What is Employers Liability Insurance

Protection from different risks and panic situations must be the topmost priority for every business owner. Employers Liability Insurance is a type of insurance that provides protection, in case an employee or ex-employee decides to sue the company for work-related or illness-related injuries caused due to work.

Employers’ liability insurance is one of the most common types of business insurance, and most businesses are required by law to have one. Employers Liability Insurance protects your organization if an injured employee sues for further compensation.

When an employee claims your company’s irresponsibility for their accident or illness, employer’s liability insurance pays legal defense costs. Hiring a lawyer, paying court fees, and paying a settlement or judgment are all possible expenses.

A writer, for example, may sue for carpal tunnel syndrome caused by frequent typing. A restaurant chef, for example, may file a lawsuit over a burn produced by a malfunctioning fryer.

In either situation, workers’ compensation would cover medical expenses as well as a portion of missed income while the employee recovered.

However, if an injured employee believes your carelessness is to blame for their illness, they may seek punitive damages such as pain and suffering. This is when the employer’s liability comes into play.

Employers liability insurance vs workers compensation

Workers’ compensation insurance is designed to cover an employee’s medical expenditures as well as lost pay due to a work-related illness or accident. Employers Liability Insurance, on the other hand, is designed to shield your company from liability if an injured employee sues for further damages.

In most cases, an employee must agree not to sue their employer for the accident or sickness to collect workers’ compensation payments. Regardless of whether the employer is at fault for the accident or sickness, the employee will get workers’ compensation payments.

Employers Liability Insurance will cover the defense expenses as well as any judgments or settlements against the company if an injured employee sues for damages not covered by workers’ compensation.

While there are some parallels between employers’ liability insurance and workers’ compensation insurance, there are also some significant distinctions. Traditional workers’ compensation is intended to offer employees salary replacement and some medical benefits if they are injured while on the job. If an employee dies as a result of an injury or sickness, workers’ compensation may offer benefits to his or her family.

If the employee is not covered by workers’ compensation and decides to sue then in that case Employers’ liability insurance covers the employer. If an employee believes that their workers’ compensation payments are insufficient to offset their loss or that the accident was caused by the employer’s direct fault, he or she may choose to sue for punitive damages, such as pain and suffering.

Does an employer need both insurance policies?

These two policies are inextricably linked. When a corporation buys worker’s compensation, it’s also buying liability insurance. The first portion of worker’s compensation satisfies statutory duties imposed by the state’s compensation statutes. The liability of an employer is the second section of the insurance.

If an employer purchases worker’s compensation insurance via the state’s fund in Michigan, the policy may or may not include employer’s liability insurance. If this is the case, the employer may want to consider purchasing Stop-Gap Insurance. This insurance can fill up the gaps in a company’s work-injury lawsuit coverage.

Employers liability insurance limits

A coverage known as employer liability insurance is included when you purchase a workers’ compensation insurance policy. This insurance, also known as Part 2 or Coverage B, is infrequently used in most states and accounts for just a tiny portion of the workers’ compensation cost.

If it weren’t for the requirement to set employer liability limits, you may just skip this coverage. The standard liability limit for an employer is $100,000/$500,000/$100,000. That’s $100,000 for each accident, $500,000 for each policy, and $100,000 for each employee.

Employers Liability Insurance usually has a cap on how much the insurer will pay out per employee, injury, and illness. It may be a maximum of $250,000 per employee and $100,000 each occurrence, for example. If your Employers’ Liability limits have been reached, you can obtain business umbrella insurance to offer additional coverage.

Employers liability claim examples

Third-party-over action

An employee who is hurt or becomes ill on the job cannot sue their employer if they have committed to workers’ compensation benefits, but they can sue a culpable third party, who may then sue the employer, based on the company’s contractual duties. For example, if the employer and the third party have signed a contract that indemnifies and keeps the third party safe from litigation, the third party can file a “third party over action” (also known as “third party action over”) lawsuit against the employer.

Example

A general contractor forms a contract with the property owner of a construction project that protects the owner from any liabilities that may emerge as a result of the contractor’s work. When a steel beam from the construction site’s ceiling falls on an employee of a contracting business, he is gravely hurt. The employee sues the property owner for failing to maintain acceptable safety standards on the building site, even though workers’ compensation pays the majority of his medical expenditures and lost earnings due to missed work. The property owner then launches a lawsuit against the contracting business to collect the damages from the employee’s lawsuit, based on the contract signed with the contracting firm that indemnifies him against liabilities deriving from the contractor’s work on the project. The general contractor’s legal defense as well as any verdicts and settlements from the property owner’s case will be covered by Employers Liability Insurance.

