (c ) : No provision fo r medical and surgical aid
except in fatal cases where deceased leaves no dependents, in w hich event
expenses o f m edical attendance and burial not to exceed $100.
23. N e w J e r s e y . — Chapter 95, Law s o f 1911, as amended by chapter 174, Law s
o f 1913; and chapter 244, Law s o f 1914, section 14: Medical and. hospital serv­
ices during the first tw o weeks after injury not to exceed $50 in value. E x­
pense o f last sickness and burial in fatal cases not to exceed $100.
24. N e w Y o r k .— Chapter 816, Law s o f 1913, as reenacted by chapter 41, Law s
o f 1914, and amended by chapter 316, Law s o f 1914; and further amended by
chapters 167, 168, 615, and 674, Law s o f 1915, section 13: M edical and surgical
services and attendance during 60 days after injury, w ith standard-of-living
clause. In fatal cases reasonable funeral expense not to exceed $100.
25. O h i o .— Senate bill 137, Acts o f 1913, as amended by senate bill 296, Acts
o f 1913, and amended by senate bill 28, Acts o f 1914, sections 1465-1489,
Ohio C o d e : M edical and hospital services in discretion o f commission, unlimited
as to time, and not to exceed $200 in amount. In fatal cases reasonable funeral
expenses not to exceed $150.
26. O k l a h o m a .— Effective September 1, 1915. House bill No. 106, Law s o f
1915, article 2, section 4 : Necessary medical, surgical, and hospital services
during 15 days after injury. Standard-of-living clause. This statute does not
apply to death cases.
27. O r e g o n .— Chapter 112, Law s o f 1913, as amended by chapter 271, Law s o f
1915, section 23: M edical and surgical attendance w ith hospital accom m odations
and transportation, if necessary, in the discretion o f the commission, unlimited
as to time, lim ited to $250 in amount. In fatal cases burial expense not to
exceed $100.
28. P e n n s y l v a n i a .— E ffective January 1, 1916. A ct 338, Law s o f 1915, sec­
tion 306 (e ) : Reasonable surgical, medical, and hospital expenses lim ited to 14
days and $25, unless m ajor surgical operation is required, in w hich event cost
not to exceed $75. In fatal cases reasonable expenses o f last sickness and
burial not to exceed $100.
29. R h o d e I s l a n d .— E ffective as amended July 1, 1915. Chapter 831, Law^s
o f 1912, amended by chapters 936 and 937, Law s o f 1913, and chapter 1268,
Law s o f 1915, article 2, section 5 : Reasonable medical and hospital services
during first tw o weeks after in ju r y ; in case o f death w ithout dependents ex­
pense o f last sickness and burial not to exceed $200.
30. T e x a s .— Effective September 1, 1913. Chapter 179, Law s o f 1913, part 1,
section 7 : Reasonable medical aid and hospital services, etc., during first week
o f injury. In fatal cases where deceased leaves no dependents or creditors
expense o f last sickness and funeral expenses not to exceed $100.
31. V e r m o n t .— Effective July 1, 1915. Chapter 164, Law s o f 1915, section 14:
Reasonable surgical, medical, and hospital services during the first 14 days,
not exceeding $75. Standard-of-living clause. In fatal cases burial expense
not to exceed $75.
32. W a s h i n g t o n .— Chapter 74, Law s o f 1911, as amended! by chapter 148,
Law s o f 1913, and chapter 188, Laws o f 1915: No provision for m edical and
surgical aid. B urial expenses not to exceed $75.


w o rk m en 's


33. W e s t V i r g i n i a . — Chapter 10, Laws o f 1913, as amended by chapter 9,
regular session o f 1915, and chapter 1, extra session o f 1915, sections 27 and
54: Reasonable medical, surgical, and hospital treatment in discretion o f
commission. Unlimited as to time, lim ited in amount to $150, with provision
fo r funeral expenses in fatal cases not to exceed $75. Special provision that
i f operation and further treatment are necessary, not to exceed $300 may be
34. W i s c o n s i n . — Chapter 50, Law s o f 1911, reenacted as chapter 599, Law s
o f 1913, section 2394-9 ( 1) , W isconsin Statutes, as amended by chapters 369 and
378, Laws o f 1915: Reasonable medical, surgical, and hospital treatment, etc.,
not to exceed 90 days. In fatal cases where no dependents reasonable burial
fees not to exceed $100.
35. W y o m i n g .— E ffective A pril 1, 1915. Chapter 124, Law s o f 1915: This
statute contains no direct provision as to who must pay for m edical treatment,
but provides in section 20 for forfeitu re by injured employees who refuse, to
submit to reasonable medical treatment and in fatal cases for burial fee not
to exceed $50


There is a principle in socio-economics known as the economy of
human energy. In its broadest sense this term applies to the science
of coordinating all the forces of production and distribution in such
manner that all forms of waste will be reduced to the very lowest
terms possible, and the potential forces, human and material, will
be developed to the greatest efficiency. The result to be accom­
plished is the raising of the sum total of human happiness morally,
physically, and economically to as high a degree as possible and in
such manner as to make the distribution conform to the best rules of
altruistic justice. The principles in this theory touch upon all forms
of human activity, but will be generally applied to the entire social
organism only through a long process of education or to a consid­
erable degree perhaps through the effect of some great awakening,
such as the problems which have been brought to light by the present
terrible but educative European war. Already signs are apparent
that there has been a quickening of the public conscience to the many
chances for improvement in our economic structure, and this in itself
is an extremely important step in the right direction.
The subject of industrial injuries is small compared with the entire
solution of all national and international problems, but is, however,
of vast consequence as one of the interdependent problems of the
principle of economizing human energy. Industrial injuries, prop­
erly viewed, form part of the cost of production and distribution
and are a burden upon the employee, the employer, and all persons
combined. A compensation act narrowly viewed has to do with the
payment of money to these employees and with the payment for
certain medical expenses which must be taken care of in some man­
ner. This in itself is a big improvement over the old system, but
why stop there when there is presented the opportunity for accom­
plishing results permanent in value?
In dealing with a workmen’s compensation act or acts we are
dealing with compensation to the injured employee, in which an
attempt has been made to eliminate the source of waste which came
70085°— Bull. 212— 17=------ 20




w o r k m e n 's

c o m p e n s a t io n


from lawyers and litigation, and the question arises whether this
should not apply equally to the medical profession. Considering the
subject from the standpoint that compensation means adequate medi­
cal treatment and rehabilitation, with money payments as a stop-gap
while the treatment and rehabilitation are going on, the medical
aspects of compensation have not yet been fully developed either to
their greatest extent or to their maximum efficiency.
While our experiences with this form of conservation have been
limited in time, through the intensive study which has come from
the opportunity to consider large numbers of cases more or less
under one central supervision, certain essential facts have clearly
demonstrated themselves. I f the amount of money that industry
is called upon to pay were to be handled and distributed in the old
way, where the employer insured himself against lawsuit and where
the injured employee settled his case on the most favorable terms
that he could make, with very little reference to the accident or dura­
tion of his disability, industry might well look askance at further
developments in the compensation field.
The curtailment of immigration, due to the war in Europe, and the
increased demand for workmen, brought about by our unexampled
industrial activity, have led to a readjustment of industrial vision,
so that the value of the man to the community and to the industry
appears in a different light from that heretofore.
What I have to say is not based upon any philanthropic or social­
istic theory, but is a matter of common sense applied to the medical
problem. In view of Mr. Williams’s paper, I will start by saying that
any compensation scheme which does not make medical provision for
the preservation and care of the workmen from the medical stand­
point is a joke.
Adequate medical service must be a leading feature of workmen’s
compensation, if not the most important feature of compensation
for the living workman. In return for the waiting period, gen­
erally provided in compensation laws where no monetary considera­
tion is paid, provision is made for medical and hospital services and
medicines when required.
That the injured workman has accepted any waiting period would
seem to imply that he is willing to forego some of his rights if the
seriousness of his accident can be minimized and his period of
disability shortened.
Since most cases in Massachusetts, as in other States, do not last
long enough to be paid compensation in the form of money, we
should scrutinize carefully any substitute for the best medical serv­
ices that it is possible to offer. Further than this, with the admin­
istration of various la^s, a better correlated system of treatment
than the ones in vogue hitherto may be developed.



A completely efficient hospital for the proper care* treatment,
reeducation, and readjustment by personal study of an injured em­
ployee has yet to be constructed and maintained. The charitable
idea underlying the establishment of hospitals still prevails, and
the appeal to the heart is much stronger in the case of the crippled
child than it is in the case of the crippled adult, even though he has
depending upon him a number of children who may become crippled
by reason of lack of nutrition or the invasion of disease if the bread­
winner of the family is partially or totally disabled for work for
a considerable period.
An appointment on the medical or surgical staff in a general
hospital is a big asset to the man appointed. The medical profession
itself is not at all deceived by wThat is given and what is received by
men on hospital staffs, and the reason hospital progress has been so
slow is because hospitals as a rule are run by laymen who have
neither the knowledge, experience, nor the desire to exact that “ strict
accountability” from the staff members treating the ordinary run
o f cases that they would exact if the patient treated was one of their
own family. Many a hospital trustee, eminent in altruistic effort
and burning with zeal for uplift, is too proud to fight for an injured
There is a general feeling in the medical profession that general
hospitals should not care for a person able to pay for private service,
and they feel that an insured person comes within that category.
The public, up to a comparatively recent time, were afraid of hos­
pitals, and were encouraged to remain away from them until com­
pelled by necessity to go. The modern hospital with its elaborate
and complicated methods of diagnosis and treatment has become
a competitor for public favor. It is still in a state of evolution.
The advanced type of hospital has operating physicians and
surgeons who are paid for full-time work which they perform in
connection with the medical teaching at some institution. There
is the type of hospital in which the experience and prestige serves
in lieu of other direct rewards and in which no man unless of
the staff is permitted to treat patients. There is another type
where there is a regular staff, but to which outside doctors not on
the staff are permitted to send patients and perform their own oper­
ations. Then there is the private hospital under private control.
I am inclined to believe with Dr. E. A. Codman, Boston* whose
studies of hospital efficiency are second to none, u that the time has
come when hospitals should advertise the ability of their staffs by
printing truthful reports which they have obtained of cases, and
this should also be true of medical as well as surgical work and not
by the presentation of only favorable results. Compare the reported
results of bone plating with what we see as results.”


W O B KM S^^S'C fO M ^Elsr^ATiO ^.

Constant supervision and treatment may partake too strongly of
paternalism, but it is the paramount duty of the industrial accident
boards to insist upon methods of persistent precision. It is impor­
tant to remember that the weak points in our whole scheme of
medical care have as much influence upon final results as the most
elaborate details of special treatment for a short time even under
the most favorable conditions.
If it were possible, every injured workman should be kept under
medical supervision from the time he is injured until able to resume
his work. Such supervision should not and need not be of such type
as to be unduly expensive, and if properly carried out would save
much time to the worker as well as to the employer of labor. It
would have the additional advantage that the injured man would
be in contact with encouragement and sympathetic treatment; when
left to his own devices he might not make his best effort, or he might
not make his best effort at the opportune time. Early return to work
is greatly helped by the assurance given by the doctor that it is safe.
That does not mean within 2 weeks or 30 days, but it means at the
time he is able to make an effort.
The loosening up and increasing flexibility of injured members
could be aided by proper treatment. Even after return to work a man
should be provided the opportunity to drop in and see a doctor if the
work seems too hard or increases his pain. The man will stick it
out better if the doctor in whom he has confidence advises him of
the significance of pain, or perhaps the doctor might indicate means
of relieving his discomfort while the man still remains at work.
Intelligent handling of injuries requires a great deal of skill and ex­
perience not only in regard to the specific trouble under observation
but in the treatment of the man as a physical whole and the man as a
unit in the scheme of employment.
Care and judgment are not so much needed in regard to the first
treatment, which can be and is more or less standardized, as in the
later handling of the case. It is evident, for instance, that with a
fracture of the lower leg, for a certain period of time hospital care
is required. Hospital care is good, but the minute the man is able
to get from his bed to crutches, more careful supervision is required
than when he is under the direct care which comes from hospital
discipline. The orthopedist must complement the surgeon.
Treatment should not be attempted in a routine manner, because
it is impossible to estimate accurately by ordinary clinical examina­
tion the necessary treatment. For instance, an acutely irritated back
should not be irritated further by additional massage and exercise,
but rest is needed first, followed later, after acute symptoms have
begun to abate, by other forms of treatment, to reinforce weakened
muscles or to change weight-bearing balance. Backs can be baked



too long and frequently so as to become harmfully hypersensitive to
heat. They may be massaged too often and vigorously, or they may
be protected too continuously and to such a degree that weakness from
disuse increases.
In many cases it is necessary for patients to receive both local
and general treatment. While substantially all require some local
form of treatment or protection to the injured part, cure is often
retarded by the lack of proper hygienic regulations or surroundings.
While every form of joint or back injury requires some local form
of protection, massage, or baking, they are all entitled to have their
recovery hastened by simple hygienic regulations which are known
to be beneficial.
Unless some amount of compensation is paid before the twentyfirst or even the seventeenth day, as it will be in Massachusetts after
January 1, 1917, I am convinced that clinics for industrial accidents
would procure better results if in addition to the medical and sur­
gical treatment offered to the man he were to be fed at the same
time and place that he received his treatment. I f this were done,
we might feel sure that he would have at least one meal a day. At
present I often have doubts that he has even that one. A 10-cent
plate of soup applied to the lining membrane of the stomach will
take a man fartlier on the road to recovery than 50 cents’ worth of
a patented preparation applied to his knee.
Many cities of Massachusetts at the last election passed by refer­
endum vote upon the proposition of vocational schools. One such
school to be established in Lynn, one of the largest shoemaking cities
in the world, will train both boys and girls to enter the shoe indus­
try, giving a four-year course for the boys and a two-year course
for the girls.
I f this development of vocational schools becomes widespread, as
it should, or if the present school courses are supplemented by voca­
tional night schools, these vocational schools might be used for
the reeducation of men injured in the particular industry. Trained
instructors serving outside their ordinary working hours for the
training and reeducation of injured employees, in conjunction with
continuing medical treatment, will bring results.
In States which have a large urban population, with the natural
congestion that must necessarily arise in cities, the development of
industrial farms would afford adequate outdoor exercise for injured
employees during rehabilitation. It would provide a certain amount
of regular regime, with regular food and sleep, and it would take
the injured or crippled employee away from that destroyer of morals
and stamina—the city saloon. The person who called the saloon
the poor man’s club neglected to state which end of the club was
passed to the workman.



The commission appointed in Massachusetts to investigate the sub­
ject of workmen’s compensation and report a bill was headed by
Hon. James A. Lowell. Mr. Joseph A. Parks was a member of the
subcommittee of two of the commission which drafted the present
law. The latter’s services were utilized by the Commonwealth by
his appointment to membership on the accident board. The com­
mission indicated the lines along which the new law when enacted
must develop, as follows:
The controversies under the act w ill relate largely to the extent and duration
o f the injury. The successful adm inistration o f the act requires the assistance
o f skillful physicians and surgeons o f the highest integrity. This phase o f the
situation has occasioned difficulty in other countries. The details o f this
subject must be determined by the industrial accident board as they arise in
actual practice. The emphasis w ill be laid n ot as heretofore on the law yer, but
on the doctori [Italics are mine.]

