What Is Employer’s Liability? Protecting Your Business from Lawsuits
Most employers understand that workers’ compensation insurance is mandatory coverage when they have employees. In New York and most other states, it covers employees for work-related injuries and illnesses—but many business owners overlook a critical component of their coverage: Employer’s Liability Insurance.
Employer’s Liability is found in Part Two of your workers’ compensation policy and protects your business from lawsuits related to employee injuries that fall outside the standard workers’ comp coverage.
Let’s break it down.
Understanding the Difference: Part One vs. Part Two of Workers’ Compensation
A standard workers’ compensation policy consists of two parts:
✅ Part One: Workers’ Compensation Insurance
- Covers the employer’s statutory obligations to pay for an employee’s work-related injuries or illnesses.
- No fault needs to be proven—benefits are paid regardless of how the injury occurred.
✅ Part Two: Employer’s Liability Insurance
- Covers the employer if a lawsuit arises due to a work-related injury or illness that isn’t fully covered under Part One.
- Negligence-based—coverage is triggered when a lawsuit is filed.
This distinction is crucial because while workers’ compensation protects employees, employer’s liability protects the business from legal costs associated with workplace injuries.
Why Employer’s Liability Insurance Matters
If an employee (or their family) believes that workers’ compensation benefits don’t fully compensate them, they may file a lawsuit against the employer. This is where Employer’s Liability steps in to cover legal defense costs, settlements, and damages.
However, don’t confuse Employer’s Liability with Employment Practices Liability Insurance (EPLI).
🔹 Employer’s Liability → Covers lawsuits related to work injuries and illnesses.
🔹 EPLI → Covers claims like wrongful termination, discrimination, or harassment.
Common Employer’s Liability Claims
Employer’s Liability coverage is most often triggered by lawsuits involving:
1. Third-Party “Action-Over” Lawsuits
- Occurs when an injured employee sues a third party (e.g., a contractor or equipment manufacturer).
- That third party then sues the employer for negligence, claiming the employer contributed to the injury.
2. Consequential Injuries
- When a family member suffers emotional distress or a physical injury due to the worker’s accident.
- Example: A spouse develops a stress-related illness while caring for the injured employee.
3. Loss of Consortium
- A spouse sues the employer, claiming their partner’s injury has impacted their relationship.
- This could include loss of companionship, affection, or marital relations.
4. Dual Capacity Lawsuits
- An injured employee sues their employer in a second role, such as a product manufacturer.
- Example: A factory worker gets injured using a machine made by their employer and then sues the employer as the manufacturer.
While these claims are not as common as standard workers’ comp claims, when they happen, they can be costly.
Monopolistic States & Stop-Gap Coverage: What Employers Need to Know
In most states, Employer’s Liability is automatically included in the workers’ compensation policy. However, in monopolistic states, it is not included and must be purchased separately.
What Are Monopolistic Workers’ Comp States?
Monopolistic states require businesses to buy workers’ comp coverage from the state-run insurance fund—private insurers cannot provide workers’ comp policies.
The monopolistic states are:
âś… North Dakota
âś… Ohio
âś… Washington
âś… Wyoming
Additionally, U.S. territories like Puerto Rico and the U.S. Virgin Islands also have state-controlled workers’ comp systems.
What’s the Problem for Employers?
Because monopolistic state workers’ comp policies do not include Employer’s Liability, businesses operating in these states must purchase additional protection—called Stop-Gap Liability Insurance—to fill this coverage gap.
For employers who operate or are domiciled in a non-monopolistic state and have Employer’s Liability as part of their workers comp policy, and then move or open operations in a monopolistic state, they then need to purchase Stop-Gap Coverage.
What Is Stop-Gap Liability Insurance?
🔹 Stop-Gap Coverage provides Employer’s Liability protection in monopolistic states.
🔹 It ensures your business is covered against lawsuits from employees or third parties.
🔹 It is typically purchased as an endorsement on a general liability or umbrella policy.
🚨 If your business has employees in monopolistic states, failing to secure Stop-Gap coverage could leave you exposed to costly lawsuits! 🚨
Check Your Umbrella Policy!
One final but crucial note: Not all umbrella policies extend coverage over Employer’s Liability.
✅ Some commercial umbrella policies exclude Employer’s Liability coverage.
✅ If your workers’ comp is with the New York State Fund (or another assigned risk plan), your umbrella carrier may not cover Employer’s Liability.
đź’ˇ Solution: Review your umbrella policy with a knowledgeable broker to ensure you have the protection you need.
Protect Your Business: Get the Right Employer’s Liability Coverage
Employer’s Liability is often overlooked—until a lawsuit hits. Ensuring you have the right coverage (especially if operating in monopolistic states) is crucial to avoiding unexpected legal costs and financial risk.
👉 Want to make sure your business is fully protected? Let’s have a conversation about Employer’s Liability and Stop-Gap Insurance.
📞 Call us today or click “Get Insured Now” for faster service!
Gordon Coyle is The Coyle Group’s CEO and a seasoned business insurance expert with over 40 years of experience and four professional designations. He specializes in helping businesses with 25 to 1,000 employees navigate the complexities of risk and insurance, from cyber insurance to D&O protection and everything in between. Gordon is passionate about providing tailored solutions that protect businesses, their owners, and their futures.
Need guidance on your business insurance? Contact Gordon for help!