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CISR Commercial Casualty II study materials
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CISR Commercial Casualty II practice questions

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Question 1Workers' Compensation and Employers' Liability

Under the standard workers' compensation and employers' liability policy, what is the only state in which Part One (Workers' Compensation) benefits may be paid when the policy shows no state entry for that state in Item 3.A?

  1. Any state that recognizes the compensability of the claim
  2. The state where the injury occurred, regardless of any listing
  3. A state listed in Item 3.A of the Information Page Correct answer.
  4. The state of the insured's domicile at policy inception

Explanation

Part One benefits are payable only where the policy provides coverage, which is triggered by the states listed in Item 3.A. If a state is not listed, the policy does not respond under Part One for that jurisdiction.

Question 2Workers' Compensation and Employers' Liability

An employer wants coverage for a single designated state and does not want to pay for multistate exposure. Which approach to Item 3.A best matches that intent?

  1. Using the residual market designation
  2. Leaving Item 3.A blank to rely on Part Two
  3. Listing only the state where operations are conducted Correct answer.
  4. Listing all states with a notation for each

Explanation

A single-state listing confines Part One benefits to that jurisdiction and avoids charges for other states. This is the common approach for employers with no multistate payroll or travel exposure.

Question 3Workers' Compensation and Employers' Liability

Under Part Two (Employers' Liability), the policy provides coverage for the employer's legal liability for injury to employees, subject to limits shown in the Information Page. Which statement describes how Part Two limits typically apply?

  1. Limits apply only after Part One benefits are exhausted
  2. A single aggregate limit applies to all claims in the policy period
  3. Each accident, disease policy limit, and disease each employee limit apply separately Correct answer.
  4. Limits are shared with Part One statutory benefits

Explanation

Part Two uses three separate limits: bodily injury by accident (each accident), bodily injury by disease (policy limit), and bodily injury by disease (each employee). These limits are independent of the statutory Part One benefits.

Question 4Workers' Compensation and Employers' Liability

An employee is injured in a state not listed in Item 3.A while on a temporary assignment. The employer has Part Three (Other States Insurance) covering that state. What does Part Three generally provide?

  1. Coverage that begins only after the employer gives notice and pays premium
  2. Nothing, because Part Three is limited to states where the employer begins operations after inception Correct answer.
  3. Benefits only if the employer obtains a separate endorsement
  4. Full Part One benefits as if the state were listed from policy inception

Explanation

Part Three applies to states the employer begins operations in after the policy inception, provided the state is listed in Item 3.C. It does not automatically cover a state where operations already existed but were omitted from Item 3.A.

Question 5Workers' Compensation and Employers' Liability

Which of the following is excluded from Part Two (Employers' Liability) coverage?

  1. Liability for consequential bodily injury to an employee
  2. Liability arising from the employer's negligence
  3. Liability for injury to an employee's spouse accompanying the employee on a trip
  4. Liability assumed under a contract Correct answer.

Explanation

Part Two excludes liability the insured assumes under contract, along with several other specified exclusions. Contractual assumption is not the kind of legal liability the policy intends to cover.

Question 6Workers' Compensation and Employers' Liability

An injured worker's exclusive remedy against the employer is provided by the workers' compensation statute. What does the exclusive remedy provision generally mean for the employer?

  1. The employer may be sued in tort but benefits are offset
  2. The employer is immune from all civil suits by the employee
  3. The employer remains liable for pain and suffering damages
  4. The employer is immune from tort suits by the employee for work-related injury, in exchange for statutory benefits Correct answer.

Explanation

Exclusive remedy trades the employee's right to sue in tort for scheduled statutory benefits. The employer gains protection from most work-related tort claims, subject to statutory exceptions.

Question 7Workers' Compensation and Employers' Liability

Which of the following describes the difference between workers' compensation benefits and employers' liability coverage?

