As the industrial revolution advanced and production of goods and services moved to larger businesses in cities rather than production by the family unit, farmer, or artisan, injured workers, and their families were often devastated by work-related injuries. Employees often had no guaranteed means of recovery for medical expenses and lost wages resulting from work-related injuries or illness.
Prior to the enactment of worker’s compensation laws, employees could sue for damages in civil lawsuits, but there were harsh legal doctrines such as the “fellow servant” rule and contributory negligence that made it exceedingly difficult for injured employees to recover. As a result, the costs of workplace injuries were passed on to injured workers and their families, and to the public at large in terms of medical care and replacement of wages that were provided via public aid. Additionally, there was no provision for immediate medical care.
From the perspective of the employer, the common law system was also costly and time-consuming. A large civil judgment and protracted litigation could be devastating to businesses as there was no limitation on damage awards.
As a compromise between the interests of employees and employers, worker’s compensation systems developed. For the most part, a fault-based system was replaced with a system which approaches a no-fault insurance system and is designed to provide a more expedient administrative remedy. For instance, the common law defenses of fault are generally unavailable to the employer, while remedies for pain and suffering and consequential damages are unavailable to the employee. In a nutshell, the system of compromise started in Indiana in 1915 and was designed to give employees certain recovery of limited benefits in exchange for an exclusive remedy and limited liability for employers. It was also designed to provide a more predictable basis to integrate the cost of employee injuries into the products and services provided by businesses and consumed by the public.