9.3 Federal Workers' Compensation Laws (FELA, LHWCA, Jones Act) & the NCCI Policy

Federal Workers' Compensation Laws (FELA, LHWCA, Jones Act) & the NCCI Policy

Exam Priority: PSI Domain IX tests both Federal Workers' Compensation Laws (Outline Item 1d) and the Standard NCCI Workers' Compensation and Employers Liability Policy (Outline Item 2). Be certain you can distinguish federal no-fault acts (FECA, LHWCA) from federal negligence/tort acts (FELA, Jones Act), and memorize the Part Two standard limits ($100k / $500k / $100k), the 4 Part Two claim scenarios, the 30-day Part Three notice rule, and Michigan's 20-day WDCA cancellation notice rule (MCL 418.621(4)(g)).

Federal Workers' Compensation & Maritime/Railroad Statutes

Certain classes of workers fall under exclusive federal jurisdiction rather than state statutes like MCL Chapter 418.

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The Standard NCCI Workers' Compensation and Employers Liability Policy

The standard NCCI policy consists of an Information Page (Declarations), a General Section, and Six Parts (Parts One through Six).

General Section

Defines key terms: "You" means the employer named in Item 1 of the Information Page; "Workers' Compensation Law" means the workers' or workmen's compensation law and occupational disease law of each state or territory named in Item 3.A. of the Information Page (it does not include any federal workers' compensation or occupational disease law).

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Part One — Workers' Compensation Insurance

• Insuring Agreement: The insurer agrees to pay promptly when due all benefits required of the insured employer by the Workers' Compensation Law of the state(s) listed in Item 3.A. of the Information Page, and to defend at its expense any claim or proceeding against the employer for those benefits.
• No Policy Dollar Limit: Part One has no dollar limit of liability on the Information Page. The insurer pays 100% of all medical, indemnity, rehabilitation, and death benefits mandated by state statute, plus defense costs in addition to benefits.
• Employer Misconduct Reimbursement Provision: While the insurer must still pay the injured worker first if required by state law, the insured employer must reimburse the insurer for any excess payments or penalties required because of the employer's:
  1. Serious and willful misconduct;
  2. Knowingly employing a person in violation of law (for example, the extra 100% penalty portion of Michigan's double compensation for an illegally employed minor under MCL 418.161(1)(l));
  3. Failure to comply with a health or safety law or regulation; or
  4. Discharge, coercion, or discrimination against any employee in violation of the Workers' Compensation Law.

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Part Two — Employers Liability Insurance

Part Two protects the insured employer against common-law tort liability for work-related bodily injury by accident or disease to an employee that is not barred by the exclusive remedy doctrine of Part One. The injury must arise out of and in the course of the injured employee's employment by the insured, must be employment necessary or incidental to the insured's work in a 3.A. state, and:

• Bodily Injury by Accident: The accident must occur during the policy period.
• Bodily Injury by Disease: The employee's last day of last exposure to the conditions causing or aggravating the bodily injury by disease in the employer's work must occur during the policy period.

The 4 Classic Part Two (Employers Liability) Claim Scenarios

1. Third-Party-Over Action (Action Over): An injured employee collects Part One WC benefits from the employer and then sues a negligent third party (such as the manufacturer of a factory press). The third-party manufacturer then files a cross-claim or indemnification suit "back over" against the employer alleging the employer's faulty maintenance contributed to the injury.
2. Loss of Consortium (Care and Services): The injured employee's spouse sues the employer in tort for loss of consortium, companionship, or services resulting from the employee's workplace injury.
3. Dual Capacity Doctrine: The employer is sued in a second, independent legal capacity outside the employer-employee relationship (e.g., an employee is injured as a patient in a hospital where they work, or by a consumer product manufactured by the employer).
4. Consequential Bodily Injury: A family member (spouse or child) suffers a direct physical illness or injury as a consequence of the employee's work-related injury or occupational disease.

Standard Part Two Minimum Limits (Information Page Item 3.B.)