The medical profession of this country had very little to say about
the passage of workmen’s compensation laws, and the rights of the
medical profession were neither carefully considered nor conserved
in most of this legislation.
It is to the credit of the medical profession that they were not
early upon the legislative scene asking for their pound of flesh before
carrying out the broad humanitarian principles underlying work­
men’s compensation.
Hospital fees.—We have met the situation of hospital fees in
Massachusetts by the establishment of a few simple fundamentals
brought about by a committee representing two great medical socie­
ties in the State working in conjunction with three medical men ap­
pointed by the industrial accident board. The basis for medical
fees is as follows:
“ That fees paid by the companies should not be less than the aver­
age minimum fee in the locality in which the service is rendered.”
This refers to fees paid to doctors, not to contracts between doctors
and the insurance companies. This took into account that many
medical and surgical fee tables established by local medical societies
had perhaps been based upon the average income of the so-called bet­
ter classes and were not generally applicable to workingmen, who
form such a large part of the free hospital and dispensary service
or who turn to fraternal organizations or hospital associations.
“ That charges up to $50 for major operations are not excessive.”
This did not fix a maximum but made possible other payments
based upon circumstances.
“ That services rendered by lodge physicians be paid for, provided
it is not inconsistent with the rules of the order.”
The status of the lodge physician is a very difficult one upon which
to pass, but, as the choice of lodge physicians to which a member is



cbliged to go is somewhat similar to the insurance company provid­
ing a man to whom the employee might be obliged to go, the com­
mittee left the matter open.
“ That specialists, established and recognized by the profession as
such, may receive special rates for their work, provided the case
requires special skill.”
In a discussion of what is reasonable hospital care it is extremely
difficult to lay down a hard and fast rule which will operate in all
territories with the utmost effectiveness. In the administration of the
law in Massachusetts an effort has been made to utilize existing medi­
cal institutions as they stand without insisting upon costly duplica­
tion at the expense of the insuring companies.
The hospitals are allowed to charge the insuring companies for
the care of an injured patient the same rate that they would charge
to an employee of a man not insured. Perhaps that works a hard­
ship in many instances. Perhaps better service might be obtained by
paying more money, but ultimately the payments to hospitals must be
based upon what they give in return.
In a general way the payment for hospital services is based upon
the rule that for the first two weeks’ services $15 per week will be
allowed, provided that $15 is not a higher rate than is charged to the
uninsured employee of the public at large, and for subsequent weeks
in unusual cases it is felt that some concession should be made by the
hospitals, and many of them make concessions from this rate, even
if the rate does not fully cover the actual cost.
Reasonable extras are allowed—a fee for the taking of X-ray
plates; ambulance fee; fee for plaster of Paris casts; fees for special
nurses, not exceeding $4 per day; and fees for private rooms, not
exceeding $25 per week, when the condition of the patient or the
character of the injury is such that he needs isolation.
The question of adequate fees for services rendered under the vary­
ing conditions which obtain in a State like Massachusetts and the
question whether the man is better served by doctors of the employer’s
choice or of his own, are still open ones. The theory that if the em­
ployer represented by the insuring company were given the choice of
physicians the most skillful man would be employed has not been
fully borne out by experience. On the other hand, it is for the medi­
cal profession to demonstrate that the free and untrammeled choice of
physicians has not elements of weakness which will impair the full
usefulness of the compensation act.
Perhaps the Boston Medical and Surgical Journal in an editorial
in its issue of September 21, 1916, indicates the line along which we
might proceed:
It should be remembered in considering new legislation that unrestricted
choice o f physicians by employees w ill probably result in the establishment o f a



State-wide fee table. Such fee tables are in effect in other States and, o f
course, are much below the standard o f fees now being paid under the “ average
minimum ” approval standard o f the present workm en’s compensation act. It
may be also that absolute free choice w ill tend to eliminate com petition between
the present 27 insurance companies and bring about the concentration o f all
the compensation business under one insurance company, with whom all would
be required to transact business under direct State supervision. There is a
possibility that the problem may be solved by the com bination o f “ free choice ”
under a supervising consultant, agreeable to and appointed by the insurance

Dr. Emmet Bixford, of San Francisco, at the last meeting of the
American Medical Association (Journal American Medical Associa­
tion, Sept. 30, 1916) indicates another difficulty:
The friendly societies or fraternal organizations or lodges w hich have
increased so prolifically during the last 50 years are organized largely to afford
m edical and surgical services at such cost as to be within the reach o f the
laboring classes, the monthly due providing the means for the employment o f
community physicians. Many such, however, extend their membership to
include people in much more com fortable circumstances, w ho join for the
purpose o f securing cheap m edical and surgical service.
The m edical profession, therefore, finds itself opposed to what it considers
exploitation o f the profession. W hile from the standpoint o f cheapness this
scheme w orks well enough for the members o f the societies, it often— in fact,
generally— fails to secure to the patient competent medical service. Investiga­
tion has shown that in these societies the payment to the doctor is fa r less than
$1 a visit on the average, and in some cases as low as 25 cents. The members
paying m onthly dues and not so much per visit run to this doctor on the most
trivial excuse, thereby unduly multiplying the number o f visits. Some o f these
lodge doctors see 40 patients a day, receiving therefor from $100 to $150 a
month. It is no wonder, then, that the m edical w ork done is, as a rule, o f
the most perfunctory sort.
Under w orkm en’s compensation and com pulsory industrial accident insurance
practically the whole o f traum atic surgery is taken from the lodges; and if
insurance against illness o f workm en becomes a fact in this country, as it has
in England and Germany, the raison d ’etre o f most o f these associations w ill
have disappeared. England and Germany, however, instead o f destroying these
societies, have utilized those o f them which are financially sound, and have in
fa c t commissioned them to take care o f accident and illness o f members but
under strict governmental supervision. .

I f we have unlimited free choice, how can we get patients into hos­
pitals from institutions?
Germany before the war started a propaganda which is being
carried out under war conditions which is proving that workmen
with one leg and with no legs, with one arm and no arms, with one
eye and no vision at all, with shortened limbs due to serious injuries
other than amputations, can be furnished with employment suitable
to their condition in life. The saving to industry of skilled workmen,
men who have followed industrial pursuits all of their lives, can not
be estimated.



Perhaps I have gone far afield from the subject assigned me, but as
I feel that early, adequate, and continuing medical care is necessary to
preserve our trained men, I make no apology.
Cure is better than controversy.
Fee tables are simply makeshifts. The great principle underlying
all of compensation is adequate treatment from start to finish, and
the measure of medical services should not be the measure of the
medical costs but the measure of medical results.
I am not yet convinced that State medicine is to be the cure of our
medical evils. A medical trust, no matter how euphemistically dis­
guised, is still a medical monopoly. To-day’s medicine is still in the
control of a profession which has ideals and traditions of profes­
sional conduct and morals, men who up to date have not measured
their services by what they have taken from the community but by
what they were able to give.
The C h a i r m a n . In view of the close connection between the sub­
ject of the papers just read and those immediately following, the dis­
cussion will be deferred until after the presentation of the latter.
The second subject on the program for the afternoon, “ Physical
examination and medical supervision of employees,” will be first pre­
sented by Mr. William Green, secretary-treasurer of the United Mine
Workers of America, in the absence of Mr. J. P. White, president of
that organization.

[Read by William Green, secretary-treasurer, United Mine Workers of America.]

Compulsory physical examination, whether of employees in indus­
try or of any other class of citizens, involves an interference with
the personal life of the individual so serious that it should be under­
taken only on the assurance that the public wTelfare demands it and
that the results are worth the sacrifice of that personal sanctity
which our institutions have thrown about the individual.
This, in my judgment, is another way of saying that the State,
not the employer, should undertake such examination, assuming
always that public policy demands compulsory examination at all.
I am not prepared to admit even this. Our well-to-do class manages
to maintain a fairly high standard of health, and it has become a
universal custom among well-to-do people to consult the doctor and
the dentist on frequent occasions.
Compulsory physical examination is being urged only for wage
earners. The reason is not far to seek. For the disinterested phy­
sician or scientist it is a short cut to remedying a condition which
is due to the fact that wages are too low to permit wage earners,
as a class, to spare the means for doing what otherwise they would
do voluntarily and without prompting from any authority; that is,
to consult the physician as frequently as necessary.
I f we are to assume that insufficient wages, and the ignorance*
and helplessness atteiidant on low wages, are to remain with us
always, then we can proceed with a program of paternalism and
justify it. The fear of organized labor, and lovers of human free­
dom generally, is that low wages will become so buttressed by reme­
dial measures of this sort that the public conscience will be dulled
into an acceptance of low wages as a permanent institution.
Of course, in some occupations, such as that of locomotive engi­
neer, certain physical tests are so necessary, on the ground of public
safety, that no objection can be raised. But, with industry organ­
ized for private profit, the weeding out of men not physically per­
fect, by physical examinations, means only that those who pass the
test will be subjected to greater strain than previously. The late
Prof. Hoxie, of Chicago University, after conducting a thorough



investigation of scientific management, expressed, the opinion that
the greatest danger now threatening the American wage earner is
the speeding up of industry and the consequent physical strain im­
posed upon the worker.
I f Prof* Hoxie and other economists and students of industrial
problems are correct, as I believe they are, then we must regard the
entrance of a number of physically unfit men into industry as a
blessing, if it serves to check the tendency toward more speed and
greater strain.
As many modern industries are organized to-day, the rejection of
unfit men means not the protection of those who are accepted but
license to increase the strain upon them, so that eventually they,
too, or their descendants, will be added to the class of the unfit. In
this respect the fate of the physically fit is like that of the flower of
European manhood, maimed and slaughtered on the battle field.
“ They will scrap the whole human race if they keep on,” said
Andrew Furuseth, in referring to the increase in efficiency devices,
so called. We are in great danger of losing entirely the human
equation in industry, and with it the freedom of the individual.
This is not only inhuman and intolerable, from a humane standpoint,
but it is not efficient. Human nature is too complex to measure men
with a yardstick. Some of the greatest inventors and mechanics,
not to mention statesmen and even soldiers, have be£H men who
could never have passed the rigid physical tests imposed by some of
our modern industrial corporations whose managers have gone mad
over “ efficiency.” Many a young man who might later invent a
device which would revolutionize that particular industry, w^ould be
rejected and discouraged, probably turned aside from what should
have been his life work.
I f physical examination of all persons is demanded on the broad
grounds of social welfare, then let it be administered by the State.
Better still, let our scientists and wise men cease regarding the
great mass of workers as densely ignorant and hopeless wards over
whom they must watch and care. Let them instead join with organ­
ized labor in demanding a fair wage, and then, take my word for it,
the very men for whom they are now so solicitous will be found
taking the best of care of themselves.
It is certainly putting the cart before the horse to demand the
■weeding out of all save the physically perfect, while at the same time
we permit low wages and poverty to continue to make physical fitness
difficult or impossible to achieve.
I should like the advocates of compulsory physical examinations
to read what was written by Mr. Gilbert Chesterton, the English
writer, when it was proposed by the health authorities of London to
require the hair of all poor children to be cut short in order to rid



them of vermin. In a classic passage Mr. Chesterton points out that
the true remedy would be to give the little child a leisured mother,
and, therefore, to give the father a living wage and freedom from
the extortions of the landlord.
“ Rather than that one hair on the head of a street urchin be
touched,” concludes Mr. Chesterton, u we shall have a revolution.”
It is always easy to experiment with the poor and humble and
defenseless, rather than to attack the source of the problem, when
that source lies in strongly intrenched privileges enjoyed by the few
at the expense of the many.
W m . G r e e n , secretary-treasurer United Mine Workers of America.
The paper that I have just read reflects the views and sentiments of
Mr. White, president of the United Mine Workers of America, re­
garding compulsory physical examination, etc. I have been advised
by the chairman that I have just a moment to speak a word myself.
I am glad to take* advantage of this occasion just to say one or two
words in connection with this very important subject.
In considering physical examination and medical supervision of
employees it is all important that the primary purpose of said physi­
cal examination and medical supervision should be understood. I f
the primary purpose of physical examination is to promote the gen­
eral welfare, to ascertain for wThat position the examined employee
is best fitted, if it is for the purpose of building up the broken body
or the diseased individual, then it certainly must be commended,
because that is a praiseworthy purpose. I f medical supervision is
for the purpose of maintaining the physical standard of the em­
ployee at the highest possible point; if it is for the purpose of keep­
ing him well and strong, of guarding and watching his health, then
that is praiseworthy, and I know that the laboring people generally
will have no objection to such physical examination and such medi­
cal supervision. But if the primary purpose of physical examina­
tion is to exclude the physically unfit, then the wage earners are un­
alterably opposed to such physical examination. It would be in­
human and uncivilized to adopt a policy of ascertaining who the
physically unfit were for the mere purpose of closing the door of
opportunity to them. Even the savage would not do that, and
surely in this twentieth-century, highly developed civilization we are
not attempting to foster a policy that is going to throw upon the
scrap heap as helpless the physically unfit. They must be taken care
of in some manner.
I merely wanted to add this to what Mr. White ha£ said. Labor
has no objection to physical examination or to medical supervision
when the purpose of it all is praiseworthy, as I have stated, but they
will oppose a policy that has for its purpose the exclusion of him
who may be diseased or physically deformed.


H i s t o r y o f D e v e l o p m e n t .— The physical examination of factory
employees is a comparatively new undertaking. Previous to five
years ago, except in Chicago, there was, so far as I know, no physical
examination of employees by any factory in the United States.
About 1910 an antituberculosis society of Chicago, under the efficient
management of Dr. Sachs, succeeded in interesting a group of em­
ployers in the physical examination of their employees for tuber­
culosis. Following this work other factories began considering the
advisability of establishing examinations, with the point of view of
increasing the efficiency of their force and assisting in the tuberculo­
sis movement, which at that time was sweeping the country. In 1911
the Norton Co. at Worcester, Mass., started examining its employees,
examination being complete and not confined only to the chest.
About this time Dr. Harry Mock, of Chicago, was doing practically
the same work at Sears, Roebuck Co., and I am inclined to think that
he anticipated the Norton Co. by one or two years and is entitled
to the position of the first to establish complete examinations. In
1913 a number of firms had taken to the idea and during the last
three years the movement has spread through many of the large fac­
tories in the country.
Mr. Magnus W. Alexander, of the General Electric Co., West Lynn,
in a personal letter states that after sending a questionnaire to 300
large firms in the United States, he received definite information that
35 firms were making physical examinations, as well as attending to
the injuries of their employees. It is therefore evident that although
the movement is spreading it is still very much in the air and has not
reached large proportions through the United States.
A d v a n t a g e t o t h e E m p l o y e r .— A complete examination of every
employee, while expensive, is undoubtedly of great advantage to the



w o r k m e n 's

c o m p e n s a t io n .

employer. First, because it enables him to put a man at the work
to which he is best physically fitted. Second, because it enables the
doctor who makes the examination to instruct and advise the em­
ployee of any defects which he may have and of which he is not
aware, and, by enlisting his cooperation, to enable the man to over­
come these defects where possible, and thus to. increase his physical
efficiency. Third, it prevents the introduction into the factory of
men who are undesirable because of severe defects. Fourth, it pre­
vents contagious diseases entering the factory and becoming estab­
lished there.
A d v a n t a g e t o t h e E m p l o y e e .— First, while passing through his
complete examination he is informed of any defects which he* may
have, and is assisted in obtaining relief. Second, he is not put at
work for which he is not physically fitted. Third, he knows that
every other man in the shop has had a similar examination and
readily appreciates the fact that he will be thrown in contact with
men from whom he can not contract contagious diseases. Fourth,
he feels that the factory is taking a personal interest in his condition
and that he can go to the doctor for further advice if he considers it
necessary. This is of very real importance to the average shop em­
ployee, who frequently moves from place to place and who has no
family physician. Such a man feels pretty sure that the factory is
not employing a man who is not perfectly competent to handle any
condition in which he may be.

Objections have been made, by labor organizations, to the theory of
physical examinations £n the grounds that, first, it infringes upon
the liberty of the individual; second, that it gives the employer an
opportunity to reject a man, on account of physical defects, whom
he would otherwise employ; third, that it might enable groups of
employers by an exchange of information to practically blacklist a
man who had a serious physical defect; fourth, that a factory, by
having a complete record of the man’s physical condition, would have
information which would be of a professional nature and therefore
would not belong in a business institution. These objections can be
met by the following arguments:
First. That no man is forced to subject himself to a physical
examination, as he can go elsewhere for his work.
Second. That the precedent has been established by the United
States Government by the physical examination of recruits for the
Army, Navy, and civil service, and a similar examination is made at
many colleges.



Third. Examination is used definitely t o ' help the factory find
proper work for the individual, so that it is for his advantage to be
Fourth. That the effort of the manufacturer is not to turn labor
away but to secure it while he makes every effort in his power to
utilize every group of labor which can be utilized.
Fifth. Examinations are made by registered physicians, assisted
by registered nurses, and the records are kept with the same secrecy
which is maintained in a hospital or in a doctor’s private office.
Sixth. That men having serious defects are frequently placed in
other factories where their defects can be assisted or remedied, which
would never occur unless physical examinations were made.
Seventh. A factory is totally unable to care for the physical con­
dition of its employees scientifically unless a basic knowledge of
the employee’s condition at the time of hiring is on file for the
doctor’s reference.

The physical examination of the prospective employee should be
as complete as that made for first-class life insurance. The eyes and
the ears should be tested, the teeth examined carefully, and the
entire body put through the same examination which would be given
a patient at a general hospital. Blood pressure should be taken on all
cases by the auscultatory method and a urinalysis should be made in
all cases over 40 years of age, and whenever the blood pressure indicates possible kidney trouble. I f possible a urinalysis should be made
in all cases in order to determine cases of diabetes. Employees hav­
ing defects of a serious nature should be reexamined after a certain
period of time and should be instructed to report regularly at the
shop hospital.

