13.2 Part One (Workers Comp) and Part Two (Employers Liability)
Key Takeaways
- The standard WC policy (WC 00 00 00 C) has two coverages: Part One Workers Compensation (Coverage A) and Part Two Employers Liability (Coverage B).
- Part One has no dollar limit because benefits are fixed by statute; Part Two carries dollar limits shown at Item 3.B.
- Part Two pays damages for liability the comp statute does not bar: third-party-over actions, loss of consortium, dual-capacity, and consequential injury.
- The standard three-part Part Two limit ($100K/$500K/$100K) is by accident / disease aggregate / disease each employee.
- Part Two provides a duty to defend with defense costs outside the limits, and excludes punitive damages and employees knowingly employed in violation of law.
The Standard Policy Has Two Insuring Agreements
The national portion tests the NCCI Workers Compensation and Employers Liability Insurance Policy (WC 00 00 00 C), used in nearly every state. It contains two distinct coverages:
- Part One — Workers Compensation Insurance (Coverage A)
- Part Two — Employers Liability Insurance (Coverage B)
Part One: Pays Whatever the Statute Requires
Part One 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. Its defining feature: there is no dollar limit. Whatever the statute commands — including a $4 million catastrophic claim — the insurer pays.
Exam Key: Part One has no limit because the obligation is fixed by statute, not by the contract. Contrast Part Two, which always carries dollar limits. If a question offers '$1,000,000 limit on Part One,' it is wrong.
Part Two: Employers Liability Fills the Tort Gaps
The exclusive-remedy bargain blocks most employee suits — but not all injury-related liability. Part Two (Coverage B) pays sums the employer becomes legally liable to pay as damages (not statutory benefits) for bodily injury by accident or disease in the course of employment, when the claim falls outside the comp statute.
Four situations classically trigger Part Two:
| Situation | Description |
|---|---|
| Third-party-over actions | An injured worker sues a third party (e.g., a machine maker), who then sues the employer for indemnity/contribution |
| Loss of consortium / care | A spouse or relative sues for their own loss flowing from the worker's injury |
| Dual-capacity suits | The employer is sued in a second capacity (e.g., as product manufacturer) |
| Consequential bodily injury | A family member's injury consequential to the employee's injury |
Exam Key: Part One pays the worker statutory benefits; Part Two pays damages to others (or the worker) for liability the comp statute does not bar.
The Part Two Limits (Item 3.B)
Unlike Part One, Part Two has dollar limits shown on the Information Page at Item 3.B. The standard 'three-part' limit is written as $100,000 / $500,000 / $100,000:
| Limit | Applies To |
|---|---|
| Bodily Injury by Accident | A per-accident limit (any number of employees in one accident) |
| Bodily Injury by Disease — policy limit | An aggregate cap for all disease claims during the policy period |
| Bodily Injury by Disease — each employee | A per-employee limit for disease claims |
So $100K/$500K/$100K means: $100,000 each accident; $500,000 disease aggregate; $100,000 disease each employee. Higher limits are commonly bought (e.g., $1M/$1M/$1M) and an umbrella typically requires the employers-liability primary be raised to a minimum (often $500K or $1M).
Trap: The middle number is the disease policy aggregate, not a per-accident figure. The first number is by accident; the third is disease per employee.
Part Two Exclusions and Defense
Part Two is the liability coverage, so it carries liability-style exclusions: punitive damages for serious-and-willful misconduct, liability assumed under contract, injury to an employee knowingly employed in violation of law, and obligations under any other state or federal comp law (those belong to Part One or a federal act).
Like a CGL, Part Two provides a duty to defend in addition to the limits — defense costs do not erode the Item 3.B limits.
How the Two Parts Interact
- A worker is injured at work.
- Part One pays the statutory comp benefits (no limit) — this is the worker's exclusive remedy against the employer.
- If a third party (e.g., equipment maker) is sued and brings the employer in, or a spouse sues for consortium, Part Two responds for damages up to the Item 3.B limits.
- The comp insurer that paid under Part One may exercise subrogation against a negligent third party to recover what it paid.
A frequent exam contrast is Part Two versus a CGL. The CGL excludes bodily injury to an employee in the course of employment precisely so that employers liability does not overlap it; Part Two is the policy designed to pick up that excluded employee-injury liability. So the CGL and Part Two interlock: the CGL handles third-party public bodily injury, Part One handles statutory benefits to the worker, and Part Two handles the narrow band of employee-injury liability that the comp statute does not bar.
The Two Parts of the WC Policy
The standard Workers Compensation and Employers Liability Policy contains two distinct insuring agreements, and the exam constantly tests which one responds:
| Part | Covers | Limit |
|---|---|---|
| Part One - Workers Compensation | Statutory benefits the law requires the employer to pay | No dollar limit - pays whatever the statute requires |
| Part Two - Employers Liability | The employer's tort liability for work injury not covered by the statute | Has dollar limits (e.g., 100/500/100) |
Why Part One Has No Limit
Part One simply promises to pay "all compensation and other benefits required by the workers compensation law" of the states listed - so there is no policy limit because the insurer's obligation equals the state's statutory obligation. The insurer pays benefits directly to the injured worker and cannot pass statutory penalties for the employer's serious-and-willful misconduct back into Part One coverage.
What Part Two (Employers Liability) Fills
Part Two covers liability gaps the exclusive remedy does not reach - the classic four are: third-party-over actions (a manufacturer sued by an injured worker brings the employer in for contribution), loss of consortium claims by a spouse, dual-capacity suits (employer sued as a product manufacturer), and consequential bodily injury to a family member. These are tort claims, so Part Two carries the three-figure limits (bodily injury by accident each accident, bodily injury by disease policy limit, and by disease each employee).
Part Three and the Listed States
Part Three - Other States Insurance extends Part One to states the employer lists but does not have operations in yet, preventing a gap when the business expands. The candidate must distinguish the states listed in Item 3.A (where coverage is automatic) from those in Item 3.C (other-states coverage). States with monopolistic funds (where the employer must buy WC from a state fund) cannot be added to Part Three and require separate state-fund coverage.
An employers-liability schedule reads $100,000 / $500,000 / $100,000. What does the middle figure ($500,000) represent?
A defective machine injures a worker. The worker collects comp benefits, then sues the machine manufacturer, who in turn sues the employer for indemnity. Which coverage responds to the employer's liability to the manufacturer?