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

Two Different Promises

The NCCI policy answers two distinct exposures with two parts. Part One responds to the obligations the state statute imposes — it is a no-fault, statutory promise. Part Two responds to liability suits arising from workplace injury that fall outside the statute. Confusing the two is the most common exam error on this line.

Quick Answer: Part One pays what the workers comp law requires (unlimited, no-fault). Part Two pays damages a court awards for injury claims the statute does not cover (limited dollar amounts).

Part One — Workers Compensation

Under Part One, the insurer promises to pay promptly when due all benefits required of the insured by the workers compensation law. Key features:

• No dollar limit. The insurer pays whatever the statute demands.
• The covered states are listed in Item 3.A of the Information Page (the declarations).
• The insurer's duty runs to the employee, but the insured (employer) is the policyholder.
• If the insurer pays benefits the insured was not liable to pay, it can recover that amount from the insured.

Part One is keyed to the statute, so it automatically tracks benefit-level changes the legislature enacts during the policy term.

Part Two — Employers Liability

Part Two is liability coverage for bodily injury by accident or disease arising out of and in the course of employment that is not compensable under the workers comp statute. It fills gaps where an injured party can still sue the employer at law. Five classic Part Two exposures:

Part Two Limits and Split Format

Part Two limits appear in Item 3.B of the Information Page and are written in a three-part split form:

The standard default is $100,000 / $500,000 / $100,000, read as $100,000 by accident, $500,000 disease aggregate, and $100,000 disease per employee. Higher limits are available by endorsement, and many umbrella carriers require the insured to carry minimum Part Two limits (often 500/500/500 or 1,000,000/1,000,000/1,000,000) before the umbrella will sit above employers liability.

Reading the Disease Limits

The two disease limits trip up candidates. The disease policy limit ($500,000) is an aggregate that caps the insurer's total disease payout for the entire policy period across all employees. The disease each employee limit ($100,000) is the most payable for any one worker's disease claim. The bodily-injury-by-accident limit ($100,000) is a per-accident cap covering all workers hurt in a single event.

So two triggers exist: a sudden traumatic event reaches the accident limit, while a gradual condition (asbestosis, hearing loss, repetitive stress) reaches the disease limits. The same exposure can never tap both — the adjuster classifies the claim as accident or disease, then applies the matching limit.

Worked Split-Limit Example

Three employees are exposed to a toxic chemical over time and each later sues the employer in tort (a Part Two situation, not statutory). Limits are 100/500/100. Damages awarded: Employee A $90,000, Employee B $130,000, Employee C $400,000.

Apply the Each Employee disease sublimit ($100,000) first:

• Employee A: $90,000 (under $100k) -> insurer pays $90,000.
• Employee B: $130,000, capped at $100,000 -> insurer pays $100,000.
• Employee C: $400,000, capped at $100,000 -> insurer pays $100,000.
• Per-employee subtotal = $90,000 + $100,000 + $100,000 = $290,000.

Now test the $500,000 disease policy aggregate: $290,000 is below $500,000, so no further reduction. The insurer pays $290,000; the employer retains the uninsured $40,000 ($30k for B and $300k for C minus paid).

Note how the per-employee sublimit, not the aggregate, did the real limiting here. The aggregate only binds when total per-employee payments would exceed $500,000 — for example, six employees each at $100,000 would total $600,000, which the $500,000 aggregate would cut back to $500,000. Always test the per-employee limit first, then the aggregate.

The Two Parts of the WC Policy

The standard NCCI Workers Compensation and Employers Liability Policy contains two distinct insuring agreements the exam separates carefully:

Why Part Two Exists

Part One pays statutory benefits with no limit. Part Two (Employers Liability) fills gaps where an employee or related party sues the employer outside the WC statute. Classic Part Two situations:

• Third-party-over actions - an injured worker sues a product manufacturer, which then sues the employer for contribution.
• Consequential bodily injury - a family member's injury flowing from the worker's injury.
• Loss of consortium - a spouse's claim.
• Dual-capacity - the employer is sued in a second role (e.g., as product maker).

Part Two carries three limits: bodily injury by accident (each accident), bodily injury by disease (policy limit), and bodily injury by disease (each employee).

Worked Example

A factory worker is hurt by a defective machine. Part One pays the worker's unlimited medical and wage benefits. The worker then sues the machine manufacturer, which turns around and sues the employer for contributing to the injury (a third-party-over action) seeking $400,000. Because this suit is outside the WC statute, Part Two Employers Liability responds up to its bodily-injury-by-accident limit. Understanding that Part One = statutory/no-limit and Part Two = tort/stated-limit gap-filler is the core distinction.