Employers’ Liability

Workers’ comp policies usually include a special section for employers’ liability. What additional coverages does it provide and why do you need them?

Your workers’ compensation policy covers the costs associated with an employee’s work-related injury or occupational disease. It pays for the worker’s medical costs, rehabilitation costs, lost wages and any settlement for permanent disability.

The fundamental premise of workers’ comp is that employers agree to take responsibility for work-related injuries whether or not the injury was the employer’s fault. In return, the employee gives up his or her right to sue for damages. Workers’ comp is designed to be “no-fault” and the “exclusive remedy” for work-related illness and injury. Nonetheless, over the years employees have sued for damages, some of which fall outside of workers’ comp coverage.

The employers’ liability section of the workers’ comp policy adds coverage for these types of claims. Without this coverage, employers would have a significant coverage gap, because commercial general liability policies specifically exclude coverage for work-related injury and disease.

Employers’ liability is a common law or tort liability, and insurance companies handle those types of claims in the same way they adjust general liability claims, including managing and paying for defense.
Since states do not require employers’ liability insurance, you do not have it unless your workers’ compensation policy explicitly states it includes this coverage in a separate section. Unlike workers’ comp, employers’ liability has a defined limit of liability, starting at $100,000 per injury.

When Coverage Applies

Insurance authority IRMI cites several examples of when employers’ liability coverage applies:

Wrongful death: The family of a deceased worker may file a common-law claim seeking damages in addition to the death benefit paid by workers’ comp.
Consequential bodily injury: A family member may file a lawsuit for his or her own injury (for instance, a heart attack) that was caused by learning about or dealing with the injured employee.
Loss of consortium: The spouse of an injured worker may sue for loss of consortium, which means the spouse has lost the services — such as sexual relations or the ability to do household chores — of his or her spouse. Damages can be awarded even if the spouse is receiving disability payments.
Third-party liability: If an employee is injured while using equipment that malfunctioned, he or she may sue the manufacturer of the equipment for negligence. The manufacturer may in turn sue the employee’s company to recover damages. Depending on the specifics of the claim, either the employers’ liability or a general liability policy can provide coverage.
Employees excluded from workers’ comp: In some states, seasonal and temporary workers can be excluded from workers’ comp. In other states some small employers do not have to buy comp. In those situations, an employers’ liability policy can provide protection from employee lawsuits for bodily injury and illness.

Monopolistic States

In states that have monopolistic state workers’ comp funds (North Dakota, Ohio, Washington and Wyoming), employers need to purchase a separate employers’ liability policy. Organizations headquartered in other states but that have offices in these states need to buy an endorsement to their employers’ liability policy to avoid having a coverage gap for employees in those states.

Not Employment Practices Liability

Employers’ liability should not be confused with employment practices liability (EPL) insurance, which protects companies from employee claims that their legal rights have been violated. EPL protects an organization when employees file claims for wrongful termination, sexual harassment and discrimination. It does not cover bodily injury.

Some employers that have not bought EPL insurance attempt to use their employers’ liability to provide coverage for EPL claims. According to IRMI, they have not been successful in most cases. Even when states define workers’ comp “injury” to include mental injury, the broader workers’ compensation definition does not necessarily transfer to the employers’ liability portion of the policy.