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Casualty Insurance

( Originally Published 1911 )

Casualty insurance defined.—Under the general heading "Casualty Insurance" are embraced all forms of insurance which do not strictly come under fire, life or marine. Of the fifty-one types of insurance listed in the first chapters of this work, nearly thirty would fall under this group. The term "accident insurance" is frequently used in referring to these types of insurance. Accident insurance means that form of insurance which covers dangers to the body of a person, including death if caused by accident. Historically, however, the name accident insurance came to be applied to a large body of insurances because these different types of insurance came into existence shortly after the invention of the steam railway. Someone conceived the idea that be-cause the dangers of accidents in that form of travel were greater, people would buy insurance against them; at the same time the originator of the idea pointed out that although the dangers were great, they were subject to certain laws which could be worked out. His statement proved to be correct. From its inception accident insurance has been one of the most popular, widespread, and successful branches coming under the head of casualty insurance.

233. General status.—Before passing to a consideration of specific branches, however, the general status of casualty insurance business, as shown by the statistical returns, should be considered. As in the other forms of insurance, the figures filed with the New York State Insurance Department for the close of business December 31, 1913, are used. These reports show sixty-four companies engaged in casualty insurance with total assets of $170,000,000, represented principally by

Stocks and Bonds $112,000,000
Uncollected Premiums 19,000,000
Real Estate 10,000,000
Mortgages 11,000,000

The liabilities were $92,000,000, represented in part by Special reserve for liability and

Workmen's compensation loss .. $16,000,000 Unearned premium reserve .... 52,000,000 Unadjusted and Adjusted but unpaid losses 7,000,000 Other liabilities 11,000,000

The liabilities of $92,000,000 did not include capital,

which is $43,000,000. The net surplus was $34,000,000. The income for the year was $135,000,000, the principal items being :

Premiums $122,000,000
Interest in Dividends 6,000,000
All other sources 5,000,000

The excess of income over disbursements was $11,000,000. The disbursements totaled $124,000,000.

Claims $53,000,000
Commissions 29,000,000
Dividends 5,000,000
Salaries, travelling expenses and inspections 17,000,000
Taxes 3,000,000
All other disbursements 16,000,000

The companies just noted were the stock companies and there were twenty-six associations based on the assessment principle. They had insurance in force of $92,000,000; assets of $3,750,000; income was $2,856,000, and disbursements $2,684,000.

The special form of insurance dealing with titles and the guarantee of mortgages may be considered as coming under the general casualty branch. Since these re-turns are made separately, the statistics are presented apart from the others. There were eleven such companies, with total assets amounting to $53,000,000; liabilities exclusive of capital $17,000,000, and capital $19,000,000. Reported surplus was $16,500,000; income $5,967,000; disbursements $6,229,000.

Accident insurance.—In taking up some of the leading branches of casualty insurance, accident should, historically, come first. Those who proposed this form of insurance in England in 1848 were considered bereft of reason; notwithstanding this fact, however, the Rail-way Passengers Assurance Company was established the following year (1849) by a special act of Parliament and this company stands as the first one in the world to undertake insurance against accidents to the per-son or body. The original charter did not plan for a very wide scope of liability. It was limited, rather, to those accidents arising in connection with railroad travel. But the plan was broadened to include accidents arising from any source and the necessary amendment to the charter was secured from Parliament on July 17, 1852. The company was successful from the start.

The Travelers' of Hartford.—In the United States, accident insurance was introduced by J. G. Batterson of Hartford, Conn. While travelling abroad, Mr. Batterson noticed the operations of the newly-formed companies, purchased one of the tickets and became convinced that there was an opening in the United States for a similar company. On his return he organized in Hartford the Travelers' Insurance Company, the pioneer in the United States.

