If an employee suffers a work-related injury or illness, your business could be sued. Outside of workers’ compensation protections, an employee could pursue additional damages. Employers Liability Insurance protects your business from this risk.

What is Employers Liability Insurance?

Employers Liability Insurance covers your business if an employee sues your company for a work-related injury or illness, outside of what is covered under workers’ compensation insurance. Employers Liability coverage is typically sold as part of a worker’s comp policy and is often referred to as “Part 2” of workers’ compensation.

The main purpose of workers’ compensation insurance (Part 1) is to make sure an employee who is injured or gets sick on the job is covered for medical expenses and lost wages. Employers Liability Insurance is meant to protect your business from liability if an injured employee sues for additional damages.

As we will explain in this article, there are a number of different types of lawsuits that an employee or a family member of an employee can bring against your business after a job-related injury or illness that worker’s compensation and general liability insurance will not cover.

Why do I need Employers Liability Insurance?

The National Safety Council reports that approximately 4.6 million workers are injured on the job every year. Some of the most common activities that cause injury are lifting heavy objects, carrying out repetitive motions, getting struck by a piece of equipment, and slips and falls. Although the five industries that are most likely to see injured workers are service, transportation, manufacturing, installation/repair, and construction, workers in any type of job can get injured or become ill.

Examples:

• A secretary develops carpal tunnel syndrome from repetitive typing
• A warehouse attendant is hit by a pallet of goods dropped by a forklift
• A technician at a chemical plant gets lung cancer after accidentally inhaling toxic fumes over a period of time
• An assembly line worker at an automotive factory becomes deaf over time because of industrial noise

Most states require employers with at least one employee to carry workers’ compensation, which typically includes Employers Liability Insurance. While worker’s compensation (Part 1) covers medical expenses, lost wages, rehabilitation costs, death benefits, and funeral expenses, Employers Liability Insurance helps to cover other damages that an employee who has fallen ill or been injured on the job might sue for.

What does Employers Liability Insurance cover?

When an employee agrees to receive workers’ compensation benefits, the employee is not legally permitted to sue the employer for additional compensation in most cases. However, there are some exceptions. Employees falling under these categories can sue for additional damages, and legal costs, judgments, and settlements would be covered by Employers Liability Insurance:

• Employees who have opted out of workers’ compensation benefits. While most states require employers to obtain workers’ compensation for their employees, a handful of states allow workers to opt out. These employees would be allowed to sue their employer if they got injured on the job.
• Employees in some industries not covered by workers’ compensation. This may include seasonal workers, agricultural workers, domestic workers, railroad workers, and longshoremen.
• Employees who have fallen ill with a disease that may be unrelated to their employment. Workers’ compensation only covers “occupational diseases” that arise out of the insured person’s employment. Many other diseases such as cancer or the flu may be considered “ordinary diseases of life” that were not caused by the employee’s work. If the disease is not covered by workers’ compensation, the employee can sue the employer for damages.

Employers Liability Insurance also covers the following types of lawsuits:

Third-Party-Over Action

An employee who has been injured or fallen ill on the job generally can’t sue their employer if they have agreed to workers’ compensation benefits, but they can potentially sue a liable third party, and that third party may then, in turn, sue the employer, depending on the employer’s contractual obligations. For example, if the employer has signed a contract with the third party that indemnifies and holds harmless the third party from lawsuits, then the third party can bring a “third party over action” (also called “third party action over”) lawsuit against the employer.

• Example: A general contractor signs a contract with the property owner of a construction project that indemnifies the owner from liabilities that may arise from the contractor’s work on the project. An employee of a contracting firm gets severely injured when a steel beam from the ceiling of the building site falls on him. Although workers’ compensation covers most of his medical bills and lost wages from missing work, the employee also sues the property owner for neglecting to maintain adequate safety standards on the construction site. Because of the contract signed with the contracting firm that indemnifies him from liability arising from the contractor’s work on the project, the property owner then files a lawsuit against the contracting firm to recover the losses from the employee’s lawsuit. Employers Liability Insurance will cover the general contractor’s legal defense and any judgments and settlements from the property owner’s lawsuit.

Loss of Consortium

If an employee has been seriously injured or killed on the job, the spouse or family member can sue the employer for negligence or an intentional act that caused the injury. What has the spouse or family member lost from the death or injury of the employee that they could make a claim for under a “Loss of Consortium” lawsuit? It wouldn’t be any tangible economic losses, but things that money would only be a rough substitute for such as love, companionship, and reputation, and a few other benefits of having that person in their lives.

• Example: A long haul trucker has been killed in an accident on the highway due to a malfunctioning brake on the truck he drives. The wife of the trucker files a “Loss of Consortium” lawsuit against the trucking company for neglecting to ensure proper maintenance for their fleet and causing the death of her husband, who provided her love, affection, comfort, and guidance. She seeks damages for her pain and suffering and mental anguish resulting from the loss of her husband. The trucking company’s Employers Liability Insurance pays the legal defense costs of the lawsuit and the ultimate $1 million settlement.

