Workers’ compensation insurance policies typically include employers liability insurance, which protects employers if an employee is injured on the job and decides to sue their employer for damages beyond what is already covered by workers’ compensation. Some states, however, do not include employers liability insurance as part of the workers’ compensation policy. This can create liability risks for employers working in these states, and it can expose them to employee injury lawsuits and devastating financial loss. In order to protect against this gap in coverage, businesses should consider Stop Gap Coverage.

What is Stop Gap Coverage?

Stop Gap Coverage, also called a Stop Gap Endorsement, protects employers from litigation by employees who fall ill or are injured on the job. In most states, this coverage is provided through employers liability insurance, which comes as part of a workers’ compensation policy.

In certain states called monopolistic states, however, or states where the workers’ compensation fund is owned and distributed by the government, employers liability insurance is not included in the worker’s compensation policy. In order to secure employers liability coverage, businesses in these states need Stop Gap Coverage, which commonly comes as an endorsement on a general liability policy.

What are the monopolistic states?

A monopolistic state is a state where workers’ compensation insurance is run through a state-owned fund that the state has a monopoly on. This means that the state requires businesses to purchase workers’ compensation insurance exclusively through the state’s designated workers’ compensation state fund. Employers do not have the option of purchasing workers’ compensation insurance through the private market.

There are currently four monopolistic states:

• North Dakota
• Ohio
• Washington
• Wyoming

Employers in these states have a gap in liability coverage, as employers liability coverage is not included in a monopolistic state’s workers’ compensation policy. Employers in monopolist states will need to purchase Stop Gap Coverage to protect themselves from employee injury lawsuits.

Example:

• Two women open an electronic retailing business in Washington and purchase workers’ compensation insurance coverage through the state. They learn that employers liability insurance is not included with this purchase because Washington is a monopolistic state. As a result, they also add Stop Gap Coverage to their commercial general liability policy as an endorsement to protect themselves from employee injury lawsuits.

What does Stop Gap Coverage cover?

Stop Gap Coverage covers the costs associated with lawsuits brought on by employees who fall ill or are injured on the job. While workers’ compensation insurance covers lost wages and medical expenses due to employee injury, Stop Gap Coverage protects employers if the injured employee sues for additional damages beyond what is already covered by workers’ compensation.

Stop Gap Coverage can be used to defray the costs associated with attorney fees, defense and court costs, judgments, and settlements paid to the injured employee.

Stop Gap Coverage essentially plays the role of employers liability insurance in monopolistic states, where employers liability insurance is not included in the state’s workers’ compensation coverage.

Situations where an injured employee could sue for additional damages include:

• If the employee has opted out of workers’ compensation benefits
• If your business operates in an industry where employees are not protected by workers’ compensation (e.g. seasonal workers, agricultural workers, domestic workers, railroad workers)
• If the employee has developed an illness unrelated to the employment
• If the employer was negligent and failed to provide a safe work environment

Example:

• An employee working at a car wash in Ohio slips and falls, injuring his back and hands. He opted out of workers’ compensation benefits a while ago and is not receiving workers’ compensation payments from the car wash dealership, so he is free to sue them if he so wishes. The ownership purchased Stop Gap Coverage several years ago to protect against employee injury, however, and is able to protect against a lawsuit brought on by the injured employee.

In addition to injuries not protected by workers’ compensation, Stop Gap Coverage also protects against the following types of lawsuits:

Third-Party-Over Action: An injured employee sues a liable third party rather than the employer because the employee is receiving workers’ compensation benefits from the employer. The third party is able to pass on liability to the employer as a result of a prior contractual agreement.

• Example: Two furniture movers are hired as contractors by a moving company, and the moving company rents a truck from a large truck manufacturer for the movers to use on the job. While working, the lift on the truck malfunctions, causing a heavy desk to fall; one of the contracted movers is injured by the incident. The injured contractor is covered by the moving company’s workers’ compensation policy and will receive benefits for any medical expenses or lost wages. The contractor, however, opts to sue the truck manufacturing company for additional damages. Because the truck manufacturer had previously signed a contract with the moving company that indemnifies them from liability arising from the moving company’s work, the manufacturer passes the liability on to the moving company.