The employment department of a factory is in very close touch
with the health department. It examines the men mentally, just as
the health department examines men physically. The employment
department, having determined that the man is mentally fitted for a
certain type of work, turns the prospective employee over to the
health department to determine whether he is physically capable of
handling the work. I f the health department approves after exam­
ining the applicant, every possible effort has been made to select the
right man for the right position. This is of obvious value to the
factory, but it is also of great value to the employee, because he is
placed in a position where every advantage is given him to do the


w o r k m e n ' s c o m p e n s a t io n .

best work of which he is capable and from which he has more oppor­
tunity to rise than if in a department or position to which he is
unsuited. So close is the connection between the two departments
at Norton Co. that, with the safety engineering department, a triad is
formed which has a biweekly conference upon matters where the
three departments come in touch. The smooth and intelligent coop*
eration between these three departments produces almost ideal han­
dling of the problems of the employee.

As this method is probably the same used in many other factories,
we will cite it in order to show the way in which the prospective
employee is handled. The applicant finds himself in a waiting,
room, well lighted and heated, and where he has a comfortable chair
to sit in. When his turn comes he is taken to another room where
he is given a seat at the desk of the interviewer. This interviewer
takes his history, talks with the man of his past work, and endeavors
to gauge his ability to fill any of the positions which are open.
Decision having been made as to what position the man is best fitted
for, and his card having been filled out, he is taken and personally
introduced to the doctor who will examine him. The examination
is made with every care not to offend in the slightest degree. The
man is shown to a dressing room where he removes the upper part
of his clothes and then steps into the examining room, where he has
the same privacy that he would have in a doctor’s office. The ex­
amination is made with rapidity but with great thoroughness, and
the results are printed upon the physical examination card of the
applicant. Before the examination is over the applicant has been
completely examined from the top of his head to the soles of his
feet. He is then told to return to his dressing room and dress.
His physical examination card and the card filled out by the inter­
viewer in the employment department are gone over together by the
doctor, and the man is approved or disapproved for the work for
which he is examined. I f disapproved an effort is made to find
another position in which he can be employed. In questionable cases
the matter is taken up to the employment manager, who has the final
decision. Whenever an employee is transferred from one depart­
ment to another, when such transfer involves a change of work,
another examination is made in order to determine whether any
defects have developed as a result of the work he has been doing,
and to make sure that he is fitted for the work to which he is then
assigned. All examinations are entered on special cards, which are
kept constantly on file, files being cleared as fast as men are dis­
charged. There is no elimination of the man—it is simply an effort



to see that a man is properly placed when he is transferred from one
department to another.

The attitude of the employee toward examinations is distinctly
favorable. In discussing this matter with a number of physicians
in industrial practice, I find that there is little or no objection to the
examination, if the applicant is given to understand clearly its ad­
vantage to himself and its necessity for his intelligent aftersuper­
During the last year we have made over 5,000 examinations of
applicants at Norton Co. with only two refusals. These men stated
they were seeking only temporary work and did not consider it
I believe that with increasing knowledge of its value there will be
little or no objection by applicants, all objections which I have
encountered having been due to suspicion and lack of information.

The expense varies very greatly, depending upon the size of the
factory and the completeness of general supervisory work done.
Roughly speaking, the expense of examinations is about one-third
of the total cost of running a medical or health department.
M. W. Alexander has recently compiled an expense chart which
after an analysis of 41 large factories having medical supervision
shows that the total expense of all medical service, exclusive of com­
pensation for injuries, and all overhead expenses for 223,416 em­
ployees amounts to $1.88 per employee per year. This would make
the cost of physical examinations $0,626 per employee. At Norton
Co. we find that the expense of examining amounts to $1 per year
per position in factory.

So much of the objection to physical examinations is based on the
rejection of physically defective men that I think the matter is
worthy of some discussion. In the first place the number of seriously
defective men who apply for work is extremely small. The ma­
jority of these men are too old for the work for which they apply, or
they have defects which are curable.
In regard to age you will note that I state u too old for the work
for which they apply.” By that is not meant too old to work. There
are often positions with good pay open to these men, but we admit
frankly that to reject a man because of his age and the multiple de­
fects arising from it seems unfair. As long as the man is anxious to
work, employment should be provided in some form of industry.
70085°— Bull. 212— 17------ 21


w o r k m e n 's

c o m p e n s a t io n .

There are several solutions to this problem, such as pensions and
special industries where there is less danger in the work, but these
matters belong more to other sections of this meeting.
In regard to rejections for remediable defects, it is evident that it
is for the good of the man erectly that he should not be permitted
to injure himself working when a simple operation or the fitting of
proper glasses will not only remove all danger but greatly increase
his efficiency.
In these days of free hospitals and clinics, poverty is no excuse for
not attending to these matters when they have been pointed out.
At Norton Co. the restrictive list of defects is rather severe, because
of the heavy nature of the work, but the per cent of rejections even
there is only 3.5 and many of these men are later accepted after their
defects have been repaired.1 In a number of factories all applicants
for work passed by the employment department are accepted regard­
less of their physical condition, the work of the medical department
being simply to note the defects found and endeavor to remedy the

The above, briefly outlined, is the present status of physical exami­
nations among the larger factories. In consideration of the obvious
benefits to both employer and employee it seems that the cost is justi­
fied and that the idea will spread. Dr. Hayhurst has developed a
method by which groups of small factories can employ between them
a physician so that the advantages of the idea are possible to all.
There are some broader possibilities in the universal adoption of
physical examinations than at first appear.
The most difficult cases coming to a general hospital are those
where the individual has ignored his physical condition or treated
himself. Very many pathological conditions, if discovered early,
can be cured outright and many held in check.
The average worker calls in a doctor only when he is seriously
sick. A very large proportion, I should say roughly over 60 per
cent, have no family physician but call in the nearest physician.
The majority of men if they are told of a physical defect and how
it may be relieved or cured follow the doctor’s advice at least for a
time, especially if that advice is consistent with their regular work.
From this it will be seen that physical examinations have a strong
tendency to increase the health of the community, to make workmen
more efficient, and to prevent absolute martyrdom in many cases.
1 It is interesting to note that, of this 3.5 per cent, many would be acceptable in a
less hazardous occupation, and that whereas the health department rejects 3.5 per cent
because of physical defects, the employment department rejects a much larger propor­
tion of the applicants for work for other reasons.



Prevention is the present slogan of medicine. But prevention, to
be of any value, must begin with the individual. Much can be done
by education through the schools; much can be done by popular
articles in papers and magazines, but on final analysis the only way
to really accomplish preventive medicine is by personal contact with
the individual. Thus every man examined, as I have outlined above,
knows either that he is sound or that he has defects, and if the
latter what he should do to remedy them; he knows the type of work
for which he is best physically fitted \ and, finally, he knows what a
thorough examination is.
When we consider the possibility of all the workers in the country
having this knowledge, each one being examined and reexamined as
he passes from department to department and factory to factory, we
see a possibility of preventive medicine affecting the entire country
and one perfectly possible of realization.

Medical supervision begins as soon as an applicant for position
becomes a member of the factory force. As we have pointed out,
it begins during his physical examination and it continues until he
leaves the employ of the company.
Medical supervision consists in—
I. Reexamination of defective workmen at varying intervals.
II. Reexamination of workmen transferred from one department
to another.
III. Examination and advice with simple treatment in all cases
of sickness.
IV. Prevention of contagious disease by its immediate isolation
when discovered and by prophylactic inoculations and other measures.
V. Immediate treatment of all cases of accident occurring in the
YI. Subsequent treatment of all accidents occurring both in and
out of the factory until the patient is able to resume his duties.
VII. Supervision of sanitation.
VIII. Health publicity through monthly leaflets distributed in
the pay envelopes.
Medical supervision can therefore be divided into the care and
supervision of the sick, the care and supervision of the injured, and
preventive measures.
The care of the sick is most important to the employer, employee,
and the community. Very satisfactory results are possible by a
well-organized health department.
The majority of sickness is preventable or can be ameliorated by
prompt recognition, advice, and attention. There are undoubtedly


w o rk m en 's


many acute ailments to which this does not apply, but the majority
fall into this catagory.
By careful reexamination, considered diagnosis, and thorough
detailed advice the patient is given every opportunity for a quick
recovery. Many minor conditions are treated specifically with simple
drugs. These conditions are those for which the employee would
not seek an outside doctor’s advice but which, if not cared for intelli­
gently, materially reduce the working capacity of the individual and
may in time lead to more serious conditions.
The opportunity for more careful clinical study of the beginning
of many pathological conditions is greater in the health department
of a large factory than in any clinic, while the daily presence of the
employee at the works gives the best “ follow-up” facilities possible.
The industrial physician should, however, treat no case needing
careful, constant medical attendance, nor should he attempt to treat
men having sickness severe enough to incapacitate them for work.
For such conditions the patient should be sent at once to his family
physician with all the data on the case the factory has been able
to obtain.
In this way physicians will not only get their patients early in their
sickness, but they will get information from the health department
which may materially aid their diagnosis of the case.
As I have said before, I like to consider the purely medical func­
tion of the factory health department as a diagnostic clearing house.

The medical supervision of the sick should therefore be preventive,
not curative. Its advantage to the employee is that sickness can be
lessened, physical efficiency increased, contagious disease prevented,
and absence due to sickness materially reduced.
Its advantage to the employee is obvious. When we realize that
the proportion of time lost from sickness is from seven to ten times
that lost by accident, the importance of reducing this to a minimum
is evident.

The care and supervision of the injured is so universal in the in­
dustrial world that there is now hardly a factory in the country
which does not make some provision for its injured employees.
This very satisfactory condition of affairs has been brought about
partly by the voluntary assumption of the obligation and partly by
the workman’s compensation act.
This care in many cases is limited to that provided by insurance
companies, but in large factories it forms a part of the supervision
and is considered as belonging to this work. To a surgeon who has



worked in out-patient clinics for years, treating the many cases of
sepsis arising from untreated accidents, which result in loss of time,
loss of limbs, and sometimes of life, the results of the immediate treat­
ment of injuries occurring at a factory are nothing short of marvelous.
Hundreds of consecutive injuries have been treated in factory hos­
pitals without a case of infection, and when infection does occur it
is handled so promptly and efficiently that the condition is stopped
before it has a chance to become established. Moreover, in factory
hospitals, treatment is not confined to the legal limit of two weeks.
The patient is treated until he is able to resume work, and in this
way much time is saved to patient and factory by the constant atten­
tion to the injury and the encouragement the patient receives.
Thus the one great weakness of the workman’s compensation act,
which limits the expense of medical treatment to two weeks, is over­
come. Could anything be more thoughtless than a law which gives
a man with, gay, a broken arm two weeks’ medical attendance free,
and then, at the one time when he needs careful supervision most, to
throw him on his own resources, necessarily reduced because of his
lack of two weeks’ wages.

Preventive medicine presents tremendous possibilities in hygiene
and sanitation, but even greater possibilities in the promptness by
which contagious disease is discovered, reported to the board of
health, and isolated.
It is hardly necessary to point out the advantage to the com­
munity and individual of the early recognition of pulmonary tuber­
culosis, while actual prevention of typhoid fever can be obtained by
the administration of vaccine. In no way can industrial disease be
studied and measures for its prevention established but by medical
supervision of the factory health department.
At Norton Co. and in many factories a continuous campaign of
health publicity is maintained by the publication of leaflets written
in clear, simple language, illustrated when possible, upon subjects of
health preservation and the symptoms of the more common diseases,
coupled with simple advice as to their prevention.

The expense of maintaining such a health department in a fac­
tory varies with the extent and thoroughness of its activity. At
present at Norton Co. it amounts to $3 per position in the factory
per year. A careful digest of this question, with statistics, has
recently been published in the Iron Age by Mr. Alexander.


w o r k m e n ' s c o m p e n s a t io n .


And now let us consider briefly what all this means. It means
first that by a comparatively small expenditure the factory obtains
men physically fitted for their work, men supervised medically, so
that they are kept in the best physical condition, men who will be
absent from work for a minimum time when injured or sick.
It means contented workers who realize that the factory takes a
personal interest in their health and well-being.
It means a reduction of sickness in the community.
It means a minimum of permanent disability and rapid return to
work after accident.
It means a quick prevention of the spread of contagious disease.
It means better and more hygienic working conditions.
It means a reduction and prevention of occupational disease.
It means a constantly increasing knowledge by workers of simple
rules of health and prevention of disease.
I f universally adopted, it would mean a physically and mentally
better country. The sinews of production ever strengthened and
guarded, the factory would cease to be considered a consumer of
human lives, but would be considered rather as an educator and
supervisor of health.
Preparedness is the watchword of the day. Can we better pre­
pare for our industrial future than by urging the medical supervision
of factory employees?


The proposition of health insurance for wage earners under State
supervision is of comparatively recent origin in this country. A
number of methods of providing insurance against illness, such as
establishment funds, mutual benefit funds, commercial health insur­
ance, fraternal insurance, and trade-union benefit funds have been
tried in this country. Up to this time no compulsory health insur­
ance act has been passed by any of the States.
European countries have taken the lead, apparently, in workmen’s
compensation and medical care of employees. The first compensa­
tion law was enacted in Germany on July 6, 1884. This law was
amended and expanded from time to time until the year 1911, when
all the provisions of the various laws were unified into an act which
was intended to take effect January 1, 1912. Owing to the admin­
istrative changes involved in the construction of the various parts
of the social insurance laws, the actual taking effect of the code
of July 6,1911, was postponed to January 1,1913.
The British compensation act was adopted in 1897. This act was
amended several times, notably in 1900 and 1906. A bill for com­
pulsory health insurance, embracing all workers, was introduced in
Parliament in May, 1911, was passed the following December, and
came into operation in July of 1912. Several other European coun­
tries encourage health insurance among workingmen by subsidizing
societies formed for that purpose. This system is carried on in Bel­
gium, Denmark, France, and. Switzerland. The German plan of
compulsory health insurance is quite different from that of Eng­
land and is unlike the present systems of health insurance in any of
the American States. There are three general divisions in the Ger­
man law. They are sickness insurance, accident insurance, and dis­
ability insurance. Contributions by the workingmen themselves play
an important part. Employees are covered for the first 13 weeks of
sickness and are cared for by what is known as a sickness fund, which
is supported by the workmen contributing two-thirds and the em­
ployers one-third. Where the disability lasts more than 13 weeks the
accident fund becomes responsible. The disability insurance takes
care of the superannuated workmen and covers others forms of dis-



w o r k m e n 's


ability which are not provided for in the other subdivisions of the
statute. Workmen contribute about one-half of the money necessary
to support the disability fund.
In Great Britain all persons between 16 and 70 employed for
remuneration under any form of contract, if engaged in manual
labor or if the rate of their annual' earnings is less than $800, come
within the national health-insurance law. Those coming within the
meaning of the act insured during the first year (1912) numbered
13,472,000, or 30 per cent of the total population. The benefits to
which they are entitled include medical care, sanatorium treatment
if attacked by tuberculosis, cash benefit at the time of childbirth,
a weekly payment during 26 weeks of illness in a year, and a smaller
weekly sum during prolonged disability. The medical benefit guar­
anty to each person insured for this period consists of medical
treatment, medicines, and specified appliances. This benefit is ad­
ministered by insurance committees which are appointed for definite
areas to represent insured persons, doctors, and the local government
of the administrative district. These committees arrange for the
medical care of the insured workmen in accordance with the regu­
lation of the central administrative body or insurance commission,
and then draw up a list of physicians who have agreed to the terms.
Such arrangement includes two fundamental conditions: First, the
right of every duly qualified physician who wishes to serve upon the
panel to be placed upon it, provided he is not proven injurious to
the service; second, the right of each insured person to select his
physician from among those on the panel. Under these conditions
some 20,000 doctors in England, Scotland, and Wales have under­
taken insurance practice. This in various districts represents from
70 to 100 per cent of the medical profession practicing among the
industrial population.
Sanatorium benefit for the tuberculous insured is provided through
the insurance committees. A weekly sick benefit for 25 weeks in the
year is granted each insured person under 70 years of age who has
paid 26 contributions and who produces a certificate from his panel
doctor that he is incapable of working.
Many methods have been devised for providing insurance for the
protection of the wage earner from illness other than compulsory health
insurance. Among them we find the work of charitable institutions
and other similar organizations, establishment funds, commercial
health insurance, fraternal insurance, trade-union benefits, and vol­
untary subsidized insurance. For a number of various reasons such
methods have not been successful. Benefits are not received by those
who can not afford to carry insurance of this nature and those who
need assistance most are left without help. The cost is more than
the ordinary workman can afford. Medical attention is insufficient