Growth of accident insurance.—As already indicated, accident insurance has been constantly enlarging its scope so as to cover not only injuries to the body from physical contact with another body, but also so as to cover against certain kinds of diseases. In 1897 there were twenty-six companies which issued insurance against the following diseases: typhoid fever, typhus fever, scarlet fever and smallpox. This list was later ex-tended, many companies including diphtheria, measles and Asiatic cholera. By some companies an annuity was granted for life in case of permanent disability, and, furthermore, the benefits arising from injury in a rail-road accident were doubled—that is, if an accident occurred owing to a railroad disaster, the specified benefit was twice that of an accident arising from other sources. It is difficult to conceive of the broad range which has come to be included under this type of policy. It may even be said that in a short time there will not be any human ill that will not be covered by some form of insurance.

Various kinds of accidents.—The premiums for this type of insurance in the United States now aggregate nearly $25,000,000. During the first year of the business, from April, 1864, to April, 1865, the receipts were $32,148. A well-known compilation has been made setting forth the proportion of accidents arising under different circumstances. The table runs as follows:

Per cent

Accidents to pedestrians 24.14
At home (indoors) 18.80
Horses and vehicles 18.16
At home (outside) 15.98
Recreation 6.15
Railroad travel 4.77
Bicycle accidents 4.06
Street car travel 2.74
Use of firearms 1.73
Animal bites 1.52
Assaults 1.20
Steamship travel .70
Miscellaneous .05

When it is recalled that this form of insurance was invented to cover the possibility of accident in railway travel, and when it is noticed that railway accidents constitute only a small part of the accidents for which claims were paid in the above table, it can readily be seen that accident insurance was extended to cover a very wide field. In modern life accident insurance is probably one of the most necessary forms to carry, particularly so since the cost is comparatively trivial. The causes of accidents over a wide range is illustrated by a compilation covering claims paid in the year 1912.

Cranking gasoline launch—bar slipped and cut lip. Playing baseball—ball struck finger—dislocated finger. Playing tennis—sprained ankle.

Riding horseback—horse fell—thrown under horse.

Fishing—fell on rocks.

On steamer—slipped while playing shuffle and injured knee.

Bathing—knocked down by wave—injured foot. Playing golf—handle of stick was rough and cut hand. Rowing—bruised palm of hand with oar.

Playing ten pins—slipped and sprained thumb. Playing with medicine ball—fractured finger.

Getting over fence—jumped on stone and sprained ankle. Playing ball—collided with runner and fractured nose. Playing handball—slipped and fell and injured knee. In boat—knife which was on seat struck hip.

In swimming—was drowned.

In swimming at Y. M. C. A.—struck head on bottom of pool. Playing tennis—burned arm on cigarette.

Getting out of rowboat—slipped and fell.

Shooting pigeons—gun kicked—injured shoulder and arm. In bathing—stepped on sharp shell.

At picnic—lighting gasoline torch—burned hand. Fishing and wading—cut foot on stone.

Playing golf—fell and sprained finger.

Walking on mountain—came in contact with poison ivy. Camping—cut down tree—cut foot.

Bowling—crushed finger between balls.

Riding on merry-go-round—fell and dislocated shoulder. Camping—spilled hot grease on hand.

Walking in woods—limb of tree struck eye.

Injuries self-inflicted.—It may seem strange that persons will mutilate themselves. to obtain money benefits, but the experience of the companies shows that such is the fact and emphasizes the importance of carefully guarding against this practice. The ordinary elements of moral hazard which would apply to life insurance must be covered, of course, but in addition there must be taken into account people who apparently possess the peculiar art of inflicting injuries upon them-selves for which they can collect funds on their accident policies. The number of people who did this increased so rapidly that an organization was finally established to check up the claims made on the different companies. The experience of a certain company shows how care-fully the provisions of accident policies were studied by unscrupulous persons. For many years this company paid the same indemnity for the loss of either hand. Statistics over sixteen years showed that in 92 cases the right hand was lost, the indemnity paid being $48,511, and that in 111 cases the left hand was lost, for which the indemnity amounted to $88,879. This seemed disproportionate, and the only theory in explanation seemed to be that in many cases the insured selected the hand which was of least value, disposing of it to the insurance companies. Although this is a broad statement it seems to be confirmed by the fact that the right hand is more exposed to danger and more likely to be injured than the left. Further confirmation is found in the fact that the policy was changed so that a larger indemnity was paid for injuries to the right hand. With the change in the policy, statistics changed, and in two or three years 21 right hands were lost at an expense of $71,000 as against two left hands at an expense of $2,-500. This evidence, then, appears to be fairly conclusive,

Liability insurance and workmen's compensation.—From its importance to the community and from the volume of business, liability insurance and work-men's compensation are the most important types of insurance in the whole casualty field and deserve most careful consideration. To get into touch with the subject it is necessary to go back to early history and consider what is called the law of negligence as it grew out of the common law.