• $100,000 — Bodily Injury by Accident (Each Accident)
• $500,000 — Bodily Injury by Disease (Policy Limit / Aggregate)
• $100,000 — Bodily Injury by Disease (Each Employee)

Key Part Two Exclusions

Part Two does not cover:

• Liability assumed under a contract;
• Punitive or exemplary damages because of bodily injury to an employee employed in violation of law;
• Bodily injury to an employee while employed in violation of law with the actual knowledge of the insured or any executive officer;
• Bodily injury intentionally caused or aggravated by the insured;
• Bodily injury occurring outside the United States, its territories/possessions, and Canada (except temporary travel of a citizen or resident of the U.S. or Canada);
• Employment Practices Liability Exclusions: Damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against, or termination of any employee (these require a separate Employment Practices Liability Insurance [EPLI] policy);
• Obligations imposed by LHWCA, FELA, the Jones Act, Defense Base Act, or Federal Black Lung Benefits Act (unless added by endorsement).

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Part Three — Other States Insurance

Part Three prevents coverage gaps when an employer expands operations into states listed in Item 3.C. of the Information Page (never includes monopolistic state-fund states):

• New Operations After Effective Date: If the employer begins work in any state listed in Item 3.C. after the effective date of the policy and is not insured or self-insured there, Part One and Part Two automatically apply as though that state were listed in Item 3.A. (the insured should notify the insurer at once).
• The 30-Day Notice Rule for Existing Operations: If the employer already has work on the effective date of the policy in a state listed in Item 3.C., coverage will not be afforded for that state unless the insurer is notified within 30 days after the effective date of the policy.

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Parts Four, Five & Six + Key Endorsements

• Part Four — Your Duties If Injury Occurs: Provide immediate medical and other services required by law; give prompt notice of injury; forward all legal demands, notices, and summonses immediately; cooperate with the investigation and defense; and make no voluntary payments or assume any obligations except at the employer's own cost.
• Part Five — Premium: Calculated per $100 of remuneration (payroll) multiplied by the manual rate for each job classification code (administered in Michigan by the Compensation Advisory Organization of Michigan [CAOM]), modified by the Experience Modification Factor (E-Mod) (compares the employer's actual losses during the first 3 of the last 4 years against expected industry losses; an E-Mod below 1.00 is a credit, while an E-Mod above 1.00 is a debit) and Premium Discount. An estimated deposit premium is paid at inception, and the Final Audit must be conducted within 3 years after the policy period ends.
• Part Six — Conditions: Covers Inspection (insurer may inspect workplaces, though inspections are not safety warranties), Long Term Policy, Transfer of Your Rights and Duties, Sole Representative (the first named insured in Item 1 acts on behalf of all insureds regarding cancellation, return premiums, and audits), and Cancellation (MCL 418.621(4)(g)): under Michigan's mandatory statutory condition, any termination or cancellation of a Michigan Workers' Compensation policy—even for nonpayment of premium or natural expiration—is NOT effective as far as the insured's employees are concerned until 20 days after the insurer files written notice of the termination or cancellation with the Michigan Workers' Disability Compensation Agency (WDCA) (unless another insurer has already filed a notice of issuance covering the employer).
• Selected Workers' Compensation Endorsements:
  1. Voluntary Compensation and Employers Liability Coverage Endorsement (WC 00 03 11 A): Allows an employer to voluntarily extend statutory-equivalent WC and EL benefits to a scheduled class of exempt employees (such as household domestic servants or agricultural workers below MCL 418.115 thresholds). If the injured exempt worker accepts the voluntary WC benefits, they must sign a formal release relinquishing any tort claim against the employer; if they reject the voluntary offer and sue in tort, Part Two Employers Liability defends the employer.
  2. Foreign Voluntary Compensation and Employers Liability Coverage Endorsement: Extends coverage to employees working or traveling outside the U.S. and Canada beyond temporary travel, adding repatriation expenses (extra transportation costs to return an injured or deceased worker home) and endemic disease coverage (diseases native to a particular foreign region).
  3. Longshore and Harbor Workers' Compensation Act Coverage Endorsement (WC 00 01 06 A): Extends Part One to cover federal LHWCA benefits for maritime dock, pier, wharf, and ship-repair workers in listed states (such as Great Lakes port operations in Michigan).
  4. Sole Proprietors, Partners, Officers and Others Coverage Endorsement (WC 00 03 10): Used to affirmatively include (or under companion exclusion forms, exclude) sole proprietors, partners, or eligible corporate officers/LLC members under MCL 418.161.