The first evidence of insurance appeared in China around 3000 BC when merchants would divide their cargo into several ships, protecting their investments and dividing any losses among themselves. This system was continued forward and in 1750 BC the Babylonians devised a system where the merchant would borrow money to finance his shipment of goods. He paid the lender an additional sum of money and in exchange, the lender agreed to cancel the loan should the shipment be lost or stolen. The Romans are credited with developing life and health insurance through guilds around 600 AD.
Moving through history, the need for insurance advanced as claims against another could be pursued through courts and common law. In the early 18th century, in England a doctrine was developed under “Old English” law called the “respondeat superior”. Under this doctrine, the master (employer) was held to be liable for damages to a third person caused by a servant’s (employee) act or omission while the servant was acting within the course and scope of employment. Not many workers were protected under this doctrine unless they were injured by another worker, but it increased the liability of the employer.
Industrialization quickly swept across Europe in the 1800′s and in 1838, Germany took the first step to protect injured workers by passing legislation to protect railroad employees and passengers in the event of accidents. Bismarck later introduced a Compulsory Insurance Plan in 1881. This plan required employers to contribute to sickness funds for workers and was based on a concept developed by Germany.
“Workingmen’s Compensation” was coined in England in 1880 when the English Parliament passed the “Employer’s Liability Act.” This made the employer responsible for injuries on the jobsite and gave the injured worker the right to sue the employer. Since the burden of proof was on the worker as well as other legal expenses, the courts became backlogged. The general public suffered from this unfair and inefficient system other civil actions were delayed due to crowded dockets and not enough judges. In the midst of this chaos, people noticed that the worker was beginning to prevail in these actions and the legal profession began going after the machinery, buildings, and property of the employers. In 1897, England repealed the employer’s liability act of 1880 and replaced it with a “workmen’s” compensation act.