Workers' Compensation and Employers' Liability
This domain tests the anatomy of the standard workers compensation and employers liability policy: which part pays which loss, which state's law governs, how premium is built, and where employers liability limits sit. Expect scenario questions - an injury, a state, a payroll figure - asking you to pick the responding coverage.
Two parts, two very different jobs
- Part One - Workers Compensation. Pays the benefits the insured is legally obligated to pay under the workers compensation law of each state listed in Item 3.A of the Information Page: medical care (typically unlimited), disability income (temporary total, temporary partial, permanent partial, permanent total), death and funeral benefits, and rehabilitation. No dollar limit appears on the declarations because the statute sets the benefit. Fault is irrelevant, and the claim is the employee's exclusive remedy against the employer.
- Part Two - Employers Liability. Responds to tort suits an employee or dependents bring for a work-related injury that falls outside the exclusive remedy - third-party-over actions, dual-capacity claims, some intentional-tort allegations, and consequential injury to a spouse. Limits are shown separately as Each Accident, Disease–Each Employee, and Disease–Policy Limit; $100,000/$100,000/$500,000 is the classic exam set.
- Part Three - Other States Insurance. Covers work the insured begins during the policy period in states listed in Item 3.C. It is notice-based and rate-adjusted, and it does not exist for monopolistic-fund states (North Dakota, Ohio, Washington, Wyoming), which require separate state fund coverage.
Premium mechanics
Manual premium equals payroll per $100 multiplied by the classification rate. The experience modification then adjusts that manual premium, followed by premium discount and any scheduled or retrospective rating. Payroll is audited after expiry. Sole proprietors, partners, and LLC members are excluded from payroll unless specifically covered; corporate officers are included subject to state minimum and maximum payroll rules.
Worked example
A framing contractor reports $850,000 of payroll at a class rate of $12.50 per $100. Manual premium is $850,000 ÷ 100 × $12.50 = $106,250. An experience modification of 0.85 produces $90,312.50. Later an employee is injured in Indiana, a state shown in Item 3.C rather than 3.A. Part Three responds once the carrier is notified, and Indiana's rate is applied. Had the injury occurred in Ohio, no part of the policy could respond - Ohio is a monopolistic state fund state.
Traps that cost marks
Treating Part Two as a larger version of Part One (it never pays statutory benefits); assuming Part Three covers monopolistic states or states the insured already knew it needed at inception; assuming a subcontractor's employees are covered (they are not - collect certificates); and confusing the experience modification with the rate itself.