RULE II – EXPLANATION OF COVERAGES AND METHODS OF INSURING

1. Description of Coverage

Workers compensation insurance provides coverage for the statutory obligation of an employer to provide benefits for
employees as required by:

a. Workers compensation law or occupational disease law of any state or territory of the United States, including the
District of Columbia, and

b. United States Longshore and Harbor Workers’ Compensation Act.

2. Pennsylvania workers compensation insurance may be provided only by the Standard Policy.

3. Longshore Coverage

U.S. Longshore and Harbor Workers’ Compensation Act insurance may be provided only by attaching the Longshore and
Harbor Workers’ Compensation Act Coverage Endorsement (WC 00 0106A) to the Standard Policy. Refer to Rule XII.

1.  Compulsory as to all employments

Exceptions:

a.  Individual proprietors

 b.  Partners of a partnership (including members of a Limited Liability Company (LLC).Note: Pursuant to Act 20 of 2011,
a sole proprietor, partner of a legal partnership or member ofa Limited Liability Company (LLC) may be able to
purchase and/or be insured under a standardworkers compensation insurance policy. If a sole proprietor, partner or
LLC member wishes to obtain such coverage, a written request must be submitted directly to the carrier providing
the existing or new policy under which coverage for the individual in question will be provided. Use WC 00 03 10 –
Sole Proprietors, Partners, Officers and Others Coverage Endorsement. Refer toRule IX, A., 6. for purposes of
determining remuneration in computing the premium charge.

c.  Elected officers of the Commonwealth or any of its political subdivisions.

d.  An executive officer of a for profit corporation or an executive officer of a nonprofit corporation who serves
voluntarily and without remuneration may, however, elect not to be an “employee” of the corporation. For the
purposes of this exclusion, an executive officer of a for-profit corporation is an individual who has either an
ownership interest in a Subchapter S corporation as defined by the Act of March 4, 1971 (P.L. 6, No. 2) known as the
“Tax Reform Code of 1971,” or an interest of at least five percent in a Subchapter C corporation as defined by the Tax
Reform Code of 1971.

e.  Any person who is a licensed real estate salesperson or an associate real estate broker affiliated with a licensed real
estate broker or a licensed insurance agent affiliated with a licensed insurance agency, under a written agreement,
remunerated on a commission only basis and who qualifies as an independent contractor for State tax purposes or for
Federal tax purposes under the Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 Et Seq.).

f.  Domestic or casual labor.

g. Outworker (a person to whom articles are given for cleaning, repair, etc. at home).

h. Farmer with one employee who works less than 30 days a year or earns less than $1,200 a year.  A spouse or a child of
the farmer employer under eighteen years of age shall not be deemed an employee unless the services of such spouse
or child are engaged by the farmer employer under an express written contract of hire which is filed with the
Pennsylvania Department of Labor and Industry.

i.  Elective for members of certain religious sects whose tenets prohibit benefits from insurance, provided the sect makes
provisions for its members.

2.  No insurance carrier is permitted to issue policies which would create duplicate coverage for an employer. Policies of
different insurance carriers cannot be written for separate parts of a single risk.

3.  When an employer proposes to insure both his accident and occupational disease compensation liability, such liability
must be covered by a single policy of one insurance carrier.

1.   Description of Coverage B

Employers’ liability insurance provides coverage for the legal obligation of an employer to pay damages because of
bodily injury by accident or disease, including resulting death, sustained by an employee. Employers liability coverage
applies only if the injury or death of an employee arises out of and in the course of employment and is sustained:

a.   In the United States of America, its territories or possessions, or Canada, or

b.  While temporarily outside the United States of America, its territories or possessions, or Canada, if the injured
employee is a citizen or resident of the United States or Canada; but suits for damages and actions on judgments
must be in or from a court of the United States, its territories or possessions or Canada.

Unless specifically excluded, coverage for the liability of an employer under admiralty law and the Federal Employers
Liability Act is provided by employers’ liability insurance.

2.   Employers’ Liability for Diseases

Employers’ liability insurance for diseases not covered by a workers compensation law or an occupational disease law is
provided by the Standard Policy.

3.   Admiralty Law or Federal Employers’ Liability Act

Employers’ liability insurance for liability of an employer under admiralty law or Federal Employers Liability Act is not
provided by the Standard Policy. Refer to Rule XII for rules and endorsements to cover or limit this exposure.

