Workers' Compensation for Occupational Disease: Prorating Liability versus Last Employer Liability
Chang, D. Han, Journal of Risk and Insurance
Occupational disability problems have been expanded to include not only safety concerns with job-related accidents but overall health concerns as well. These include work-related long-term exposure to hazardous substances that result in occupational diseases and emotional injuries such as depression.(1) Occupational disease is defined as any abnormal condition or disorder, other than one resulting from a traumatic occupational injury, alleged to be caused or aggravated by exposure to environmental factors associated with employment. It includes acute and chronic diseases and illnesses that may be caused by inhalation, absorption, ingestion, direct contact, or stress (U.S. Department of Labor, 1986). Occupational disease differs from occupational injury in that multiple parties may contribute to the disease, and the disease may not manifest itself until many years after the damaging exposure. This long period of latency exacerbates the problems of determining the causes of a disease and allocating financial responsibility.
Today, each state has a workers' compensation law and recognizes the responsibility for occupational diseases that arise out of and in the course of employment. The workers' compensation law holds the employer absolutely liable for occupational diseases suffered by workers. In many cases, occupational disease is a result of a long period of exposure, and for a given occupational disease several different employers may be responsible. Although many workers' compensation laws set rules for assigning liability, doing so equitably and efficiently among the responsible employers is a continuing challenge. Several rules for assigning employer liability are used for occupational disease: apportionment of liability among responsible employers, limited apportionment of liability, the last injurious exposure liability, and the last exposure liability. If all previous employers and the last employer of a diseased worker are responsible for the exposure, these rules may be condensed into either prorating liability among the employers or the last employer liability. This article presents an empirical analysis of state workers' compensation systems to determine whether the prorated liability rule and the last employer rule have significantly different effects on the incidence of occupational disease. Literature Review
Danzon (1987) examines alternative systems of liability and compensation for occupational disease. In considering liability systems that go beyond simply paying for claims that have already been made, she stresses the importance of the prevention of occupational disease. Optimal liability rules should consider incentives for precaution, uninsured risk, and costs of implementation. Danzon states that the optimal investment in safety involves weighing the marginal costs of prevention against the marginal benefit from reducing risk. She examines several liability assignments: employer liability under the workers' compensation system, tort liability of product manufacturers, employee liability with first-party insurance, and special government programs. Based on an evaluation of the effects of these alternatives on compensation and deterrence, Danzon concludes that the workers' compensation system with a pro rata division of liability among contributing employers appears to be superior to the alternatives.
Schlesinger and Venezian (1988) attempt to provide a framework for evaluating the effective policy of compensating victims of occupational diseases. They stress that a compensation mechanism for occupational disease must work well within the bounds placed upon it by imperfect information and limited resources. Compensation systems that are ex ante efficient--that is, those that provide proper incentives for all economic agents to take efficient actions--should be coordinated with ex post efficiency, minimizing the total social costs arising from injuries, injury prevention, risk bearing, overhead costs of litigation and administration, and inappropriate compensation. …