Imagine for a moment that one of your employees slips and falls at work. They think you’re responsible, so they sue. If you don’t have the right type of business insurance, you could be stuck paying out-of-pocket for your legal defense.
Nearly one in five small businesses face employee litigation, according to Insureon. If one of your employees sues you for a workplace accident, employer’s liability insurance can help cover your legal costs.
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What Is Employer’s Liability Insurance?
Employer’s liability insurance is a type of business insurance that protects companies from lawsuits that stem from workplace accidents. The policy will pay for your legal fees, including judgments and settlements.
For example, let’s say you own a restaurant and your chef sues you after suffering burns due to a fryer. The chef claims your negligence in maintaining the fryer led to the accident. Employer’s liability insurance will cover your legal costs, even if the chef’s claims have no merit.
In most states, employer’s liability insurance is included as part of workers compensation insurance. But there are four “monopolistic states” that do not include employer’s liability insurance as a part of workers comp. In these states, you’ll need to buy separate employer’s liability coverage.
Here are the four monopolistic states:
- North Dakota
- Ohio
- Washington
- Wyoming
Workers compensation insurance vs. employer’s liability insurance
Employer’s liability insurance is included in most workers compensation policies but the two are totally different.
Workers compensation insurance is required in most states if you have employees (even if it’s just one employee). If your employee gets sick or injured while performing a job-related duty, workers compensation covers:
- Lost wages
- Disability benefits
- Ongoing care costs, such as physical therapy
- Death benefits
Employer’s liability insurance covers your legal fees and costs if an injured or sick employee blames you for the injury or illness.
What Does Employer’s Liability Insurance Cover?
Employer’s liability insurance covers legal fees, settlements and judgments brought on by these four types of lawsuits:
Consequential bodily injury lawsuits
This type of lawsuit is filed by a non-employee if they’re affected by your employee’s injury or illness.
For example, if your employee suffers a severe injury in a lawnmower accident and their immediate family member suffers a heart attack due to the stress of the incident, the family member can sue your company for damages.
Dual-capacity lawsuits
If you have a secondary relationship to your employee, your employee could file a dual-capacity lawsuit if they get sick or injured at work.
For example, if you manufacture lawnmowers and your employee gets hurt while using the lawnmower, your employee could sue you as both the manufacturer and employer.
Loss of consortium lawsuits
If your employee suffers a severe injury or illness or dies from a work-related incident, your employer’s family member can file a lawsuit for damages.
For example, let’s say your employee suffers a severe injury in a lawnmower accident and can no longer work. Your employee’s spouse could file a lawsuit for punitive damages.
Third-party lawsuits
A third-party lawsuit can be brought against you when your employee sues another business because of an injury or illness, and in turn, that business sues you.
For example, say you own a lawn care business and one of your employees hurts themselves mowing. Your employee sues the lawnmower manufacturer, claiming it is faulty equipment. Then the lawnmower manufacturer sues you, claiming that the accident was caused by improper maintenance and care.
What Does Employer’s Liability Insurance Not Cover?
Employer’s liability insurance doesn’t cover claims related to:
- Discrimination
- Harassment
- Retaliation
- Violation of an employee’s rights
- Wrongful termination
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Employer’s Liability Insurance vs. Employment Practices Liability Insurance
Employer’s liability insurance covers you for legal costs when you are sued because of a workplace injury or illness.
Employment practices liability insurance (EPLI) covers your business for claims of violations of employees rights or wrongful termination. EPLI covers a wide range of possible claims, such as discrimination, harassment, wrongful termination, retaliation, employee benefit mismangement and other types of problems.
Who Needs Employer’s Liability Insurance?
If your business has employees (even just one), employer’s liability insurance is an essential coverage type. That’s because nearly 20% of small businesses face employee litigation, according to Insureon. Even in low-risk industries like accounting or tech, there are risks of employees slipping at work or suing for carpal tunnel.
In most states, employer’s liability insurance will be included as part of your workers compensation coverage. But if you live in a monopolistic state, you’ll need to buy a separate employer’s liability insurance coverage. Those states are North Dakota, Ohio, Washington and Wyoming.
How Much Employer’s Liability Insurance Do I Need?
If you have employer’s liability insurance through your workers comp policy, then it’s already calculated to be the correct coverage you need based on your payroll size and industry.
If you don’t have coverage, an independent insurance agent can work with you to determine how much coverage you need.
How Much Does Employer’s Liability Insurance Cost?
The median cost of workers compensation insurance is $45 a month, according to Insureon. That includes the cost of employer’s liability insurance, which is part of your workers compensation insurance in most states.
Here are some factors that will affect your employer’s liability insurance costs:
- Claims history: Companies that have filed workers compensation claims in the past will likely have higher premiums than those who haven’t.
- Industry: If you work in a high-risk industry, such as construction, manufacturing or maintenance, you may have higher premiums than if you worked in a low-risk industry like bookkeeping or digital marketing.
- Payroll costs: The more you pay your employees, the more coverage you’ll need if one of them sues you. Because employer’s liability insurance is typically lumped in with workers compensation, employee wages can have a big impact on your overall costs.
How To Get The Best Employer’s Liability Insurance
Employer’s liability insurance is included as part of your workers compensation insurance, except for the following monopolistic states:
- North Dakota
- Ohio
- Washington
- Wyoming
In most states, you’ll be able to buy workers compensation insurance from a private insurance company or a state-run agency. It’s a good idea to get quotes from multiple business insurance companies to find the best coverage and price.
If you own a business in a monopolistic state, you will need to buy your workers compensation insurance from a state-run agency. To get employer’s liability coverage in these states, you will need to purchase “stop gap coverage” which is commonly sold as an endorsement to your general liability insurance.
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