How Employer’s Liability Insurance Works?
Most private-sector employees are protected under state workers' compensation laws, while federal employees are covered by federal regulations. In general, states mandate that employers carry Workers' Compensation Insurance.
It covers medical bills, lost wages, and death benefits for employees who are injured, become ill, or die due to work-related causes. These benefits are provided without the need for employees to sue their employer.
However, if an employee believes that Workers’ Compensation is insufficient, maybe due to employer negligence, they may choose to sue for additional damages, such as pain and suffering or loss of consortium.
This is where Employer’s Liability Insurance comes in. It provides coverage for legal costs, settlements, and other expenses not covered by Workers’ Compensation or General Liability Insurance. It acts as an extra layer of financial protection for businesses facing employee lawsuits.
Employer’s Liability Insurance is typically bundled with Workers’ Compensation coverage and is often referred to as “Part Two” of the policy. “Part One” covers the statutory benefits (medical care, death benefits, and partial wage replacement), while “Part Two” addresses claims arising from lawsuits alleging employer negligence.
Who Requires Employers Liability Insurance?
Any business or employer that requires protection from financial loss because of a work-related illness or injury needs Employer's Liability Insurance. Even if the company has strict safety protocols at its workplace, accidents can occur. Sometimes, even a single injury at the workplace can impact the entire business if the employer is not insured adequately.
How Do I Know If I Have Sufficient Employer's Liability Coverage?
While Workers Compensation Insurance typically offers unlimited coverage for medical expenses and wage loss due to work-related injuries or illnesses, Employers Liability Insurance comes with specific coverage limits.
To determine if your coverage is sufficient, consider:
- Your industry risk level: High-risk industries are more prone to employee lawsuits and may need higher coverage.
- Workforce size and nature of work: More employees or hazardous job roles can increase your exposure.
- Legal trends in your region: Some jurisdictions have a higher frequency of employer liability claims.
If your business is exposed to a greater risk of employee claims, it’s advisable to opt for comprehensive Employer’s Liability coverage. This helps protect against potential lawsuits that fall outside the scope of workers’ compensation, such as claims for negligence or third-party over actions.
Limitations of Employers Liability Insurance
While Employer’s Liability Insurance protects businesses against employee claims arising from work-related injuries or illnesses, it does have certain exclusions and limitations:
- Intentional Harm Is Not Covered: If an employer deliberately worsens an employee’s injury or illness, the policy will not cover the resulting legal or financial obligations. In such cases, if the employee wins a lawsuit, the employer must pay out of pocket.
- Coverage Limits Apply: This insurance typically comes with caps on how much can be paid out per employee, per injury, and per illness. These limits vary by policy and should be carefully reviewed to ensure adequate protection.
The Final Words!
While Workers’ Compensation Insurance offers essential protection, dealing with employee claims, especially lawsuits, can still be both costly and complex. Legal defence expenses alone can severely impact a company’s finances, even if the claim isn’t ultimately upheld.
That’s why many businesses ensure they have both Workers’ Compensation and Employer’s Liability coverage, not just for payout obligations, but also to manage the unpredictable costs of litigation. In today’s risk-prone environment, even a single legal challenge can threaten a company’s financial stability.
You may also read: Liability Insurance Glossary
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