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Loss of companionship

A spouse or family member of an employee who has been gravely wounded or murdered in the workplace might sue the employer for carelessness or deliberate conduct that caused the harm. What has the employee’s spouse or family member lost as a result of the employee’s death or injury that they may sue for under a “Loss of Consortium” lawsuit? It wouldn’t be monetary losses, but rather things that money could only approximate, such as love, friendship, and reputation, as well as a few other advantages of having that person in their lives.

Example

Due to a failing brake on the truck he drives, a long-haul trucker was killed in an accident on the highway. The trucker’s wife files a “Loss of Consortium” case against the trucking business for failing to maintain their fleet properly, resulting in her husband’s death, who provided her with love, affection, comfort, and advice. She is seeking compensation for her pain and suffering as well as her mental anguish as a result of her husband’s death. The lawsuit’s defense expenses and the $1 million settlement are covered by the trucking company’s Employers Liability Insurance.

Dual-Capacity

When an employee has many relationships with an employer, this form of litigation can be launched, and it is most commonly used by manufacturers. An injured employee of a manufacturing business can claim workers’ compensation payments and bring a lawsuit against the corporation as a manufacturer, rather than as the employer.

Example

An electrical short on a finished automobile creates a fire at automotive manufacturing, injuring an employee. Because the employee receives workers’ compensation, he is not allowed to sue the firm as his employer, but he is allowed to sue the corporation as a manufacturer. The employee sues the manufacturer for product responsibility, claiming that his injuries were caused by a faulty product—the car. Employers Liability Insurance provided by the manufacturer will cover defense expenses as well as any verdicts or settlements.

Injuries to the body as a result of the accident

A family member of an injured employee has the right to sue the employer for injuries incurred as a result of the employee’s injury.

Example

A warehouse manager, for example, gets paraplegic after being hurt by a forklift at the warehouse. After realizing that her husband will no longer be able to walk, the warehouse manager’s wife has a heart attack. She then sues the warehouse owner for medical bills incurred as a result of the heart attack. Employers Liability Insurance pays for the defense costs of the subsequent bodily injury lawsuit and the settlement, while workers’ compensation compensates for the warehouse employee’s medical bills.

What does an employer’s liability insurance cover?

In most circumstances, an employee who agrees to collect workers’ compensation benefits is not legally allowed to sue the company for further payment. There are, however, certain exceptions. Employees who fit under these categories can claim for further damages, and Employers Liability Insurance will pay the expenses of defense, judgments, and settlements.

  • Employees who have chosen to be exempt from receiving workers’ compensation benefits. While the majority of states compel businesses to get workers’ compensation for their employees, a few states enable employees to opt-out. If these employees were wounded on the job, they would be able to sue their company.
  • Some employees are not protected by workers’ compensation in certain sectors. Seasonal employees, agricultural workers, domestic workers, railroad workers, and longshoremen are all examples of this.
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  • Employees who have been diagnosed with a condition that is unrelated to their work. Workers’ compensation only pays for “occupational illnesses” that occur as a result of the insured person’s job. Many other illnesses, like cancer or the flu, are deemed “normal diseases of life” and are not caused by the employee’s employment. The employee can sue the company for damages if the sickness is not covered by workers’ compensation.

What does employers’ liability insurance not cover?

It’s also crucial to be aware that certain injuries and illnesses are not covered by employers’ liability insurance. The following are a few of them:

Intentional accidents

Intentional injuries are usually not covered by an employee’s liability insurance. For example, when hazardous chemicals are not properly maintained, creating a spill that injures another worker, or when a machine malfunction is recognized but ignored, leading an employee’s limb to become trapped or crushed.

Employees who are not provided with necessary safety equipment or education on how to use materials or equipment properly might potentially sustain intentional harm.

Contractually assumed liabilities

Certain obligations may not be undertaken under a contract in particular cases. Unless the contract qualifies as an insurance contract, the employer’s responsibility exclusion does not apply if an employer takes liability for physical damage to an employee under a contract.

Employees who have been hired illegally

If you have unlawfully hired personnel, your employer’s liability insurance will not cover them if they become ill or injured and decide to sue your company.

Muscle strains, cuts and lacerations, repetitive strain injuries, loud noise exposure, collisions, and crashes, being struck by falling items, and slips, trips, and falls are just a few of the most prevalent workplace injuries and mishaps.

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An injury that is protected by federal law

Some sorts of employee injuries are covered by federal law and are consequently not covered by employers’ liability insurance. Employees wounded while working on U.S. military bases or with any U.S. government agency are covered under the Defense Base Act (DBA), which offers medical benefits and disability.

Injury or disease caused by dangerous or unhealthy conditions, such as a coal outburst, are covered by the Federal Coal Mine Health and Safety Act. Employees who become handicapped while doing their work tasks on the navigable waterways of the United States are covered by the Longshore and Harbor Workers’ Compensation Act.

