The History of Workers’ Compensation Insurance

Topics: Workers' Compensation

Workers’ compensation is an integral part of the American labor force. But have you ever stopped to consider workers’ compensation’s history? Let’s dive in and take a look at how workers’ compensation evolved over time and why it’s a critical component of today’s safety net.

A System Born in Ancient History


Many people view workers’ compensation as a product of the Industrial Revolution, but its origin can be traced back to ancient Sumerian law. Drafted around 2050 B.C., these policies outlined requirements for compensating injuries to specific body parts. For example, pay out for a thumb injury was worth half of what you’d get for a finger. Ancient Greece, Rome and China had similar requirements distinguishing between an impairment—the loss of function to a specific body part — and a disability — or the loss of an ability to fulfill certain duties. Together, these ideas form the legal framework for modern workers’ compensation.

Impairment Payments for Plundering Pirates

While known for their plundering and vicious reputation, many pirate ships were actually highly organized. These ships faced dangerous environments where workers (aka the crew) were subject to extreme weather, manual labor and hand-to-hand combat. Getting hurt was part of the job, so a system for compensating injured workers was developed during piracy’s peak in the mid 1600’s.

For example, Captain Morgan (yes, the Captain Morgan) would pay his men in pieces of eight for losing the following body parts:

• 600 pieces for the right arm
• 500 pieces for the left
• 500 pieces for the right leg
• 400 pieces for the left

This may sound like a sweat deal, but there was one catch: In order to receive compensation, employees were required to survive their injuries. Those who did were free to collect benefits, remain on the ship, and complete less strenuous tasks as part of an early return-to-work program.

History of Workers’ Comp in 19th century Prussia

The foundation for modern workers’ compensation laws came to fruition under Otto Von Bismark— the Prussian empire’s “Iron Chancellor” who introduced Worker’s Accident Insurance in 1881.

Phased in by 1884, Worker’s Accident Insurance sought to prevent civil lawsuits against employers by providing workers an avenue for seeking monetary compensation and medical considerations after acquiring injuries on the job. This gave employees a chance to recover and receive compensation without harming their employer’s reputation or bottom line.

Worker’s Accident Insurance became industrialized Europe’s first mandatory workers’ compensation policy. Austria, Norway, Finland, and the United Kingdom would go on to implement their own workers’ compensation laws before the turn of the century. Across the ocean, it would take the United States longer to hop on the bandwagon.

Workers’ Compensation & the Industrial Revolution

In the early factories of the Industrial Revolution, working conditions were ripe with bodily hazards. Though injury rates skyrocketed, courts were the only option workers had for receiving compensation.

While the courts did provide an option to turn to, workers seeking compensation were operating under a restrictive legal framework. In fact, laborers could not collect anything if their employer could prove any of the following:

• Contributory negligence: If an employee was responsible for their own injury — regardless of whether they were working with hazardous machinery or in a dangerous environment — the employer would not be liable. For example, a worker would not be compensated if they fell and broke their leg.

• Assumption of risk: This is the idea that employees accepted the risk of their work by signing their contract. Likewise, many employment contracts included a clause relinquishing workers’ right to sue for injuries.

 • The “fellow servant” rule: Employers were not held liable if a coworker caused an employee’s injuries.

To make matters worse, most injured workers didn’t have the means to file a lawsuit — let alone overcome the “unholy trinity of defenses” listed above. It wasn’t until 1906 when Upton Sinclair’s infamous novel The Jungle was published — which described the inhumane working conditions in Chicago slaughterhouses — that public opinion and legislation began to shift.

Workers’ Compensation in America

After the turn of the century, Congress passed the Federal Employers’ Liability Acts (FELA) of 1906 and 1908 to ease restrictions of contributory negligence doctrines. Montana, New York, Maryland and Massachusetts tried and failed to pass their own workers’ compensation acts between 1898 and 1909.

In 1911, Wisconsin was the first state to pass an all-inclusive workers’ compensation policy. It took until 1948 for every state to pass their own workers’ comp legislation.

In general, this legislation required employers to reimburse injured employees for medical expenses and lost wages. In return, injured employees would forfeit their right to sue their employer by accepting these benefits. This structure is basically the same today and helps to protect the workforce from on-the-job health and safety risks. Businesses today have workers’ compensation insurance coverage in place to protect both the business and employees.

AmTrust is a leader in workers’ compensation insurance for small to mid-sized businesses. Contact us to find out how we can design specific insurance packages to fit your needs.


This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.
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