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

Part One and Part Two of the Standard Policy

The Workers Compensation and Employers Liability Insurance Policy is filed by the National Council on Compensation Insurance (NCCI) in most states (some states use independent rating bureaus). Its two core insuring agreements are Part One — Workers Compensation Insurance and Part Two — Employers Liability Insurance. Candidates must distinguish what each part does, because they respond to two different exposures arising from the same injury.

Part One — Workers Compensation Insurance

Part One is the statutory benefits coverage. The insurer agrees to pay promptly, as required by the workers compensation law of any state listed in Item 3.A of the Information Page, all benefits owed to a covered employee. Key features:

• No dollar limit. Because the obligation is set by statute, Part One has no policy limit — it pays whatever the law requires.
• No deductible (absent a special large-deductible endorsement).
• The insurer takes over the employer's statutory duties: investigating, defending, and paying claims directly to the injured worker.
• If the insurer pays more than the policy would otherwise require because of the employer's serious and willful misconduct, illegal employment, or safety-law violation, the employer must reimburse the insurer.

Part Two — Employers Liability Insurance

Part Two covers the employer's tort liability for bodily injury by accident or disease that is not compensable under the workers compensation act — the gaps the no-fault system leaves open. Unlike Part One, Part Two has limits. The standard 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

This is the familiar $100,000 / $500,000 / $100,000 structure, and the bureau commonly writes it as "100/500/100." Higher limits are available by endorsement. Part Two responds to liability suits the no-fault system does not bar, including:

• Third-party-over (action-over) claims — an injured employee sues a third party (e.g., a machine maker), who then sues the employer for contribution/indemnity.
• Consequential bodily injury to a family member (e.g., loss of consortium) arising from the employee's injury.
• Dual-capacity claims, where the employer is sued in a role other than employer (e.g., as a product manufacturer).
• Loss of services claims by the spouse of the injured worker.

Reading the limits: a worked example

Limits 100/500/100 apply this way. Three employees contract the same occupational lung disease at one plant over a policy year, each with a $90,000 liability claim:

• Each claim is within the $100,000 each-employee disease limit, so each is individually covered.
• But total disease claims = 3 × $90,000 = $270,000, which is under the $500,000 disease aggregate, so all three are paid in full.
• If a fourth and fifth employee each added $150,000 claims, the each-employee limit caps each at $100,000, and the running disease total ($270,000 + $100,000 + $100,000 = $470,000) still sits under the $500,000 aggregate.

Critical distinction (a frequent exam trap)

Part One pays statutory benefits to the worker — no limit, no fault. Part Two pays damages the employer is legally liable for when the claim falls outside the comp act — with limits and the need to establish liability. A single incident can trigger both: the worker collects statutory benefits under Part One, and a related lawsuit (e.g., action-over) is defended under Part Two. The two parts do not overlap on the same dollars.

How Part Two defense works

Like a liability policy, Part Two gives the insurer the duty to defend suits seeking covered damages, and defense costs are paid in addition to the limits — they do not erode the 100/500/100 amounts. The insurer chooses counsel and controls the defense. If the suit clearly falls under Part One (statutory benefits), Part Two does not apply, because Part Two expressly excludes obligations imposed by any workers compensation, occupational disease, unemployment, or disability law. The two insuring agreements are mutually exclusive on a given dollar of loss even though one occurrence can implicate both.

Conditions common to both parts

Several policy conditions tie the parts together. The employer must report injuries promptly, cooperate in claims and suits, and maintain accurate payroll records for the audit. The insurer is granted subrogation rights: if a third party caused the injury, the insurer that paid benefits may recover from that party. The policy is non-assignable without the insurer's consent, and the named insured must keep the insurer informed of changes in operations or new states of work — directly relevant to the Item 3.A / 3.C and Other States rules covered later.

Who is an insured and what triggers each part

The named insured on the Information Page is the employer; if a partnership is named, the partners are insureds for the conduct of the business. Part One is triggered by a compensable injury or disease to a covered employee — fault is irrelevant and no suit is required.

Part Two is triggered only when the employer is alleged to be legally liable for bodily injury that the comp act does not require it to pay as benefits, and the injury must arise out of and in the course of employment or be a consequential injury to a family member. Both parts apply only to injury in the coverage territory during the policy period, and only in states where the insurer is authorized to write — reinforcing why the Other States and federal-act endorsements exist to plug territorial gaps.