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What is employer’s liability insurance coverage?

Employer’s liability coverage protects employers if an employee should file a lawsuit for employer negligence after suffering a workplace injury or illness. It covers employers in the case that an employee sues for additional damages beyond lost wages and medical expenses.

Let's look at some more frequently asked questions about employer's liability insurance to gain a complete understanding of this important policy.

Is employer’s liability insurance the same as a workers’ compensation policy?

An employer’s liability insurance policy (also known as stop-gap coverage) is often bundled with workers’ compensation insurance, but they are 2 parts of one whole.

  • Workers’ comp specifically covers lost wages, medical bills, and disability for employees who become injured on the job or who develop an occupational disease. It can also cover a death benefit for the surviving family, should the employee lose their life while at work. There is no limit to the dollar amount that this insurance coverage can pay out, and there is no need for the employee to sue to establish fault by the employer before the insurance pays out.
  • Employer’s liability coverage provides legal protection for the employer if the employee sues them. It is often considered “part 2” of a workers’ comp policy. This coverage generally kicks in when a lawsuit is filed for employer negligence, as the employee must prove fault by the employer before receiving additional compensation.

In almost every state, these 2 important policies combine to create a single comprehensive insurance package commonly known as workers’ comp.

What does employer's liability insurance cover?

This form of business insurance generally covers the following:

  • Legal costs
  • Judgments awarded
  • Damages awarded
  • Settlements
  • Third-party lawsuits
  • Loss of consortium lawsuits
  • Dual-capacity lawsuits
  • Court-related costs
  • Consequential bodily injury lawsuits

Why do I need employer’s liability insurance?

Employer’s liability is important in the case of a legitimate negligence lawsuit filed by the employee or the employee's family members due to a work-related injury or illness. However, you must have this coverage even if any future liability claim made against you is false.

It’s an unfortunate possibility that not all employee lawsuits against you will be legitimate. Yet, the costs associated even with non-legitimate lawsuits can cripple a small business. It is better to purchase employer’s liability insurance than to take on the risk of a potentially financially ruinous lawsuit.

What is an example of the difference between workers’ comp and employer’s liability insurance coverage?

An easy way to understand the difference between workers’ comp and employer’s liability coverage is to consider an example of employee injury at work:

Let’s say that an employee stands on a piece of scaffolding at a construction site. The scaffolding feels wobbly and rickety. The employee tells the employer that the scaffolding looks like it will break. The employer doesn’t fix or replace the scaffolding, and a short while later, the scaffolding breaks. The employee falls and breaks their leg.
As a result, the employee pursues legal action beyond the initial compensation claim. They file a lawsuit against the employer for negligence, as the employee claims the injury resulted from the employer's unwillingness to fix or replace the broken scaffolding.

Workers’ comp will cover the ill or injured worker's medical expenses and lost wages. Employer’s liability coverage will kick in to protect the employer from fees associated with a subsequent lawsuit filed against the employer by the injured employee for negligence.

Do you need both employer’s liability and workers’ compensation coverage?

In many cases, you will not have a choice. With rare exceptions—such as in monopolistic states like North Dakota—the 2 parts of workers’ comp are bundled together in a single commercial policy.

How much does employer's liability insurance cost?

The exact cost varies based on factors such as your number of employees, type of business, location, and claims history. Our workers’ comp calculator can provide you with an estimate of what you're likely to pay per month for workers' comp coverage, which will likely include employer's liability as well.

What is the difference between general liability insurance and employer’s liability insurance?

General liability insurance and employer’s liability coverage are similar, yet they cover 2 different things. General liability may protect a business owner from customer injury, but it does not protect against lawsuits due to employee injury. For this reason, you need both general and employer’s liability coverage if you are a business owner with even one employee.

What is the difference between employer’s liability insurance and employment practices liability insurance?

Another form of insurance you may need in your business is employment practices liability insurance (EPLI). This coverage differs from employer’s liability in that it specifically protects employers against lawsuits filed for discrimination, sexual harassment, and wrongful termination. It will not protect against lawsuits filed for employer negligence. Both policies are needed in addition to other small business insurance policies supplied by a trusted insurance company to protect your business fully.

What are the advantages of employer's liability insurance?

There are multiple advantages to purchasing employer’s liability coverage. Let’s take a look at 3 major benefits.

  • Legal compliance: Compliance through purchasing employer’s liability ensures that you will avoid unnecessary legal trouble. It also displays a willingness to follow the guidelines and employment acts outlined in your state.
  • Employee care: While employer liability coverage protects you against an employee’s lawsuit, it is also a sign of respect. Accidents happen, and mistakes can be made. Employer liability shows that you are willing to engage with any employee lawsuits honestly and efficiently.
  • Financial stability: No insurance means no protection. A single lawsuit can devastate your business. Employer’s liability ensures that you can provide payment to your employee if necessary without ruining your business.

Are there any exclusions or policy limits to employer’s liability insurance?

The biggest exclusion is perhaps the payout limit. The limit may be per employee or injury. It can also refer to an overall limit. The exact limit depends on your specific insurance policy.

In addition, independent contractors and those working outside the U.S. and Canada are excluded entirely from employer’s liability coverage.

It is also good to note that not all examples of employer wrongdoing are covered by employer’s liability insurance. While negligence is covered, fraud, purposeful illegal activity, claims arising from closures, restructurings, mergers, and intentional aggravation of the employee’s injury or illness are examples of instances where employer’s liability would not come into play.

In some cases, punitive damages may also fall outside the limits of employer’s liability coverage. Check with your jurisdiction to see if your business will or will not be covered.

A final word on employer’s liability insurance

Employer’s liability as a part of workers’ comp is an essential—and often required—insurance policy for running your business. Even if it is not specifically mandated in your state, you should still consider purchasing this coverage in addition to other forms of business coverage to ensure that your business is completely protected from as many potentially damaging situations as possible.

Make sure your business covered with small business insurance from Huckleberry

At Huckleberry, we know that having the right business insurance policies in place gives you peace of mind—and full-scale protection. That’s why we make it easy for you to get a quick workers’ comp quote or even get insured online in minutes.

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