and unsystematized. Furthermore, the exceptional workman who
may carry health insurance in a fraternal society, for instance, can
not be sure that he has lasting protection. Financial difficulties may
arise with such organizations and his protection be swept away in
such catastrophe. This has been the experience in European coun­
tries as well as our own.
Perhaps one of the best methods for protection for wage earners
is the compulsory insurance plan. There seems to be no question in
regard to the necessary advantages and benefits to be derived from
the establishment of such an act. It may be interesting to note at
this time something in regard to the history of the workmen’s com­
pensation laws and the fundamental reasons why such acts have been
created. Bradbury has the following to say in regard to workmen’s
compensation laws:
The declaration that the employer shall be responsible for injuries to his
workmen, whether or not the master is at fault, has very recently in most parts
o f the United States met with almost instant opposition whenever it has been
made. Nevertheless the compensation principle when carefully analyzed un­
doubtedly rests on sound, economic, legal, and moral foundations. Testimony
from foreign countries and the rapidly increasing fund o f evidence from many
States o f the Union prove that it is not taking part o f the em ployer’s property
without due process o f law to compel him to pay compensation to an injured
workm an when the injury is due to a risk which is necessarily incident to the
business. The amount paid in compensation to injured workmen w ill be added
to the cost o f the article produced and the expense will be borne by the com ­
munity generally. The expense or burden on the community w ill be less under
the compensation laws than through public and private charity for taking care
o f the injured workmen and the dependents o f those who are killed. That the
widow s and young children o f the workmen are dependent upon the community
there is no denying. It is often more difficult for the fam ilies o f injured w ork­
men to get along while the father is seriously injured and requires medical
and other attention than it would be had the father been killed. This condition
is an expense to the community, not only directly but indirectly. Equitable
compensation laws tend to make workmen more contented with the knowledge
that in any event they w ill not have to meet starvation for themselves and
their fam ilies should they be victim s o f inevitable industrial accidents. This
is an important factor in the effort to secure the greatest industrial efficiency.
The common-law defense which has played an important part in form er English
and Am erican laws is thus done away with, so that the employee assumes no
risk when in the course o f his employment, either through neglect on the part
o f the employer or employee.
The doctrine o f assumption o f risk has received much legislative attention
in recent years
It has been modified from time to time by courts o f our various
States. The fellow -servant doctrine dates from 1887, when it was established in
England, where the doctrine was applied with great vigor. In this country this
doctrine wTas never applied uniform ly. Our compensation law s abolish these
burdens o f p roof by starting with the assumption that neither party was guilty
o f negligence and that the injury was the inevitable result o f the occupation
in which the employee was engaged. This being true, the law placed the burden
o f compensating injured workmen, or the dependents o f those who were killed,


w o r k m e n ' s c o m p e n s a t io n .

upon the employer according to a specified schedule o f benefits depending, as a
rule, upon the amount which the workm an was earning at the time o f the
injury. To this amount has been added in certain instances an allowance for
medical and surgical attention and funeral benefits.

Certain exceptions have been made in these laws providing that
under particular circumstances compensation shall not be paid. These
exceptions are generally that if the accident is due to a willful act
and in some cases to the intoxication of the employee, then all
compensation is denied. The usual proof to be determined is only
in regard to whether or not the claimant was in the course of his
employment at the time of the injury.
Thus it is shown clearly that dependency rests in industrial acci­
dents upon the employer. In regard to illness contracted while in
the course of employment or illness caused by contributory factors,
the dependency upon the employer is unquestioned. This has been
recognized by Germany and Great Britain in their compensation laws
and is covered in much the same manner as disability due to injury
under our own laws. The economic basis upon which sickness insur­
ance is founded involves the same principles as accident insurance, for
in the first place the economic loss to society in general is just as great
whether the workman’s disability is caused by illness or whether it
is caused by an accidental injury. In the second place the loss to
the family of the wage earner is equally as great where caused by
illness as where caused by an accidental injury, and of course the
loss to the workman is the same. Furthermore, the employer has
the same control over the sanitary regulation of his factory or busi­
ness place as he has over the regulation, manipulation, and protection
of his machinery, so that he has the same opportunity to protect him­
self and his employees against disease as he has against accidental
injury, and his liability is just as great no matter from what source
disability of his workmen comes. Furthermore, looking to the em­
ployer’s interest, it is just as much for his protection that his work­
ing force be not depleted and disorganized by absence of his work­
men from illness as it is from accidental injury. Looking now to
the legal phase of the question, it can not be controverted that the
State has within the wide scope of authority known as the police
power of the State the right to make provision looking to the pro­
tection of the life, health, safety, and morals of its people, so that
the same authority which supports accident insurance likewise pro­
vides for sickness insurance. In fact, it is written in our constitution
that the legislature now has power to provide for disability which
results from occupational disease, and the legislature will no doubt,
within a short time, make salutary provisions for such cases..
A community sickness survey conducted by the Metropolitan Life
Insurance Co. showed that in each 1,000 males, 15 years and over,



23.2 were unable to work; that in each 1,000 women, ±5 years and
over, 25.7 were unable to work.1 This means for men an average
yearly loss of about 7 days and for women about 8 days. In 1901 the
Federal investigation of 25,440 workmen’s families showed that 11.2
per cent of the heads of the families were idle during the year, solely
on account of sickness, for an average period of 7.71 weeks, or an
average for all the heads of families of about 5 days.2
For the country as a whole an estimate based upon German experi­
ence indicates that among the 33,500,000 occupied men and women
there occur annually 13,400,000 cases of illness, causing 284,750,000
days of disability, or an average of 8-| days per person. The amount
of destitution due to accidents is only one-seventh as great as that
caused by illness, according to the Federal Commission on Industrial
The American Labor Legislation Review classifies the movement for
health insurance on the following six recognized points: First, high
sickness and death rates are prevalent among American wage earners;
second, more extended provision for medical care among wage earners
is necessary; third, more effective methods are needed for meeting
the wage loss due to illness; fourth, additional efforts to prevent
sickness are necessary; fifth, existing agencies can not meet these
needs; sixth, compulsory contributory health insurance providing
medical and cash benefits is an appropriate method of securing the
results desired. This classification seems to cover the subject thor­
oughly. A great many medical conditions arise for consideration
in this line of work, some of which are the care of patients suffering
from tuberculosis, arsenic poisoning, brass, copper, zinc, carbon disul­
phide, carbon monoxide, and lead poisoning, mercury poisoning, mag­
nesia poisoning, anthrax, compressed-air illness or caisson disease, dis­
eases of the lungs, diseases of the circulatory system, diseases of the
kidneys, fatigue, occupational neurosis, affections of the nose, mouth,
and throat, glassworkers’ catarrh, occupational affections of the skin,
cancer, electrical injuries, infectious diseases, sanitary conditions,
and many other kindred ailments and conditions.
Medical care and examination of employees are highly important,
but this work has only been carried on to a limited extent within
the past few years by manufacturers and employers of labor. The
necessity of this work is being brought to the attention of the
industrial world more and more each year. The beneficial results to
the employer and the employee from this line of work are shown by
recent reports from manufacturers throughout the country. The
early diagnosis of disease among employees tends to lessen the period
of disability or time lost and is an indirect saving to the community

1 U. S. Public Health Service, Reprint No. 326, p. 5.
2 U. S. Bureau of Labor, 18th Annual Report, p. 45.



in the actual expense of caring for the illness of the employee. It
is thus also of vast importance to the disabled wage earner and
those dependent upon him. The efficiency of the workman is greatly
increased and his earning capacity receives a material stimulus.
Under the old system of commercial insurance, fraternal insurance,
and trade-union benefits the medical care of those insured was inade­
quate in a great many ways. This line of work is of vast importance
in the field of preventive medicine. In the present-day campaigns
against tuberculosis, cancer, and degenerative diseases an early diag­
nosis is essential. Periodical examination is one of the best methods
of combating diseases. An early opportunity is thus had to detect
disease in the incipient stage. Many industrial workers can not
afford a physician’s care when in ill health and are much less likely
to consult one when their health is apparently normal. However,
disease may be creeping upon them unaware. Periodical physical
examinations are now being conducted for employees in most of the
leading manufacturing establishments of the country, which is a step
in the right direction. The objection to medical examinations and
care conducted by physicians hired by employers seems to be disap­
pearing where it has been carried on systematically and by scientific
men. How medical care and physical examination of employees may
benefit the field of preventive medicine is well illustrated in the condi­
tions which have developed in the domain of accident surgery under
the workmen’s compensation act. Within the past few years accident
surgery has been placed upon a higher and better plane. The profes­
sion at large has come to understand that this branch of surgery is a
specialty in itself, and in order to carry on this work to the best ad­
vantage and give the best service to employees they must devote
almost their entire time to this line of work and make a special study
of it in order to be efficient.
Employers are no longer using inexperienced physicians or allow­
ing careless professional service in the care of their employees, but
are securing the services of the best physicians possible. These con­
ditions have been brought about largely by the establishment of the
workmen’s compensation act. Better fees are being allowed physi­
cians for the care of industrial workers than ever before, and further
improvement can no doubt be made along this line, thus securing
better physicians for this work. These matters in the past have
been sadly neglected and as a result much unnecessary suffering has
resulted among employees. The loss of service on account of ill
health to employers will be lessened and an increase in the total
yearly wage to the employee will be had when an opportunity for
quicker recovery has been secured by the system of compulsory
health insurance and physical examination for every workingman.
Discrimination against workmen who are ill is less likely to develop



when employers are brought to realize the economy and the in­
crease in efficiency by furnishing trained physicians and thus
returning the men quickly to work. The burden of insurance is
borne not by each employer separately but by all in a group, so
that he indirectly continues to contribute to the fund as long as any
man is employed by a member of the fund. This has been clearly
demonstrated in Great Britain and Germany, where adequate medi­
cal work has been done for the past years for the prevention of dis­
ease. Germany, for instance, according to investigations in 1896
and 1899, found that tuberculosis of the lungs holds third position
as the primary cause of invalidity among men and second position
as the primary cause of invalidity among women. These facts have
led the German insurance fund to take an active part in the antituberculosis work. This same theory holds good in regard to other
similar diseases. Statistics bearing out the statement of the increase
in efficiency of workingmen due to examination and medical care
are being compiled from time to time by various corporations and
large manufacturing plants throughout our country which have
already established this system, showing that the total amount of
work accomplished by an employee in the year can be greatly in­
creased by looking after the physical condition of the wage earner.
It is also shown that the total income of the employer is correspond­
ingly increased, and that the medical care and supervision of em­
ployees are not an expense to the employer, but an actual saving of
great importance.
Benefits derived by the employee are numerous and far-reaching.
The wealth of an employee, or his chief asset, is his ability to per­
form certain labor and to accomplish certain work, the amount of
which depends upon his physical condition and fitness, his knowl­
edge of the work, experience, and, not to be forgotten, his mental
condition—whether or not he is a man situated so that he is in a
lrappy state of mind both while inside and outside of the shop. The
sanitary condition of the shop and its surroundings in regard to
heat, light, drinking water, and other equipment of this character
also have a bearing upon his efficiency. Thus we note that a wage
earner’s earning capacity can be affected in a great many different
ways—not only by injury which he may receive but by occupational
diseases, social conditions, personal habits, and many other influences.
Health insurance places, therefore, a cash value upon a wage earner’s
health. It is only reasonable to suppose that this must be protected
just as much as personal property is protected by fire insurance, or
workingmen are protected from physical injury. Physical examina­
tion and medical care of employees in Ohio is being carried on by
some of our leading manufacturing plants in connection with the
workmen’s compensation act. This is done voluntarily, which is


w o r k m e n 's

c o m p e n s a t io n .

another excellent proof that there is merit in such work. A decided
increase in sentiment along this line of work during the past two or
three years has taken place. It is being agitated by those interested
in this work, organizations for its promotion have been effected,
and laboring menf employers^ and medical associations are taking an
active interest in the work. There seems to be a universal demand
that something be done for the care of workingmen outside of the
workmen’s compensation law as it now stands. It therefore behooves
those interested in this work to consider seriously this subject which
so vitally affects the health of the industrial world. The forerunner
of health insurance—the workmen’s compensation Law—has already
been established for some four and a half years in our State. Other
States have enacted similar laws, all of which have been established
within the last six years. Some of our States cover occupational
diseases in connection with workmen’s compensation for injuries,
which is an advance over our own law. The days of ambulancechasing methods and’ fake lawyers have almost passed. The work­
man is gradually coming to realize that those administering the com­
pensation laws are his friends and that it is not necessary for him
to appeal to anyone else for just and equitable payment of com­

The C h a i r m a n . We will open the discussion of the papers just
presented which will be led by Dr. J. W. Schereschewsky.
Dr. J. W. S c h e r e s c h e w s k y , surgeon, U. S. Public Health Service.
I have only a few words to say in regard to the question of physical
examinations and medical supervision in the endeavor to contribute
in a small measure to the crystallization of our views on this matter.
We have to thank the previous speakers for having ably presented
both sides of this topic to us, both from the standpoint of the manu­
facturer and of organized labor. It is evident that they have left
but little additional ground for me to go over. There are, however,
one or two points which I wish to emphasize.
We have perhaps made a fetish of the word “ efficiency” in our
modern industrial practice without analyzing so far as possible the
true basis of industrial efficiency. In the past we have made mere
production the god; we have striven to that end with every means
at our command, such as the introduction of automatic machinery,
the speeding up of industrial processes, and the like. In a similar
fashion there is no doubt that physical examinations have been used
as a means of increasing the efficiency of the personnel in an indus­
trial establishment by selecting only those of superior physique as
It is needless to say that this is a shortsighted economic policy,
because the large group of persons rejected by these standards are
branded as “ unemployable ” ; whereas any consideration of social
economics demands that all social units shall be self-sustaining
throughout the greatest possible number of years. On the other
hand when we proceed to analyze the basis upon which true in­
dustrial efficiency rests, it is evident that the worker himself is the
most precious asset of industry; that in the last analysis his utility
both to himself and to society at large is dependent upon the main­
tenance on his part of a continuous condition of health in order that
his years of industrial productivity shall be a maximum. It follows
that if we institute a means for conserving continuously the health of
industrial workers we increase thereby, in a true sense, very mate­
rially the efficiency of that industry.
Therefore, when it comes to a question of physical examination,
we must say that physical examinations alone without additional
measures and facilities for the conservation of health—physical ex-



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amination applied with any other idea than the conservation of the
health of workers engaged in the industry—are not in line with pro­
gressive industrial development. Conversely, wherever physical ex­
aminations are associated with efficient methods of medical super­
vision and health conservation, when physical examinations are used
for conservation, then we must regard such physical examinations
as a progressive measure. Therefore, any system of physical exam­
ination which is applied must have as a necessary appendage an
efficient method of medical supervision.
In addition to the true conservation of the health of workers,
such systems of medical supervision add very materially to our
source of knowledge, because of the constantly growing fund of
information thereby derived as to the effects of the occupation and
the adverse conditions of the social and economic status of the indi­
vidual upon health. That we may expect large additions to our
knowledge of the cause and prevention of industrial diseases by wide­
spread development of systems of medical supervision in industries
is shown by the fact that when the Public Health Service took up
the question of investigating occupational diseases, the only methods
which we could easily devise for obtaining information as to the
relation of occupation to disease lay in making physical examina­
tions of large groups of workers. This is the method that we are
pursuing to-day in our endeavor to find out the relation of disease to
occupation. There can be no doubt that this method which has
proved of such value to us would be a fruitful source of valuable ad­
ditions to our present knowledge, if generally applied, because of the
published observations of the data collected by physicians making
such examinations.
From a scientific standpoint, therefore, we are to regard such
physical examinations as valuable aids in deriving accurate knowl­
edge of the effects of occupations upon the health of workers and of
the relation of occupations to disease, which is somewhat a different
matter from occupational diseases, because this relation includes not
only the effect upon the health of the worker of the environment in
the shop, but also the effect upon him of his environment outside the
shop, his habits, housing, and other factors which are not concerned
in a purely occupational disease.
It is not enough, however, to rely merely on physical examination.
What we must insist on is that, if physical examinations be employed,
the necessary preventive machinery be applied to enable us to avail
ourselves in a preventive way of the knowledge derived from physical
examinations, so that both the worker and the industry will receive
a full measure of benefit. Especially I call attention to the oppor­
tunity this offers for fitting the workman to his job, so that the
kind of work done falls within the 46elastic limit of the individual,”



and every man, so far as possible, maintains without overstrain the
full limit of his productive capacity.
Dr. D a v i d L. E d s a l l , Massachusetts General Hospital, Boston,
Mass. I have very little to say in this discussion. I will only
emphasize the need of medical supervision brought out just now by
Dr. Schereschewsky and by Dr. Clark, particularly. Looked at
from the standpoint of the doctor who has only the interest of
patients, the interest of health, at heart, the thing that has been
borne in upon me more and more as I have seen year after year the
records in hospitals (in hospital experience in Massachusetts I have
seen many thousands of working people), is the need of having some
method of supervising those people in order to prevent what I shall
speak of to-night.
It is a very unhappy thing to me to see these cases constantly and
to think of their occurrence when they might have been prevented.
So many of them are capable of being prevented in their early
stages. There is no satisfactory way of meeting them at all unless
you wait for the effects of the disease and then compensate the* man
or try to patch him up as well as you can. There should be some
way of knowing what is happening to people in industry in the
course of their work. I think the only satisfactory method that can
be devised is that they should be subject to physical examination and
should be subjected continuously to physical control—not at all from
the standpoint of increasing the efficiency of the industry, but from
the standpoint of conserving and increasing the period of productiv­
ity and the happiness and efficiency of the working people them­
We see thousands of cases a year in which I am perfectly sure that
there is some effect of industry upon health. Most of those effects
could be prevented. The great importance of this is in connection
with young persons going into industry. I could* cite case after
case in which it is clear that the individual has drifted into an
industry, choosing it as we all choose our occupation in life^ partly
because of circumstances, partly because of family interests, but
rarely because we are particularly fitted for that industry. The
working people do that just as we do, and we see case after case
in which young persons have comparatively recently gone into indus­
try with apparently more or less severe results which might easily
have been prevented. In a great many cases harmful results may
be prevented if before the persons go into the industry they are given
a careful physical examination and have some consideration given to
the character of the work into which they are going. The absence
of such precautions may mean a tremendous loss to health, and a
70085°— Bull. 212— 17-------22


