Understanding Employers’ Liability Insurance for Business Protection
Employers’ liability insurance is a crucial insurance policy that deals with claims from workers who have suffered a job-related injury or illness. This insurance covers scenarios not protected by workers’ compensation. Typically packaged with workers’ compensation, it provides an additional layer of protection against costs associated with workplace injuries, illnesses, and fatalities.
However, it’s important to note that employers’ liability insurance does not cover legal costs from employee lawsuits alleging discrimination, sexual harassment, or wrongful termination. For these situations, businesses need to purchase a separate policy known as Employment Practices Liability Insurance (EPLI).
Key Benefits
- Employers’ liability insurance safeguards companies from costs and claims made by employees not covered by workers’ compensation.
- Numerous organizations carry this insurance to handle legal costs and lawsuits involving employee injuries or illnesses.
- Most workers’ compensation policies automatically include employers’ liability insurance.
- This insurance has limits on the amounts paid out per employee, incident, or policy.
How Employers’ Liability Insurance Functions
The majority of private-sector employees fall under state-specific workers’ compensation laws. States commonly require employers to have workers’ compensation insurance to ensure coverage for medical expenses and lost wages due to work-related injuries or illnesses.
While workers’ compensation provides some level of coverage, employees might sue their employers for negligence if they believe that workers’ compensation doesn’t fully compensate their losses. This is where employers’ liability insurance comes into play, providing extra protection against such claims.
Employers’ liability coverage is often integrated with workers’ compensation policies. In many cases, it is referred to as “Part 2” of a workers’ compensation policy, where “Part 1” covers medical expenses and lost wages, and “Part 2” protects against additional damages and compensation claims.
What Employers’ Liability Insurance Covers
Other coverage scenarios include:
- Third-party lawsuits: When a third entity indirectly involved in an incident sues the employer.
- Loss of consortium lawsuits: Filed by family members of a deceased or disabled employee.
- Consequential bodily injury lawsuits: Claims by non-employees who suffer due to an employee’s injury.
- Dual-capacity lawsuits: Claims against an employer who acts in dual capacities, such as a premises owner and employer.
By having employers’ liability insurance, businesses can manage legitimate or questionable claims concerning workplace incidents without facing repeated liabilities. It is also wise for businesses to negotiate loss limitation within their policy terms.
Limits and Exclusions
Employers’ liability insurance has several payout limits, typically: $100,000 per worker, $100,000 per incident, and $500,000 per policy. Generally, it does not cover independent contractors or employees working outside the U.S. or Canada.
Exclusions include criminal acts, fraud, unlawful gains, violations of law, and downsizing-related claims, especially including mergers or acquisitions. An employer will also have stiffer challenges in cover for employee-related punitive damages unless leveraging favorable jurisdiction policies within their comprehensive insurance coverage.
Employment Practices Liability Insurance (EPLI)
EPLI is distinct from employers’ liability insurance and covers claims related to discrimination, wrongful termination, and harassment which aren’t protected under ELI policies.
General Liability vs. Employers’ Liability
General liability insurance covers businesses for external claims like customer injuries or property damage but doesn’t extend to employee-related negligence; conversely, employers’ liability insurance addresses claims filed specifically by employees
The Bottom Line for Businesses
Employers’ liability insurance shields companies from myriad legal claims involving job-related injuries or illness. It complements workers’ compensation for more extensive protection. Nevertheless, businesses need to invest in EPLI to guard against claims such as discrimination or wrongful termination.
Related Terms: workers’ compensation, Employment Practices Liability Insurance (EPLI), general liability insurance, independent contractors.
References
- The Hartford. “Workers’ Compensation Laws by State”.
- U.S. Department of Labor. “Workers’ Compensation”.
- Insureon. “Employer’s Liability Insurance”.
- Hiscox. “The 2017 Hiscox Guide to Employee Lawsuits”, Page 7.
- SFM. “What Are Employer Liability Limits?”
- ProInsuranceGroup. “What Does Employers Liability Insurance Cover?”
- International Risk Management Institute. “Most Favored Venue Wording”.
- Insureon. “What Does Employment Practices Liability Insurance Cover?”
