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Workers compensation on the P&C exam

Workers compensation pays an injured employee's medical care and lost wages without anyone having to prove fault, and in return the employee generally gives up the right to sue the employer. The exam reads it through the standard NCCI policy (WC 00 00 00): what each policy part does, which benefits the laws provide, how federal acts carve out certain workers, and how the premium is calculated and audited.

The six parts of the policy

NCCI Workers Compensation and Employers Liability Insurance Policy, WC 00 00 00. States can require their own endorsements.
PartWhat it does
One: Workers CompensationPays statutory benefits for the states in Item 3.A
Two: Employers LiabilityDefends and pays employee-injury suits that get past the exclusive remedy rule, up to the limits shown
Three: Other StatesExtends Part One to states listed in Item 3.C if work begins there after the policy starts
Four: Your Duties If Injury OccursNotice, cooperation and forwarding legal papers
Five: PremiumClassifications, rates, payroll audit and final premium
Six: ConditionsInspection, long-term policy, transfer and cancellation rules

How the benefit system works

Compensation laws are no-fault. An injury is compensable when it arises out of and in the course of employment, and the employer's negligence does not have to be shown. The trade-off is the exclusive remedy rule: the employee cannot sue the employer for negligence. Other parties are not protected by it, which is how third-party suits against outside firms arise and why the commercial general liability form excludes injury to the insured's own employees.

Medical benefits have no dollar limit and no deductible, and they start immediately. Disability income benefits usually start after a waiting period set by each state's law, and the waiting days are paid back if the disability lasts long enough. A second injury fund pays the extra cost when a new injury combines with an earlier impairment, so the employer pays only for the new injury and is not penalized for hiring someone with a prior disability.

Who provides the coverage

Coverage can come from a private insurer, a state fund, or approved self-insurance. In a monopolistic state the state fund is the only source; the four states textbooks list are North Dakota, Ohio, Washington and Wyoming, and employers there buy stop-gap employers liability by endorsement to a private policy. Lists that include Nevada or West Virginia are out of date, because both states moved to private markets.

Workers the state laws do not reach

Some workers fall under federal law instead of a state act. Dock and harbor workers are under the Longshore and Harbor Workers' Compensation Act, ship crew members under the Jones Act, interstate railroad workers under the Federal Employers Liability Act, and employees on certain U.S. government contracts overseas under the Defense Base Act. The standard policy needs an endorsement or a separate policy for each. Maritime and other specialized exposures overlap with specialty commercial coverages.

Disability benefit types

Temporary total (TTD)
The worker cannot work at all for now and is expected to recover.
Temporary partial (TPD)
The worker can do lighter or part-time work during recovery; the benefit makes up part of the wage difference.
Permanent partial (PPD)
A lasting loss of part of the body or its use, such as a finger or partial hearing, paid by schedule or by impairment rating.
Permanent total (PTD)
The worker can never return to gainful work. Paid for a long period or for life, depending on the state.

Premium from payroll

WorksheetWorked example

One classification with an experience modification

Annual payroll in the class
$1,240,000
Rate per $100 of payroll
$3.10
Experience modification
1.15
  1. Payroll in hundreds$1,240,000 ÷ 10012,400
  2. Manual premium12,400 × $3.10$38,440
  3. Apply the mod$38,440 × 1.15$44,206

Modified premium$44,206

A mod above 1.00 is a debit for worse-than-average losses; below 1.00 is a credit.

Benefit, policy part or federal act?

0 of 16 answered · 0 right

This set spans the policy parts, benefit types, state funds and self-insurance, the federal acts and premium rules. Workers comp also appears alongside every other line on the full P&C practice test.

Notes on each optionCommit to an answer first. The notes under the item then open on every option: what rules it in or out, and the one word that splits the runner-up from the key.

  1. Item 01

    Which statement about an employer that self-insures its workers compensation obligations is CORRECT?