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tremendous financial loss to them, because it so frequently means
that a person becoming sick in an industry becomes totally unfit for
the work that he has taken up.
Dr. O t t o P. G e i e r , director employees’ service department, Cin­
cinnati Milling Machine Co. I can not help but refer to Mr. Green’s
remarks, who spoke for Mr. White, and say that his statement is one
of the fairest I have heard in reference to physical examination of
men. He says let us look upon the purpose of physical examination
and medical supervision in determining whether labor shall stand
for and be willing to get behind a movement for the physical exam­
ination o f men. I surely am opposed, as much as labor, to the mis­
use of the medical department, and every decent medical man is
opposed to that misuse. In fact, he must sell his soul almost if he
is misused in this way, and I doubt whether the good medical men
of the country are going to give themselves to this sort of abuse and
misuse. I was deeply interested in Dr. Clark’s paper and must coin­
cide with everything he said. One thing particularly concerns me
as one interested in public health. He said the time lost from illness
had been reduced to seven-eighths of what it originally was before
the introduction of medical supervision and care of employees. That
would mean, in final analysis, if applied generally to industry, an
annual saving to the industrial worker of about 2 per cent of his
wages, or an increase of 2 per cent to every man’s wage, which is
certainly a considerable sum. I f the Health Department of Wor­
cester should attempt to do for the industrial worker what the
Norton Co. and other companies might do for the industrial workers
it certainly would cost relatively 10 or 15 times the amount to attain
that same result. I can see that the industrial hygiene departments
in industry may become the strongest arm of our health departments.
Physical examination and medical supervision promises something
that we have not considered possible so far—an evolution of the
health department to an extent where by it we could raise the physical-effieiency standards of men and of the community health to a
point which we hardly have yet conceived. I believe that the time
is coming, when we all understand e’ach other better and are per­
fectly fair about this matter, that the community or Government
will require of industry that it conduct industrial hygiene de­
partments directly for the purpose that these shall protect the
worker and shall help raise the standard of community health.
We can not believe that we are to-day organized properly to
raise the standard of community health. I know of nothing
which might be made such a direct contribution to the health
and welfare of a nation as the rapid extension of hygiene de­
partments in all industries. Under that plan 100 per cent of the



workers would receive this very beneficent assistance. I can also
foresee that we might keep a lot of workers from going into blind
alleys. The blind-alley employment would be largely diminished by
the employment of an intelligent physician to keep the man out of a
particular job for which he applies and for which he is not fit. I
want to refer to one objection raised by Mr. Green through Mr.
White’s paper. He believes that by the elimination of the unfit we
necessarily speed up the shop. My answer to that, and it is the same
that was made in reference to the misuse of the physician earlier
in my talk, is this: I f industry takes up this work on the level, if it
proposes to do it intelligently, it must do it solely for the purpose
of conserving the worker. It would not have this desired effect if,
after selecting men carefully so as to reduce the turnover, industry
on the other hand would so speed up the worker that they would
have to scrap him out after a short time.
Dr. Meeker is responsible, I believe, for the statement that the
labor turnover is responsible for the greatest loss in industry. I
think he even estimated that it is greater than the loss from sickness.
1 think we all agree to that. I believe there is nothing that is going
to reduce labor turnover so much as the universal introduction of
medical supervision and care of employees, including physical exami­
nation. The preventable loss from the wasteful hiring and firing
of men is alone a considerable item to be added to the wages of the
workers—the system does discover the physically unfit workman.
But let us be frank about this matter.
Industry now takes on a certain number of the physically unfit.
Society at large is carrying a lot of the physically unfit. Is it not
better that society should know definitely what this load is? This
system is a method of getting it out in the open where it will do
society some good, and where we can see what this load is and what
produces the unfit. Knowledge of these things is the first step
toward finding a remedy for preventing those conditions that produce
the unfit worker.
Dr. S. M . M c C u r d y , Youngstown Sheet & Tube C o. The whole
field has been so beautifully covered that there is hardly any neces­
sity for me to say more. I have had some practical experience with
the physical examination of workingmen, comprising some 30,000
examinations, for which I have been responsible, and a large per­
centage of which I have done. Out of that experience I have learned
some very interesting facts, and I hope they will prove—a few of
them—interesting to you. When I went into this work I had no
idea the workingman of to-day is in as poor physical condition as
he is. It was an absolute revelation to me. I expected to find more
sound men than physically poor men. Yet, take the grand total,


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and I can safely say that for no other reason than teeth, 90 per cent
of our men would not be acceptable to the United States Army.
Just because of teeth alone. Our records show that the teeth of 92
per cent would have to be classed as fair or bad. This is a layman
doctor’s judgment, and not a dentist’s. We discovered as we went
along that the amount of tuberculosis, unknown to the individual,
ran between 1 and 2 per cent, and I do not think we discovered it
all. These men were applying for work. Under the old system they
would have been hired and scrapped later, when their opportunity
for a cure was lost. Under our system we believe that we are able
to diagnose those cases earlier and thus afford them the opportunity
to become well. Certainly by keeping out of our working force
anywhere from 1 to 2 per cent of tuberculosis we have limited the
danger of infection to the rest of our workers and have already done
something for preventive medicine.
I was astonished at the small amount of syphilis that we met that
could be recognized without a Wasserman, and I mean in the primary
or secondary stages, and tertiary lesions that might be in the mouth,
which could be communicated to other workmen. I was equally
thunderstruck with the small amount of acute gonorrhea. No at­
tempt was made to make a scientific laboratory diagnosis. Our
records show that about 10 per cent of our men have some form of
organic heart lesion, which is certainly a handicap to every man who
possesses it, especially if he is to compete with a man with a sound
heart. I might throw in that we discovered
to 3^ per cent of
Employers, as a rule, felt that this was the cause of many fake
claims, but I think hernia is doing the least damage of anything that
we meet. We found another curious thing in the course of our inspec­
tion. We were having railroad accidents within the plant due to
men being color-blind, who had been refused by the standard-gauge
roads, and who had sifted into industrial organizations. We took
them in, examined their vision, and that class of accidents practically
disappeared. Certainly it was a good thing to stop smashing up the
property, as well as to stop the opportunity for others to be seriously
hurt. I might go on, but these are some of the defects that we found
and some of the reasons why it seems to me that it is eminently fair
that society assume the burden of examining these workmen and find
out exactly what physical condition they are in. Unless we expose
the facts to public gaze we are never going to get anywhere with pre­
ventive medicine. I admit that upon some of the workers it is a
hardship, but it does not hurt my feelings that a few have to bear a
hardship to demonstrate a principle, because there seems to be no
other way in which to bring it forcibly to the public. This is why
I believe in the physical examination of workingmen, but only if it is



honestly done. I can not conceive, if examinations are honestly
made, that they have one single drawback to any class of society, but
they have absolute value for all of society.
A r t h u r E. H o l d e r , of the American Federation of Labor. Prob­
ably this practice of physical examinations of workingmen is one of
the most interesting of modern questions. It may also be added that
it is one of the most complex. It is a new feature and it is an addi­
tion to the “ terrors of the unknown” that have been used to make
workingmen sometimes resentful and always suspicious.
I f physical examinations by representative physicians or examiners
engaged by private employers could be carried out with the same
beautiful spirit as that of the papers which have been presented to
this conference, I question whether there would be any hesitancy on
the part of any worker to comply readily and gladly. They would
feel that they were contributing their share to the general and com­
mon good. But from reports which have reached me and from ex­
perience which I have obtained in the great field of industry for
many years and in a variety of occupations, I have found and I have
had reported to me that the spirit evidenced here to-day is not prac­
ticed. I think it is my duty, Mr. Chairman, to at least make this a
feature of my objection to a general indorsement of physical exami­
nation of workingmen.
One of the most popular, one of the best informed, one of the most
vigorous trade-unionists in the United States said to me only a couple
of weeks ago, when I asked him to give some assistance toward se­
curing a workmen’s compensation law in a State which has none yet,
“ Holder, I have come to the conclusion that workmen’s compensation
laws are in the same class with cold-storage institutions. They were
designed for the purpose of blessing the human race and they have
turned out to be a curse.” Cold-storage plants have raised the cost
of living, while conserving the means of living.
Workmen’s compensation laws have been used in some States, and
are being used to-day, for the purpose of putting into practice the
physical examination of workingmen so that those who dare to stand
upon their civil, personal rights are weeded out and thrown into the
industrial scrap heap. I f that practice is going to continue, I think
it will not be very long before we will commence an agitation to wipe
the statute books clear of all laws of that character.
I do not want to shock you, gentlemen, after hearing all these
pretty expressions and sentiments, but it usually falls to the duty of
the trade-unionist to show some of the ugly features of industry.
There are millions of people employed in the large manufactories
where the organizations of labor are not permitted or tolerated, and
where physical examinations now run amuck. I f the doctors who
conduct these examinations would tell all the truth I believe they


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would report a constantly increasing percentage of nervous disorders.
People applying for employment who have reached the dangerous
age of 40—and of course it is always possible to find something
physically wrong with them—find no opportunity for employment,
unless there is an abnormal state of business such as now exists.
Enough evidence can readily be found to prove that such applicants
are not physically fit, and then the individual families or society as
a whole have to care for them.
Reports have come to us that the examinations of the women
workers—and I touch a very, very delicate question here—have not
been conducted with the greatest delicacy, and I am going to plead for
the rights of women as well as for the rights of men. They are en­
titled to all the personal protection their sex commands, especially in
view of the fact that they are important units and factors in industry.
You can depend upon it the trade-unionists are going to do all they
possibly can to protect the woman worker when she is applying for
I hope that this thought will remain with you gentlemen when you
return to your homes, so that if you counsel physical examination for
employment you will at least do what you possibly can to prevent
periodical examinations every 3 or 6 or 12 months, because that sys­
tem can be used as a form of espionage and a lash of persecution
against trade-unionists and free men from which there is no redress
or protection.
In some industries in the United States it is still the practice, al­
though we have been able to eliminate it from some employments,
that where a man has been found physically imperfect to some small
degree but mentally and physically active in behalf of his fellows
for better wages, shorter hours, and better wTorking conditions, the
great fundamentals, my friends, that make for health, that make for
life, that make for prosperity, that make for citizenship, that make
for liberty, that make for the original American freedom for which
our flag stands, such men have been followed and persecuted from
pillar to post in these United States, and they have been unable to
obtain employment at their occupation, -and, because of their convic­
tions, insidious efforts have been made to lash them into silence. I
hope that you will be careful with everything that you do on this
proposition of enforced physical examinations of working people.
Capt. W m . P. W h i t e , United States Navy, retired, treasurer
and general manager, Lowell Paper Tube Corporation. I have had
to be subjected to physical examination periodically all through my
life, for I am a captain in the Navy, and, although I am on the
retired list, I periodically am examined physically to find out what
my condition is. My principal occupation while I was in the service



was the enlistment of men. We used to enlist them from 14 up to 45.
We stopped the enlistment of boys from 14 to 18, because after they
entered the Navy they were subject still to disease, and it took too
much money to get out the unavailable.
I hold that the physical examinations of employees should not
only begin when they go into employment, but should begin at an
earlier stage, and many of the ills that workmen now suffer are due
not to their employment but to the physical conditions of their
early environment and their ignorance of things that should be of
common knowledge. The conditions of life in some of our cities
that have been brought about by improper housing are such as re­
quire immediate remedial attention. Can you get it? Do you get
it ? The board of health, appealed to in the city of Lowell to remedy
certain evident conditions, fails to do its duty because the owners
of the property are voters who have some political power. It is
essential for the worker to go to his work in a healthy condition,
and anything that we can bring about to better his physical con­
dition will increase his capacity as a wage earner. Part of the low
wages are due to physical defects; physical defects of which the
laborer himself is ignorant and of which his employer is likewise
ignorant. His employer can only determine his capacity for labor
by the amount of work that he turns out. We have been talking
about the employer of labor, and the employer of labor has been
figured as a big corporation, but I believe that the employer of labor
in the larger term is not the big corporation. He is many headed,
and these men who may be rejected by the larger corporations be­
cause they are unfit for that work have to seek employment else­
where, and the smaller employer has no opportunity, has not the
means, has not the organization, to bring about the necessary ex­
amination to determine whether the workman is fit for his particu­
lar employment or how that defect may be remedied for the work­
man’s benefit.
As an examiner of men for employment I came in contact with
that great mass of floater employees, the one who causes this great
turnover of labor, the one who goes -from one place to another seeking
employment, is employed for a few days, and then, for some reason
or other, goes out into the field to seek new employment. Many of
these we reject simply on the story that they tell. Nine-tenths of
them we reject physically. Sometimes the percentage is greater
than that for defects which should have been remedied and could
have been remedied at an earlier time—defects of sight, defects of
teeth, other physical defects which are due to the unfortunate habits
of the individual, and his sometime unfortunate occupation. I re­
member a man of about 26 years of age who had flat feet and varicose


