10.2 Part One: Workers Compensation Insurance
Key Takeaways
- Part One (Coverage A) pays statutory benefits with NO policy limit — the insurer pays whatever the state act requires, however large
- Four benefit types: medical (100%, no cap, no waiting period), disability (typically 66⅔% of average weekly wage), death benefits to dependents, and rehabilitation
- Disability is classified TTD, TPD, PPD, or PTD; scheduled injuries pay a fixed number of weeks regardless of actual wage loss
- A waiting period of 3–7 days applies to wage benefits but NOT medical; benefits are paid retroactively to day one once disability exceeds the state's retroactive trigger (often 14–21 days)
- Maximum Medical Improvement (MMI) is the point of maximum recovery; it ends temporary benefits and triggers a permanent impairment rating
Part One Pays Whatever the Statute Requires
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 policy. Its defining feature: there is no dollar limit. Whatever the statute commands — a $4 million catastrophic spinal claim included — the insurer pays.
Exam Key: Part One has no limit because the obligation is set by statute, not by the contract. Contrast Part Two (employers liability), which always carries dollar limits.
The Four Benefit Categories
1. Medical Benefits
- 100% of reasonable and necessary treatment for the work injury
- No dollar cap, no deductible, no copay to the worker
- No waiting period — medical care is owed from the moment of injury
- Covers hospitalization, surgery, prescriptions, physical therapy, prosthetics, and durable medical equipment
2. Disability (Wage Replacement)
The standard wage rate is 66⅔% (two-thirds) of the Average Weekly Wage (AWW), subject to a state weekly maximum and minimum. Four classes:
| Class | Meaning | Typical Duration |
|---|---|---|
| Temporary Total (TTD) | Cannot work at all, but recovery expected | Until return to work or MMI |
| Temporary Partial (TPD) | Can do reduced/light-duty work | Until full recovery or MMI |
| Permanent Partial (PPD) | Lasting impairment, can still work | Per impairment rating / schedule |
| Permanent Total (PTD) | Cannot work at any job, permanently | Often for life |
3. Death Benefits
- Wage benefit (commonly 66⅔% of AWW) paid to surviving dependents — spouse until death or remarriage, children until 18 (later if still in school)
- A burial/funeral allowance, commonly $5,000–$10,000 depending on state
4. Rehabilitation
- Medical rehabilitation: therapy and equipment to restore function
- Vocational rehabilitation: retraining, tuition, and job placement when the worker cannot return to the former job
Scheduled Versus Non-Scheduled Injuries
PPD awards split into two methods — a frequent exam distinction:
| Type | How It Pays | Example |
|---|---|---|
| Scheduled | Fixed weeks set by statute for a named body part, paid even if the worker loses no wages | Loss of a hand = a set number of weeks of benefit |
| Non-scheduled | Based on percentage loss of earning capacity / whole-person impairment | Back or head injury rated by a physician |
Calculating the Benefit
Average Weekly Wage (AWW): total gross earnings over the statutory look-back (often 13 or 52 weeks) divided by the number of weeks. It includes overtime, bonuses, tips, vacation pay, and certain allowances.
Worked Example — TTD:
- AWW = $1,500
- Benefit = $1,500 × 66⅔% = $1,000/week
Worked Example — TPD (light duty):
- Pre-injury AWW = $1,500; current light-duty earnings = $900
- Wage loss = $600; benefit = $600 × 66⅔% = $400/week
Note: Comp wage benefits are non-taxable, so two-thirds of gross often nearly equals prior take-home pay — which is why the system discourages malingering.
Waiting Period and Retroactive Pay
Wage benefits begin only after a waiting period of 3–7 days (state-specific). Medical benefits have none. If the disability lasts beyond the state's retroactive trigger (commonly 14–21 days), the insurer pays the waiting-period days back to day one.
Maximum Medical Improvement (MMI)
MMI is the point at which the condition has stabilized and no further material recovery is expected. MMI:
- Does not mean full recovery
- Ends temporary (TTD/TPD) benefits
- Triggers a permanent impairment rating and possible PPD/PTD or vocational rehab
State markers vary — New York presumes MMI by about 130 weeks; Texas ends temporary income benefits at MMI or 104 weeks, whichever is first.
Coming and Going & the AOE/COE Test
Before any benefit is owed, the injury must arise out of and in the course of employment (AOE/COE) — a phrase you will see on the exam. Two strands:
- Arising out of employment (AOE): a causal link between the job and the harm (the work created or increased the risk)
- In the course of employment (COE): the right time, place, and circumstance — the worker was doing the job
The coming-and-going rule is the most-tested application: an ordinary commute to and from work is not in the course of employment, so a car crash on the way to the office is usually not compensable. Major exceptions restore coverage:
| Exception | Why It Is Covered |
|---|---|
| Special errand / mission | Travel at the employer's specific request |
| Traveling employee | Job requires travel away from a fixed site (salesperson) |
| Employer-provided transport | The commute is part of the employment bargain |
| Premises rule | Injury in the employer's parking lot or on its grounds |
Occupational Disease and Cumulative Trauma
Part One pays for occupational diseases — conditions that develop over time from job exposure (e.g., hearing loss, repetitive-motion injuries, certain respiratory illnesses) — not just sudden accidents. These claims hinge on linking the disease to a work exposure greater than the general public faces, and they often surface long after the exposure, which is why the "by disease" limits in Part Two (10.3) exist separately from "by accident."
Subrogation Recovery
When a third party caused the injury (a negligent driver, a defective-product maker), the comp insurer that paid benefits has subrogation rights: it may recover what it paid out of any recovery the worker obtains from that third party. This prevents a double recovery and is the flip side of the third-party-over actions discussed in 10.3.
An employee earning an average weekly wage of $900 is placed on temporary total disability. The state pays the standard two-thirds rate (ignore the state maximum). What is the weekly benefit?
Which statement about Part One (Coverage A) of the standard workers' compensation policy is TRUE?
A worker permanently loses the use of a hand. The state statute assigns a fixed number of weeks of benefit for loss of a hand, payable even though the worker returns to a job at full pay. This is an example of:
Which benefit under Part One begins IMMEDIATELY with no waiting period?