13.2 Part One (Workers Comp) and Part Two (Employers Liability)
Key Takeaways
- The standard policy is NCCI form WC 00 00 00 C with an Information Page in place of declarations.
- Part One pays statutory benefits with no dollar limit for states listed in Item 3.A.
- Part Two (Employers Liability) pays damages outside the statute, such as third-party-over suits.
- Standard Part Two limits are 100/500/100 (accident / disease policy / disease each employee).
- The disease policy limit is an aggregate; the disease each-employee limit is per person.
The Standard Policy: NCCI WC 00 00 00
Most states use the Workers Compensation and Employers Liability Insurance Policy filed by the National Council on Compensation Insurance (NCCI), form WC 00 00 00 C. Its structure is tested heavily. The policy contains an Information Page (its declarations) and several numbered parts. Producers must distinguish Part One from Part Two.
Part One — Workers Compensation Insurance
Part One pays the statutory benefits a state requires when a worker is injured in the course of employment. Its key features:
- It has no dollar limit — the insurer promptly pays all benefits the workers comp law requires.
- It responds to the law of any state listed in Item 3.A. of the Information Page.
- It applies whether or not the employer was at fault.
Because benefits are statutory, Part One needs no policy limit. The exam loves the phrase "Part One has no limit of liability."
Part Two — Employers Liability Insurance
Part Two is true liability coverage. It pays sums the employer becomes legally liable to pay as damages for work-related injury that fall outside the workers comp statute. Common Part Two situations:
- Third-party-over suits (an injured employee sues a product maker, who then sues the employer).
- Consequential injury to a family member.
- Dual-capacity and loss-of-consortium claims.
Unlike Part One, Part Two has dollar limits because liability damages are not scheduled by statute.
Part Two Limits and Standard Amounts
Part Two carries three limits shown in Item 3.B.:
| Limit | Standard amount | Applies to |
|---|---|---|
| Bodily injury by accident | $100,000 each accident | Per-accident cap |
| Bodily injury by disease | $500,000 policy limit | Aggregate for all disease claims |
| Bodily injury by disease | $100,000 each employee | Per-employee disease cap |
These are often written 100/500/100. Example: three employees develop the same disease with $200,000 each in damages ($600,000 total). The $500,000 policy aggregate caps recovery at $500,000, and each employee is also limited to $100,000.
The Information Page and Policy Structure
The NCCI policy has no traditional declarations; instead the Information Page records the named insured, policy period, the Item 3.A. primary states, the Item 3.B. Part Two limits, the Item 3.C. other states, and the Item 4 premium classifications. After the Information Page come six numbered parts:
- Part One — Workers Compensation Insurance (statutory benefits).
- Part Two — Employers Liability Insurance (damages outside the statute).
- Part Three — Other States Insurance.
- Part Four — Your Duties If Injury Occurs.
- Part Five — Premium (audit, classification, mod).
- Part Six — Conditions (cancellation, transfer of rights).
Defense and the No-Limit Trap
Under both parts the insurer provides defense at its own expense and pays defense costs in addition to the limits. A frequently missed point: although Part One has no benefit limit, the insurer's right to settle or contest claims is governed by the state act, and the employer must reimburse the insurer for any payments that exceed the policy's terms only in narrow situations such as illegal employment. Remember that Part Two damages must be for injury by accident or disease to an employee, in the course of employment.
Part One vs. Part Two — The Decision That Drives Exam Questions
The single most-tested skill is routing a claim to the correct part:
| Scenario | Which part responds | Why |
|---|---|---|
| Employee breaks a leg on the job | Part One | Statutory benefit, no fault, no dollar limit |
| Product maker sued by hurt worker then sues employer (third-party-over) | Part Two | Liability damages outside the statute |
| Spouse sues for loss of consortium | Part Two | Consequential damages to a non-employee |
| Employer expands into a new state mid-term | Part Three (Other States) | Extends Part One geographically |
| Maritime worker on navigable waters | USL&H endorsement | Federal act, not the state statute |
The By-Accident Limit Worked Example
The earlier disease example shows how the $500,000 aggregate works; the by-accident limit behaves very differently. Suppose a single explosion injures four employees with $40,000 in damages each ($160,000 total) in a third-party-over suit. Because this is bodily injury by accident, the $100,000 each-accident limit caps the insurer's payment at $100,000 for the whole event — regardless of how many workers were hurt in that one accident.
There is no per-person multiplier on the by-accident limit, which is the mirror image of the by-disease limit's per-employee cap. The recurring exam skill is reading the cause of injury: one sudden event routes to the each-accident number, while gradual occupational illness routes to the disease aggregate and each-employee numbers.
Defense Costs Outside the Limits
Like most liability coverage, the insurer's defense costs under Part Two are paid in addition to the limits, and the company controls the defense. This means a $100,000 each-accident limit can still cost the insurer far more once legal defense is added — a point that explains why employers liability is priced as real liability coverage even though Part One has no limit at all.
An employee injured by a defective machine sues the manufacturer, who in turn sues the employer for indemnity. Which coverage responds?
How does Part One's limit of liability differ from Part Two's?