Employer’s Liability Insurance: What It Is, Which Businesses Need It
Usually, this coverage comes included with your workers' compensation insurance policy.
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Employer’s liability insurance protects your company from costs arising from employee injury lawsuits, including legal fees, damages and settlements. It's usually included as an add-on to workers' compensation insurance as "Part 2" or "Part B" of the policy. You don't even have to ask for it.
But there are four states that require you to purchase workers’ comp through a state insurance fund. These don't include employer's liability insurance with workers' comp:
- North Dakota.
- Ohio.
- Washington.
- Wyoming.
If you live in one of these states and want this protection, you'll have to buy stop-gap coverage, a form of employer liability coverage that isn't bundled in a workers' comp policy.
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Which businesses need employer’s liability insurance?
Every business with employees should have employer’s liability insurance. While workers' comp covers the direct costs of employee illnesses and injuries, it doesn't cover legal fees and other expenses that come up when an employee sues your business. Employer's liability insurance does.
Even in workplaces that are low risk from a workers' comp perspective — meaning that they're unlikely to have people getting sick or injured on the job — lawsuits against employers can still happen.
For example, employees of marketing firms don't often do work that could result in serious injury. But. they spend long hours at their desks working on computers, which can cause illnesses like migraines or injuries like carpal tunnel syndrome.
If an employee sues your business because of this for damages or even negligence, employer’s liability insurance could potentially protect your business.
What does employer’s liability insurance cover?
Employer’s liability insurance, or stop-gap coverage, bridges the gap between what workers’ comp covers and what your business might be liable for in a lawsuit.
Some potential liabilities include:
- Legal fees. If your business gets sued for an employee's injury, it will incur legal fees and court costs. Workers' comp doesn't cover these costs.
- Damages. Pain and suffering, negligence and similar claims aren't covered by workers' comp.
- Settlements. You and the injured employee might decide it is better to settle any lawsuits out of court. Your employer’s liability insurance provider will work with the employee’s attorney to arrive at a settlement. It will also make the settlement payments.
- Indirect liabilities. Third parties, like the spouses or caretakers of injured employees, can sue your business if they are impacted by the illness or injury Employer’s liability insurance protects the business from these claims, too.
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What does employer's liability insurance exclude?
There are some things employer’s liability insurance doesn’t cover:
- Situations covered under employment practices liability insurance. Employer’s liability insurance protects your business from work-related illness or injury lawsuits. Discrimination, sexual harassment or wrongful termination claims are covered by employment practices liability insurance.
- Injuries incurred by the employee while breaking the law. Employer's liability insurance doesn't cover any lawsuits related to an employee's illegal activities. You might need commercial crime insurance instead.
- Injury intentionally caused by the employer. Employer’s liability insurance won't cover intentional harm to your employee. Speak with your insurance provider about personal liability coverage to protect you from these claims.
How much does employer’s liability insurance cost?
A business with only a few employees doing low-risk work can expect to pay a few hundred dollars per month for employer’s liability insurance. Larger businesses doing higher-risk work, like construction, might pay a few thousand dollars per month.
This can seem like a large expense, but without it, certain employee lawsuits could cost your business millions.
Employer’s liability insurance costs increase if you:
- Have a history of filing claims.
- Add more employees.
- Increase your coverage limits.
How do you get employer's liability insurance?
Because employer's liability insurance is usually included with workers' comp, you'll generally shop for both policies at the same time. You can buy these policies from third-party sites that aggregate insurance offers or you can purchase directly from an insurance carrier.
Shop around and compare options to get the best price and coverage for your business. You can often get a discount if you buy several policies from the same company.
Wherever you buy, make sure to carefully review the policy. You want to make sure your liability limits are adequate and that there aren’t any surprise exclusions.
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