Property and Casualty Insurance · Casualty Insurance · 7 min read
Employer Lawsuits and Other States
- Differentiate the coverage, limits, and common claim scenarios between Part One Workers Compensation and Part Two Employers Liability.
- Identify the major exclusions under Part Two Employers Liability, including intentional acts and contractual liabilities.
- Explain how Part Three Other States Insurance operates, including the use of Item 3.A and Item 3.C, monopolistic state rules, and extraterritorial provisions.
Understanding Part One Versus Part Two Employers Liability
A standard Workers Compensation and Employers Liability Insurance Policy contains two primary coverage sections: Part One for statutory workers compensation and Part Two for employers liability. Part One pays state-mandated benefits regardless of fault. In contrast, Part Two protects the employer against common law liability when an employee or third party can legally sue the employer.
Under the exclusive remedy rule, an employee's right to sue the employer for a work-related injury is generally limited. However, Part Two may cover legally permitted claims arising from employee bodily injury, subject to the policy and state law. It applies to an employee's bodily injury by accident or disease that arises out of and in the course of employment, subject to the policy's other conditions. Part Two does not pay statutory workers compensation benefits; it pays covered civil damages the employer becomes legally obligated to pay because of an employee's work-related bodily injury.
A key difference between the two parts lies in their limits and defense obligations. Part One pays benefits required by applicable workers compensation law without a stated policy dollar limit. Part Two has liability limits shown on the Information Page. These limits are typically structured as bodily injury by accident per accident, bodily injury by disease policy limit, and bodily injury by disease per employee. Under Part Two, the insurer has the duty to defend the employer against covered suits at the insurer's expense, in addition to policy limits.
| Feature | Part One (Workers Compensation) | Part Two (Employers Liability) |
|---|---|---|
| Coverage Basis | Statutory benefits mandated by state law | Common law damages the employer is legally obligated to pay |
| Fault Requirement | No fault required | Requires legal liability or permitted common law lawsuit |
| Policy Limits | No stated dollar limit (pays required benefits) | Stated limits on the Information Page for accident and disease |
| Defense Costs | Under Part One, the insurer defends, at its expense, claims, proceedings, or suits against the employer for benefits payable by the policy. | Paid by the insurer at its expense, in addition to policy limits |
Common mistakes
- Assuming Part Two covers statutory workers compensation benefits when limits are exhausted under Part One, rather than realizing Part Two only covers common law employer liability damages.
- Believing that an employer can list monopolistic fund states (North Dakota, Ohio, Washington, and Wyoming) in Item 3.C of a private workers compensation policy.
- Do not confuse a state's extraterritorial rules, which may extend its workers compensation benefits to an injury outside the state, with Part Three, which can apply another state's law when the policy's Other States Insurance conditions are met.
Key points
- Part One covers statutory workers compensation benefits without dollar limits, whereas Part Two covers common law employers liability up to stated policy limits.
- Part Two defends the employer at the insurer's expense outside policy limits against permitted lawsuits such as third-party-over actions, dual capacity claims, loss of services, and consequential bodily injuries.
- Exclusions under Part Two include intentional injuries, statutory obligations, assumed contracts (with a workmanlike manner exception), and illegal employment known to the employer.
- Item 3.A lists states for known, immediate Part One coverage, while Item 3.C lists states where Part Three Other States coverage may activate if work begins after policy inception.
- North Dakota, Ohio, Washington, and Wyoming are monopolistic fund states that are not listed for statutory workers compensation coverage under a private policy; state law may permit self-insurance, and employers should consider separate stopgap employers liability coverage.
- Depending on state law and the facts of the injury, extraterritorial provisions may allow an employee injured while temporarily working out of state to receive home-state statutory benefits; Parts Four, Five, and Six govern duties, premium, and general conditions.
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