13.2 Part One (Workers Comp) and Part Two (Employers Liability)
Key Takeaways
- The standard contract is the NCCI Workers Compensation and Employers Liability Insurance Policy (form WC 00 00 00); Part One is Coverage A (workers comp) and Part Two is Coverage B (employers liability)
- Part One pays the statutory benefits the state act requires with NO policy limit; the insurer pays whatever the law commands, however large
- Part Two (employers liability) pays for injury-related suits that fall OUTSIDE the statute and DOES carry limits, standard $100,000/$500,000/$100,000 (bodily injury by accident each accident / by disease policy limit / by disease each employee)
- Part Two covers the gap suits: third-party-over actions, dual-capacity suits, consequential bodily injury to a family member, and care-and-loss-of-services claims
- Item 3.A of the Information Page lists states where Part One applies; Item 3.C lists Other States coverage; an employee in a state in neither list may have no coverage
Two Parts of One Policy
The contract private insurers sell is the National Council on Compensation Insurance (NCCI) Workers Compensation and Employers Liability Insurance Policy, form WC 00 00 00. It has two operative parts that the exam tests relentlessly.
| Policy Part | Common Name | What It Does | Limit |
|---|---|---|---|
| Part One | Workers Compensation (Coverage A) | Pays the statutory benefits the law requires | Unlimited |
| Part Two | Employers Liability (Coverage B) | Pays for injury-related suits outside the statute | Limited |
Exam Key: Part One has no limit because the obligation is set by statute, not the contract. Part Two always carries dollar limits because it pays tort-style damages the statute does not address.
Part One: Statutory Benefits, No Limit
Part One (Coverage A) is the insurer's promise to pay, on the employer's behalf, the benefits required by the workers' compensation law of any state listed in Item 3.A of the Information Page. Whatever the statute commands — a $4 million catastrophic spinal claim included — the insurer pays. There is no deductible or copay to the worker.
Part One also imposes duties on the insurer beyond payment: it must defend statutory proceedings, and if the insurer pays benefits the law did not require, it may recover them from the insured. The employer's reimbursement duty under Part One arises only for payments the insurer made that the law obligated the employer (not the insurer) to pay.
Part Two: Employers Liability Fills the Gaps
Part Two (Coverage B) pays damages for bodily injury by accident or by disease arising out of employment when the claim falls outside the comp statute. It is the safety net for suits the no-fault system does not bar.
Four heavily tested gap claims:
| Gap Claim | What It Is |
|---|---|
| Third-party-over action | An injured worker sues a third party (e.g., equipment maker), who then sues the employer for contribution/indemnity |
| Dual-capacity suit | Worker sues the employer in a non-employer role (e.g., as a product manufacturer) |
| Consequential bodily injury | A family member's injury arising out of the worker's injury (e.g., a spouse's care-related harm) |
| Loss of consortium / care | Family claims for loss of services tied to the injury |
Part Two has its own exclusions: it does not cover liability assumed under contract, punitive damages tied to illegal employment, statutory penalties for serious-and-willful misconduct, or obligations already payable under Part One.
Part Two Limits and a Worked Numeric
Part Two carries a three-part limit, written by default as $100,000 / $500,000 / $100,000:
| Limit | Applies To |
|---|---|
| Bodily Injury by Accident | Each accident (all employees in one accident share this limit) |
| Bodily Injury by Disease — Policy Limit | Aggregate cap for all disease claims during the policy period |
| Bodily Injury by Disease — Each Employee | Per-employee cap for disease claims |
Worked Example — by accident: One forklift accident injures three employees who win employers-liability suits of $60,000, $50,000, and $40,000 ($150,000 total). With a $100,000 by-accident limit, the insurer pays $100,000; the remaining $50,000 is the employer's exposure, because the by-accident limit applies per accident, not per person.
Worked Example — by disease: Four employees develop an occupational disease with $150,000 each in covered damages. The $100,000 each-employee limit caps each at $100,000, and the $500,000 policy aggregate caps the total. Four x $100,000 = $400,000, under the $500,000 aggregate, so the insurer pays $400,000.
Which statement about Part One (Coverage A) of the standard NCCI workers' compensation policy is TRUE?
An injured employee sues the maker of a defective machine; the maker then sues the employer for indemnity. Which coverage of the standard workers' compensation policy responds to the employer's defense against the machine maker?
When Part Two Actually Responds
Part Two (Employers Liability) fills gaps where an employee or third party sues the employer outside the no-fault comp system. Classic triggers: third-party-over actions (an injured worker sues a product maker, who then sues the employer for contribution); consortium claims by a spouse; dual-capacity suits (the employer is also the manufacturer of the injuring product); and injuries in states or to employees not covered by Part One. Part Two pays the employer's legal liability for these, subject to its limits, whereas Part One pays statutory benefits regardless of fault.
The Three Part Two Limits and a Worked Numeric
Part Two carries three limits, commonly $100,000 / $500,000 / $100,000: bodily injury by accident, each accident ($100,000); bodily injury by disease, policy limit ($500,000 aggregate); and bodily injury by disease, each employee ($100,000). Worked: a covered third-party-over suit against the employer results in a $140,000 judgment for one employee's injury by accident. Part Two's each-accident limit caps the insurer at $100,000, leaving $40,000 to the employer or an umbrella. Disease claims test the per-employee and aggregate disease limits instead.
Three-Year Policy Period and Continuation
The standard NCCI workers compensation policy can be written as a three-year fixed-rate policy or, more commonly, a continuous (perpetual) policy subject to annual audit and rate updates. Part One automatically conforms to any change in the workers compensation law of a listed state during the term — the insurer pays the new statutory benefit even though the policy language did not change. This 'automatic conformity' is unique among P&C lines and is a frequent exam point: the employer never needs an endorsement to capture a mid-term statutory benefit increase in a covered state.