  1. Both cover only injuries caused by the employer's negligence
  2. Workers' compensation pays statutory benefits regardless of fault; employers' liability responds to the employer's legal liability Correct answer.
  3. Workers' compensation is fault-based; employers' liability is no-fault
  4. Workers' compensation applies only to out-of-state injuries

Explanation

Workers' compensation is a no-fault statutory system paying scheduled benefits. Employers' liability covers the employer's legal liability for employee injury that falls outside the statutory benefit system.

Question 8Workers' Compensation and Employers' Liability

An employer's premium under the workers' compensation policy is calculated using payroll and classification. Which statement best describes how the premium is typically determined?

  1. A per-employee headcount charge
  2. Payroll by classification multiplied by the applicable rate, subject to minimum premium Correct answer.
  3. A flat annual premium regardless of payroll
  4. A percentage of the employer's gross revenue

Explanation

Premium is developed by applying classification rates to payroll per classification, then adjusted for experience modification and subject to a minimum premium. This aligns cost with exposure.

Question 9Workers' Compensation and Employers' Liability

An employer's experience modification factor is 0.85. What does this generally indicate about the employer's loss experience relative to its classification?

  1. No effect on premium
  2. A factor applied only to Part Two limits
  3. Better than average experience, producing a credit Correct answer.
  4. Worse than average experience, producing a debit

Explanation

A modification below 1.00 reflects better-than-average loss experience and produces a credit to manual premium. A factor above 1.00 would be a debit.

Question 10Workers' Compensation and Employers' Liability

An employee is injured on a business trip in a state listed in Item 3.A. Which coverage part responds first to the statutory benefits owed?

  1. Part One, because the state is listed and the injury is compensable Correct answer.
  2. Part Two, because travel involves legal liability
  3. Part Four, because the employer's premises were not involved
  4. Part Three, because the employee was traveling

Explanation

Part One pays statutory benefits when the injury is compensable and the state is designated in Item 3.A. Travel status does not shift the claim to Part Two or Part Three.

Question 11Workers' Compensation and Employers' Liability

Which of the following best describes the role of the employers' liability limits in relation to a claim involving an employee's spouse who suffered emotional distress from witnessing the employee's injury?

  1. The claim is covered under Part Three
  2. The claim may be covered under Part Two subject to the applicable limit, if not otherwise excluded Correct answer.
  3. The claim is always excluded as a family member claim
  4. The claim is automatically covered under Part One

Explanation

Part Two can respond to certain claims by family members for bodily injury or consequential damages arising from an employee's injury, subject to the limits and exclusions. Part One does not pay benefits to non-employees.

Question 12Workers' Compensation and Employers' Liability

What is the purpose of the voluntary compensation endorsement in a workers' compensation policy?

  1. To extend benefits to employees who are exempt from the statutory act Correct answer.
  2. To reduce premium for low-risk classifications
  3. To provide coverage for out-of-state operations
  4. To exclude certain occupational diseases

Explanation

The voluntary compensation endorsement allows the employer to extend benefits to employees not subject to the workers' compensation statute, treating them as if covered. It does not change premium rating or territory.

Question 13Workers' Compensation and Employers' Liability

An employer has employees in a state where it has just begun operations after the policy inception, and that state is listed in Item 3.C. What must the employer generally do for Part Three to apply?

  1. Notify the insurer within the required timeframe and pay any additional premium Correct answer.
  2. File a claim before the first injury occurs
  3. Nothing; coverage is automatic once operations begin
  4. Obtain a new policy for that state

Explanation

Part Three requires the employer to notify the insurer promptly when it begins operations in a listed state and to pay any resulting premium. Without notice, coverage may be limited or denied.

Question 14Workers' Compensation and Employers' Liability

Which of the following is a typical duty of the insured under the workers' compensation and employers' liability policy after an injury?

  1. Pay benefits without insurer authorization
  2. Provide immediate notice to the insurer and cooperate in the investigation Correct answer.
  3. Delay reporting until the claim is litigated
  4. Settle claims directly with employees without insurer involvement

Explanation

The insured must give prompt notice, cooperate with the insurer, and refrain from voluntarily assuming obligations. These duties preserve the insurer's ability to investigate and defend.

