10.2 Part One: Workers Compensation Insurance

Property & Casualty Insurance Exam

Track your progress as you read

Finished sections get a check mark.

1 Introduction

0.1 About the Property & Casualty Exam 0.2 How to Use This Course

2 Chapter 1: Insurance Fundamentals

1.1 Risk and Risk Management 1.2 Types of Risk 1.3 Principles of Insurance 1.4 The Insurance Contract 1.5 Policy Structure and Components

3 Chapter 2: Property Insurance Concepts

2.1 Property Coverage Basics 2.2 Perils, Hazards, and Exclusions 2.3 Valuation Methods 2.4 Coinsurance and Insurance to Value 2.5 Deductibles and Policy Limits

4 Chapter 3: Dwelling Policies

3.1 Dwelling Policy Overview 3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3) 3.3 Dwelling Property Coverages 3.4 Dwelling Exclusions and Conditions

5 Chapter 4: Homeowners Policies

4.1 Homeowners Policy Overview 4.2 Homeowners Policy Forms (HO-2 through HO-8) 4.3 Section I: Property Coverages 4.4 Section II: Liability Coverages 4.5 Homeowners Exclusions 4.6 Homeowners Conditions 4.7 Common Homeowners Endorsements

6 Chapter 5: Personal Auto Policy

5.1 Personal Auto Policy Overview 5.2 Part A: Liability Coverage 5.3 Part B: Medical Payments Coverage 5.4 Part C: Uninsured/Underinsured Motorists 5.5 Part D: Physical Damage Coverage 5.6 PAP Exclusions 5.7 No-Fault Insurance and PIP

7 Chapter 6: Liability Insurance Concepts

6.1 Liability Insurance Basics 6.2 Negligence and Tort Law 6.3 Types of Legal Liability 6.4 Personal Umbrella Policies

8 Chapter 7: Commercial Property Insurance

7.1 Commercial Package Policy (CPP) 7.2 Building and Personal Property Coverage Form 7.3 Causes of Loss Forms 7.4 Business Income Coverage 7.5 Businessowners Policy (BOP)

9 Chapter 8: Commercial General Liability

8.1 CGL Policy Overview 8.2 Coverage A: Bodily Injury and Property Damage 8.3 Coverage B: Personal and Advertising Injury 8.4 Coverage C: Medical Payments 8.5 CGL Exclusions 8.6 CGL Limits and Conditions

10 Chapter 9: Commercial Auto Insurance

9.1 Business Auto Policy Overview 9.2 Covered Auto Designation Symbols 9.3 BAP Liability Coverage 9.4 BAP Physical Damage Coverage 9.5 Garage and Truckers Coverage Forms

11 Chapter 10: Workers Compensation

10.1 Workers Compensation Overview 10.2 Part One: Workers Compensation Insurance 10.3 Part Two: Employers Liability 10.4 Workers Compensation Exclusions 10.5 Other States and USL&H Coverage

12 Chapter 11: Other Commercial Lines

11.1 Inland Marine Insurance 11.2 Ocean Marine Insurance 11.3 Commercial Crime Insurance 11.4 Surety Bonds 11.5 National Flood Insurance Program 11.6 Professional Liability Insurance 11.7 Commercial Umbrella and Excess Liability 11.8 Boatowners and Personal Watercraft Insurance 11.9 Farm and Ranch Insurance 11.10 Mobile Home and Manufactured Housing Insurance 11.11 Title Insurance

13 Chapter 12: Insurance Regulations and Ethics

12.1 Producer Licensing 12.2 Producer Authority and Responsibilities 12.3 Unfair Trade Practices 12.4 Claims Settlement Practices 12.5 State Insurance Department 12.6 Penalties and Disciplinary Actions

10.2 Part One: Workers Compensation Insurance

Key Takeaways Explain This Topic AI

Part One (Coverage A) pays statutory benefits with NO policy limit — the insurer pays whatever the state act requires, however large

Four benefit types: medical (100%, no cap, no waiting period), disability (typically 66⅔% of average weekly wage), death benefits to dependents, and rehabilitation

Disability is classified TTD, TPD, PPD, or PTD; scheduled injuries pay a fixed number of weeks regardless of actual wage loss

A waiting period of 3–7 days applies to wage benefits but NOT medical; benefits are paid retroactively to day one once disability exceeds the state's retroactive trigger (often 14–21 days)

Maximum Medical Improvement (MMI) is the point of maximum recovery; it ends temporary benefits and triggers a permanent impairment rating

Last updated: June 2026

Part One Pays Whatever the Statute Requires

Part One (Coverage A) is the insurer's promise to pay, on the employer's behalf, the benefits required by the workers' compensation law of any state listed in Item 3.A of the policy . Its defining feature: there is no dollar limit . Whatever the statute commands — a $4 million catastrophic spinal claim included — the insurer pays.