Loss of Consortium: An employee is seriously injured or killed on the job. The employee’s spouse or a family member can sue for the loss or deprivation of benefits incurred by the incident. These benefits are typically non-physical, as consortium refers to the relationship between two married people.

• Example: A senior electrical utility employee is killed when a spark from a malfunctioning plug goes off, setting the building on fire. The employee’s elderly wife, who is already retired, files a loss of consortium lawsuit against the utility company for her pain and suffering due to the loss of her husband, who provided her love, warmth, and affection for many years.

Dual-capacity: An injured employee has a dual-capacity relationship with an employer (e.g. a manufacturing company has a relationship with an employee as both the employer and a manufacturer), so the employee sues the employer in its manufacturing role for benefits.

• Example: An employee working at battery manufacturing plant is severely injured when a finished battery explodes. The employee cannot sue the manufacturing plant in its employer role because he receives workers’ compensation benefits from them, so he files a product liability lawsuit against the manufacturer, claiming the defective battery caused his injury.

Consequential Bodily Injury: A family member of an injured employee sues the employer for bodily harm incurred as a result of the employee’s injury. This could be injury as the result of added stress, such as a stroke or heart attack.

• Example: A factory employee develops lung cancer from inhaling toxic fumes over a number of years and is no longer able to support his family. When his wife learns he has less than six months to live, the overwhelming stress of losing her husband causes a heart attack. She survives the incident but sues the factory owner for the medical expenses incurred due to the heart attack.

Is Stop Gap Coverage required?

You need only consider Stop Gap Coverage if your business operates in any of the four monopolistic states: North Dakota, Ohio, Washington, or Wyoming. While not required by law, Stop Gap Coverage provides important protection from employee injury lawsuits—coverage which is typically included with workers’ compensation insurance, except in monopolistic states.

Other reasons to purchase Stop Gap Coverage include:

• You own a workplace or work environment where employees can be potentially injured or killed by hazards and risks around the area.
• Your business operates in an industry with a higher-than-average risk of injury or death.
• Your business is a small or midsize business and may go out of business if sued.
• Your business operates in multiple states, one or more of which are monopolistic.
• Your business has a history of claims and litigation by injured employees or their family members.

Self-insurance is a possibility, but this option is only allowed in Ohio and Washington. In these two states, you will also need to prove you qualify as a self-insurer by submitting an application to the state and providing documents and financial statements that show you have the capacity to self-insure.

How do I purchase Stop Gap Coverage?

Stop Gap Coverage can be purchased through a private insurer and added on as an endorsement to a pre-existing commercial general liability policy if your business operates exclusively in a monopolistic state, or it can be added on to a workers’ compensation policy if your business operates in both monopolistic and non-monopolistic states. Stop Gap Coverage can be purchased as a standalone policy.

Below we’ve highlighted a few of our trusted partners who offer both general liability insurance and workers’ compensation insurance:

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

It’s important to note that Stop Gap Coverage is not a standardized policy, so make sure you read the policy carefully to ensure you will receive the coverage you need.

What are the key exclusions of Stop Gap Coverage?

Stop Gap Coverage generally cannot be applied to the following situations:

• Intentional torts, or bodily injuries purposely caused by the employer
• Assessments, fines, and penalties imposed upon the employer by regulatory agencies
• Instances of employee injury or illness when an employee has been employed in violation of the law
• Penalties for non-compliant employers who have failed to abide by workers’ compensation laws
• Contractual liabilities which were assumed in agreements and contracts by the employer
• Damages of an emotional nature caused by workplace or managerial action such as criticism, demotion, evaluation, harassment, discrimination, and termination
• Incidents involving the crew members of a vessel or aircraft
• Punitive damages ordered by the court to the employer

Final Word

If you plan on opening a business or already own a business in a monopolistic state, you are not protected from lawsuits by injured employees solely through the purchase of workers’ compensation insurance. This is because the workers’ compensation fund in monopolistic states is owned and distributed by the government, and employers are not inherently protected from liability with the purchase of workers’ compensation. To cover your liability exposure and ensure you have the funds to stay afloat should an employee experience injury and sue your company, purchase Stop Gap Coverage to protect your business from financial loss.