Question 15Workers' Compensation and Employers' Liability

The employers' liability coverage territory is generally defined to include which of the following?

  1. Only the state listed in Item 3.A
  2. The United States, its territories and possessions, and Canada Correct answer.
  3. Any country worldwide
  4. Only the employer's premises

Explanation

Part Two territory generally includes the United States, its territories and possessions, and Canada. This is broader than the Part One listing of designated states.

Question 16Workers' Compensation and Employers' Liability

An employer operates in a monopolistic state fund state. How is that state typically addressed in a workers' compensation policy issued by a private carrier?

  1. Excluded from Item 3.A, with coverage obtained from the state fund Correct answer.
  2. Covered automatically under Part Three
  3. Listed in Item 3.A for full Part One benefits
  4. Covered under Part Two only

Explanation

Monopolistic state fund states are not listed for Part One because private carriers cannot provide the statutory benefits there. Employers obtain that coverage from the state fund, and the policy may note the exclusion.

Question 17Workers' Compensation and Employers' Liability

Which of the following statements about the employers' liability exclusion for injury to an employee covered by a federal workers' compensation law is accurate?

  1. Federal employees are fully covered under Part One
  2. The exclusion applies only to maritime workers
  3. The policy may exclude liability for employees subject to federal compensation laws Correct answer.
  4. Federal law claims are covered under Part Three

Explanation

The policy commonly excludes liability for employees covered under federal compensation statutes such as FELA or the Longshore and Harbor Workers' Compensation Act. Such exposure requires separate treatment.

Question 18Workers' Compensation and Employers' Liability

An employer's policy includes a designated state in Item 3.A but the employer later discovers an employee working in an adjacent unlisted state. What is the likely coverage outcome for an injury in that unlisted state?

  1. The claim is void under the policy
  2. Part One benefits are not payable unless the state is added or Part Three applies Correct answer.
  3. Part One benefits are payable because the injury is work-related
  4. Part Two automatically pays statutory benefits

Explanation

Part One benefits depend on the state being designated in Item 3.A. An unlisted state does not trigger Part One unless added by endorsement or covered through Part Three where applicable.

Question 19Workers' Compensation and Employers' Liability

What is the function of the employers' liability stop-gap endorsement?

  1. To extend the policy period
  2. To provide employers' liability coverage in a monopolistic state fund state where Part One is unavailable Correct answer.
  3. To increase Part One benefits
  4. To waive subrogation rights

Explanation

The stop-gap endorsement fills the employers' liability gap in states where the employer obtains workers' compensation from a monopolistic state fund. It provides Part Two-style protection for that state.

Question 20Workers' Compensation and Employers' Liability

Which of the following best describes how the policy treats an employee's occupational disease claim under Part One?

  1. Occupational disease is excluded from Part One
  2. Occupational disease is covered if compensable under the applicable workers' compensation law Correct answer.
  3. Occupational disease is covered only under Part Two
  4. Occupational disease requires a voluntary compensation endorsement

Explanation

Part One responds to occupational disease claims when the disease is compensable under the designated state's workers' compensation law. The policy does not exclude occupational disease from Part One.

Question 21Workers' Compensation and Employers' Liability

An employer's Part Two limits are $1,000,000 each accident and $1,000,000 disease policy limit. Two employees are injured in a single accident and the employer faces liability claims of $700,000 and $600,000. How do the limits apply?

  1. Each claim is paid in full because separate per-employee limits apply
  2. The disease policy limit applies to both claims
  3. The each accident limit applies separately to each employee
  4. The combined $1,300,000 is subject to the $1,000,000 each accident limit Correct answer.

Explanation

The each accident limit is a single limit for all bodily injury arising from one accident. Multiple claimants from the same accident share that limit, so the combined claims are capped at $1,000,000.

