What is Employers’ Liability Insurance?
Employers’ liability insurance is a critical component of your business’s risk management strategy. It is designed to protect your business from lawsuits related to employee work-related injuries or illnesses that are not covered by workers’ compensation benefits. Essentially, it acts as a safeguard against legal costs such as attorney fees, settlements, and judgments that could arise if an employee sues the company.
In most states, employers’ liability insurance is part of a workers’ compensation insurance policy. However, in monopolistic states where workers’ compensation is managed by the state, employers’ liability insurance may be obtained as a separate policy.
Why Do You Need Employers’ Liability Insurance?
As a small business owner, having employers’ liability insurance is not just a good idea; it’s often necessary. Without this coverage, your business could face significant financial risks if an employee decides to sue. Legal costs can quickly add up, including attorney fees, court expenses, and potential settlements or judgments.
Moreover, the absence of this coverage can lead to reputational damage. A lawsuit can harm your business’s reputation and trust among customers and employees alike. By investing in employers’ liability insurance, you ensure that your business is better equipped to handle such situations without compromising its financial stability or public image.
How Does Employers’ Liability Coverage Work?
Employers’ liability coverage works differently from workers’ compensation insurance. While workers’ compensation covers medical bills, lost wages, and rehabilitation for injured employees, employers’ liability insurance handles legal costs and lawsuits that go beyond these benefits.
For instance, if an employee claims negligence on the part of the employer or files a third-party lawsuit (e.g., against a manufacturer of faulty equipment), employers’ liability insurance would cover these claims. It also addresses other types of lawsuits such as loss of consortium lawsuits (where a spouse sues for loss of companionship due to an employee’s injury) or consequential bodily injury lawsuits (where an injury leads to further health complications).
Types of Claims Covered
Employers’ liability insurance covers several types of claims that are not typically included in workers’ compensation benefits:
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Third-party lawsuits: Claims filed by third parties (e.g., equipment manufacturers) against the employer.
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Loss of consortium lawsuits: Claims filed by spouses or family members for loss of companionship due to an employee’s injury.
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Consequential bodily injury lawsuits: Claims arising from additional health complications resulting from an initial injury.
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Dual-capacity lawsuits: Claims where an employer is sued both as an employer and as a manufacturer or supplier.
Exclusions
While employers’ liability insurance provides broad coverage, there are some exclusions:
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Criminal acts: Intentional criminal acts committed by the employer.
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Fraud: Claims arising from fraudulent activities.
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Intentional aggravation of injuries: Deliberate actions taken by the employer to worsen an employee’s injury.
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Claims related to downsizing or restructuring: Claims related to layoffs or company restructuring.
Employers’ Liability vs. Employment Practices Liability Insurance (EPLI)
It’s important to distinguish between employers’ liability insurance and Employment Practices Liability Insurance (EPLI). While employers’ liability focuses on work-related injuries and illnesses, EPLI covers employment-related claims such as wrongful termination, discrimination, harassment, and other employment practices issues.
EPLI is essential for protecting your business against allegations of unfair employment practices but does not replace the need for employers’ liability insurance.
How to Get Employers’ Liability Insurance
Obtaining employers’ liability insurance is relatively straightforward. In most states, it is included as part of a workers’ compensation policy. However, in monopolistic states where workers’ compensation is state-managed, you may need to purchase this coverage separately.
You can typically acquire this insurance through an insurance broker or directly from an insurance provider that offers workers’ compensation policies.
Coverage Limits and Costs
The cost and coverage limits of employers’ liability insurance can vary. Common coverage limits include:
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$100,000 per accident
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$500,000 per policy
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$100,000 per employee
You may also have the option to increase these limits based on your business needs and risk assessment.