Quick Answer
Employer’s liability insurance is Part Two of a workers’ compensation policy. It protects a business from lawsuits filed by employees who suffer work-related injuries or illnesses and seek damages beyond standard workers’ comp benefits, covering legal defense costs, settlements, and court judgments. In most states, it is included in your WC policy at no extra charge. Standard limits are $100,000/$100,000/$500,000, often insufficient for businesses in high-risk industries.
Ready to review your limits?
Employer’s liability insurance is the coverage most business owners do not know they have, until they need it and it is not enough.
The U.S. Bureau of Labor Statistics reported 2.5 million nonfatal private-industry workplace injuries and illnesses in 2024. Each one is a potential lawsuit. For businesses that carry workers’ comp but have never reviewed their employer’s liability insurance limits or confirmed their umbrella coverage extends over Part Two, the exposure is real and often larger than expected.
Is your workers’ comp policy actually protecting your business from lawsuits?
Many business owners carry workers’ compensation and assume they are fully covered. The problem is that workers’ comp protects your employee. Employer’s liability insurance protects you.
At The Coyle Group, we review the full structure of your WC policy, including Part Two limits, monopolistic state gaps, and umbrella coverage alignment, so there are no surprises when a lawsuit lands.
Book a Call to review your current coverage.
What Employer’s Liability Insurance Actually Covers (and What Workers’ Comp Does Not)
A standard workers’ compensation policy includes both:
Without Part Two employer’s liability insurance, every workplace injury is a lawsuit you are funding out of pocket.
Who needs employer’s liability insurance?
Any business that employs W-2 workers in the United States needs employer’s liability insurance. The exposure is especially acute in industries where employees are physically exposed to hazards:
Businesses with employees in North Dakota, Ohio, Washington, or Wyoming face the highest exposure because state funds in those states do not include employer’s liability in the workers’ comp policy. Any business operating across state lines should confirm their stop-gap coverage is in place.
What Types of Claims Does Employer’s Liability Insurance Cover?
Employer’s liability insurance covers your business when an employee’s claim moves beyond the workers’ comp system and into litigation, specifically in four scenarios that workers’ comp does not handle.
Each scenario represents a different legal theory, but all four result in the same thing: a lawsuit directed at your business.
Understanding these four claim types is critical because they often arise from circumstances business owners assume are covered under their standard workers’ comp policy.
Third-Party Over (Action-Over) Lawsuits
This is the most common employer’s liability trigger in construction and manufacturing. An employee is injured on the job, often by a piece of equipment or at a third-party’s worksite. The employee sues the third party (the equipment manufacturer, the general contractor, or the property owner) rather than the employer. That third party then turns around and files suit against the employer, claiming the employer’s negligence contributed to the injury.
The employer never expected to be sued. The employee filed against someone else. But the third party’s lawsuit lands squarely on employer’s liability coverage. Learn more about how action-over liability clauses can expose your business.
Loss of Consortium Lawsuits
A loss of consortium claim is filed by a spouse or family member of the injured employee. The family member argues that the employee’s injury has damaged their relationship, deprived them of companionship, or created financial hardship at home. These claims are not covered under workers’ comp because the claimant is not the employee. Employer’s liability covers the defense and any judgment.
Real-World Example: Loss of Consortium
A warehouse employee in Georgia suffers a back injury from a loading dock fall. He collects workers’ compensation and returns to work six months later. His wife separately files a loss of consortium claim against the employer, alleging that the injury and recovery period damaged their marriage and that she provided unpaid caregiving. Workers’ compensation does not cover her claim because she is not the employee. Employer’s liability insurance covers the defense costs and any settlement. Without it, the employer pays out of pocket.
Dual-Capacity Lawsuits
A dual-capacity lawsuit arises when an employer holds a second legal role relative to the employee. For example, if a manufacturing company’s own employee is injured by a product the company manufactures, that employee may sue the company both as their employer and as the product manufacturer. The employee cannot collect twice, but the dual theory of liability can create significant legal exposure that employer’s liability covers.
Consequential Bodily Injury
A non-employee can file a consequential bodily injury claim when they suffer physical harm as a result of the employee’s covered injury. A spouse who develops a stress-related illness while providing full-time care for an injured worker is a common example. Again, these claimants are not covered under workers’ comp. Employer’s liability steps in.
What Employer’s Liability Insurance Does NOT Cover
Employer’s liability insurance covers your legal exposure from work-related injury lawsuits, but it has clearly defined exclusions that business owners need to know before assuming they are fully protected.
Standard employer’s liability insurance exclusions include:
The difference between employer’s liability and EPLI is a critical one. If an employee claims your negligence injured them, that is employer’s liability. If they claim you discriminated against them or wrongfully terminated them, that requires EPLI. Many businesses need both.
Understanding Your Coverage Limits (and When They Are Not Enough)
Employer’s liability insurance pays up to specific dollar limits per claim, and the standard minimum limits built into most workers’ comp policies are lower than most business owners realize. A single serious lawsuit can exceed them. Understanding how the limits work, and when to buy more, is a key part of structuring your program correctly.
