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

One Policy, Two Coverages

The standard product is the NCCI Workers Compensation and Employers Liability Insurance Policy, form WC 00 00 00. Although sold as one policy, it provides two distinct coverages you must never confuse:

Quick Answer: Part One has no policy limit - it pays whatever the statute requires. Part Two is true liability insurance and does have limits, because it covers tort suits that fall outside the no-fault comp system.

Part One - Workers Compensation

Under Part One, the insurer promises to pay promptly 'all compensation and other benefits required of you by the workers compensation law' of the states listed in Item 3.A. of the Information Page. Key features:

• No dollar limit. Because benefits are set by statute, the insurer pays them in full; you cannot exhaust a Part One limit. This is a favorite exam point.
• The insurer's duty is directly to the injured worker, even though the employer is the policyholder.
• If the insurer pays a benefit the law did not require, the employer must reimburse the insurer.
• Premium owed for Part One is fully earned at audit based on actual payroll (covered in 13.3).

Part One only responds for states scheduled in Item 3.A. A new state of operation not listed there must be picked up by Part Three (Other States) or by endorsement.

Part One has no dollar limit but is strictly tied to scheduled states - a key contrast with Part Two, which carries dollar limits but applies to a covered employers-liability suit arising from work in those states. The insurer also pays all defense costs for Part Two suits outside (in addition to) the policy limits, a point worth remembering against the CGL where defense erodes nothing but the aggregate works differently.

Part Two - Employers Liability

Part Two (Employers Liability) is real liability insurance. It pays when an injured worker (or someone connected to them) sues the employer in tort for a claim the comp statute does not cover. Classic Part Two scenarios:

• Third-party-over (action-over) suits - a worker sues a third party (e.g., a machine maker), who then sues the employer for contribution.
• Consequential bodily injury - injury to a family member that follows the worker's injury.
• Dual-capacity - the employer is also the product manufacturer that injured the worker.
• Loss of consortium - a spouse's claim arising from the worker's injury.

Part Two carries three standard limits, written 100/500/100:

Reading the 100/500/100 Limits

The three Part Two limits answer three different questions:

• $100,000 BI by Accident (each accident): the most paid for all employer-liability damages from one sudden accident, regardless of how many workers are hurt.
• $500,000 BI by Disease (policy limit): an aggregate cap for all disease claims during the policy period (e.g., a slow toxic exposure affecting many workers).
• $100,000 BI by Disease (each employee): the most paid for any one employee's disease claim, subject to the $500,000 aggregate.

Worked example: A toxic exposure leads to liability suits by 8 employees, each with $90,000 in employer-liability damages. Per-employee cap is $100,000, so each individual claim ($90,000) is fully within limit. But total demanded is 8 x $90,000 = $720,000, which exceeds the $500,000 disease policy limit - so the insurer pays only $500,000 total under Part Two. The remaining $220,000 is the employer's exposure.

Part Two Exclusions

Part Two does not cover:

• Liability assumed under a contract (assumed liability).
• Punitive damages for injury to an illegally employed worker.
• Bodily injury intentionally caused by the employer.
• Fines or penalties for violating safety laws such as OSHA.
• Obligations under federal acts (USL&H, FELA, Jones Act) and damages covered by other portions of the policy.

Because intentional and statutory-penalty exposures are excluded, an employer who willfully harms a worker or is fined by OSHA has no coverage - those are uninsurable as a matter of public policy.

Part Three - Other States Insurance rounds out the policy. It extends Part One-style benefits to states listed in Item 3.C. where the employer had no operations at inception but later begins work. If a state is in neither 3.A. nor 3.C., there is a true gap. Part Three never reaches monopolistic-fund states, no matter how the schedule is worded - those require state-fund coverage. Keeping Parts One, Two, and Three straight, and knowing which carries a dollar limit, is the single most-tested idea in this chapter.