Employer's Liability Insurance

What is 'Employer's Liability Insurance'

A product for employers that protects them from major financial loss if a worker experiences a job-related injury or illness that workers compensation doesn’t cover. Employer's liability insurance can be packaged with workers compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses and deaths that aren’t covered under workers compensation. Employer's liability insurance is also called “part 2” of a workers’ compensation policy.

BREAKING DOWN 'Employer's Liability Insurance'

Most employees are covered by workers compensation laws that are established at the state level (one exception is federal employees). States require most employers to carry workers compensation insurance, which provides some level of medical expenses and lost wages to employees or their beneficiaries when an employee is injured, sickened or killed by job-related causes. There is no need for the employee to sue the employer to establish fault in order to qualify for workers compensation. If an employee doesn’t feel that workers compensation adequately covers their loss — perhaps because they feel their employer’s negligence caused their injury — they may decide to sue their employer, making punitive claims for pain and suffering. Employer’s liability coverage is designed to cover these types of expenses, which aren’t covered by workers compensation or by a general liability insurance policy. It can also help limit an employer’s losses in that as a condition of receiving a payout under the policy, the affected employee will be required to release the employer and the insurance company from further liability.

If an employer intentionally aggravates an employee’s work-related injury or illness, employer’s liability insurance will not cover the employer’s financial obligations to the employee, and the employer will have to pay the employee out of its own pocket if the employee wins in court. Employer's liability insurance policies also place limits on what they will pay out per employee, per injury and per illness. These limits might be as low as $100,000 per employee, $100,000 per incident and $500,000 per policy. In addition, this insurance does not cover independent contractors.