4.   Employers Liability Insurance With Workers Compensation Insurance

Employers’ liability insurance written with workers compensation insurance is provided by the Standard Policy.

5.   Employers Liability Insurance Without Workers Compensation Insurance

Employers’ liability insurance without workers compensation insurance is prohibited in the state of Pennsylvania.

1.  Description of Voluntary Compensation Coverage

Voluntary compensation insurance does not provide workers compensation coverage and is not available for
employments subject to a workers’ compensation law. This insurance affords the benefits of a designated compensation
law as if the affected employees were subject to that law, even though the law does not require payment of benefits to
such employees. Voluntary compensation insurance shall not provide compensation, medical or other benefits in
excess of the statutory requirements in the workers compensation law designated in the standard Voluntary
Compensation and Employers Liability Coverage Endorsement.

2.  How Provided

Voluntary Compensation insurance is provided by attaching the Standard Voluntary Compensation and Employers
Liability Coverage Endorsement (WC 00 03 11A) to the Standard Policy. Refer to Rule VIII for rules and carrier rating
values.

1.  Description of Other States Coverage

a.  Employers liability insurance and, where permitted by law, workers compensation insurance are provided in other
states not listed in Item 3-A of the Information Page by listing states where coverage is to be provided in Item 3-C of
the Information Page.

b.  If workers compensation insurance does not apply because the insured or carrier is unable to take the necessary
action to bring the insured under a workers compensation law, the carrier will reimburse the insured for all
compensation and other benefits required of the insured under such law.

c.  Part Three – Other States Insurance does not provide U.S. Longshore and Harbor Workers’ Compensation Act
coverage. It may be afforded only in accordance with Rule XII.

2.  States Where Not Available

Other states coverage is not available in states:

a. With a monopolistic state fund, or

b. Where the carrier elects not to write this coverage.

3.  Restriction on Use

Coverage for operations known or expected to be performed in a state not listed in Item 3-A of the Information Page
shall not be provided under Part Three – Other States Insurance

4.  Premium

Premium developed for operations covered under Part Three – Other States Insurance shall be based on workers
compensation rules and carrier rating values.

The Pennsylvania Workers’ Compensation Act of June 2, 1915, as amended, requires an insurer issuing a workers compensation policy to offer a deductible program upon a policyholder’s request.

1.   Deductible coverage shall be made part of the policy if requested by the policyholder. Underwriting criteria for
deductible coverage are to be established by individual carriers.

2.  The claimants’ benefits will be paid by the insurance carrier without regard to any deductible.

3.   The policyholder must agree to reimburse the carrier for the deductible amount for any benefits paid to claimants.

4.   Failure of the policyholder to reimburse the carrier for any deductible amount shall be treated as non-payment of
premium under the policy.

5.   The loss elimination ratio is determined by the hazard group (found in Section 2 of this Manual) of the policy’s
governing classification. Code 951, Salesperson – Outside, Code 953, Clerical Office Employees and Code 822,
Telecommuting Clerical Employees, cannot be governing classifications unless they are the only classifications on the
policy.

6.   The premium adjustment for the deductible provisions of the policy shall be reported as a credit which shall be applied
prior to experience modification or other carrier premium modifications.

7.    If the policy is issued with a deductible provision, the Deductible Endorsement (WC 37 04 03) shall be issued and made
part of the policy.

8.   The Pennsylvania Insurance Department has promulgated three deductible coverage levels of$1,000 per claim, $5,000
per claim and $10,000 per claim respectively. Individual carriers can offer different deductible levels and/or premium
credits upon approval of the Pennsylvania Insurance Department.

The Pennsylvania Workers’ Compensation Act of June 2, 1915, as amended, permits an insurer issuing a workers compensation policy to offer an endorsement for deductible or retrospective rating plans for groups of five or more employers, subject to approval by the Insurance Commissioner and subject to the individual insurer’s underwriting criteria for deductible coverage (see F. 1. above)

1.   The insurer will issue an individual workers compensation policy for each member of the group

2.  Each group member will be held jointly and severally liable for the payment of premiums or deductible amounts with
regard to benefits paid for compensable claims of the group as a whole.