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What is Employer’s Liability Insurance?

As a business owner, you know that your employees are your most valuable assets.That’s why it’s so critical to have workers’ comp to protect them against workplace injuries, illnesses, and deaths. But if an employee decides to file a claim against your business, where is your protection? Without coverage, you’ll be responsible for paying for costs related to the lawsuit out of pocket—which could be devastating for your business. And that’s where employer’s liability insurance comes in. 

There are a number of exceptions in most workers’ compensation policies, but employer’s liability insurance is coverage to take care of those exclusions—and safeguard your business. 

Want to make sure your company is protected in the event of an accident? We’re here to help you do just that. Stay with us as we cover what you need to know about employer’s liability insurance to help you find the right policy.

What’s the Difference Between Employers Liability & Workers’ Comp?

If you’re like most people, you think of workers’ compensation as a policy that protects only the employees. But there are two parts to a workers’ compensation policy—one that covers the employees and one that protects the employers. 

The first and most commonly referenced part is coverage for worker medical expenses and wage loss. The second part of a workers’ compensation policy is known as employer’s liability insurance. It’s designed to protect employers against lawsuits by employees that are not covered by workers’ compensation. 

So why is employer’s liability insurance necessary? Many workers’ compensation insurance policies include a certain amount of coverage for employers. However, they also contain exceptions that could require you to pay out of pocket if a claim is filed against your business.

Additionally, in some states you’re required to have separate policies to cover medical costs and protection if an employee files suit against your business. 

What Does Employer’s Liability Insurance Cover?

Simply put, employer’s liability insurance offers you protection if one of your employees blames your business for an injury or illness. This includes the legal costs needed to hire a lawyer, take care of fees, and pay off any judgements or out-of-court settlements. 

Employer’s liability insurance covers five types of lawsuits that are not included under most workers’ compensation policies, including:

  • Negligence: If your employee suffers an on-the-job injury because you didn’t take proper steps to protect them, they may file a lawsuit and sue you for damages. But if that same employee accuses you of failing to provide appropriate safety equipment or training, he or she could sue for negligence—and in that case, your employer’s liability insurance would pay for expenses related to the claim.
  • Consequential bodily injury: A serious workplace injury affects more than just the employee who was hurt—it also impacts their loved ones. If the spouse of an employee develops health problems from taking care of the injured worker, they may file suit against your business. 
  • Third-party over action: If your employee sustains an injury while operating a piece of equipment, they may decide to sue the manufacturer instead of your company. However, that manufacturer may file a lawsuit against your company, claiming that you didn’t take proper care of the equipment, which caused the employee’s injury. Unfortunately, workers’ compensation coverage will not pay for the damages from this kind of a lawsuit. In this situation, you’d need employer’s liability insurance to help cover costs.
  • Dual-capacity: This one is a double hitter of a lawsuit. Let’s take that last situation, in which an employee is injured while operating machinery on the job. Instead of suing either your business or the manufacturer, an employee may decide to file suit against both of you. Dual capacity applies to lawsuits against an employer and another entity, such as the maker of a product, the provider of a service, or a landlord. Most workers’ compensation coverage cannot handle these complicated claims, but employer’s liability insurance can.
  • Loss of consortium lawsuits: The impact of an employee getting sick or injured goes beyond that individual. If an employee’s family member experiences a loss due to the employee’s disablement or even death, they may file a loss of consortium claim against you. Compensation for these types of claims is above and beyond the disability and death benefits the family may receive from the workers’ compensation policy.

What Does Employer’s Liability Insurance Not Cover?

It is also important to be aware of certain potential claims that are not covered under these policies, including:

  • Intentional Injuries: If an individual intentionally devises or overlooks a situation that will result in an injury, it won’t be covered under employee’s liability insurance.
  • Liabilities not assumed under contract: Certain liabilities may not be assumed under a contract. If you assume liability for injury to an employee under a contract, your liability exclusion does not apply unless the contract qualifies as an insured contract. In order for coverage to apply, the contract must qualify as an insured contract, as defined in your policy.
  • Illegally employed employees: If you have employees who were illegally hired, your employers liability insurance will not provide coverage if these employees become sick or injured and file a lawsuit against your business.
  • Contractors or employees outside of the U.S. or Canada: If any of your employees work outside of the US or Canada, they will not be covered under your employer’s liability insurance policy.

Who Needs Employer’s Liability Insurance?

If you have at least one employee, employer’s liability insurance is a necessary safeguard for your business. Even if your business has implemented strict safety protocols, accidents happen—and a single accident can impact your bottom line if you’re not adequately insured.

After all, while certain work environments, such as a construction site or restaurant may be more high-risk than an office, a lawsuit can happen anywhere. For example, a lawyer’s office may not use heavy tools or equipment. However, these employees spend long hours at computer screens, which can cause injuries like carpal tunnel syndrome or illnesses like migraines. In either case, if an employee were to sue for damages or negligence, employer’s liability insurance would protect your business from taking a large financial hit.

How Much Does Employer’s Liability Insurance Cost?

Employer’s liability insurance is typically included as part of a workers’ compensation policy, and your coverage rate will depend on a number of factors. For example, smaller businesses that do low-risk work—such as office environments—can expect to pay a few hundred dollars per month. Larger businesses doing higher-risk work, like construction, may pay a few thousand dollars per month to ensure their protection. 

The majority of small businesses pay less than $1,000 annually for workers’ comp, but the specific price you’ll pay depends on your company’s risk to insure. Here are some of the factors an insurance company will use to determine your rate:

  • Location of the business
  • Number of employees
  • Nature of the business, which is based on the industry classification code
  • Dollar amount of payroll
  • Claims history

Your coverage limit is also a factor, since a higher limit will increase your premium. The amount of coverage you’ll need depends on the likelihood of your business getting sued for an employee’s injury. Most insurance companies charge an additional 2% to 3% of the premium for increased liability limits. However, this is a small price to pay to protect your business from financial devastation. 

How Do I Get Employer’s Liability Insurance?

Because employer’s liability insurance is typically included with workers’ comp—as “Part 2” or “Part B” of the policy—you can shop for both policies at the same time. Speaking with a reputable insurance company is the best way to get comprehensive, affordable coverage. They’ll help connect you with multiple providers and quotes to find the best coverage to help protect your employees—and your business. Wherever you buy your policy from, carefully review it to ensure that your liability limits are adequate and that there aren’t any surprise exclusions.

Want to Protect the Future of Your Business?

Employer’s liability insurance is a must for safeguarding your livelihood—your company and its employees. Best of all, choosing a policy doesn’t have to be expensive or stressful. We make shopping for insurance a piece of cake, with fast and affordable online business insurance quotes to help you plan and save. Get yours today, and join the rest of the business owners and employees who are saving on their workers’ comp insurance every month!

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