In all forms of liability insurance there is a com mon basis. In employers' liability contracts, it is an agreement to indemnify or make good to the insured any loss arising from the liability imposed by law upon the insured person for damages on account of bodily injuries or death suffered by any employe or employes of the insured, in the factory, shop, yard or other described place. In the case of the other poli cies, there is the same provision for indemnification for injuries arising to persons who, of course, may not be employes, but who may have been injured by eleva tors, teams, etc., belonging to the insured.
5. Premium.—The premium is based on the wages of the employes who are protected by the policy. The sums to be paid are usually fixed by the liability acts, and bear some relation to the earnings of the em ployes. These, therefore, furnish the basis on which the premium is based. It is not unusual to omit the salaries of the higher paid employes, as superintend ents, foremen, etc., and this is usually acceptable to the insuring office because the large salaries which they receive in many cases would be a heavy liability to as sume. In a large plant, or a small one for that mat ter, if the risks vary in different parts, the payroll for each division of course is taken into separate consid eration, and a higher rate of premium may be charged for certain departments than is charged for others. The following quotation from the Yale Readings in Insurance, illustrates how rates may differ: The rate for woolen mills, including employes and the public is .23 for each $100 of payroll. The premium for a mill employing 500 operatives, old and young, skilled and unskilled, at average wages of WO a year, would be $517.50, and the cost of the insurance per capita is $1.035. The rate for steel bridge construction is $9.00 for each $100 payroll. A structure furnishing employment to 500 men of all grades, at average wages of $700 a year, would require a premium of $3,150 or $6.30 per man.
6. Reserves.—The fact that a liability may develop long after the accident has occurred, and that the liability itself may be of uncertain amount, has made the problem of providing the proper reserves very dif ficult. It has been necessary to adopt, from time to time, additional safeguards against the reserve becom ing inadequate.
In fire insurance, the losses are very rarely under estimated, but the liability insurance business is new and no general rules can be stated. The tendency
has been perhaps to underestimate the losses. If they were correctly estimated, changes in the laws which increase the benefits, or the attitude of the jury which increases its awards, have been rather discon certing and additional reserves have had to be pro vided.
This form of insurance does not concern property which can be properly appraised, but injuries to hu man beings, the appraisal of which must vary in dif ferent parts of the country, in different tribunals and with different individuals.
In general, the reserves are based upon the number of suits or settlements that have been taken care of in a past period, as from three to five years. The aver age cost of these furnishes a fairly accurate measure, but like everything else it is, for the reason stated above, subject to readjustment at different times.
Employers' liability insurance, with the growth of social consciousness, is disappearing and giving place to what is called "workmen's compensation," but the other forms of liability and some parts of employer's liability, remain and still furnish considerable casualty premium income, and will probably continue to do so. The development of workmen's compensation out of employers' liability, is one of the most interesting fea tures of the growth of civilization.
7. Workmen's difference be tween employer's liability and workmen's compensa tion can perhaps be grasped by the statement, that under employers' liability about one injury in eight which happened to an employe whose work came within the scope of the act, received compensation, and under workmen's compensation eight such in juries are taken care of.
A fundamental difference is that employer's liabil ity took a merely legal view of the matter. It said, in effect, under the law the employer is legally bound to do certain things for his employes. Should he fail to do these a fixed responsibility rests upon him, which responsibility means a money payment. Workmen's compensation embodies the view that accidents and injuries which occur in connection with various busi ness operations are, and should be considered, as a part of the cost of conducting the business. They should be paid for, just as the manufacturer would pay for raw material which he might purchase for the purpose of converting it into another product.