What is Employers Liability Insurance?

Whether you’re the entrepreneur of a budding business or running a large company, you need to make sure you’re protected against liability claims. Employers liability insurance is there to help cover the costs if an employee sues you for something that happened at work. A popular name for employers liability insurance is “Part 2” of the workers compensation policy. It means employers liability covers the employer’s legal liability if an employee decides to sue them after suffering a workplace injury. 

While workers compensation insurance protects employees from job-related injuries and illnesses, it does not cover every possible scenario. In particular, workers compensation insurance does not cover injuries that occur outside the workplace or are not directly related to the employee’s job. 

Employers liability insurance can provide coverage in these situations and help to ensure that the employer is protected from financial hardship if an employee decides to sue for negligence after an injury or illness.

Employers liability insurance has a limit on the amount it will pay out for any one claim. The policy usually states the limit as a per-occurrence limit and an aggregate limit. The per-occurrence limit is the maximum amount the insurance will pay for any claim. The aggregate limit is the maximum amount the insurance will pay for all claims during the policy period.

Let’s examine the coverage more closely, what it covers, and why people often mix it with employment practices liability insurance.

Who Needs Employers Liability Insurance?

Most companies get these two policies together because employers liability insurance is closely linked with workers compensation insurance. Also, employers liability insurance is considered an extension of the workers comp coverage, and many workers compensation policies already include employers liability by default.

The law in most states mandates that you must have a workers compensation policy for your business if you have employees. Unless you are exempt from carrying workers compensation insurance, chances are you will also have an employers liability insurance policy in place that you bought with the workers compensation coverage.

You should note, however, that monopolistic states require that you buy workers compensation through state funds and that coverage typically doesn’t include employers liability insurance. You might need to purchase employers liability insurance as a separate policy to bridge the coverage gap. Monopolistic states are Ohio, North Dakota, Washington, and Wyoming.

So, who else needs employers’ liability insurance? The answer is every business with employees. The coverage is particularly important for companies operating in industries with more major risks of employee workplace injuries, especially serious ones. 

For example, if you operate in the construction or manufacturing industry, you are at a greater risk than someone running a software business. But a software company is not without the risk of suffering an employers liability lawsuit. An employee can sue you if the constant sitting while working caused an injury to their lower back. Workers comp would cover the recovery costs and lost wages, but if the employee means that’s not enough for all the pain they suffered, they can decide to sue you.

What Does Employers Liability Insurance Cover?

Employes liability insurance typically covers the costs that workers compensation doesn’t. Suppose a workers compensation claim ends in an employee accepting the reimbursement offer from the insurer or in a court settlement. In that case, they must weave their right to sue the employer to receive the agreed compensation. 

Should the employee think that the offered amount is insufficient to cover their expenses and the pain they suffered, they can decide to sue the employer for punitive damages. That’s where employers liability insurance kicks in to cover the cost of handling such claims. Your employers liability insurance would cover:

• Bodily injury: If an employee gets injured at work, this coverage can help pay for medical bills, lost wages, and other expenses.
• Disease: If an employee contracts an illness at work, this coverage can help pay for medical bills and lost wages.
• Death: If an employee dies as a result of a work-related injury or disease, this coverage can help pay for funeral expenses.
• Legal fees: If an employee sues you, this coverage can help pay for your legal defense.

For example, let’s say an employee slips and falls on a wet floor at work, injuring their back. They could sue you for medical bills, lost wages, and pain and suffering. If you have employers liability insurance, your policy would likely cover these costs up to your policy limit.

These are the types of claims employers liability insurance covers:

• Loss of consortium: Claims filed by the spouse of an injured employee for the loss of companionship and support.
• Third-party-over actions: If an employee sues a third party, such as a manufacturer, for injuries sustained at work, the manufacturer could sue you to cover their losses. The employers liability insurance will cover the legal costs of defending the employer in that suit.
• Consequential injury: Suppose your employee gets severely injured on the job, and their family member suffers distress or an injury resulting from your employee’s injury; they might decide to sue you.
• Dual-capacity lawsuit: If an employee sues their employer for injuries sustained at work, and in their capacity as a product manufacturer or property owner, the employers liability insurance will cover both claims.

What Does Employers Liability Insurance Not Cover?

While employers liability insurance will cover most legal liabilities an employer might face, there are some exceptions. Here are a few of the most common exclusions from this type of coverage:

• Intentional wrongdoing: If an employer intentionally hurts someone or damages property, this insurance will not protect them.
• Workers compensation claims: If an employee gets injured at work, this insurance will not cover their compensation claim.
• Certain types of injuries: Some policies exclude injuries caused by mental or emotional stress, self-inflicted injuries, or injuries that occur while the employee is under the influence of drugs or alcohol.
• Certain types of property damage: Some policies exclude damage to property owned by the employer, such as vehicles or machinery.
• Claims outside of the United States: This type of insurance usually only covers claims that occur within the United States.

As you can see, there are some situations where employers liability insurance will not provide coverage. Understanding your policy’s exclusions is essential, so you know what is and is not covered.

Employers Liability Insurance vs. EPLI: What Is the Difference?

Employers liability insurance is sometimes confused with employment practices liability insurance (EPLI), probably because of the policy names. These are two different types of insurance, and it’s crucial to understand the difference between them.

Employers liability insurance covers the employer’s legal liability for bodily injury or death of employees arising out of and in the course of their employment.

EPLI, on the other hand, doesn’t cover bodily injury, but it responds to employees’ claims alleging wrongful termination, discrimination, sexual harassment, and other employment-related disputes.

One thing they have in common is that every business with employees should strongly consider purchasing both of these policies to protect itself from expensive lawsuits.

How Much Does Employers Liability Insurance Cost?

The cost of employers liability insurance varies depending on many factors, such as the business size, industry, location, and type of business. However, your policy cost also depends on the number of workers compensation claims your company filed.

Employers liability insurance policy cost ranges from $170 to $250 on average. The employers liability insurance also has a deductible, the amount the employer must pay before the insurance kicks in. For example, if the deductible is $1,000 and an employee files a claim for $10,000, the employer would have to pay the first $1,000, and the insurance would pay the remaining $9,000.

If you don’t have a policy in place or think you don’t have adequate coverage, you can reach out to one of Embroker’s experienced brokers. If you are ready to get an online quote for your company, you can start by signing up for Embroker’s digital platform.

*The information contained herein is subject to Embroker’s Terms, is based upon Embroker’s experience as an insurance broker, available information, current insurance information, and marketplace, or may be of a general nature.  Nothing in the content provided should be construed as tax, accounting, legal or actuarial advice. While we provide comments and recommendations related to the types and terms of insurance coverage, the decision to act or not act is ultimately the insurance purchaser’s alone.