What is Employer's Liability Insurance

Employer's liability insurance protects employers from financial loss if a worker has a job-related injury or illness not covered by workers' compensation. 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 not 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 established at the state level (federal employees work under federal workers' compensation laws). States require most employers to carry workers' compensation insurance, which provides some level of coverage for medical expenses and lost wages experienced by 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. However, if an employee feels that workers' compensation doesn't adequately covers their loss — perhaps because they feel their employer’s negligence caused their injury — they may decide to sue their employer for punitive damages, such as pain and suffering. Employer’s liability coverage is designed to cover these types of expenses, which aren’t covered by workers' compensation or by general liability insurance. In the event of a payout under an employer's liability insurance policy, an employer can help limit their losses by including, as a condition of the payout, a clause that releases the employer and their insurance company from further liability related to the incident in question.

Limits of Employer's Liability Insurance Policies

Even with adequate employer's liability insurance coverage, claims can get very complicated and costly for employers, especially in the case of a lawsuit. Sometimes the cost of defending against such a suit itself can be major financial loss. For this reason, many organizations choose to carry employment practices liability insurance (EPLI) to help cover the costs of defending the organization from a lawsuit. Whether the claims are legitimate or not, many businesses simply can’t accept that level of risk, so they insure against it.

EPLI covers employers against claims made by employees alleging discrimination (.e.g., based on sex, race, age or disability), wrongful termination, harassment and other employment-related issues, such as failure to promote. 

Furthermore, 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.