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

The NCCI Standard Policy Architecture

The industry-standard form is the NCCI Workers Compensation and Employers Liability Insurance Policy (WC 00 00 00 C), used in most states (NCCI is the National Council on Compensation Insurance; a few independent-bureau states such as California and New York use parallel forms). The policy begins with the Information Page (its declarations), then is organized into six lettered parts. The exam focuses heavily on Part One and Part Two because they are the only two insuring agreements in the policy; the other four parts are administrative.

The Information Page items the exam tests are: Item 1 (named insured and address), Item 2 (policy period), Item 3.A (states where Part One applies on day one), Item 3.B (Part Two employers liability limits), Item 3.C (Other States Insurance states), and Item 4 (premium classifications and estimated payroll).

Part One — Workers Compensation Insurance

Part One is the heart of the policy. The insurer agrees to pay promptly when due all benefits required by the workers compensation law of any state listed in Item 3.A of the Information Page. The insurer steps into the employer's statutory shoes and pays the worker directly.

Key features the exam tests repeatedly:

• No dollar limit. Part One has no policy limit because benefits are whatever the statute requires. The insurer's obligation rises and falls with the law, even if the legislature increases benefits mid-term.
• No deductible in the standard form (large deductible plans exist by endorsement).
• The insurer pays the full statutory benefit even if part of it stems from the employer's misconduct, but it then recovers the penalty portion from the employer (covered in 13.5).
• Covers only the states named in 3.A. This is the central trap: a state not listed in 3.A is not covered under Part One unless picked up by Other States Insurance in Item 3.C.

Part Two — Employers Liability Insurance

Part Two fills the gap Part One leaves. Part One pays no-fault statutory benefits; Part Two covers the employer's tort liability for bodily injury by accident or by disease that is job-related but falls outside the WC statute. Because it responds to lawsuits rather than statutory schedules, it functions like a liability policy and therefore carries dollar limits shown in Item 3.B.

Four classic Part Two claim scenarios show up on the exam (memorize all four):

• Third-party-over actions — an injured worker (barred from suing the employer) sues a third party such as the machine manufacturer; the third party then sues the employer for contribution or indemnity. Part Two defends the employer in that over-action.
• Consequential bodily injury — a family member suffers injury consequential to the employee's covered injury (for example, the spouse who is injured while caring for the disabled worker).
• Dual-capacity suits — the employer is sued in a second, non-employer role, such as the manufacturer of the product that injured its own employee.
• Loss of consortium — a spouse sues for loss of companionship resulting from the worker's injury.

Part Two Standard Limits

Part Two limits are written as three figures, a split limit:

The common minimum standard set written in the policy is $100,000 / $500,000 / $100,000: $100,000 per accident, a $500,000 disease aggregate (the policy limit for all disease claims), and $100,000 per employee for disease. Note that the first number applies by accident while the second and third both apply to disease. Higher limits, such as $500,000/$500,000/$500,000 or $1,000,000 across the board, are available for an additional premium and are commonly required by an umbrella's underlying-insurance schedule.

Worked Numeric: Applying the Disease Aggregate

An employer's Part Two limits are $100,000 / $500,000 / $100,000. Suppose six employees develop an occupational lung disease from a chemical exposure, and each obtains a $90,000 liability judgment against the employer ($540,000 total):

• Each individual claim of $90,000 is below the $100,000 per-employee disease limit, so each is eligible to be paid in full.
• However, the $500,000 disease policy aggregate caps the insurer's total disease payments. The insurer pays $500,000 total, and the remaining $40,000 is unpaid by the policy and falls back on the employer.

Now test the accident limit. If instead one explosion injures three employees with combined judgments of $260,000, the $100,000 each-accident limit applies to that single accident, so the insurer pays only $100,000 and the employer absorbs the $160,000 excess. Watch which trigger the question describes, accident or disease, because different numbers apply.

Remaining Parts (Three through Six)

• Part Three — Other States Insurance (driven by Item 3.C) extends Part One coverage to states the insured begins operating in mid-term.
• Part Four — Your Duties If Injury Occurs (prompt notice, medical records, cooperation with the insurer).
• Part Five — Premium (the payroll basis, classifications, and the final premium audit, covered in 13.3).
• Part Six — Conditions (inspection, transfer of rights, cancellation, and nonrenewal).