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veins of such a character that I doubt if he has survived the few
years that have elapsed from that time to this. Some of the defects
are remediable and some of them are not. We want to find out which
may be remedied and how they may be remedied, so as to improve
the condition of our working people and improve their wage-earning
capacity. When society puts up some panacea and says that this is
going to help the workman, it is time to wait and investigate. Let
us find out first what is the matter with the workman; and if we
can not cure him or his sickness, then it is high time to talk about
sickness insurance.
Dr. White, in his statement in regard to sickness insurance, which
does not come at this time, has said, for instance, the compensation
for accidents in industry is due to causes which were a part of the
industry. The accidents which occur in industry are not necessarily
due to industry. They are due to accidental causes over which the
workman may have control and over which, for some reason or other,
he has, for a minute, lost his control. My oldest and most able
and most intelligent employee sawed his thumb one day. The saw
was protected. Every care had been taken, but he was doing some­
thing out of the usual. He had been working with saws for a great
many years, and from his mere familiarity with that saw, he did
not think the saw would come quite as far as it did. In an accident
of that kind the workman himself now shares part of the penalty.
He is n6t paid immediately after the accident occurs, but he is paid
after a certain time has elapsed, a time that is sufficient ordinarily
in the majority of accidents to cause the injury to heal, so that he
may go on with his industry.
Dr. White cites as an analogy to this that sickness of the employee
is on the same basis—sickness that comes out of the result of the
particular phase of employment—the peculiar kind of sickness that
is due to that employment. This or other illness may or may not
result from his employment, and 99 per cent of the cases, or I might
say even more than that, do not come out of his employment, but of
conditions outside of his employment and for which his employer is
not responsible, any more than any other member of society.
Now, if you will clear your minds of the kind of sickness that is
involved and let us pay for the sickness that is dependent upon the
industry, why, then we have gone a step in the right direction, but
when you start advocating a pension as panacea for all illness of
the workman I say that a pension may sometimes induce a man to be
ill who is not so.
The C h a i r m a n . In view of the interest in this subject which has
developed in the course of discussion, it is suggested that we eliminate
the discussion scheduled to follow the last paper of the afternoon
and give opportunity to some who have expressed a desire to par­



ticipate in the present discussion. Up to the present time we have
not had the viewpoint of the employer. I have called upon Mr.
Dudley R. Kennedy, of the B. F. Goodrich Co., Akron, Ohio, to
speak on this side of the question.
Capt. W h i t e . I want to correct that statement; I appear as a rep­
resentative of the Associated Industries of Massachusetts.
D u d l e y R. K e n n e d y , director labor department, B. F. Goodrich
Co., Akron, Ohio. I thank you for calling on me so that I did not
have to announce myself or ask for a place in this discussion.
I will try to be as brief as I can and try to be perfectly fair and try
not to stir up any such hornets’ nest as we had yesterday, but I cer­
tainly can not remain silent under the lash of certain statements that
have been made here this afternoon. I am pretty blunt naturally
and I do not hand out undue compliments, but I wish we had more
Mr. Greens in the labor movement. I ana sorry Mr. Holder has gone,
for I would not say anything .behind his back that I would not say
to his face.
Mr. Green in his own remarks stated my view exactly. I want to
thank him personally for saving me that time and trouble. I have
known Mr. Green personally for some time, and I know that he means
what he says. I do not want to be misunderstood in what I am to
say, not wishing to get any undue publicity or any free advertising
whatever for what the B. F. Goodrich Co. is doing. The very fact
that you who are interested in this thing are ignorant of what we are
doing is enough argument that we are not advertising it or exploiting
our people for free advertising purposes. I simply state it as a mat­
ter of fact to show what one of many concerns is doing along this
line of which we are talking this week. I probably am antici­
pating somewhat the program of to-morrow and the next day, but
I must in fairness to the people who are heart and soul in this thing
but who are on the level about it.
We have had in actual operation for over a year health insurance,
life insurance, and pensions—voluntary—but we are glad to do it,
because we have seen the vision a little before the mass has seen the
vision. We ask no credit in that we had voluntary workmen’s com­
pensation, but it came because we had men at the head of the com­
pany to see it before the masses saw it and before it was forced upon
us by legislation, and so we have seen the vision of health insurance.
Our provisions are more ample than those of the proposed bill for
which Mr. Andrews is responsible. Mr. Andrews, I believe, is the
chairman of the American Association for Labor Legislation.
We have 9 full-time physicians and 22 full-time nurses. We have
15,000 wage earners, 20,000 total employees. We have district visit­
ing nurses, each equipped with a Ford coupelet and a driver. We
have dependent upon our industry almost one-half of the total popu­



lation of Akron, if yon figure three people to a wage earner. We are
doing preventive medicine, and we have to have physical examination
to do preventive medicine, and we have to have medical examination
before we can issue a life-insurance policy. Without going into de­
tail, briefly, each employee automatically gets a policy for $500 with
the Equitable Life Assurance Society when he enters the employ of
the company. That is augmented $100 per year for service. I f he
is sick or disabled for any cause whatever outside of the workmen’s
compensation act itself, he automatically receives two-thirds of his
weekly wage during his disability up to 52 weeks’ full disability. We
have four hospitals or dispensaries in the plant itself. We have a
tubercular dispensary outside of the plant, and we are about to estab­
lish a venereal-disease dispensary which I believe will be the first in
the United States of its kind. We do not ask any credit for these
things, because it is just a plain horse-sense business proposition. We
will get it all back, but organized labor or any other body of men
have no right to kick when they are getting something for nothing,
and I defy any man to stand on this floor and say that it is any hard­
ship on the workman. A lot of this talk about the poor, downtrodden
worker is a lot of bunk.
There is hardly a man in this room that has not carried a dinner
bucket sometime in his life and has not worked hard. Those of us
who have been in this game and who are looking to the front and are
trying to look this thing in the face must stand up here and talk, and
talk facts. I have been coming here for seven or eight years, and
I am tired of listening to a lot of guff, and I have only said these
things straight from the shoulder to show you that there are a lot
of employers who are looking out for the good of their employees.
There are a lot of companies in this country which are looking for­
ward and have seen this vision and who have sense enough to know
from the business standpoint that it is an investment, and that is
why we do it. I f we can make our plant the most attractive plant
in the county—in the State, in' the United States—we are going to
get the very best men to work for us, and the best product, the best
prices, the best wages, and the best dividends, and if there is anything
else that is wanted I would like to know what it is.
Capt. W h i t e . Are you able to influence the local health authorities
in Akron to take care of the housing conditions that go to make a
good city?
Mr. K e n n e d y . I do not want to be accused of mutual admiration
society tactics, but we have not been able to get the cooperation that
we wished, because they hadn’t the money. But the manufacturers
in Akron got together and collected a very considerable sum, which
they turned over to the city to build up a very unusual health depart­
ment. They went out of town to get an expert, brought him there,



and made him health director of the city, and the institutions there,
including our own, by private subscription are not only meeting the
deficit but supplying the funds to assist us in carrying out this work
which we have started, 'industry has got to inspect—industry has
got to approve this before society is ready for it, and we think it is
part of our job, and we are fortunate in having a man or a set of
men with vision broad enough to see these things and philanthropy
enough to pay the freight while we are making the test and
Dr. G eor g e M. P r i c e , director of the j oint board of sanitary control
in the dress and waist industry. When physical examinations are
compulsory and arbitrary they are naturally opposed by and ob­
jected to by the workman. When physical examinations are used as
a whip and a menace against the older workers naturally they are
objected to. When physical examinations were made of the workers
by those whom they trust we found no opposition; in fact, we found
nothing but cooperation. We have had no difficulty at all to fur­
nish in three months 3,100 workers for Dr. J. W. Schereschewsky in
the summer of 1913, because we have educated them and we have told
them what it is for. Our institution is peculiar in this respect, in that
it is not run by employers alone. Although employers, organized
employers, are part of the joint contributors, the workers as well
as the employers are represented in the board, and we have been able
in the last six years to gain the confidence of the workers, and that
is much to say of the garment workers, who are the most suspicious
class of workers to get along with.
We have made over 16,000 examinations during the last four years,
all voluntary examinations. They all come forward without any
compulsion. They simply come because it is explained to them that
it is for their own benefit, that they will have advice given to them
which is necessary and well to follow. When physical examinations
will be held by the corporations and by general organized industry,
so as to have the workers represented in the board which governs
them, when it is explained to them what it is for and how good it is
for them, there will be no objection and no opposition to it.


What to do with the worker handicapped by disablement through
accident or disease is one of the big economic problems that are being
most seriously considered in industrial life to-day. For years we
have been regardless of the handicapped workers, and as a general
proposition they have been thrown on the scrap heap and left to work
out their own salvation. To-day we are gaining a new viewpoint and
learning that if we are to retain our commercial supremacy we must
utilize in industry and commerce the handicapped man or woman—
teach them how to readjust themselves to their new conditions and
get back into industry with whatever of earning and producing ca­
pacity they may have.
Several forces have been at work to bring to our attention the great
need of an adequate solution of this problem.
Among these forces are the operation of the workmen’s compensa­
tion acts, the pressing demands for workers of all kinds brought
about by the wonderful increase in our manufactured products, the
great world war which is producing the crippled by the hundreds
of thousands, and the industrial waste which results from taking the
trained workers crippled by industry from their accustomed place at
the bench or machine and throwing them into the ranks of the non­
producing consumers.
It is a very conservative estimate to state that annually 250,000
workers are, under present conditions, permanently thrown out of
employment through accident or preventable disease in the United
States alone. These men and women must be supported somehow.
Part of t.hem receive whole or partial support under the provisions
of the workmen’s compensation acts, and while this solves in whole
or in part their individual problem of existence, it does so in most
States only for a limited period, and after 6 or 10 years of idle­
ness, when their compensation ceases, they are left in a most pitiable
Yet there are few of these men and women who could not be put
back into industry and have a place found for them where they could
support themselves in part at least.



This economic waste caused by the apparently enforced idleness
of this vast army of men and women exceeds $100,000,000 a year of
added burden, and amounts to not less than half a billion dollars
annually, a figure that is constantly being increased by the addi­
tion of a quarter of a million cripples each year.
Much of this burden is primarily borne by the insurance com­
panies, but they pass it along so that in the end the burden falls on
society in general. This waste is a by-product of industrial ineffi­
ciency, for by prevention of accidents and disease 50 per cent of
these men and women would never become disabled.
With this phase at this moment, however, we have nothing to do
while considering the problem of the handicapped, for they have
been disabled.. They are with us, and what can we do with them
and how can we do it?
I f the great war teaches no other lesson than the value to a nation
of its men, it will have contributed its part in human development.
To-day we see all over Europe nations trying to regenerate, reedu­
cate, and rehabilitate the pitiful wrecks who come from the battle­
field with arms gone, legs gone, eyes gone, with all the other physi­
cal impairments that scientific modern warfare inflicts. Germany,
France, England, and Italy are spending hundreds of thousands of
dollars to make these cripples into efficient producers able to con­
tribute their share to the prosperity of the country, and to earn
their own support. The human repair shops of these warring
nations challenge the admiration of the world. These handicapped
men will not, as with us, be a drag on industry, nor a tax on their
families, but will even contribute to the welfare and prosperity of
the country. And the nations of Europe are wisely solving a prob­
lem which we in America—maiming and crippling our men and
women by the hundreds of thousands annually—must also solve; else
the very weight of the drag on our resources for the support of our
crippled in industry for whom we do nothing in the way of such a
restoration to wage-earning capacity will so handicap us in the race
for commercial supremacy that we shall lag behind. It has been a
common charge that we care for the machines of wood and iron in
our factories, and have high-paid experts to repair them or keep
them in order, but throw on the scrap heap the human machines
which operate them when they become injured through accident,
or fall sick, or when the infirmities of advancing years so impair
their productivity that they are no longer regarded as profitable.
The best medical skill in the world is doing up the wounds and car­
ing for the broken bodies of the wounded in the war abr6ad, but
the wounds of the injured in industry in the United States are too
frequently either neglected or left to the tender care of the contract


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We must change all this in the United States. We must in the
future consider all legislation from a different standpoint. We
must think in terms of man values hereafter. In this great business
world of ours the return on the investment of money capital will
depend entirely upon the return on the investment of human capital.
The better the physical, moral, and mental condition of the human
capital the greater will be the return to the money capital.
In this new industrialism to which we are rapidly coming, with
these better concepts of our obligations to our fellow man, we shall
bring about a spirit of cooperation between caapital labor and capital
money that will mean a newer humanity and a closer brotherhood
among men.
The age-old controversy between those who employ and those who
work is nearing its end, because the world to-day is realizing that the
two are inseparable. The closest bonds of partnership exist between
Legislation in the future must be for better conditions of living,
for shorter hours of labor, for adequate medical treatment and serv­
ice, for wages that will remove the gaunt specter of poverty from
the doors of those who toil, and give to them a part of the day for rest
and recreation in order to repair the bodily wastes that sap the
energy and consequently reduce the output through fatigue and
The day of relegating men and women to the scrap heap is rap­
idly passing.
It is interesting to note how the nations of Europe are leading
us in this restoration of the crippled to active industrial life. If
we had a man so crippled in industry that both his legs were off
above his knees and both arms gone above the elbow, we would con­
sider that man hopelessly incapacitated, and would never dream of
even trying to find a place for him as a worker.
Yet Germany took just such a man, equipped him with artificial
legs and arms, reeducated him to his new condition, and to-day the
man is doing a full day’s work in a machine shop and earning good
pay. He is happier and more self-respecting than if he were idle,
his mind is on his work, not on his mutilated self, and the result is
a tribute to a humane method of restoring men to active participa­
tion in industrial life. This is only one instance and I could give
you hundreds equally as remarkable. France has started and has in
successful operation these human repair shops. I was very much
interested in an article descriptive of the way in which France is
meeting* this problem, and Mr. Barton Blake, the author of it, has
made a study of these 44schools of reeducation.” “ Hospitals mend
men’s bodies. The special type of hospitals I have been visiting,”
he says, “ ministers to men’s souls as well as to their bodies, for it



equips them to reconquer a place in society, in the market place; a
place to be filled bravely, proudly, and without submission to anyone’s
patronage or charity. This special type of hospital is the so-called
4school of professional reeducation.’ The patients are really not
patients at all—they are scholars. They are learning life over again,
these soldiers who, having survived one war, in losing the capacity of
continuing to share in its battles, must begin this second and for
them this even graver war. These brave men must not become 4vic­
tims,’ says France; they must remain victors, even in their loss of
limbs. And France is full of schools of reeducation, whose object
it is to show the victorious way.” Their lives—yes; that is the
question which remains. What will they do with their lives, these
men who lack legs or arms, or who are paralyzed? What does the
future hold for them beyond an insufficient pension, and, it may be,
a priceless decoration ?
Franee set itself to answer this question and the schools of reeduca­
tion is its solution. The school of the Grand Palais in Paris has been
busy with its task of salvaging the wrecks of heroism only since May
21 of the present year (1916), but its work is none the less a great one.
There are 176 soldiers of France studying at the Grand Palais how to
carve out a future for themselves, a future wherein they shall be
neither beggars nor charges upon the State nor loads upon other
folks’ benevolence.
“ At Tourvielle, where the city of Lyons happened to own an old
farm, purchased some time before with a view of inaugurating cer­
tain municipal improvements, with an old chateau standing amid
fields which had been permitted to 4run down ’ by their last owners—
at Tourvielle one sees only the mutttes who are crippled in the legs.
Many of the men there are of mature years, coming from all sections
of France. Probably the greater number were, before the war, agricul­
turists; no longer capable of earning their living at unskilled labor,
they are learning to be tailors, carpenters, cabinetmakers, shoemakers,
gardeners, wireless telegraphers. They have made great progress
already in the few months they have been at it. In the workrooms,
arranged in little separate wooden outbuildings—lighted by elec­
tricity when daylight fails—one may see for himself that the shoe­
makers can already turn out shapely shoes for man, woman, or child.
Some of the workers are learning how to manufacture wooden legs
for their own use at a lower cost than the shops charge for wooden
legs.” They are paid wages while learning and their pay is advanced
as they become proficient. Dr. Yallie finds that an increase in his
wages heartens a man and quickens his interest in his task, and his
physical condition reacts favorably to this stimulation. Others are
learning typewriting and stenography. Some of these pupils of the


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peaceful trades who have proved their devotion will in the future earn
more money than they ever earned before—for at the Grand Palais
at Lyons men are being taught more useful work than they could
ever before perform. Some of them will, in spite of their maimed
bodies, be more valuable to their country, economically, than they
were in the peace years before 1914.
This reeducation in Germany, France, England, and other war­
ring nations gives us an idea how we can help solve the problem
of those who have lost certain members of their body; and what can
be done abroad can be duplicated here, particularly as we lead the
world in the manufacture and construction of artificial limbs.
But this is only a part of the problem, and as to the remainder we
must to a certain extent blaze our own trail. There are those suffer­
ing from occupational diseases, a very large class. There are those
suffering from neurosis, like the cigar makers; the neurasthenics
who constitute a very puzzling problem as well as a very large class
of the disabled. Again, there is the class who having undergone some
form of hospital treatment are surgically cured, but not physically
restored to wage-earning capacity. They must get out of the hos­
pital as soon as possible, because places are needed for others. They
are generally returned to their homes where they can not receive
adequate treatment; nor are they placed under conditions which con­
duce to speedy recovery, hence the period of convalescence is greatly
prolonged, and in many cases postponed altogether for lack of the
care which should be given them. Our hospital out-patient treatment
is absolutely inadequate in the case of the great majority of our
large hospitals.
I will not take up the matter of hospital administration, but I want
to say right here that these injured men and women who go to hos­
pitals as compensation cases frequently do not receive the treatment
they should receive. And I can cite some cases of broken backs
wrongly diagnosed in Massachusetts hospitals, and a number of
fractured-skull cases that were treated for almost everything save
the real trouble. There will have to be a reform in hospital treatment
and care if we are to get rid of a certain large part of this burden.
But in a way these are minor matters, viewing the situation as a
whole. How shall we get these people back to a wage-earning basis?
This, I feel, is largely a problem to be solved by the States them­
selves, or at any rate settled within State lines either by the State or
by some private agency, and I am inclined to think that the latter
course would be the most efficient in dealing with this problem, for
I am not enamored with State methods of dealing with such prob­
lems. When membership in accident boards and commissions—boards
dealing with the rights of the workers, administering the provisions
of the act, as semijudicial bodies requiring specialized knowledge—is



considered by governors who have the appointing power as so many
places to be handed out to political lieutenants, as has happened not
only in my own State but in Washington, Wisconsin, Michigan, and
other States, there is no place that would be safe from the intrusion
of politics, and as a result inefficiency and waste are bound to follow.
As the insurance companies in most States are deeply interested
because they have thousands of these men and women on their pay
roll, it seems to me proper that the major part of the burden of re­
turning these people to work should fall upon them and be regarded
by them as a money-saving proposition which they can afford to
back to the limit. I f they have a thousand men under compensation
payment drawing on an average $8 per week, or a total of $8,000, and
on return to work they only draw $5 a week, or $5,000 total, they
have saved $3,000 a week. And as these payments are continuous—
this $3,000 a week this year becomes $6,000 a week next year (for
other thousands are hurt each incoming year) and $9,000 a week the
year after—you can readily see what the saving would be, stretched
over a decade.
To my mind, therefore, we must start work with the insurance
companies as a basis. I was recently asked by a committee of the
Claim Adjusters’ Association, in Massachusetts, to undertake to work
out this problem and suggest a way to establish an employment
agency through which this could be accomplished. No one knows
better than I the difficulty of getting these crippled and disabled
back to work. You have to overcome several big obstacles. In the
first place, when the insurance company tries to have a man go to
work, the man thinks he is being imposed upon and that this big
insurance company is trying to compel him, a cripple, to go to work
in order that the company may save a few dollars a week. Then
there is the opposition of organized labor, which insists that men
holding union cards must get full union pay, and regard any
attempt to have disabled men work for less than the scale as an
attempt to break down the wage scale. This opposition, I feel sure,
will vanish when the plan is presented to organized labor in a per­
fected form, for it means much to the men and women who work,
and will present a welcome relief from the drains that are now
placed upon the treasury of every labor organization.
Next, employers whose insurance premiums depend upon accident
experience do not wish to employ a cripple—say a man who has lost
an arm, to be specific—lest he again be injured and become perma­
nently incapacitated; nor do they want a man who has lost one eye
charged to them as totally incapacitated if he loses the other when
they are responsible for the loss of only one eye. There are other
obstacles to be overcome, but these are the principal ones. They
70085°—Bull. 212-17---- -23