Question 22Workers' Compensation and Employers' Liability

Which statement accurately describes the insured's right to cancel or the insurer's right to cancel the workers' compensation policy?

  1. The policy cannot be cancelled once issued
  2. Only the insurer may cancel, and only for nonpayment
  3. Cancellation requires the approval of the state workers' compensation board in all cases
  4. The insured may cancel at any time with written notice, and the insurer may cancel for specified reasons with notice Correct answer.

Explanation

The policy contains cancellation conditions allowing the insured to cancel with written notice and the insurer to cancel for defined reasons with the required advance notice. State law may modify notice periods.

Question 23Workers' Compensation and Employers' Liability

An employee receives workers' compensation benefits for an injury caused by a third party's negligence. What is the insurer's subrogation right?

  1. The employee must repay benefits before filing suit
  2. The insurer may pursue recovery from the third party to the extent of benefits paid Correct answer.
  3. The employer must reimburse the insurer for all benefits
  4. The insurer has no recovery right because benefits are statutory

Explanation

Workers' compensation statutes and policy provisions give the insurer subrogation rights against third parties responsible for the injury, limited to benefits paid. This prevents double recovery by the employee.

Question 24Workers' Compensation and Employers' Liability

Which of the following best explains why the workers' compensation policy includes a premium audit provision?

  1. To determine the employee's eligibility for benefits
  2. To establish the policy territory
  3. To verify payroll and classification information used to develop premium Correct answer.
  4. To set the employers' liability limits

Explanation

Because premium is based on payroll and classification, the insurer audits records after the policy period to verify exposure and adjust premium. This ensures the final premium reflects actual exposure.

Question 25Workers' Compensation and Employers' Liability

An employer's policy shows a Part One designation for State A only. An employee is injured while temporarily working in State B, which is not listed and where the employer had operations at inception. Which statement best reflects the coverage analysis?

  1. Part Two pays statutory benefits in State B
  2. Part One pays because the employer had operations in State B at inception
  3. Part One does not pay in State B, and Part Three does not apply because operations existed at inception Correct answer.
  4. The claim is covered under the voluntary compensation endorsement

Explanation

Part One is limited to designated states, and Part Three applies only to states where operations begin after the inception date. Because the employer already operated in State B, neither provision supplies Part One benefits there.

Question 26Workers' Compensation and Employers' Liability

Under Part One of a standard workers' compensation and employers' liability policy, what is the insurer's basic promise regarding benefits the employer is legally obligated to pay?

  1. The insurer pays benefits only when the employer is found negligent by a court.
  2. The insurer pays benefits only up to the employers' liability limit shown in the declarations.
  3. The insurer reimburses the employer only after the employer pays the injured worker directly.
  4. The insurer pays the benefits required by the workers' compensation law of each designated state. Correct answer.

Explanation

Part One is the workers' compensation coverage. It commits the insurer to pay whatever benefits the workers' compensation statute of a designated state requires the employer to pay, without a dollar limit on that obligation. Employers' liability limits apply to Part Two, not to the statutory benefits of Part One.

Question 27Workers' Compensation and Employers' Liability

An employee is injured in a state that is not listed in Item 3.A of the policy and is not a monopolistic fund state. How does the standard policy treat that injury?

  1. It covers the injury under Part Two only, with no Part One benefits available.
  2. It covers the injury under Part One only if the employer has other insurance in that state.
  3. It covers the injury as though the state were designated, if the injury would be compensable there and the employee was working there temporarily. Correct answer.
  4. It provides no coverage of any kind for the injury.

Explanation

The policy extends Part One to injuries in non-designated states when the employee is temporarily working there and the injury would be compensable under that state's law. This temporary-work provision protects employers whose employees travel briefly outside the listed states.

Question 28Workers' Compensation and Employers' Liability

Which endorsement is used when an employer wants the policy to cover employees who are not legally entitled to workers' compensation benefits, such as certain agricultural or casual workers?