Exam Key: Part One has no limit because the obligation is set by statute, not by the contract. Contrast Part Two (employers liability), which always carries dollar limits.

The Four Benefit Categories
1. Medical Benefits
100% of reasonable and necessary treatment for the work injury
No dollar cap, no deductible, no copay to the worker
No waiting period — medical care is owed from the moment of injury
Covers hospitalization, surgery, prescriptions, physical therapy, prosthetics, and durable medical equipment
2. Disability (Wage Replacement)

The standard wage rate is 66⅔% (two-thirds) of the Average Weekly Wage (AWW) , subject to a state weekly maximum and minimum. Four classes:

Class Meaning Typical Duration
Temporary Total (TTD) Cannot work at all, but recovery expected Until return to work or MMI
Temporary Partial (TPD) Can do reduced/light-duty work Until full recovery or MMI
Permanent Partial (PPD) Lasting impairment, can still work Per impairment rating / schedule
Permanent Total (PTD) Cannot work at any job, permanently Often for life
3. Death Benefits

Wage benefit (commonly 66⅔% of AWW) paid to surviving dependents — spouse until death or remarriage, children until 18 (later if still in school)

A burial/funeral allowance , commonly $5,000–$10,000 depending on state
4. Rehabilitation
Medical rehabilitation : therapy and equipment to restore function

Vocational rehabilitation : retraining, tuition, and job placement when the worker cannot return to the former job

Scheduled Versus Non-Scheduled Injuries

PPD awards split into two methods — a frequent exam distinction:

Type How It Pays Example

Scheduled Fixed weeks set by statute for a named body part, paid even if the worker loses no wages Loss of a hand = a set number of weeks of benefit

Non-scheduled Based on percentage loss of earning capacity / whole-person impairment Back or head injury rated by a physician

Calculating the Benefit

Average Weekly Wage (AWW): total gross earnings over the statutory look-back (often 13 or 52 weeks) divided by the number of weeks. It includes overtime, bonuses, tips, vacation pay, and certain allowances.

Worked Example — TTD:

AWW = $1,500
Benefit = $1,500 × 66⅔% = $1,000/week

Worked Example — TPD (light duty):

Pre-injury AWW = $1,500; current light-duty earnings = $900
Wage loss = $600; benefit = $600 × 66⅔% = $400/week

Note: Comp wage benefits are non-taxable , so two-thirds of gross often nearly equals prior take-home pay — which is why the system discourages malingering.

Waiting Period and Retroactive Pay

Wage benefits begin only after a waiting period of 3–7 days (state-specific). Medical benefits have none . If the disability lasts beyond the state's retroactive trigger (commonly 14–21 days), the insurer pays the waiting-period days back to day one .

Maximum Medical Improvement (MMI)

MMI is the point at which the condition has stabilized and no further material recovery is expected. MMI:

Does not mean full recovery
Ends temporary (TTD/TPD) benefits
Triggers a permanent impairment rating and possible PPD/PTD or vocational rehab

State markers vary — New York presumes MMI by about 130 weeks; Texas ends temporary income benefits at MMI or 104 weeks, whichever is first.

Coming and Going & the AOE/COE Test

Before any benefit is owed, the injury must arise out of and in the course of employment (AOE/COE) — a phrase you will see on the exam. Two strands:

Arising out of employment (AOE): a causal link between the job and the harm (the work created or increased the risk)

In the course of employment (COE): the right time, place, and circumstance — the worker was doing the job

The coming-and-going rule is the most-tested application: an ordinary commute to and from work is not in the course of employment, so a car crash on the way to the office is usually not compensable. Major exceptions restore coverage:

Exception Why It Is Covered
Special errand / mission Travel at the employer's specific request
Traveling employee Job requires travel away from a fixed site (salesperson)
Employer-provided transport The commute is part of the employment bargain
Premises rule Injury in the employer's parking lot or on its grounds
Occupational Disease and Cumulative Trauma

Part One pays for occupational diseases — conditions that develop over time from job exposure (e.g., hearing loss, repetitive-motion injuries, certain respiratory illnesses) — not just sudden accidents. These claims hinge on linking the disease to a work exposure greater than the general public faces, and they often surface long after the exposure, which is why the "by disease" limits in Part Two (10.3) exist separately from "by accident."

Subrogation Recovery

When a third party caused the injury (a negligent driver, a defective-product maker), the comp insurer that paid benefits has subrogation rights: it may recover what it paid out of any recovery the worker obtains from that third party. This prevents a double recovery and is the flip side of the third-party-over actions discussed in 10.3.