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can ail be met, and met satisfactorily; but in order to meet them it
will be necessary to make certain legislation in some cases and do
much educational work in all cases. And this costs money, so that
without large financial backing this work will fail, because as a
business proposition it involves too large an expenditure to be under­
taken as a private commercial enterprise.
The whole community is interested, for in the last analysis the
burden falls upon society in general. But the solution is not impos­
sible, nor is it too difficult if approached in the right way. To start
such a bureau involves first a survey of the field. We will call it a
vocation bureau.
I have outlined roughly a plan which I know is workable and
which can be carried on successfully. As time is short and my
paper is limited to 15 minutes, I can give only the outline, or a
skeleton of the plan itself, which can, of course, be elaborated upon
and made more workable.
I do not pretend that it is the best solution of the problem, but
I do feel that it is a step in the right direction; and if I have done
nothing more than draw your attention to this problem and to the
necessity for its solution I shall have done my share.
S p e c if ic a t io n s




R eem ploym ent

A r is in g


C r ip p l e s


I n j u r ie s

O u t of I n d u s t r y .

1. To compile and classify statistics, number o f cripples in classes; that is,
by character o f im pairm ent; by a g e ; by education and general tra in in g ; by
industry, trade, occupation, and earning capacity in each class.
2. T o com pile and classify statistics as to industries and trades and occu ­
pations in w hich the different kinds o f impairments w ill be no handicap, and
the amount o f wages w hich should be earned by the different classes o f cripples
in the different employments. This study should be lim ited to Massachusetts,
but should aim at securing the names and addresses o f employees, the number
o f employees in each place o f business who do not need all their faculties or
members, in what occupations persons w ith one hand can be employed, per­
sons w ith one foot, and so on through the list o f different impairments, w ith
the approxim ate number o f persons w ho could be so employed by each employer.
The more definite and exact this inform ation is, the more valuable w ill be the
3. To compile and classify statistics as to the method o f education and
training w hich may be adopted to prepare cripples w ith different im pairments
for new occupations adapted to the impairment, or fo r a return to their old
4. T o compile and classify statistics as to industries which may be organized
and adapted to efficient employment o f cripples.
5. To institute immediately a campaign for interesting and enlisting em ­
ployers in the employment o f the handicapped, and to place at w ork in the
different industries cripples referred by the insurance companies. This w ork
will involve arrangements w ith the labor unions whereby cripples can w ork at
a. less wage, if necessary, than persons without such handicap.



Tlie prim ary and essential purpose o f the whole effort being to return cripples
to industry as efficient members o f society as soon as practicable after the in­
jury, definite inform ation as to actual positions open to cripples, and suc­
cessful efforts in placing the cripples at work in such positions are essential
fo r saying im m ediate financial loss to the injured employee and the insurance
companies and the ultim ate loss to the State representing the community at
large. The prolonged dependence upon, weekly compensation by cripples dulls
their industry, creates a habit o f idleness w hich reacts upon themselves and
the insurance companies and after a few years upon the Commonwealth.

(A ) Reabsorption in industry o f men partially incapacitated but w illing and
anxious to work.
(B ) Compelling need o f food and shelter w ill operate in leading men to
accept offered jobs;
(C ) W ork for w hich the man is physically fit may enable him later on to
take his old job.
(D ) Reeducation o f the crippled along new lines.

(a ) A ctive indorsement and cooperation o f organized labor and the em­
ployers in recognizing the need fo r helping the partially incapacitated and
that they can render a w ork equivalent fo r their pay.
(&) Not a charity or an attempt to force the misfits on the employer.

Registry w ith complete facts as to industrial accident.
1. Cause and nature o f incapacity.
2. Period o f nonemployment.
3. Nature o f previous occupation.
4. Sex ; a g e ; n a tion a lity ; dependents.
5. Ability to speak English.
6. Length o f time in previous jobs.
7. Need for outdoor job.
8. Kind o f part-time w ork that is suitable.
9. Health certificate from insurance company doctor or from the bureau’s
10. Certificate from the bureau a guaranty and recommendation.

1. Watchmen, night.
2. Policing o f yards, premises, and plants.
3. Messenger.
4. Peddlers (country trade, c. f. aluminum outfit).
5. Com binations f o r small businesses.
6. Reeducation in other lines.
(A ) Through union affiliations these can, be opened up lo c a lly : (1 ) D elica­
tessen; (2 ) cigars and fr u it ; (3 ) n ew spapers; (4 ) other sm all stores.
(B ) Through form er employer and at the suggestions from the labor bureau,
the creation o f subagencies (c. f. a business fo r prom oting the sale o f the manu­
facturers’ p rodu ct). This can be' done in combination w ith A.


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7. A certain amount o f training to fit men fo r their new jo b s (a man inca­
pacitated from using his legs must learn the first principles o f a trade at which
he can sit or to use his arms or artificial lim bs w hich w ill enable him to do his
old w ork or enter new w ork ).
8. For women w ith one or tw o children, positions with fam ilies in the
country, where lodge keepers can be used, seamstresses, maids, housekeepers,
mothers’ assistants, or by reeducation in other lines, as clerks or factory
9. A rudimentary training in cooking and the prim ary essentials o f house­
hold w ork should open up certain trades, waitresses.
10. For women with broken arches, adequate treatment, change o f w ork to
one where standing is unnecessary, retraining in other lines where impairment
will not be a handicap.
(A ) The success o f the bureau is absolutely dependent on the intelligence and
loyal cooperation o f the (1 ) employer (organization) ; (2 ) labor union s; (3 ) the
(B ) A ccurate statements as to the exact wage-earning capacity o f the indi­

1. Rural organizations, such as granges, benevolent and fraternal orders,
State free employment agencies, employers’ associations, women’s clubs, patri­
otic societies.
2. Urban organizations, such as boards o f trade, men’ s clubs.

( a) Convalescents’ homes in country.
(&) Artificial lim bs (c. f. the variety o f effort w orked out on the battle field
by France, England, and G erm any). Reeducation based on their use.
( c ) Primers (M other Goose style) w ith suggestions for regaining the form er
wage-earning capacity as neAr 100 per cent as possible.

Under the head of reparative agencies I name convalescents’ homes
in the country. These should be located near large centers of popu­
lation and to them should be sent those who, discharged from the
hospitals, are yet not able to return to work. The stay of the patient
here would depend upon the nature of the accident, the physical con­
dition of the patient, and his or her mental attitude. Every care
should be taken in these homes to instill into the mind of the injured
person a desire for return to active life. They should be shown
kindly and tactfully how necessary this is for their future well­
being, and every effort made to build them up physically and
From this convalescents’ home those who need reeducation in order
to get back to employment should go to these reeducational insti­
tutions such as exist to-day all over Europe. Here men who have
only done hard manual work should be taught lighter grades of work
and the stay here would depend quite largely upon the individual



There are thousands of cigar makers in the United States who can
no longer do a full day’s work, or if able to work all day, who can
no longer turn out enough cigars to make it profitable for any em­
ployer to hire them. Yet each can in a week turn out enough cigars
to earn a fair week’s pay, which, together with his compensation, will
enable him to be self-supporting. A cooperative factory where each
man might do his best would solve a large part of this trouble, and
give men employment at their own trade where now they are barred
for reasons already advanced.
I cite this one example because I happen to know what can be done
along this line, and feel certain that such an attempt would meet with
These human repair shops and reeducational schools can be as well
worked out here as in Europe, and the results will be equally gratifying.
But best of all is the prevention of these conditions, and the stop­
ping of this waste at its source. The prevention of accidents is not
only possible but is being done. The prevention of occupational
diseases, and they are more numerous than we generally admit, is
largely a matter of education, while industrial hygiene will prevent
much physical impairment and sickness that is now looked upon as
an ordinary incident in business life. This all means education, and
I would like to discuss it from this standpoint exhaustively, but time



The C h a i r m a n . At the suggestion of Dr. Meeker, a slight change
will be made in the program as it is printed. That is, immediately
following Prof. Fisher’s paper we will have the pleasure of listening
to Dr. Edsall, and following him, Mr. Hoffman. Then we will have
the discussion which you see upon the program.


The subject assigned m e,44Defects and suggested changes in work­
men’s compensation laws,” fairly construed, implies a license to speak
at great length. For none can doubt that there are many defects,
imperfections, in the present laws; and certainly there have been a
great many suggestions of change. Even among us here, who may
be presumed to have examined carefully the laws now in force in
Canada and the United States and to be conservative rather than
radical in temper, there would be general agreement as to the reality
of certain defects. Most of us, for example, would pronounce any
compensation statute imperfect which is left to be enforced through
the ordinary courts of law, or which does not require from private
employers any insurance or guaranty of their liabilities. And every­
one here must have marked scores of defects, great or small, in the
schedules of awards, in the provisions for the curative treatment of
the injured, or in other portions of the acts.
But all of these topics could not be discussed adequately in a single
paper of reasonable length. Moreover, the most important of them
are assured suitable treatment at other points in the program of
this conference. Accordingly, I shall quite ignore all of the defects
of which a hint has just been given, highly important though some
of them are, and ask your attention only to defects of scope, of range
or extent of application of our compensation laws. And even within
limits thus narrowed I shall not attempt to bring up everything which
might be made to appear as a defect. It will be better to focus
attention upon defects which are reasonably clear, somewhat common,
and of considerable practical consequence.
The wide and rapid spread of compensation legislation in all
quarters of the world often has been cited as proof of a universal
approval of the principles upon which it rests. In particular, we in
the United States have declared with something of pride and joy that
within the brief space of five or six years compensation laws have
been enacted for two-thirds of the States containing three-fourths of
our population and industry.
But it would be a gross error to suppose that three-fourths of
our employees, or anything like so many, are covered by our com­
pensation laws—that three-fourths of those injured at their em-




ployment within the United States stand to receive what we euphe­
mistically call compensation. This moment is not the time to de­
cide, nor even to ask, whether American compensation statutes have
been enacted with satisfactory rapidity of succession or whether
their provisions are reasonably adequate to the need. But we can
not be too prompt in ridding our minds of any belief that threefourths of the American wage earners who are disabled at their
tasks are entitled to payments on account of their injuries and losses.
But a small percentage of those who are disabled by industrial acci­
dents, even within the so-called compensation States, can secure
any indemnities whatever under the compensation laws. The great
majority either are not affected in the least by the laws, have only
the poor privilege of suing their employers with somewhat better
prospects of winning damages, or have more or less adequate medical
care at the employer’s expense, with no possibility of securing either
indemnities for lost earnings or payments on account of pain and
Mr. Frederick L. Hoffman’s estimates of the numbers of indus­
trial injuries suffered in the United States are admittedly rough,
with no claim of close accuracy. Nevertheless they are much used
as being the best comprehensive estimates there are—one might per­
haps say the only ones. Such as they are, they may serve as the
basis for some suggestive rough computations. Mr. Hoffman esti­
mates that there are some 25,000 fatal industrial accidents a year in
the country and about 700,000 nonfatal injuries disabling for more
than four weeks.1 In Massachusetts, in the administrative year
1913-14, the industrial accident board had reports of 96,382 non­
fatal injuries. Of these, 55,113 disabled the sufferers for more than
one day; and of these, in turn, 11,836, or 21.5 per cent, disabled for
more than four weeks.2 I f the same relative durations of disa­
bilities as in Massachusetts hold for the country as a whole, then
we have each year some 3,255,800 nonfatal industrial accidents dis­
abling for more than one day and no less than 5,690,000 reportable
If, now, these grand—and awful—totals, 25,000 fatalities and
3,255,800 nonfatal injuries disabling for more than one day, be ap­
portioned to the States according to their several populations, and
if, then, account be taken of the numbers of compensation awards
actually made in each, a rough indication can be had as to the extent
1 Bulletin of the United States Bureau of Labor Statistics, No. 157, p, 6.
2 Second Annual Report Industrial Accident Board, Massachusetts, July 1, 1913, to
June 30, 1914, p. 23.
3 These figures, terribly high as they are, are rather supported than denied by a
careful comparison with the returns to and from American industrial commissions.
In the first seven months of operation of the New York compensation act there were
130,723 notices o f injury filed by employers. In the first ten months of the Pennsyl­
vania act 2.113 fatal accidents were reported to the department of labor and industry.



to which industrial disabilities are, in fact, compensated in the
so-called compensation States. In 1910 Michigan had 3.1 per cent
of the population of continental United States, and both in percent­
age of population gainfully occupied and in their distribution in the
great classes of occupation Michigan was fairly typical of the entire
country.1 I f Michigan has 3.1 per cent of the estimated industrial
accidents of the country, she has yearly 775 fatal injuries and 100,900
nonfatal disabling for more than one day. Yet in 1915 the total
number of compensations awarded, aside from medical care, was
13,492, or 13.3 per cent of her conjectural quota of disabling injuries.
No other State corresponds so closely to the country as a whole
in distribution of occupations. For this reason, as well as because
the States have gained population at different rates since 1910, and
for still other reasons, further comparisons of the numbers of com­
pensation awards with the presumptive numbers of disabled workers
are but very rough indications of the situations in particular States.
But, for what they are worth, a number of such comparisons may
be given:
Per cent.

California, 1914__________________18
Connecticut, 19 15 -16____________ 16. 3
M aryland, 19 15__________________ 7
Massachusetts, 1913-14__________18
Montana, 1915-16_______________ 10.9
Nebraska, 1914-15_______________
1. 4
New Hampshire, 1914___________ 3 .6

Per cent.