The law of negligence.—There are cases where one is liable in damages to another for injury growing out of things other than contracts. These cases generally fall under what is termed "negligence," the implication being that the party has failed to do something which he should have done to guard his premises care-fully, with the result that one rightfully there has been injured and has a claim for damages. To sustain a claim in these cases the injury received must be one recognized in law as a violation of a person's right.

Negligence defined and illustrated.—Negligence itself is defined as "an omission to do something which a reasonable man guided by those considerations which ordinarily regulate the conduct of human affairs would do, or the doing of something which the prudent and reasonable man would not do." The connection between the accident and the cause must not be too remote. The party against whom suit is brought must not be expected to have forestalled or foreseen every type of accident that might have happened. For example: a van was washed in the public street. The weather was cold. The water froze and a passer-by slipped on the ice. He brought suit for the resulting injury but the case was dismissed, the court taking the position that there was not a true cause of action. The connection between the two things—the washing of the van and the freezing of the water—not being close enough. An-other famous case illustrating the theory is that of Wilkins vs. Day. Some laborers were employed to carry a roller from one field to another across a road. They left it, however, in a ditch near the field with a portion of the handle lying on the edge of the road. Mrs. Wilkins happened to drive past the place; her horse shied, and she was thrown out and killed. Suit was brought by her administrator and recovery was allowed, the position being that the work was done in a negligent manner and that for this the defendant was responsible. Still another interesting example is the famous Squib case, which arose at a fair in Milborneport, October 28, 1770. The defendant in the case lighted a squib—a form of firecracker—and tossed it into one of the booths at the fair. The party who owned the booth, wishing to avoid injury to his goods, picked it up and tossed it to another, who in turn tossed it to a third, where it burst in the face of a fourth person, destroying the sight of one eye. When the case came to trial there was much argument as to who really was the responsible party. The courts decided that the person who first lighted the squib was responsible and damages were collected from him. He was what is known as the proximate cause, and that was the controlling fact. This is sufficient to set forth in brief form the negligence theory of the law.

The law modified.—For centuries it was only under negligence that damages could be recovered where there was an in jury to the person, and the same rule applied whether the person was an employe of another or a stranger. No larger rights were enjoyed by the employe in bringing suits than were enjoyed by a stranger. If the party sued was liable, he was liable under the general law of negligence and not from any other relation existing between the two parties. Up to the year 1837 it was the law in England and the United States. If A was hurt by B's neglect, B was bound to compensate A whether A was an employe or not and he was not bound to compensate him any more because he was an employe. In 1837, and from that period on, the harshness of this law when it came to the employer and employe was recognized, and there developed certain modified rulings where the employer and employe were concerned. Common law had worked out the following ,rules for an employer in connection with his employes:

(1) It was his duty to provide a reasonably safe place to work.

(2) It was his duty to provide reasonably safe tools and appliances.

(3) It was his duty to be reasonably careful in hiring agents and servants for the work they are to do, and

(4) It was his duty to provide suitable room for carrying on the work.

The employer's three defences.—When it came to actions between the employer and employe the courts developed out of these four seemingly simple principles certain rules which apparently were more favorable to the employer than to the employe. Three "defences," as they have come to be called, were embedded in English law and constitute historic landmarks. They are as follows:

(1) If the employe who is injured had failed to use reasonable care himself and if this failure contributed to his injury, he cannot recover from the employer in his action at law. In other words, he must show that he was free from contributory negligence if he wishes to make out his case. This defence of the employer in a suit for negligence has been a part of the common law of England and the United States since the middle of the 18th century.