    1. ASelf-insurance is not limited to monopolistic states; most states allow qualified employers to self-insure.
    2. BSelf-insurance always needs state approval; 'without any approval' overreaches.
    3. CCorrect: a self-insured employer needs state approval, must prove financial strength and must post security such as a bond.
    4. DA self-insurer owes exactly the same statutory benefits an insurer would pay.
  2. Item 02

    In a state with a competitive state fund, an employer may buy workers compensation insurance from:

    1. AShutting out the state fund contradicts the idea of a competitive fund, which exists alongside private insurers.
    2. BCorrect: a competitive state fund competes with private insurers, so the employer may buy from either.
    3. CSelf-insured groups are an extra option where allowed, never the only source of coverage.
    4. D'Only the state fund' describes a monopolistic fund (ND, OH, WA, WY), not a competitive one.
  3. Item 03

    Part Two, employers liability, of the workers compensation policy covers all of the following EXCEPT:

    1. ACorrect: Part Two excludes punitive damages for injury to an employee employed in violation of law, such as an illegally employed minor.
    2. BA third-party-over action against the employer is a core Part Two employers liability exposure.
    3. CA spouse's loss of consortium is a consequential claim that Part Two covers.
    4. DA dual capacity suit, where the employer is sued in a second role such as manufacturer, is covered under Part Two.
  4. Item 04

    An employer's experience modification factor is generally based on its payroll and losses from:

    1. ACorrect: the experience mod uses three years of payroll and losses, ending one year before the rating date so losses can develop.
    2. BCurrent-year losses are too immature to rate on, so the plan skips the most recent year.
    3. CThe industry average is the expected-loss benchmark the employer's own losses are compared with, not the basis by itself.
    4. DTen years is far longer than the standard three-year experience period.
  5. Item 05

    A workers compensation policy has a $1,000 minimum premium. The employer paid a $1,200 deposit premium, and the audited premium computes to $600. What is the result?

    1. ACorrect: earned premium cannot fall below the $1,000 minimum, so against the $1,200 deposit the insurer refunds $200.
    2. BA refund is due because the $1,200 deposit is more than the $1,000 minimum premium.
    3. CThe employer paid more than the minimum, so it owes nothing further.
    4. DRefunding $600 uses the $600 audited figure and ignores the $1,000 minimum premium.
  6. Item 06

    Physical therapy to restore an injured worker's use of an injured arm is paid as part of which workers compensation benefit?

    1. ADisability income replaces lost wages; it does not pay for treatment.
    2. BVocational rehabilitation pays for retraining for a different job, not physical therapy for the injury.
    3. CDeath benefits go to dependents after a fatal injury, which has nothing to do with therapy.
    4. DCorrect: physical therapy to restore use of the arm is medical rehabilitation, which is part of the medical benefit.
  7. Item 07

    An employer sends a U.S. employee to work in Germany for eight months. Because the standard policy pays only the benefits required by U.S. state laws listed in it, the employer should add:

    1. AThe longshore endorsement covers maritime workers on U.S. docks and harbors, not employees working abroad.
    2. BPart Three other states insurance applies only to U.S. states listed in Item 3.C, not to foreign countries.
    3. CCorrect: foreign voluntary compensation coverage provides benefits to U.S. employees on assignments abroad.
    4. DThe ordinary voluntary compensation endorsement covers exempt employee classes within the listed U.S. states, not overseas work.
  8. Item 08

    Dan is hurt at work and misses 5 days. His state's workers compensation law has a 7-day waiting period that becomes retroactive after 14 days of disability. What will workers compensation pay?

    1. AIncome benefits are not owed for days inside the 7-day waiting period, which becomes retroactive only after 14 days.
    2. BWorkers compensation benefits have no deductible, and income benefits are not owed here at all.
    3. CCorrect: the waiting period applies only to income benefits, so Dan gets his medical bills paid but no income benefits.
    4. D'Nothing' overreaches, because medical benefits are paid from day one with no waiting period.
  9. Item 09

    Under Part Five of the standard workers compensation policy, the insurer may examine and audit the employer's records during the policy period and for up to:

    1. AFive years is longer than the audit period the standard policy allows.
    2. BSixty days is too short; the policy gives the insurer three years after the policy ends.
    3. COne year is a near-miss; the Part Five audit window runs three years after the policy ends.
    4. DCorrect: Part Five lets the insurer audit the employer's records during the policy period and within three years after it ends.
  10. Item 10

    An employer chooses a large deductible workers compensation plan with a $250,000 per-claim deductible. An employee has a $40,000 claim. How are the benefits paid?

