The Value of Employer’s Liability Insurance – When Workers’ Compensation Isn’t Enough

Do you own or run a business? If you’re like many business owners, you may think that all work-related injuries are covered by workers’ compensation benefits. However, sometimes there are exceptions. That’s why employer’s liability insurance is needed. Here’s what you need to know about employer’s liability insurance, along with some considerations and warnings.

What Is Employer’s Liability Insurance?

Perhaps you’ve heard of employer’s liability insurance but aren’t quite sure what it is. Put simply, employer’s liability insurance (ELPI) is a type of commercial insurance is designed to protect employers from monetary loss when workers have a job-connected illness or injury that isn’t covered by workers’ compensation. That’s why it’s also known as “Part 2” of a policy for workers’ compensation.

How It Works

State workers’ compensation laws cover most employees. In fact, states require most employers to have workers’ compensation insurance. It provides some degree of coverage for medical costs, besides lost wages for employees with work-related illnesses or injuries.

But when employees feel that workers’ compensation fails to fully cover their financial loss from work-related injuries or illnesses caused by an employer’s negligence, they may choose to sue their employer for pain, suffering and other punitive damages. This is where employer’s liability coverage comes in as it’s designed to cover costs that aren’t covered by general liability insurance or workers’ compensation. If a payout occurs under employer’s liability, the employer has the right to limit his or her losses by having what’s known as a condition of the payout. This is a clause releasing the employer, along with their insurance provider, from additional liability linked to the situation.

What Employer’s Liability Protection Insurance Covers

Employer’s liability protection insurance provides coverage for claims, such as:

Third-party countersuits—As an example, imagine having an employee who’s injured from faulty equipment. The injured employee can also sue the malfunctioning equipment manufacturer. When this occurs, the manufacturer’s attorney can sue your business, claiming the accident happened because the equipment wasn’t properly maintained. Since workers’ compensation can’t help you, you’ll need employer’s liability insurance to fight your case.

Dual capacity suits—This is a lawsuit in which an employee sues the employer in the case of an injury resulting from a product that’s produced by the employer. Hence, the employer is liable not only as an employer but also as the manufacturer of the product. Again, workers’ compensation is unable to fight this type of complex case, so this is where employer’s liability insurance steps in.

Loss of consortium is another reason for employer’s liability insurance. Usually, employees receiving benefits from workers’ compensation claims are unable to sue their employers. But the spouses of injured employees can sue a business, claiming they’ve suffered from financial losses because of the injury. When this occurs, you need employer’s liability insurance.

Gross negligence claims—This is a claim resulting from a manager forcing an employee to do a knowingly dangerous job that can cause an injury or make the company liable. Workers’ compensation is useless in this situation, so this is another reason to have employer’s liability.

What Not Covered

Employer’s liability coverage does not cover every situation, such as those involving: 

• Criminal acts and fraud
• Exemplary or punitive damages as a result of an injury from an employee who has deliberately violated the law with the employer being aware of the violation.
• Purposeful body injury that’s caused or provoked by the employer
• Claims arising from downsizing, layoffs, workforce restructurings, plant closures, strikes, mergers or acquisitions

Other Considerations and Warnings

• Chances are, you need employer’s liability insurance if you own your own workplace building and premises, equipment and materials. If you’re paying for national insurance for any members of your staff, you should have this coverage.
• Furthermore, employer’s liability is needed if you’re the one controlling the way in which your employees perform their work, besides where they work. 
• In most states, worker’s compensation policies include employer’s liability coverage already. Therefore, there’s no need to be concerned that you’ll have any gaps when it comes to employee-related injuries.
• When talking to an insurance agent, be realistic about all your business risks so that you receive comprehensive coverage. In other words, don’t hold back anything when discussing your needs and risks.
• Thoroughly go over all the terms and conditions of your policy, ensuring all the requirements for your company are totally covered.

Questions? Call the commercial insurance specialists at InsureYourCompany.com. Although we work with a wide range of businesses, we mainly focus on single LLC’s in tech and small New Jersey businesses. Please contact us to find out more about our many high-quality products.