New Jersey, 1915________________ _7
New York, 1914-15______________ _6
Ohio, 1914-15____________________ 18.7
Oregon, 1914-15__________________11. 6
Texas, 1914________________ _____ _3
Washington, 19 14 -15____________ 28
Wisconsin, 1914-15______________ 13. 9

There are more possibilities of minor error in these data and in the
methods of their present use than it is worth while now to enumerate;
but the broad general meaning of the table is unmistakable. Present
American compensation laws afford their nominal benefits to only a
small part of our disabled workers. The wide differences among
the States are to be explained not only by the varying provisions of
the statutes as to scope, method of administration, waiting period, and
the like, to which specific attention must be turned* presently, but also
1 The percent of population in gainful occupations in the United States and in
Michigan, as well as the distribution of persons 10 years of age and over in gainful
occupations, is shown by industry groups in the following ta b le:

Per cent of occupied persons 10 years of age and over engaged in-

Manu­ Trans­
D o* Clerical
tion in Agri­
Public Profes­
sional mestic occu­
gainful culture. Mining. factur­ porta­ Trade. service.
United States..........












w o r k m e n 's


by the comparative newness of the compensation systems in one State
and another. The data for Maryland, Montana, Nebraska, New
York, Oregon, and Texas are for the first periods of the laws’ validity
in those States; and it is not to be expected that the full normal ex­
tent of compensation will be realized at once. At the beginning not
all injuries will be reported and made the basis of claims; and of
those which are reported some will be carried over into a later period
as unsettled cases. But in California, Connecticut, Massachusetts,
New Hampshire, New Jersey, Ohio, Washington, and Wisconsin the
compensation systems had been established long enough to have ap­
proximated their normal effects. And in these States together it
appears that existing laws do not, in fact, secure compensation to
more than one-fifth of those who suffer appreciable loss through dis­
abling injuries; while in some of them the proportion of actual bene­
ficiaries is much less than one-fifth. In Nebraska, a State with a
million and a quarter of people, there were but 605 compensation
awards in the year ending November 30, 1915,1 and in Kansas, with
a million and three-quarters of people, there were not more than 863
in the year 1914, the third year of the operation of the compensation
The reasons for the narrowly limited practical beneficence of the
American compensation statutes are several. In most of the States
the acts do not apply at all to certain employments, even to some of
the most important. In only a quarter of the States is compensation
compulsory by simple virtue of the statutes and without regard to
the wishes of employer or employee. In nearly all, no compensations
are payable except for disabilities continuing through and beyond a
specified “ waiting period,” which commonly is two weeks. And in
all of the States certain disabilities are denied compensation for
one or another reason connected with their origins, characters, or
consequences. It is not easy—probably it is not possible—to de­
termine with any approach to accuracy the extent to which each of
these several reasons accounts for the shortened effective reach of the
laws of Ihe different States. But it is not only possible but easy to
see in a general way what the various limitations, exceptions, and
exclusions mean and to judge how seriously defective they make the
compensation systems.
It is not unreasonable to start with the presumption that an ade­
quate compensation statute should afford indemnities for all dis­
abling industrial injuries. Very likely a close examination may dis­
cover conditions under which injuries should be left uncompensated;
but the first provisional assumption must be that all should be covered.
1 Report of Department of Labor on the Operation of the Workmen’s Compensation
Law for the year ending Nov. 30, 1915, p. 12.
2 Thirtieth Annual Report of Department of Labor and Industry for 1914, p. 239.



And exceptions are to be justified only by positive and specific rea­
sons. What is unquestionably wise policy touching many or most
injuries must be counted as of general wisdom until there appear
good reasons for a different judgment. It remains, therefore, to
examine the grounds for the chief limitations of the scope of the
American compensation statutes.
As everybody here knows full well, the lawmakers often attempt or
profess to limit their statutes to especially dangerous employments,
sometimes by the enumeration of certain employments which alone
are to be affected, as in a dozen or more of the American States
and most of the Canadian Provinces, sometimes by excluding those
persons who are employed below certain minimum numbers together
or by limiting their application to those occupied at mechanical tasks,
and sometimes by other devices. Yet it is entirely clear that from the
standpoint of the injured employee there is not the slightest reason
for distinguishing between the more and the less dangerous employ­
ments. The pain, the later suffering, the loss of earnings, and the con­
sequent need of compensation depend in no respect whatever upon the
degree of hazard in the occupation in which the injury may have been
received. Nor is there reason to assume that those to whom injuries
come seldom will be in better financial condition than others to endure
them and the loss of earnings which they entail. For the employer
the case is even simpler. The less often injuries occur in his service
the less he has to pay, either in direct compensation or in insurance
premiums. And for society and the State the significant fact is in the
number of accidents, not in the number of persons among whom they
occur. The direct and indirect losses are the same, whether a hundred
men and producers are killed in a trade with a million members or in
one with only a hundred thousand. And the costs of administering
a compensation system are measured rather by the numbers injured
than by the numbers covered.
For the American States there is some historical explanation of
this professed limitation to hazardous employments: When com­
pensation laws first were being framed in this country there was real
doubt, among lawyers and some others, as to whether any such laws
could stand the tests of constitutionality; and there was reason for
believing that a limitation to hazardous trades, even a professed
limitation, might afford some assurance of approval in the courts.
But this excuse for the limitation has vanished since the wide adop­
tion of the device of the optional law and the repeated decisions of
the highest State courts that such laws are entirely constitutional.
Moreover, the legislative policy of dubbing a long and varied list
of employments “ dangerous,” or “ hazardous,” or what not, as a pre­
liminary to bringing them under a compensation act is a transparent



sham. Comparative occupational hazards, in America at least, are
not known with any exactness even now; still less were they known
when our legislative enumerations and distinctions were made. The
repeated readjustments of compensation insurance premiums, both
by the State funds and by the stock companies, as public and private
insurance slowly accumulates experience, are proof enough of the
incorrectness of the relative hazards which were assumed at the
beginning. And it is not likely that any man here, even the one with
the longest and broadest experience, will venture to affirm that his
office has yet a satisfactory comparative rating.
Even more may be said. Such vague and uncertain knowledge as
there was and is has been disregarded generally in drawing up the
lists of u hazardous” employments. With some not unimportant
reservations, it may be stated that the practice of most legislatures
has been to attempt an enumeration of all work in mining, construc­
tion, transportation, manufacturing, and closely related industries,
and none other. And while it is undoubtedly true that most work—
not all—in mining, construction, and transportation is more than
ordinarily dangerous for workers, the same can not be said of manu­
facturing generally. Many forms of manufacturing, especially in
textiles and in similar lines, are probably of much less than average
hazard. Yet these are everywhere included, even where, as in New
Hampshire, the dangerous heavy construction trades and rock and
earth work are not included. And agriculture, which is decidedly
dangerous in its modern phase, is excluded, largely or wholly, by one
device or another in every State except New Jersey and Hawaii,
and, perhaps one might say, Louisiana. But the general exclusion
of agriculture is another story.
Nearly half of the American States and some of the Canadian
Provinces exclude from compensation such persons as are in a com­
mon employment in less than certain specified minimum numbers—
from 3 in Oklahoma to 11 in Vermont. For this exclusion there are
a number of explanations, mostly not openly avowed. It is, indeed,
openly alleged that there is less danger where only a few are work­
ing together, both because the few can better be on guard against
each other and because, in the nature of the case, they can not often
be engaged about powerful and dangerous machines. But if degrees
of hazard in the nature of the occupation can not as matter of prin­
ciple be counted good ground for inclusion or exclusion in compen­
sation laws, no more can differences of hazard due to the size of the
Moreover, in practice again there is no general indication that
the numbers in common employment are really taken seriously as
a measure of occupational hazards. Only 5 of the 13 States which



profess to limit their laws to dangerous trades take any account of
the numbers employed; and of the 16 States which have numerical
exemptions only the same 5 profess generally to distinguish between
hazardous and nonhazardous trades. Yet if degrees of hazard are
to be distinguished at all, they should be measured in both ways, by
nature of occupation and by numbers employed together.1 For
hazard is a function of at least two variables, nature of occupation
and size of establishment; and if there were a degree of hazard
above which alone compensation is needed, at least this degree
would not be reached in the same size of the establishment in all
Aside from questions of greater or less danger, there are at least
two covert explanations of the numerical exemptions. The insur­
ance of compensation liabilities, which is eminently wise for all em­
ployers except those whose large businesses may enable them to
carry their own distributed risks and which is required by the laws
of most States, is of vital importance to the small employer. Yet
for him the common and necessary minimum premium charge makes
insurance, and so compensation, relatively more costly than for the
employer of larger numbers. Then, too, the exemption of the .small
employer is a more or less subtle method of granting exemptions to
the farmer and the householder.
On the whole, notwithstanding the one relevant objection of high
cost, the well-pondered conclusion probably must be that there are
no adequate reasons for excluding from compensation those who
happen to be at work with few mates. Maiming and loss of earnings
are the same for them as for those who work in the largest mills.

In half of the States no compensation is provided for any per­
son employed otherwise than for the employer’s business or gain.
And thus alone are shut out something like 10 or 12 per cent of all
employees in the compensation States—domestic and personal serv­
ants, the employees of educational, religious, social, charitable, and
similar bodies, in some States public employees, and everywhere a
small but appreciable number engaged in construction. I f the em­
ployer can shift his expenses of compensation to others, as industrial
employers do, there is no reason whatever for distinguishing nonin­
dustrial from industrial employments. I f the nonindustrial em­
ployer can not shift his costs, as perhaps in domestic service, at least
the costs will be small in most cases, except where the employing
many servants proves ability to carry large costs. It is indeed a
strange suggestion that educational, charitable, and religious bodies,
1 Manifestly it is the number employed together, in one place, that is significant, and
not the number in the service of a common employer. Yet in but few of the States is the
distinction thus properly made ; more often it rests upon the quite insignificant fact of
service of a common employer.


w o r k m e n ' s c o m p e n s a t io n .

all supposedly philanthropic in spirit and character, should have a
subsidy in the woes and uncompensated losses of their humble
The two classes of employees who are most widely denied the bene­
fits of compensation are agricultural laborers and domestic servants.
By omission from the enumerated lists, by specific exclusions in direct
terms, by the numerical exemptions, or by the exclusion of those not
employed for profit, these two classes are cut out nearly everywhere.
Only in New Jersey are domestic servants covered equally with other
employees; in Connecticut they are covered where five or more may
be in common service. Nowhere else in the United States are they
affected by either compulsory or optional statutes. Agricultural la­
borers are but little better off. Only in New Jersey and Hawaii are
they covered equally with other employees. In Wisconsin they are
covered where four or more work together; in Connecticut and
Ohio where five or more work for the same employer; while in
Vermont they are covered wherever at least eleven may be working
regularly for the same employer. In these two classes there can not
be less than 3,000,000 employees within the so-called compensation
States who are wholly deprived of the compensation benefits which
most other employees are granted.
Domestic servants make much the greater part of those employed
otherwise than for the employer’s gain, a general class already con­
sidered; but they are best judged by themselves, because of the par­
ticular circumstances of their employment. I f neither the low
hazard of their occupation, the small numbers in which usually they
are employed together, nor the fact of their service not being directly
profitable to their employers can justify their exclusion from com­
pensation, can any other circumstances of their situation? No other
has been suggested except an intimacy of personal relations between
employer and employed which has been thought to afford some
guaranty that the injured employee will be cared for out of the
voluntary good will of the employer. Doubtless such voluntary care
of some sort, partial if not complete, can be counted upon in many
cases, especially in cases o f slight and brief disabilities. But there
is no warrant in experience for supposing that even trifling injuries
will be cared for and compensated generally through the good will
and bounty of employers; and few employers of domestic or personal
servants will possess both the will and the ability to make adequate
compensation to such as are seriously and permanently injured in
their service. And wherever spontaneous good will and sufficient
means may be present, the existence of a general compensation cover­
age need not hinder their free exercise.
As for farm laborers, they usually have been excluded from com­
pensation on the more or less plainly indicated ground that they are



not engaged in a dangerous occupation. It need not be shown again
that a low occupational hazard is not good ground for exemption
from the compensation law. But it is not true that modern farm
labor is nonhazardous. Data for industrial injuries in this country
are generally inadequate for definite conclusions as to comparative
trade hazards, but they are especially inadequate to show the dangers
of farm labor. Farm accidents, for many reasons, are much less
fully reported than accidents in urban industry. Even since work­
men’s compensation laws and industrial commissions have started
an inflow of returns for industrial accidents generally, farm acci­
dents have been very incompletely reported, partly because the general
exclusion of farming from the field of compensation makes it of
little practical importance to anybody to recognize and record them,
and partly because of the physical and other circumstances of their
Such data as are available, in the experience of industrial com­
missions and insurance companies, tend to confirm for this country
the judgments which most of us were inclined to make for American
agriculture upon the basis both of European experience and of known
dangers here, dangers from animals, machinery, blasting, and similar
sources. While doubtless American agriculture is less dangerous
than our industries as a whole, and much less dangerous than mining,
construction, and transportation, it quite certainly is more dangerous
than manufacturing employments generally, which are covered by
every American compensation law without exception.1
It has been suggested, and possibly seriously by some, that the
same intimacy of personal relations to which reference has been made
as the domestic servant’s assurance of voluntary care and indemnity
may protect the injured farm laborer also. Perhaps, in rare cases
and within narrow limits; but such spontaneous and adequately
financed good will is even less likely to abound among farmers than
among householders.
The real reasons for the exemption of farm laborers are political,
nothing else. Farm laborers are not organized into unions, nor have
they other means of bringing their wishes to the respectful attention
of legislators and political managers. Even more to the point is the
fact that agricultural employers generally have been opposed to com­
pensation legislation. What their reasons may have been and how
nearly unanimous they may have been are important questions; but
the great fact stands clear that the farmers’ influence usually and gen1 Mr. Hoffman’s estimated annual rates of fatal injuries per 1,000 employed are: All
occupations, 0.73 ; agriculture, 0.35 ; general manufacturing, 0.25. Of the 60,241 tem­
porary injuries in 1914 analyzed by the California Industrial Accident Commission
2,107 were in agriculture, although the compensation act applies only to such farmers
as voluntarily accept it. The commission could not tell how many agricultural em­
ployees were covered.


w o r k m e n 's

c o m p e n s a t io n


erally has been against the compensation acts or at least against snch
bills as might include themselves. The same may be said also o f
householders as such, in their capacity of employers of domestic
Undoubtedly the general exclusion of farm laborers and domestic
servants is a great defect in our compensation laws. And yet it may
be a grave question how soon, by what means, and how energetically
we ought to work for the elimination of this defect. There are
States in which no compensation bill covering farmers could have
been passed; probably there are States in which no such bill could
be passed now, after some years of happy American experience with
workmen’s compensation in other industries. In such States prac­
tical political wisdom—real wisdom at that—dictates the exception
of agriculture. From half to three-quarters of a loaf is much bet­
ter than no bread. In other States, where more comprehensive stat­
utes might be forced through, against the wishes of the farmers and
their political allies in the cities, the wise choice between force and
slower education must turn upon the particular circumstances of the
individual States.
The persons employed in interstate commerce by rail, and foreign
commerce also, are in a somewhat uncertain position. Before the
date of the earliest valid State compensation acts Congress had
begun to legislate upon the liabilities of employers engaged in inter­
state and foreign commerce by rail; and this Federal legislation cul­
minated in the Employers’ Liability Act of 1908. The framers of the
State acts have not been of one mind as to whether the existence
of this Federal act, fixing liabilities only in cases of employers’
fault and so not properly a compensation law, must be taken as ex­
cluding railroad men in interstate commerce from the scope of the
State laws. Generally, they left the decision to the courts, by refer­
ring to interstate commerce in such terms as left undetermined the
lines between State and Federal jurisdiction.
And courts and commissions have taken opposite grounds. With
direct reference to the Federal act, and since the State compensation
laws have been well established in their operation, the United States
Supreme Court has declared that “ since Congress, by the act of
1908, took possession of the field of the employer’s liability to em­
ployees in interstate transportation by rail, all State laws upon the
subject are superseded.” 1 But even in this late decision there is a
regrettable ambiguity. Just what is “ the subject ” ? Is it employer’s
liability in the narrower sense of liability for his own fault or is it
liability with or without fault, such as is established in one way
or another in the State compensation acts, whether compulsory or
optional ?
1 Seaboard Air Line Railway Co. v. Horton, Apr. 27, 1914, 283 U. S. 501.



Upon this sharply defined question, which is of vital importance
in the premises, State courts have divided. In California and Illinois
the State courts of last ^esort have held that the Federal liability act
covers the same subject as the State compensation act, and that, there­
fore, railway employees in interstate commerce can not have com­
There is, however, a greater weight of similar authority for the
principle that, as the Federal legislation applies only to liabilities aris­
ing from the employer’s fault, it does not touch the question of com­
pensation regardless of fault, and that, therefore, the State compen­
sation acts do reach even to interstate commerce, in the present ab­
sence of any Federal legislation as to liabilities without fault.2 As
there is no Federal liability for interstate carriers by water, it ap­
pears to be settled that for those engaged in such interstate com­
merce the State laws may have full application.3
Certainly it is a defect of American compensation legislation that
a million and a quarter of employees in interstate commerce should
not be definitely and undoubtedly covered. But, in view of the prin­
ciple that Federal authority is supreme over interstate commerce, it
can not be said that the defect is clearly in the State acts. In most
cases these go as far as they can go constitutionally, by attempting
to make their laws apply to intrastate railroading, when and in so
far as it can be distinguished, and to interstate work as far as con­
gressional legislation and judicial interpretation may permit.
For the elimination of this defect much might be done by a con­
gressional enactment or an authoritative Federal decision that the
Federal liability act does not interfere with State compensation leg­
islation for interstate and foreign commerce. Better still would be
an adequate Federal compensation act for all interstate commerce.
So long, however, as there may continue two different laws, the
Federal and the State, which both bear in important ways upon the
liabilities or the compensation in railroading, there must continue
to be difficulties in determining both jurisdiction and rights or lia­
1 Southern Pacific Co