Insuring and managing workplace risks

In the first of a two-part series we discuss the risks that characterise the modern workplace and how these are managed from an employer’s perspective

Workplace risks can be grouped into two broad categories. First, there are physical risks that result in bodily injury, illness or death of employees. In the second category are risks that arise from the employer’s failure to comply with the law in terms of employee welfare, or with the company’s own policies and contracts, resulting in infringement of employee rights. Invariably, these culminate in lawsuits against the employer.

For risks in the second category, no physical harm is suffered by the employee, but consequences against the employer can be as damaging, if not more so, than risks in the first category.

In this edition we focus on risks in the first category and we conclude the discussion in the next edition by looking at risks in the second category.

Historically, risk of bodily injury, illness or death of an employee was the first to confront employers – especially during the industrial revolution. During this period, rail construction was arguably the most hazardous occupation in industrialising countries. Accident statistics in this occupation were staggering.

In Germany, where social insurance against industrial accidents was pioneered, the Prussian Railroad Law of 1838 (the first law in this regard) was enacted, which led to the German Liability Act of 1871, and, ultimately, to the comprehensive social insurance legislation of 1884.

In the United States (US) railroad accidents were equally bad, if not worse, to the extent that both President Benjamin Harrison and Franklin Roosevelt made reference to this issue in their presidential addresses of 1889 and 1908 – respectively.

In South Africa, the most notable milestone in dealing with industrial accidents was the decision, by the mining industry, to form the Rand Mutual Assurance Company in 1894 to address the problem.

Before 1900, employees injured at work had no other remedy except the common law. However, empirical evidence from both common law and civil code countries shows that injured employees stood virtually no chance of successfully suing an employer for damages.

A vast majority of injured employees simply went uncompensated. The biggest stumbling blocks were the three “unholy trinity” defences available to an employer namely: contributory negligence, volenti non fit injuria (voluntary assumption of risk), and common employment (also known as the fellow employee defence).

These defences formed an impenetrable wall around employers, with the result that no claim succeeded against them. In England and continental Europe the plight of injured workers and their dependants became a topic for public debate.

The first response in England, and in a number of states in North America, was to reform the common law – especially the three defences – but the results were disappointing. During this time, Germany managed to come up with a solution, in 1884, in the form of compulsory social insurance – commonly referred to as workmen’s compensation.

In essence, this is personal accident insurance taken out on employees for injuries, death or illness occurring in the course of employment. Soon thereafter, the rest of the world followed the German example starting in the early 1900s.

Today, the risk of bodily injury, death or illness of an employee – arising in the course of employment – can be managed in one of two ways, which are not necessarily exclusive. The first is the statutory compensation (workmen’s compensation) route, in terms of which injured employees get statutory benefits on a no-fault basis.

In a fairly large number of countries, injured employees cannot sue the employer for damages in return. Germany, Austria, the United States and, to some extent, South Africa are notable examples where this approach is used.

However, workmen’s compensation schemes are structured differently worldwide. For example, in the US, private insurers are generally used to insure workmen’s compensation risks, with the state’s role limited to designing the legislative and public policy framework of these schemes.

In Belgium, Denmark, Portugal and Finland occupational injuries under workmen’s compensation schemes are insured with private insurers, but occupational diseases are covered under state funds.

In South Africa, most workers are covered under the Compensation Fund, which is government-owned. The mining and construction industries have their own mutual insurance arrangements. In addition, the mining industry has other state funds for workers who contract occupational diseases.

Another way to handle the risk of injury, illness or death to an employee – arising in the course of employment – is to use employer’s liability insurance purchased from private insurers on a voluntary, or compulsory, basis.

A major difference between statutory compensation and employer’s liability is that the latter requires some sort of proof of the blameworthiness of the employer before a payout can be made.

Statutory compensation and employer’s liability insurance are not necessarily exclusive; however, they can co-exist. This is the case in the United Kingdom (UK) where the state industrial injuries scheme, established in 1948, provides compensation to all injured workmen on a no-fault basis. Injured employees are also not prevented from suing their employers for damages if they can prove fault.

In turn, the employers found liable look to their employer’s liability insurers for indemnification. By virtue of the Employer’s Liability (Compulsory Insurance) Act of 1969, every employer (with very few exceptions) conducting business in the UK must have employer’s liability insurance.

In South Africa, the co-existence of statutory compensation and employer’s liability is of more recent origin. Before the 2011 Constitutional Court decision in the case of Thembekile Mankayi versus Anglo Gold Ashanti Ltd, it was widely believed that an employee could not sue an employer for damages and that all attempts to claim damages from an employer were unsuccessful.

Today the situation is mixed. Outside of the mining industry, no employee is allowed to sue an employer – all injured employees must claim statutory benefits from the Compensation Fund established in terms of the Compensation for Occupational Injuries and Diseases Act of 1993 (COIDA).

No logical reason has been given for the differential treatment between mineworkers, in particular, and the rest of the South African working population. It is doubtful if such a reason can be found.

By design, the COIDA incorporates both workers’ compensation (Section 22) and employer’s liability (Section 56). Section 56 allows an injured employee to claim increased, or additional, compensation if their injury was due to patent defects in premises, plant and machinery, or where the injury was due to the personal negligence of the employer and other senior personnel, whose designations are stated in the Act.

Consequently, to activate Section 56 there must be proof of fault. An examination of the annual reports of the Compensation Fund over the past five to ten years shows that very few Section 56 claims actually succeed. For most of this period only three to five claims succeed annually.

In the mining industry, occupational disease sufferers are treated differently. In the Mankayi case it was decided that mineworkers can claim statutory benefits and are also not precluded from suing their employers for damages. Whether or not they can claim both statutory compensation and common law damages is not yet clear.

Legally Speaking is a regular column by Albert Mushai from the school of Economics and Business Sciences, University of the Witwatersrand. Mushai holds a master’s degree from the City University, London, and was the head of the insurance department at the National University of Science and Technology in Zimbabwe before joining the University of the Witwatersrand as a lecturer in insurance.