10.3 Part Two: Employers Liability
Key Takeaways
- Part Two (Coverage B) is liability coverage for injury-related suits the workers' comp statute does NOT bar; standard NCCI limits are $100,000 / $500,000 / $100,000
- The three limits are: $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)
- Coverage B answers third-party-over actions, dual-capacity suits, consequential bodily injury, and loss-of-consortium claims arising from a covered injury
- Monopolistic-state funds (OH, ND, WA, WY) provide Coverage A only; employers buy STOP GAP employers liability by endorsement on their CGL policy
- Part Two does NOT pay statutory comp benefits, punitive/exemplary damages, or claims arising from the employer's intentional acts or illegal employment
Why Part Two Exists
The exclusive remedy bargain blocks most employee suits, but not all injury-related liability. Part Two (Coverage B), Employers Liability, pays sums the employer becomes legally obligated to pay as damages for a covered work-related bodily injury when the workers' comp statute does not bar the action. Unlike Part One, it is true liability insurance — it has limits.
| Feature | Part One (Coverage A) | Part Two (Coverage B) |
|---|---|---|
| Coverage | Statutory comp benefits | Employers liability |
| Limit | Unlimited | Limited |
| Standard limit | n/a | $100,000 / $500,000 / $100,000 |
| Triggered by | The state act | A lawsuit outside the act |
The Three Standard Limits
The NCCI standard limits are written as $100,000 / $500,000 / $100,000 and each number means something different — a guaranteed exam point:
| Limit | Label | Applies To |
|---|---|---|
| $100,000 | Bodily Injury by Accident – Each Accident | Per-accident cap for injury by accident |
| $500,000 | Bodily Injury by Disease – Policy Limit | Aggregate for all disease claims |
| $100,000 | Bodily Injury by Disease – Each Employee | Per-employee cap for disease |
Limits can be raised; many commercial buyers carry $500K/$500K/$500K or $1M/$1M/$1M, often to satisfy umbrella attachment requirements.
What Coverage B Actually Pays For
1. Third-Party-Over Actions
The most-tested scenario. The worker collects comp, sues an outside party, and that party drags the employer back in:
- Worker hurt by a defective forklift; collects workers' comp
- Worker sues the forklift manufacturer (a third party — not barred by exclusive remedy)
- Manufacturer files a third-party-over claim against the employer, alleging poor maintenance/training
- Coverage B defends the employer and pays any damages within limits
2. Dual-Capacity Doctrine
The employer is sued in a role separate from being the employer:
| Second Capacity | Example |
|---|---|
| Product manufacturer | Forklift-maker's own employee hurt by the company's forklift sues as a consumer |
| Medical provider | On-site clinic negligently treats the worker |
| Landlord/owner | Premises defect in a building the employer owns injures the worker |
3. Consequential Bodily Injury & 4. Loss of Consortium
A family member sues for their own loss flowing from the worker's injury — e.g., a spouse's loss of consortium (companionship and services) or consequential injury from caring for the worker. These derivative claims are covered by Part Two even though the worker's own claim runs through Part One.
Key Part Two Exclusions
Part Two does not cover:
- Statutory benefits payable under Part One
- Punitive or exemplary damages
- Liability from the employer's intentional/deliberate act to injure
- Injury to a worker knowingly employed in violation of law (e.g., illegal child labor)
- Obligations under federal acts (USL&H, FELA) unless specifically endorsed
Monopolistic States and Stop Gap
In the four monopolistic states — Ohio, North Dakota, Washington, Wyoming — the state fund sells Coverage A (statutory benefits) but not Coverage B. The fix is stop gap coverage, an employers-liability endorsement added to the employer's Commercial General Liability (CGL) policy.
| State Fund Provides | Stop Gap (on CGL) Provides |
|---|---|
| Coverage A statutory benefits | Coverage B employers liability defense and damages |
Exam Key: Monopolistic state fund = Coverage A only → buy stop gap on the CGL to fill the employers-liability hole.
How the Limits Actually Trigger
Knowing which limit applies to a given loss is a favorite question. Walk the facts through three questions:
- Accident or disease? A single traumatic event is "by accident"; a condition developing from exposure over time is "by disease."
- One event or the whole policy term? The "by accident" limit applies per accident; the disease policy limit is an aggregate for the entire term.
- How many employees? The disease per-employee limit caps any one worker's disease claim within that aggregate.
| Loss | Limit Tested | Why |
|---|---|---|
| One worker hurt in a fall, third-party-over suit | $100,000 accident — each accident | Single traumatic event |
| Five workers develop lung disease from a solvent | $500,000 disease policy limit | Aggregate across all disease claims |
| One of those five, examined alone | $100,000 disease — each employee | Per-employee disease cap |
Coverage B vs. the CGL Employee Exclusion
A key reason employers liability exists: the standard Commercial General Liability (CGL) policy excludes bodily injury to an employee arising out of employment. Without Part Two, a third-party-over action or dual-capacity suit would fall into that CGL gap and leave the employer naked. Part Two is purpose-built to fill exactly the hole the CGL carves out — which is also why, in monopolistic states, the stop-gap endorsement is added back onto the CGL.
Worked Scenario
A delivery firm's driver is hurt when a contractor's defective loading ramp collapses. The driver collects comp benefits under Part One. He then sues the ramp manufacturer. The manufacturer files a third-party-over claim against the delivery firm, alleging its drivers overloaded the ramp. The delivery firm's Part Two responds: it defends the firm and pays any judgment up to the $100,000 bodily injury by accident — each accident limit. None of this touches Part One, which has already paid the statutory benefits and may now pursue subrogation against the manufacturer for what it paid.
Exam Key: Part One pays the worker the statutory benefits; Part Two pays lawsuit damages the employer owes when someone reaches the employer outside the no-fault bargain.
In the standard employers liability limits of $100,000 / $500,000 / $100,000, what does the middle figure of $500,000 represent?
An injured employee collects workers' comp, then sues the manufacturer of the machine that hurt him. The manufacturer brings the employer into the suit, claiming the employer's poor maintenance contributed. This is best described as:
Which of the following would Part Two (Employers Liability) NOT pay?
A manufacturer operates a plant in Washington, a monopolistic state. How does it secure employers liability protection?