    1. AThe employer does not pay the employee directly; the insurer pays the benefits.
    2. BCorrect: benefits cannot be reduced by a deductible, so the insurer pays the full claim and then bills the employer for the deductible amount.
    3. CThe employee never absorbs a deductible; statutory benefits are paid in full.
    4. DThe second injury fund handles a prior impairment combining with a new one, not deductible reimbursement.
  11. Item 11

    After a worker's back injury heals as much as it is expected to, a doctor finds a lasting 10% impairment and says the worker has reached maximum medical improvement. What usually happens next?

    1. ACorrect: at maximum medical improvement, temporary benefits stop and the lasting impairment is rated for permanent disability benefits.
    2. BThe second injury fund applies only when a prior impairment combines with the new injury, which is not described.
    3. CTemporary total benefits cover the healing period only; they do not continue for life.
    4. D'All benefits end' overreaches, because medical care for the injury can continue and permanent benefits begin.
  12. Item 12

    Which injury is most likely compensable under workers compensation?

    1. AA weekend pickup game is voluntary off-duty recreation, not in the course of employment.
    2. BThe ordinary commute from home to the office is excluded under the going-and-coming rule.
    3. CHiking on vacation is personal activity, not in the course of employment.
    4. DCorrect: driving between client visits is part of a salesperson's job, so the injury arises out of and in the course of employment.
  13. Item 13

    A conductor employed by an interstate railroad is injured on the job. His remedy against the railroad is governed by:

    1. AThe Jones Act covers seamen (crew of a vessel), not railroad workers.
    2. BFECA covers civilian employees of the federal government, not employees of a private railroad.
    3. CThe Longshore Act covers dock and harbor workers, not railroad employees.
    4. DCorrect: interstate railroad workers sue the railroad for negligence under FELA instead of using state workers compensation.
  14. Item 14

    An employee is injured at work by a defective press and collects workers compensation benefits. Because of the exclusive remedy rule, whom may the employee still sue for negligence?

    1. AThe exclusive remedy rule bars suits against the employer, including for pain and suffering.
    2. BCorrect: the exclusive remedy rule protects only the employer, so a negligent third party such as the press manufacturer can still be sued.
    3. CFailing to maintain the press is still a negligence claim against the employer, which the exclusive remedy rule bars.
    4. DThe workers compensation insurer stands in the employer's shoes and shares its immunity.
  15. Item 15

    A workers compensation policy lists three affiliated companies in Item 1. Which company may request policy changes and receive return premium on behalf of all of them?

    1. APayroll size has nothing to do with who represents the insureds under the policy.
    2. BNot just any named company may act; the policy gives that role to the first one named.
    3. CCorrect: the insured first named in Item 1 acts for all insureds to change the policy, receive return premium and handle cancellation notices.
    4. DThe other companies cannot act separately; the first named insured represents all of them.
  16. Item 16

    Workers compensation laws provide all of the following benefits EXCEPT:

    1. ADisability income benefits that replace lost wages are a standard workers compensation benefit.
    2. BVocational rehabilitation (retraining for a new job) is a standard workers compensation benefit.
    3. CCorrect: workers compensation does not pay pain and suffering, which the employee gives up in exchange for no-fault benefits.
    4. DMedical care expenses are a standard workers compensation benefit, paid without a deductible.
Mixed practice test · Timed mock

Workers comp, part by part

Does a commercial umbrella pay workers compensation benefits?

No. A commercial umbrella schedules employers liability (Part Two) as underlying insurance alongside the CGL and business auto, but it does not sit over Part One's statutory benefits.

What is stop-gap coverage?

Employers liability bought by an employer in a monopolistic state, where the state fund pays the statutory benefits but does not provide Part Two. It is usually added by endorsement to the employer's private liability or workers compensation policy.

Why does Part Three exist if Part One already lists states?

Part One covers only the states listed in Item 3.A, where the employer operates when the policy starts. Part Three, for the states listed in Item 3.C, picks up work that begins somewhere new during the policy period so the employer is not left uninsured there.

Benefits, parts and premium

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