  1. Voluntary compensation endorsement Correct answer.
  2. Stop-gap endorsement
  3. Waiver of subrogation endorsement
  4. Alternate employer endorsement

Explanation

The voluntary compensation endorsement extends benefits to workers who could elect to accept them even though the statute does not require the employer to provide them. The insurer then pays benefits as if the statute applied, and the employers' liability exposure for those workers is generally removed.

Question 29Workers' Compensation and Employers' Liability

An employer with a $1,000,000 Part Two each-accident limit faces a suit by an injured worker's spouse for loss of consortium arising from the same injury. How does the policy typically treat the spouse's claim?

  1. The claim is barred because the workers' compensation statute gives the employer immunity from all suits.
  2. The claim is excluded because consequential damages to family members are never covered.
  3. The claim is treated as part of the same injury and shares the each-accident limit applicable to that injury. Correct answer.
  4. The claim is covered as a separate accident with a fresh $1,000,000 limit.

Explanation

Part Two covers damages the employer is legally obligated to pay because of bodily injury to an employee, and consequential claims such as loss of consortium are treated as arising out of the same injury. They therefore do not create a separate per-accident limit. The each-accident limit applies to all damages from that one injury.

Question 30Workers' Compensation and Employers' Liability

Which statement best describes the difference between the two limits shown for employers' liability disease coverage?

  1. The disease limits are sublimits inside the each-accident limit for traumatic injuries.
  2. The policy limit applies per employee and the each-employee limit applies to the whole policy.
  3. Both limits apply only to Part One statutory benefits.
  4. The each-employee limit applies per disease claim, and the policy limit caps all disease claims in the policy period. Correct answer.

Explanation

Part Two disease coverage carries an each-employee limit, which caps the amount for any one employee's disease claim, and a separate policy limit, which caps the total for all disease claims during the policy period. The two limits operate together rather than one replacing the other.

Question 31Workers' Compensation and Employers' Liability

An employer's policy lists State A in Item 3.A. An employee normally based in State A is injured during a two-week assignment in State B, which is not listed and is not a monopolistic fund state. What is the likely coverage result?

  1. No coverage applies because State B is not designated.
  2. Coverage applies only if the employer buys a separate policy for State B before the injury.
  3. Coverage applies only under Part Two, and the employee must sue the employer to recover.
  4. Coverage applies under Part One because the injury arose out of temporary work in State B and would be compensable there. Correct answer.

Explanation

The temporary-work provision extends Part One benefits to a designated-state employee injured while temporarily working in another state, provided the injury would be compensable under that state's law. The employer does not need a separate policy for a short assignment of this kind.

Question 32Workers' Compensation and Employers' Liability

What is the primary purpose of the employers' liability coverage in Part Two of the policy?

  1. To cover injuries to customers and other non-employees on the employer's premises.
  2. To pay statutory benefits that Part One does not cover because the state is not designated.
  3. To reimburse the employer for premiums paid to a state fund.
  4. To respond to suits by employees or their families for work-related injury or disease that fall outside the exclusive remedy of workers' compensation. Correct answer.

Explanation

Part Two fills gaps left by the exclusive remedy by covering damages the employer is legally obligated to pay for work-related bodily injury or disease to employees. Typical examples include third-party-over actions and certain derivative claims. It does not replace Part One statutory benefits or provide general liability coverage.

Question 33Workers' Compensation and Employers' Liability

An employer's experience modification factor is 1.20. What does this most directly indicate?

  1. The employer operates in a state with a monopolistic workers' compensation fund.
  2. The employer's loss experience is better than average for its classification.
  3. The employer has purchased excess workers' compensation coverage.
  4. The employer's losses are worse than average for its classification, producing a premium surcharge. Correct answer.

Explanation

An experience modification above 1.00 reflects losses worse than the average for the employer's classification and increases the manual premium. A factor below 1.00 would indicate better-than-average experience and produce a credit. The factor is a rating tool and says nothing about excess coverage or state fund structure.

