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

The Standard Policy Structure

The coverage form sold nationally is the National Council on Compensation Insurance (NCCI) Workers Compensation and Employers Liability Policy, form WC 00 00 00 C. It contains an Information Page (like a declarations page) and several Parts. The two coverage agreements tested most heavily are:

• Part One: Workers Compensation Insurance
• Part Two: Employers Liability Insurance

The Information Page lists which states are covered under Item 3.A. and triggers other-states coverage under Item 3.C.

Part One: Workers Compensation Insurance

Part One is the insurer's promise to pay promptly all benefits required by the workers compensation law of any state listed in Item 3.A. Key features:

• No policy limit. Because the statute fixes the benefit amounts, the insurer pays whatever the law requires.
• It covers statutory medical, disability income, rehabilitation, and death benefits.
• The insurer pays benefits even if the employer is bankrupt, but the employer must reimburse the insurer for any payments made beyond what the policy or law strictly required.

Exam trap: candidates often expect a dollar limit on Part One. There is none; the limit is the statute itself.

Part Two: Employers Liability Insurance

Part Two covers the employer's liability for employee injuries that are not compensable under the WC statute but still result in a lawsuit. It functions like a liability policy: it pays damages and defense costs, and it does carry dollar limits.

Common Part Two exposures the exam highlights:

• Third-party-over actions: a sued third party (e.g., a manufacturer) sues the employer for contribution.
• Consequential bodily injury: injury to a spouse or relative arising from the worker's injury (loss of consortium).
• Dual-capacity suits: the employer is sued in a second role, such as the manufacturer of the product that hurt the worker.
• Care and loss of services claims by family members.

Part Two Limits: 100/500/100

Part Two uses three separate limits, typically written 100/500/100 (in thousands):

Worked example: a boiler explosion injures three employees in one event. The by-accident limit of $100,000 applies to that single accident for all three combined. By contrast, if four employees later develop an occupational disease, the $100,000 each-employee limit applies per worker, capped by the $500,000 disease aggregate for the policy period.

Other Policy Parts and Conditions

Beyond Parts One and Two, the WC 00 00 00 C contains:

• Part Three — Other States Insurance: activates coverage in states listed on the Information Page at Item 3.C.
• Part Four — Your Duties If Injury Occurs: the employer must report injuries promptly and cooperate.
• Part Five — Premium: sets the payroll basis, audit rights, and experience rating.
• Part Six — Conditions: addresses inspection, transfer of rights (subrogation), cancellation, and the role of the state.

The policy period is shown on the Information Page, and coverage applies to injury by accident during the period or to disease caused by conditions of employment during the period.

Defense and Supplementary Payments

Under both Parts, the insurer has the right and duty to defend any claim, proceeding, or suit for benefits or damages. Defense costs are paid in addition to the Part Two limits — they do not erode the 100/500/100 amounts.

Exam trap: if the insurer pays a Part Two judgment that exceeds the limit, the employer is responsible for the excess. Also, the insurer's duty to defend ends once it has paid the applicable limit of insurance in settlement or judgment. Settlements within policy terms do not require the insured's consent the way some liability forms do.

Distinguishing Part One from Part Two on the exam

The cleanest way to separate the two coverage agreements: Part One pays the injured employee the benefits the statute requires, with no dollar limit; Part Two pays third parties or families in lawsuits the statute does not cover, and it does carry limits (the 100/500/100 structure). When a question describes a routine on-the-job injury and medical bills, that is Part One. When it describes a lawsuit - a spouse suing for loss of consortium, a manufacturer demanding contribution, or a dual-capacity claim - that points to Part Two employers liability.

The exclusive-remedy doctrine and its cracks

Workers compensation is built on a bargain: the employee gives up the right to sue the employer in tort in exchange for guaranteed, no-fault benefits - the exclusive remedy doctrine. Part Two exists precisely because that bargain has cracks. The classic crack is the third-party-over action: an injured worker sues a product manufacturer, who then sues the employer for contribution; the employer's tort exposure to that third party is not barred by exclusive remedy, so Part Two responds. Understanding why Part Two is needed despite Part One is a frequent conceptual question.

Applying the 100/500/100 limits

Remember which limit applies to which event. Bodily injury by accident uses the per-accident limit ($100,000) for all employees hurt in one event combined. Bodily injury by disease uses two figures: a policy aggregate ($500,000) for all disease claims in the term and a per-employee cap ($100,000) for any one worker. So if a chemical exposure sickens six workers over the policy year, each is capped at $100,000 and the total cannot exceed the $500,000 disease aggregate - even though six times $100,000 would be $600,000. That ceiling effect is exactly what calculation questions probe.