What Is Employers’ Liability Insurance?

Employers’ liability insurance is a specific type of coverage designed to protect businesses from financial losses. This insurance addresses claims made by employees for work-related injuries or illnesses under certain circumstances.

Defining Employers’ Liability Insurance

Employers’ liability insurance is an insurance policy that handles claims from workers who have suffered a job-related injury or illness not fully covered by workers’ compensation. Claims typically arise when an employee seeks compensation beyond what workers’ compensation provides, or when workers’ compensation does not apply.

The primary purpose of this insurance is to cover the employer’s legal liability when an employee sues them for negligence. It helps pay for legal defense costs, settlements, and judgments resulting from such lawsuits. This coverage fills a potential gap in protection for businesses.

Scope of Coverage

Employers’ liability insurance typically covers various types of claims and scenarios where an employer might be found legally liable due to negligence. The insurance can help cover damages such as medical expenses, lost wages, and pain and suffering, as well as the legal costs associated with defending the employer.

Specific examples of covered claims include:
Third-party over actions, where an injured employee sues a third party, and that third party then sues the employer for contribution.
Consequential bodily injury lawsuits, filed by a non-employee (e.g., a family member) who suffers physical harm due to the employee’s injury.
Loss of consortium claims, filed by family members seeking compensation for loss of a relative’s companionship or income due to a work-related injury or death.
Dual capacity claims, when an employee sues the employer in a capacity other than as an employer (e.g., if the employer also manufactured a product that caused the injury).

Employers’ Liability Insurance Versus Workers’ Compensation

Workers’ compensation operates as a “no-fault” system, meaning it provides statutory benefits to employees for work-related injuries or illnesses regardless of who was at fault. This system covers medical expenses, rehabilitation costs, and lost wages, and generally prevents employees from suing their employer for negligence related to the covered injury.

In contrast, employers’ liability insurance steps in when an employee sues the employer for negligence in relation to a work-related injury or illness. This typically occurs when workers’ compensation benefits are deemed insufficient, or when the injury falls outside the scope of workers’ compensation coverage. While workers’ compensation covers the employee’s direct costs, employers’ liability insurance protects the employer from the legal and financial ramifications of a lawsuit alleging negligence.

Employers’ liability insurance is often included as part of a workers’ compensation policy, though they serve distinct purposes. Workers’ compensation provides benefits directly to the injured employee, while employers’ liability insurance provides protection to the employer against lawsuits. This integrated approach ensures a more comprehensive safety net for businesses against workplace injury claims.

Who Requires Employers’ Liability Insurance

While workers’ compensation insurance is generally mandated by state law for most businesses with employees, employers’ liability insurance is not always a standalone legal requirement. It is often bundled with workers’ compensation policies. This combined coverage addresses potential gaps where an employee might sue the employer for negligence despite workers’ compensation benefits.

For most businesses that employ individuals, having employers’ liability insurance helps mitigate significant financial risk. It covers legal defense costs, settlements, and judgments arising from employee lawsuits that fall outside the traditional workers’ compensation framework. Businesses in certain states, known as monopolistic states, may need to purchase employers’ liability coverage separately from their state-mandated workers’ compensation fund.