Question 34Workers' Compensation and Employers' Liability

A workers' compensation policy is written with a premium based on estimated payroll. What happens at the premium audit if actual payroll turns out to be higher than estimated?

  1. The experience modification factor is automatically reduced to offset the additional premium.
  2. The policy is voided and rewritten from inception at the higher payroll.
  3. The insurer absorbs the difference because the premium was guaranteed at inception.
  4. The insurer charges additional premium for the difference, subject to the audit provision. Correct answer.

Explanation

Workers' compensation premium is fully auditable because payroll and classifications are estimates at inception. At audit, the insurer calculates premium on actual exposure and bills or credits the difference. The policy is not voided, and the premium is not guaranteed.

Question 35Workers' Compensation and Employers' Liability

Which of the following is an insured's duty under the workers' compensation and employers' liability policy in the event of a claim?

  1. Settle small claims directly with the employee to avoid insurer involvement.
  2. Retain independent counsel at the employer's expense for every claim.
  3. Obtain the insurer's permission before reporting a claim to the state authority.
  4. Provide prompt notice of the injury and cooperate with the insurer's investigation and defense. Correct answer.

Explanation

The insured must give prompt notice and cooperate with the insurer in the investigation, defense, and settlement of claims. The insurer controls the defense and settlement of covered claims. The employer may not settle covered claims on its own or interfere with the insurer's handling.

Question 36Workers' Compensation and Employers' Liability

An employee is injured by a defective machine manufactured by a third party and receives workers' compensation benefits. What subrogation right does the policy typically give the insurer?

  1. The insurer may recover the benefits it paid from the third party responsible for the injury. Correct answer.
  2. The insurer has no recovery right once benefits are paid.
  3. The insurer may recover benefits from the injured employee's future wages.
  4. The insurer may recover only from the employer's general liability carrier.

Explanation

Workers' compensation insurers generally have subrogation rights against third parties whose negligence caused the injury, allowing recovery of benefits paid. The employer and insurer may also have a lien on the employee's third-party recovery. Recovery is not sought from the employee's wages or from the employer's other carrier.

Question 37Workers' Compensation and Employers' Liability

An employer obtains a waiver of subrogation endorsement in favor of a general contractor. What is the effect of that endorsement?

  1. The insurer gives up its right to recover workers' compensation benefits from the named general contractor. Correct answer.
  2. The general contractor becomes an insured employer under the policy.
  3. The employer's Part One benefits are reduced by the amount of the waiver.
  4. The insurer may still pursue the general contractor but must share recoveries with the employer.

Explanation

A waiver of subrogation endorsement prevents the insurer from seeking recovery of benefits from the party named in the endorsement. General contractors commonly require this waiver in construction contracts. The endorsement does not add an insured, reduce benefits, or preserve a shared recovery right against that party.

Question 38Workers' Compensation and Employers' Liability

Which of the following best describes the coverage territory for employers' liability under the standard policy?

  1. Anywhere in the world without restriction.
  2. The United States, its territories and possessions, and Canada. Correct answer.
  3. The United States and Mexico.
  4. Only the states listed in Item 3.A.

Explanation

The employers' liability coverage territory generally includes the United States, its territories and possessions, and Canada. Part One is tied to the designated states and the temporary-work provision. Worldwide coverage and Mexico are not within the standard territory.

Question 39Workers' Compensation and Employers' Liability

An employer's policy shows Part Two limits of $1,000,000 each accident. Two employees are injured in a single forklift accident, and the employer faces covered liability damages of $700,000 for one and $600,000 for the other. How do the limits respond?

  1. The insurer pays nothing because Part Two does not cover multiple-employee accidents.
  2. The insurer pays $1,000,000 in total because both injuries arise from one accident. Correct answer.
  3. The insurer pays $1,300,000 because each employee has a separate limit.
  4. The insurer pays $600,000 because only the larger claim is considered.