The standard employer’s liability limits that appear in most workers’ compensation policies in the U.S. are:
Limit Type |
Standard Amount |
|---|---|
|
Per accident (bodily injury) |
$100,000 |
|
Per employee (occupational disease) |
$100,000 |
|
Policy aggregate (disease) |
$500,000 |
These limits were established decades ago and have not kept pace with litigation costs. A single construction action-over lawsuit with multiple parties can generate defense costs alone that exceed $100,000 before a trial begins.
Most commercial insurance advisors recommend increasing these limits to at least $500,000/$500,000/$500,000, and many complex businesses should carry $1,000,000 or more per occurrence.
Higher limits are generally available by endorsement and are not expensive relative to the risk they cover. The conversation worth having with your broker is not just “do I have employer’s liability?” but “are my limits enough for the size and complexity of my operations?”
Your umbrella and excess liability coverage may also sit above your employer’s liability insurance limits, but only if it is structured correctly. More on that below.
Increasing your employer’s liability insurance limits is not expensive relative to the risk. The premium difference between the standard $100,000/$100,000/$500,000 limits and $1,000,000/$1,000,000/$1,000,000 limits is often less than $200 per year on most commercial workers’ comp policies. The cost of an uncovered lawsuit is orders of magnitude higher. Any business with more than 10 employees, operations involving third-party contractors, or exposure in high-injury industries like construction, manufacturing, or warehousing should carry limits well above the statutory minimum.
How much does employer’s liability insurance cost?
In most states, employer’s liability insurance is included as Part Two of your workers’ compensation policy at no separate charge. You do not buy it independently. You purchase a workers’ comp policy and Part Two is built in. The cost of your workers’ comp policy depends on your payroll, industry classification, and claims history. Small businesses typically pay $54 to $86 per month for workers’ compensation coverage, which includes employer’s liability as Part Two. The meaningful cost decision is not whether to have employer’s liability coverage but whether to increase your limits above the standard minimum.
Coverage Level |
Approximate Additional Annual Cost |
|---|---|
|
Standard minimums ($100K/$100K/$500K) |
$0 (included in WC policy) |
|
Increased limits ($500K/$500K/$500K) |
Approximately 0.8% of WC premium |
|
High limits ($1M/$1M/$1M) |
Approximately 1.1% of WC premium (often under $200/yr) |
|
Stop-gap endorsement (monopolistic states) |
Varies; typically $200 to $500 per year per state |
Cost varies by state, carrier, payroll, and industry. These are general benchmarks.
Monopolistic States and Stop-Gap Coverage: What Employers in ND, OH, WA, and WY Must Do
In most states, employer’s liability is automatically included as Part Two of your workers’ compensation policy, but four states operate monopolistic workers’ compensation systems where businesses must buy workers’ comp coverage from the state fund rather than a private insurer.
State funds do not include Part Two. If you have employees in any of these states, you have an employer’s liability gap unless you have addressed it separately.
The four monopolistic workers’ compensation states are:
Each of these states operates a state-run workers’ compensation fund that employers must use. Washington State’s workers’ compensation system, administered by the Washington State Department of Labor and Industries, is a well-documented example: it provides statutory workers’ comp benefits but does not include employer’s liability insurance. Businesses with employees in Washington must purchase stop-gap coverage separately or carry the lawsuit exposure uninsured.
In these states, your workers’ compensation policy from the state fund covers your employees’ statutory benefits. But if an injured employee sues you for negligence, there is no Part Two to respond. You pay defense costs and any judgment out of pocket unless you have purchased stop-gap coverage.
What is stop-gap coverage?
Stop-gap liability insurance fills the employer’s liability gap created by monopolistic state workers’ comp systems. It is typically purchased as an endorsement on your general liability or commercial umbrella policy. It functions exactly like Part Two of a standard workers’ comp policy, covering your legal defense and any liability for work-related injury lawsuits in monopolistic states.
The multi-state trap is one of the most common coverage failures we encounter during policy reviews. A business headquartered in Texas carries a standard workers’ comp policy with Part Two included. They open a distribution center in Washington state. Because Washington is a monopolistic state, the state-issued workers’ comp certificate covers their employees there, but Part Two does not transfer. If a distribution center employee is injured and files a negligence lawsuit, the Texas workers’ comp policy will not respond to that claim. Stop-gap coverage must be endorsed onto the general liability or umbrella policy and confirmed to specifically list Washington as a covered state. Missing this step leaves the employer entirely uninsured for employer’s liability lawsuits in that location.
The Alternate Employer Endorsement is a related coverage tool worth understanding if you place workers through staffing arrangements or at third-party worksites.
Does Your Umbrella Policy Cover Employer’s Liability Insurance?