Contractors or employees from countries other than the United States or Canada

Employees who work outside of the United States or Canada are not protected by your employer’s liability insurance. For instance, if an employee accepted a position outside of the United States or Canada and was wounded while on the job, the insurance would not cover any losses.

Employer’s liability insurance cost

Employer liability insurance is crucial coverage for every business. As a business owner, you understand the value of your employees. Employees are frequently your most valuable assets due to their skills and knowledge. That is why you must ensure that they are protected if they are wounded, injured, or become ill while doing their duties. Workers’ compensation insurance is designed to cover their medical costs. However, if an employee decides to make a claim, such coverage may not be enough to defend your company. In most workers’ compensation systems, there are a few exceptions. Employer’s liability insurance serves as an interim measure to fill those gaps.

Employers Liability Insurance is often included in workers’ compensation insurance. Workers’ compensation insurance rates vary depending on a variety of criteria. Though most small businesses pay less than $1,000 per year for workers’ compensation, most of the ultimate cost will be determined by the risk your firm faces.

Workers’ compensation insurance premiums are determined by a variety of factors, including:

  • The business’s location
  • Employees’ number
  • The industry categorization code determines the nature of the business.
  • Payroll amount in dollars
  • History of Claims

Employer’s liability insurance can cost anywhere from $170 to $250 per month, depending on the provider, coverage, limitations, location, payroll, industry, risks, and claims history. The number of workers you have and the dangers they face at work are the two most important elements that influence the cost of your insurance. The greatest strategies to save money on your coverage include a lower salary, a safe work environment, and a low history of workers’ compensation claims.

Employer’s liability insurance benefits

Employers liability insurance safeguards a company against claims filed by employees for diseases or injuries that arise on the job.

When an accident occurs at work and an employee is wounded or falls unwell, your company is legally bound to offer financial assistance to the employee until he or she can return to work.

Coverage for unpaid wages and medical expenses

Workers’ compensation may compensate for any lost earnings or medical expenses incurred while the employee is out of work, but it may not cover all sorts of losses. This is where the role of the policy starts.

Legal fees insurance

If an employee sues your company for losses not covered by workers’ compensation, your employers’ liability insurance may pay part of these costs. Insurance will usually cover the expense of a compensation claim brought against your company, as well as any legal bills that may accrue.

Is employer’s liability the same as workers’ compensation insurance?

Workers’ compensation insurance is designed to cover an employee’s medical expenditures as well as lost pay due to a work-related illness or accident. Employers Liability Insurance, on the other hand, is designed to shield your company from liability if an injured employee sues for further damages.

To get workers’ compensation payments, an employee must generally agree not to sue his or her employer for the accident or sickness. Regardless of whether or not the employer is at fault for the accident or sickness, the employee will get workers’ compensation payments. Employers Liability Insurance will cover defense expenses as well as any judgments or settlements against the employer if an injured employee sues the business for damages linked to the injury that workers’ compensation does not cover.

Difference between employers’ liability and employment practices liability?

While it’s common to mix the two, employment practices liability insurance protects your company against a variety of claims brought by employees. Employers Liability Insurance covers lawsuits brought by employees who have been injured or become ill while on the job, whereas employment practices liability insurance covers lawsuits brought by employees alleging wrongful termination, discrimination, harassment, retaliation, and other wrongdoing related to their employment.

Who needs employers’ liability insurance?

In 2018, the United States Bureau of Labor Statistics reported 2.8 million nonfatal work-related injuries and illnesses. Employee injuries can occur in any business, but the manufacturing, transportation, service, installation, repair, and construction industries are among the most prevalent. Employee injuries can result from a variety of tasks, including lifting heavy goods, slips and falls, repetitive actions, or accidents involving machinery.

Regardless of how an injury happens, it is critical to safeguard your company from the consequences. Employers are obliged to have workers’ compensation insurance in most states if they have at least one employee. Employers’ liability insurance is usually included as a second portion of workers’ compensation insurance. Third-party lawsuits, dual-capacity cases, and loss of consortium are common claims covered by this insurance. Some insurance will also cover subsequent body damage, which can happen when a family member, such as a spouse, has injuries related to the initial employee accident.

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Conclusion

Employees who are already protected by workers’ compensation can sue your company for injuries or illnesses they suffered on the job in a variety of ways. Not only the employee, but also their spouses, wives, and other family members, can file a claim for damages. Employers Liability Insurance will pay for defense costs, court fees, verdicts, and settlements in a variety of claims, including third-party overreach, loss of consortium, dual capacity, and consequential physical damage. Employers Liability Insurance is a crucial component of workers’ compensation that safeguards firms from the financial effects of employee accidents and illnesses.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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