Explanation

The each-accident limit applies to all damages arising from a single accident, regardless of how many employees are injured. With a $1,000,000 each-accident limit, the combined $1,300,000 is capped at $1,000,000. Separate per-employee limits apply to disease claims, not to traumatic accidents.

Question 40Workers' Compensation and Employers' Liability

An employer begins operations in a new state after the policy inception and that state requires workers' compensation coverage. What does the standard policy provide for that newly acquired state?

  1. Automatic coverage for a limited period, typically 30 days, if the employer notifies the insurer and pays any additional premium. Correct answer.
  2. Coverage only if the state is a monopolistic fund state.
  3. No coverage under any circumstances until the next renewal.
  4. Coverage that lasts indefinitely without notice to the insurer.

Explanation

The policy provides limited automatic coverage for newly acquired states, generally for 30 days, if the employer gives notice and pays additional premium. This gives the employer time to endorse the policy. Coverage does not continue indefinitely without notice.

Question 41Workers' Compensation and Employers' Liability

Which of the following is excluded under the employers' liability coverage of the standard policy?

  1. Consequential damages claimed by an employee's spouse.
  2. Liability assumed under a contract, unless the liability would exist without the contract. Correct answer.
  3. Bodily injury to an employee caused by the employer's negligence.
  4. Injury arising out of the employer's failure to provide a safe workplace.

Explanation

Part Two excludes liability the employer assumes under a contract unless that liability would have existed even without the contract. Ordinary negligence claims by employees, derivative family claims, and unsafe-workplace claims are within the intended scope of employers' liability.

Question 42Workers' Compensation and Employers' Liability

An employer's policy includes a $250,000 deductible for Part One benefits. How does the deductible generally operate?

  1. The deductible is waived when the claim exceeds $250,000.
  2. The deductible applies only to Part Two employers' liability claims.
  3. The injured employee's benefits are reduced by the deductible amount.
  4. The insurer pays benefits and then seeks reimbursement of the deductible amount from the employer. Correct answer.

Explanation

A Part One deductible is typically reimbursable: the insurer pays the statutory benefits promptly and then bills the employer for the deductible amount. Benefits to the injured worker are not reduced. The deductible is separate from Part Two limits and is not waived based on claim size.

Question 43Workers' Compensation and Employers' Liability

Which of the following statements about the alternate employer endorsement is accurate?

  1. It extends the policy's workers' compensation and employers' liability coverage to a different employer named in the endorsement. Correct answer.
  2. It eliminates the need for the insured to maintain payroll records.
  3. It converts Part One coverage into Part Two coverage.
  4. It allows the insured to change its experience modification factor.

Explanation

The alternate employer endorsement provides coverage for a separate employer, such as a labor contractor or staffing firm, named in the endorsement. It is commonly used when employees work under the direction of another entity. It does not affect experience rating, payroll records, or the structure of Part One and Part Two.

Question 44Workers' Compensation and Employers' Liability

An employer's workers' compensation policy is cancelled by the insurer for nonpayment of premium. What is the typical effect on the employer's coverage?

  1. Coverage continues only for claims reported before cancellation.
  2. Coverage ends on the cancellation date, and the employer may face penalties for any gap in required coverage. Correct answer.
  3. Coverage ends, but the employer remains protected for injuries occurring during the policy period.
  4. Coverage continues until the policy expiration date regardless of cancellation.

Explanation

When the insurer cancels for nonpayment, coverage ends on the stated cancellation date, and the employer must obtain replacement coverage to comply with state law. A lapse can expose the employer to statutory penalties and uninsured liability. Occurrence-based protection does not continue for injuries after cancellation.

Question 45Workers' Compensation and Employers' Liability

An employer operates in a state where the workers' compensation market is competitive and the state is listed in Item 3.A. Which coverage part responds to the employer's statutory obligation to pay benefits?