Your commercial umbrella policy may not extend over your employer’s liability coverage, and this is one of the most consequential gaps we find during policy reviews. Business owners who carry umbrella policies for high-limit protection often assume their umbrella sits above every underlying liability policy. In practice, many umbrella policies either exclude employer’s liability entirely or contain conditions that prevent them from paying on employer’s liability claims.
There are two situations where this gap is most common:
Situation 1: Assigned Risk Plans
Employers covered by the New York State Insurance Fund or another assigned risk plan. Umbrella carriers often refuse to extend over WC policies placed in state funds or assigned risk markets. If your workers’ comp is in an assigned risk plan, review your umbrella policy specifically for an employer’s liability exclusion.
Situation 2: Restrictive Follow-Form Language
Some umbrella policies only cover employer’s liability if the underlying WC policy includes it, and only up to the umbrella carrier’s approved limits. If your underlying employer’s liability limits do not match your umbrella’s required minimum retained limits, the umbrella may not respond.
The fix is a policy review that looks at all three layers: your workers’ comp Part Two limits, your umbrella’s underlying schedule, and whether the umbrella explicitly covers employer’s liability in the policy form. This is not a standard coverage check. It requires someone who understands how the layers interact.
How much liability protection is enough? is a question worth answering before a lawsuit forces you to find out.
How to Get Employer’s Liability Insurance Right: A Coverage Checklist
If you are purchasing employer’s liability insurance for the first time, the process is straightforward: it is included as Part Two of a standard workers’ compensation policy from any private insurer.
You do not need to buy it separately in most states. Request a workers’ comp quote from a commercial insurance broker, confirm that Part Two is included, review the default limits, and ask to increase them if your business has more than 10 employees or operates in high-risk industries.
Businesses in North Dakota, Ohio, Washington, or Wyoming need to separately request a stop-gap endorsement on their general liability or umbrella policy because state workers’ comp funds in those states do not include employer’s liability.
Structuring employer’s liability insurance correctly means looking at three things together: the limits on your Part Two coverage, whether your business operates in any monopolistic states, and whether your umbrella policy actually extends over employer’s liability. Most businesses with adequate workers’ comp still carry employer’s liability gaps because these three elements are rarely reviewed together.
Here is a practical checklist for structuring your coverage correctly:
Private industry employers reported 2.5 million nonfatal workplace injuries and illnesses in 2024, according to the U.S. Bureau of Labor Statistics. Each injury is a potential employer’s liability insurance event. Businesses with properly structured employer’s liability insurance limits, stop-gap coverage where needed, and a confirmed umbrella extension are in a fundamentally different risk position than those that simply carry the minimum. The question is not whether your employees will get hurt. It is whether your policy is built to respond when they do.
Employer’s Liability Insurance vs. Workers’ Comp vs. EPLI: A Side-by-Side Comparison
Employer’s liability insurance is one of three distinct policies that protect a business from employee-related claims, and each one covers a different category of risk. Business owners who carry only workers’ compensation without reviewing the other two often discover the hard way that their coverage has a significant gap.
Coverage |
What It Protects Against |
Who It Covers |
Trigger |
|---|---|---|---|
|
Employee medical bills and lost wages from work injuries |
Employees (no-fault) |
Injury or illness at work |
|
|
Employer’s Liability Insurance |
Lawsuits from employees seeking damages beyond WC benefits |
Employer |
Employee files negligence lawsuit |
|
Claims of discrimination, harassment, wrongful termination |
Employer |
Employment decision dispute |
The table makes the gap clear: if an employee sues for negligence (not a simple WC claim, and not a discrimination claim), employer’s liability insurance is the only policy designed to respond. Workers’ comp will not pay your attorney fees. EPLI does not cover injury lawsuits. Employer’s liability stands alone in that middle space.
Real-World Example: Action-Over in New Jersey
A manufacturing company in New Jersey employed a maintenance technician who was injured while repairing a conveyor belt manufactured by a third-party equipment supplier. The technician collected workers’ comp benefits for his medical treatment and lost wages. Several months later, he filed suit against the equipment supplier for product defects. The equipment supplier then filed a third-party action against the manufacturing company, arguing that the employer’s failure to provide proper lockout/tagout procedures contributed to the injury.
The employer had workers’ comp in place. But workers’ comp did not cover the defense of the third-party lawsuit. Employer’s liability insurance covered the defense costs and ultimately the settlement. Without it, the company would have paid out of pocket for both attorneys and the settlement amount. This is exactly the action-over scenario that employer’s liability insurance is designed to handle, and it is one of the most common triggers in industries that use heavy equipment or involve subcontractors on shared worksites.
About the Author
This article was written by the CEO of The Coyle Group, Gordon B. Coyle, CPCU, ARM, AMIM, PWCA. Gordon has spent over 40 years structuring complex commercial insurance programs for businesses across the U.S. The Coyle Group specializes in high-value risks that other agencies do not know how to structure, including workers’ compensation programs with complex employer’s liability exposures. If your business has outgrown one-size-fits-all coverage, contact us to discuss a proper review.