Dual-Capacity

This type of lawsuit can be filed when an employee has more than one relationship with an employer, and it typically applies to manufacturers. An employee of a manufacturing company who has been injured can collect workers’ compensation benefits and file a lawsuit against the employer in its capacity as a manufacturer, not as the employer.

• Example: At an automotive factory, an electrical short on a finished car causes a fire that injures an employee. Because the employee ends up collecting workers’ compensation, he is not permitted to sue the company as his employer, but he can still sue the company in its capacity as a manufacturer. The employee sues the manufacturer for product liability, claiming that the defective product—the automobile—caused his injury. The manufacturer’s Employers Liability Insurance will cover the costs of defense and any judgments and settlements.

Consequential Body Injury

A family member of the injured employee can sue the employer for injuries he or she sustained as a consequence of the employee’s injury.

• Example: A warehouse manager becomes paralyzed after getting injured by a forklift in the warehouse facility. The wife of the warehouse manager suffers from a heart attack after learning that her husband would no longer be able to walk. She then sues the warehouse owner for the medical costs associated with the heart attack. While workers’ compensation pays for the warehouse employee’s medical expenses, Employers Liability Insurance pays for the defense costs of the consequential bodily injury lawsuit and the settlement.

What are the key exclusions to Employers Liability Insurance?

Intentional acts

• Example: You throw a paperweight at an employee who has made a mistake in his work, and he suffers a concussion.

Liabilities you assume under contract

• Example: Your general contracting firm indemnifies the building owner from liability should someone sustain an injury in the building because of your firm’s negligent work.

Injuries of workers who are illegally employed

• Example: You hire an immigrant who is not legally permitted to work in the United States as a cook in your restaurant. He suffers third-degree burns after an accident in the kitchen.

Injuries to workers covered under certain federal laws

• Examples:
  • Longshore and Harbor Workers’ Compensation Act
  • Federal Coal Mine Health and Safety Act
  • Defense Base Act

Employees outside of the United States or Canada

• Example: You recently open up an office in Bangkok, Thailand, and the general manager of that office is injured on the job.

Independent contractors

• Example: You retain a consultant as an independent contractor to perform some temporary accounting work and he gets injured operating a paper shredder.

What are the limits of Employers Liability Insurance?

Employers Liability Insurance typically places limits on what the insurer will pay out per employee, per injury, and per illness. For example, it could be a $250,000 limit per employee and a $100,000 per incident. However, note that you can purchase commercial umbrella insurance to provide additional coverage for Employers Liability if the limits have been exhausted.

How much does Employers Liability Insurance cost?

Employers Liability Insurance is typically included as part of a workers’ compensation policy. The premiums on workers’ compensation insurance vary depending on a number of factors. Though most small businesses pay less than $1,000 annually for workers’ comp, much of the final pricing will depend on your company’s risk to insure.

Pricing for workers’ compensation insurance is based upon a number of factors, including:

• 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

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance agent or insurance company. Below we’ve highlighted a few of our trusted partners who offer workers’ compensation insurance:

Provider	Workers' Compensation	General Liability	Professional Liability
CoverageSmith	??	??	??
CoverWallet	??	??	??
Embroker	??	??	??
Hiscox	??	??	??

Is Employers Liability the same as workers’ compensation insurance?

Workers’ compensation insurance is intended to cover the medical expenses and lost wages of an employee who suffers a work-related illness or injury. Employers Liability Insurance, however, is meant to protect your business from liability in the case that an injured employee sues for additional damages.

Generally, to receive workers’ compensation benefits, an employee must agree to not sue an employer for the injury or illness. The employee will receive the workers’ compensation benefits regardless of whether the employer is actually at fault for the injury or illness. If an injured employee sues the employer for damages related to the injury that workers’ compensation does not cover, Employers Liability Insurance will cover the defense costs and any judgments or settlements against the employer.

What is the difference between Employers Liability and employment practices liability?

While it’s certainly easy to confuse the two, employment practices liability insurance provides financial protection for your business against different kinds of lawsuits by employees. Employers Liability Insurance covers lawsuits filed by employees who have been injured or fallen ill on the job, while employment practices liability insurance covers lawsuits by employees accusing your business of wrongful treatment such as wrongful termination, discrimination, harassment, retaliation, and other wrongdoing related to their employment.

Final Word

There are a number of ways that employees who are already covered by workers’ compensation can sue your business for injuries or illnesses sustained on the job. At times, it is not only the employee who can seek damages, but also their husbands, wives, and other family members. Employers Liability Insurance will cover the defense costs, court costs, judgments, and settlements for various costs from employee lawsuits including third party over action, loss of consortium, dual capacity, and consequential bodily injury. Employers Liability Insurance is an essential part of workers’ compensation that protects businesses from the consequences of employee injuries and illnesses.