  1. The stop-gap endorsement, because Part One does not apply to designated states.
  2. Neither part, because the employer must use a state fund.
  3. Part Two, because Part One is unavailable in competitive states.
  4. Part One, because the state is designated and the private market is available. Correct answer.

Explanation

In a competitive state that is designated in Item 3.A, Part One responds to the employer's statutory obligation. Part Two addresses liability claims outside the exclusive remedy, and the stop-gap endorsement is used only where Part One cannot be provided, such as monopolistic fund states.

Question 46Workers' Compensation and Employers' Liability

What is the purpose of the employers' liability coverage for a third-party-over action?

  1. To reimburse the employer for defense costs in general liability claims.
  2. To respond when an injured employee sues a third party who then seeks indemnity from the employer. Correct answer.
  3. To pay the employee's statutory benefits when the employer is uninsured.
  4. To cover the employer's liability to customers injured on the premises.

Explanation

In a third-party-over action, the injured employee sues a third party, and that third party seeks indemnity or contribution from the employer. Part Two can respond to the employer's liability in that action. It does not pay statutory benefits, cover customer injuries, or fund general liability defense.

Question 47Workers' Compensation and Employers' Liability

Which of the following best describes the role of the policy's classification system in workers' compensation rating?

  1. All employees are rated in a single class regardless of their duties.
  2. Classification determines the employers' liability limits shown in the declarations.
  3. Classification applies only to employers with more than 100 employees.
  4. Each employee's duties are assigned to a classification that reflects the risk of the work performed, and premium is based on payroll in each class. Correct answer.

Explanation

Workers' compensation rating assigns payroll to classifications that reflect the hazard of the work, and each class carries its own rate. This produces premium that tracks the employer's actual exposure. Classification does not set policy limits or depend on employer size.

Question 48Workers' Compensation and Employers' Liability

An employer discovers that an employee has been working in a state listed in Item 3.A, but the employer's payroll for that state was never reported. What is the likely consequence at audit?

  1. The insurer will cancel the policy retroactively to inception.
  2. The insurer will waive the additional premium because the state was designated.
  3. The insurer will deny all coverage for injuries in that state.
  4. The insurer will charge additional premium for the unreported payroll in that state. Correct answer.

Explanation

Because workers' compensation premium is auditable, unreported payroll in a designated state is picked up at audit and charged at the applicable rate. Coverage for the state is not denied merely because payroll was omitted. Retroactive cancellation and automatic waiver are not standard outcomes.

Question 49Workers' Compensation and Employers' Liability

Which statement accurately describes how the policy treats an occupational disease claim under Part One?

  1. Part One pays benefits required by the designated state's law for occupational disease, subject to that state's rules on causation and time limits. Correct answer.
  2. Part One covers occupational disease only if the employer purchases a separate disease endorsement.
  3. Part One pays occupational disease benefits only up to the employers' liability policy limit.
  4. Part One excludes all occupational disease claims and leaves them to Part Two.

Explanation

Part One responds to occupational disease claims to the extent the designated state's workers' compensation law requires benefits. The state's rules on causation, exposure, and filing deadlines govern. Occupational disease is not excluded from Part One, and Part Two limits do not cap Part One benefits.

Question 50Workers' Compensation and Employers' Liability

An employer's policy has a Part Two each-accident limit of $500,000. The insurer settles a covered claim for $300,000 and incurs $75,000 in defense costs. How are defense costs treated under the standard policy?

  1. Defense costs are shared equally between the insurer and the employer.
  2. Defense costs are paid in addition to the limit and do not reduce the $500,000 available for damages. Correct answer.
  3. Defense costs are the employer's responsibility and are not paid by the insurer.
  4. Defense costs erode the limit, leaving $125,000 for future damages from the same accident.

Explanation

Under the standard employers' liability coverage, defense costs are paid in addition to the limits of liability and do not reduce the amount available for damages. The insurer has the right and duty to defend covered claims. The employer does not share defense costs for covered claims.