13.2 Part One (Workers Comp) and Part Two (Employers Liability)

The standard policy: WC 00 00 00

Workers compensation is written on the standard policy issued by the National Council on Compensation Insurance (NCCI), the Workers Compensation and Employers Liability Insurance Policy (form WC 00 00 00 C). The policy contains two distinct insuring agreements that the exam loves to contrast: Part One and Part Two.

Part One — Workers Compensation Insurance

Part One promises to pay all benefits required by the workers compensation law of any state listed in Item 3.A of the Information Page. Key features:

• No dollar limit — the insurer pays whatever the statute requires.
• It is the employer's statutory obligation that the insurer assumes.
• Covers occupational disease as well as accidental injury (disease subject to last-exposure rules).

Part Two — Employers Liability Insurance

Part Two fills the gap left by the exclusive remedy. Some injury-related lawsuits fall outside the statutory benefit system — for example, a third-party-over action, dual capacity, consequential bodily injury to a family member, or loss of consortium by a spouse. Part Two pays damages the employer becomes legally liable to pay because of bodily injury by accident or disease, when the claim is not covered by Part One.

Part Two limits — the three-part limit

Unlike Part One, Part Two HAS dollar limits, shown on the Information Page. The standard minimum limits are commonly written as $100,000 / $500,000 / $100,000:

Trap: the disease policy limit ($500,000) is an aggregate that caps all disease claims for the policy period; the disease each-employee limit caps any one worker. The accident limit is per-accident, not aggregate.

Common exam contrast

• Part One = statutory benefits, no limit, no-fault.
• Part Two = liability damages, dollar limits, requires legal liability (fault-based).

A worker who is simply hurt on the job is paid under Part One. A lawsuit by the spouse for loss of consortium, or a manufacturer suing the employer to recover what it paid the worker (third-party-over), is defended and paid under Part Two.

Other policy provisions

The policy also includes:

• A General Section defining "you," "workers compensation law," and the policy period.
• Part Three — Other States Insurance (covered in 13.4).
• Part Four — Your Duties If Injury Occurs (prompt notice, cooperation, records).
• Part Five — Premium (premium basis and audit; covered in 13.3).
• Part Six — Conditions (inspection, transfer of rights, cancellation).

The Exclusive Remedy and Its Cracks

Part One reflects the exclusive remedy bargain: the worker's sole recovery against the employer is statutory benefits. Part Two exists precisely because courts allow a handful of suits to slip outside that bargain. Know the four classic Part Two triggers cold:

• Third-party-over action — a product maker the worker sued turns around and sues the employer for indemnity.
• Dual-capacity — the employer is also, say, the manufacturer of the machine that hurt the worker, creating a second legal role.
• Consequential bodily injury — injury to a spouse/child because of the worker's injury.
• Loss of consortium — the spouse's own claim for lost companionship.

Why "No Limit" on Part One Is Logical

Part One has no dollar limit because the insurer simply steps into the employer's statutory shoes — the state benefit schedule, not the policy, sets the amount. Part Two needs limits because it pays common-law damages a jury could set at any figure, so the insurer caps its exposure with the three-part accident/disease limits. This is the cleanest way to remember why one part is unlimited and the other is not.

Reading the Information Page

The WC Information Page is the declarations equivalent. Item 1 names the insured; Item 3.A lists states with Part One coverage; Item 3.B cites the workers comp law; Item 3.C lists Other-States (Part Three) states; Item 4 shows the classifications, rates, and estimated premium. Tying a fact ("we expanded into a new state") to the correct Item (3.A vs. 3.C) is a recurring question.

Worked Part Two Limit Application

An employer carries Part Two limits of $100,000/$500,000/$100,000. A third-party-over suit produces a $250,000 employers-liability judgment from one accident. Part Two pays up to the bodily-injury-by-accident limit of $100,000; the employer is exposed for the remaining $150,000 unless an umbrella sits over employers liability.

Now suppose three employees contract an occupational disease: each is capped at the $100,000 each-employee disease limit, and all disease claims together cannot exceed the $500,000 disease policy limit. Applying the right prong of the three-part limit to accident vs. disease facts is the tested skill.

Cancellation and Audit Conditions

Part Six conditions govern operations: the insurer may inspect the workplace and audit payroll records, and cancellation requires statutory notice (often longer for WC than other lines because of the public interest in continuous coverage). The insured's failure to keep records or permit audit can trigger an estimated/penalty premium. These conditions tie the coverage parts together and appear in "which part governs audits/cancellation" questions.

Sole-Proprietor and Officer Elections

Owners are treated specially: sole proprietors, partners, and certain corporate officers/LLC members may be automatically excluded from coverage but can elect in, or are included but may elect out, depending on state rule. This affects the payroll counted at audit and whether an injured owner collects benefits. "Owner wants coverage for himself" routinely tests the inclusion/exclusion election.