(2) The second rule that developed was known as the "fellow servant" rule. If the employe was injured by the negligence of a fellow servant, that fact would shut off his recovery against the employer at common law. This fellow servant rule developed out of the well-known case of Priestly v. Fowler, 3 M. & W. 1, decided by Lord Abinger in the Courtof Exchequer in 1837. In 1858 this decision was in another case confirmed in the House of Lords. It was adopted in Massachusetts in 1842 and in New York State in 1851. The fellow servant rule was the second defence of an employer when suit was brought by an employe. A butcher's helper who was injured by a wagon driver hired by the same employer sued the employer for damages. The judge who made the decision considered somewhat minutely the possible actions that might arise if every case where one employe was injured by the negligence of another furnished grounds for a legal action. In his illustration he even went so far as to assume that the master might be responsible for an illness arising from the negligence of a chambermaid to put properly aired sheets on a bed. Referring to this decision Lord Esher said, "I think it may be suggested that the law as to non-liability of master with regard to fellow servants arose principally from the ingenuity of Lord Abinger in suggesting analogous cases in the case of Priestly v. Fowler." This defence seemed so harsh, however, that many of the United States courts trimmed it down to somewhat narrower proportions, in the following ways:

(a) They ruled that it would not apply as a defence to the employer if the negligence of the fellow servant was a failure of one of his duties which rested upon the employer himself, such as the duty to provide a safe place to work.

(b) They ruled that the superintendent in general charge of work and so acting was not a fellow servant within the meaning of the fellow servant rule but really represented the employer himself, in fact, was the employer.

(3) The third and final defence of the employer was known as the "assumption of risk." This defence was that the employe had assumed the normal risk of the business ; that is, an employe entering employment must be held to assume to consent to the ordinary risks incident to the employment and if he is injured thereby he cannot recover from his employer for the ordinary risks of the trade.

Needless to say, the claims which might arise under these three main divisions are very numerous, and while the law became fairly well defined, the whole process of collecting damages for injuries under such cases furnished one of the most unsatisfactory developments of law.

What has so far been said is a necessary foundation for the study of liability insurance. After the first crude experiments in this field, some one conceived the idea that an insurance business could be founded which would assume the obligations of an employer, not only for liability to accidents to the public in general, but also for liability to his employes. Naturally, the latter feature was the more important. Out of this idea grew the famous form of insurance known as "employer's liability," a development which was probably hastened by the adoption of so-called "employer's liability laws." The origin of certain forms of these laws may possibly be traced back to Germany, but we are chiefly interested in their development in England, since the English laws, more or less modified, were the ones taken over by our own country.

First policy in the United States.—The first policy in the United States was issued in 1886 by an English company which had been formed especially to engage in this type of insurance. It is since that date that employer's liability insurance has grown to its present large proportions; and under its new form of work-men's compensation, it is undoubtedly destined to be one of the .leading branches, if not the leading branch, in point of premiums.

Types of liability insurance.—The liability insurance companies issue policies as follows:

(1) Public liability insurance, which covers the liability of the employer to persons not in his employ who may visit his plant on business or come in contact with the business in some other way.

(2) Employers' liability for contractors, covering the liability of contractors and others employing labor on work not confined to any given locality.

(3) Public liability insurance for contractors.

(4) General liability insurance, covering liability of the owner of a building for injuries or death caused by defects in or about the building or its operation for the use of tenants.

(5) Elevator liability insurance.

(6) Teams liability insurance, covering liability of the owner of horses or vehicles for accidents caused.

(7) Theatre liability insurance.

(8) Vessel liability insurance, which protects the owner against damages for injuries or death of any of the crew or other persons visiting the vessel and in some cases of the passengers.

(9) Physicians' liability insurance, covering the liability of physician, surgeon or dentist for injuries or death caused by alleged malpractice in the profession of the insured.

It will thus be seen that there are many varieties of liability policies. The same principles, however, operate in most of the policies, although different bases are used for computing the premium.

The expenses in liability insurance are exceedingly heavy, approximately 50 per cent of the total premium. The company, therefore, must see that its losses do not exceed 40 per cent if it expects to have a margin of 10 per cent for profits and contingencies.

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