Understanding Employers’ Liability Insurance
Employers’ liability insurance is a crucial policy that safeguards companies in cases where employees suffer work-related injuries or illnesses not covered by workers’ compensation. This type of liability insurance can be paired with workers’ compensation to provide enhanced protection against expenses resulting from workplace incidents.
It’s essential to note that employers’ liability insurance does not extend to legal costs incurred due to employee lawsuits involving discrimination, sexual harassment, or wrongful termination. For coverage in such instances, a separate policy known as employment practices liability insurance (EPLI) is necessary.
Functionality of Employers’ Liability Insurance
Workers’ compensation laws established at the state level typically cover most private-sector employees, while federal employees are under federal workers’ compensation laws. Employers are generally obligated to carry workers’ compensation insurance as mandated by states.
Workers’ compensation caters to medical expenses and lost wages for employees or their dependents in case of job-related injuries, illnesses, or fatalities, without the need for the employee to prove employer fault. However, if an employee deems workers’ compensation insufficient or attributes their injury to employer negligence, they may file a lawsuit seeking additional damages, where employers’ liability insurance steps in to provide extra financial protection.
Employers often acquire employers’ liability insurance alongside workers’ compensation, with employers’ liability coverage representing part 2 of the policy. While workers’ compensation deals with medical expenses and lost wages, employers’ liability insurance shields the business from claims of additional damages and compensation.
Employers’ liability insurance comes with limits on payouts per employee, per injury, and overall, typically ranging from $100,000 per worker, $100,000 per incident, to $500,000 per policy. This coverage pertains only to full- or part-time employees, excluding independent contractors and those working outside of the U.S. or Canada.
Coverage Provided by Employers’ Liability Insurance
Employers’ liability insurance extends to various types of claims, including third-party lawsuits, loss of consortium lawsuits, consequential bodily injury lawsuits, and dual-capacity lawsuits. These coverages help businesses manage legal expenses and complexities that may arise from employee lawsuits.
Triggered by situations beyond workers’ compensation statutes or general liability insurance, employers’ liability protection is vital for mitigating financial losses. In instances where payouts are made under employers’ liability insurance, businesses can safeguard themselves by including clauses that release them and their insurers from further responsibility concerning the incident.
While employers’ liability insurance enforces limits on payouts, exclusions such as criminal acts, fraud, and illegal profit render certain situations uncovered by this policy. Notably, this insurance does not extend to independent contractors or employees based outside of the U.S. or Canada.
Employers’ Liability Insurance Limits
Employers’ liability insurance has limitations, excluding scenarios like criminal acts, fraud, or violations of the law, as well as claims arising from specific corporate actions. Additionally, deliberate employer aggravation of an employee’s work-related condition leads to liability falling solely on the employer.
While punitive damages might not always be covered by employers’ liability insurance, certain policies encompass such costs through a “most-favored jurisdiction” clause, aligning coverage with state laws permitting compensation for punitive damages.
Employment Practices Liability Insurance (EPLI)
It’s crucial to differentiate employers’ liability insurance and workers’ compensation from employment practices liability insurance (EPLI) to address employee claims related to discrimination, harassment, or wrongful termination. EPLI is essential in safeguarding businesses against such lawsuits.
How Employers’ Liability Insurance Differs From General Liability
Unlike general liability insurance, which protects businesses from external disputes like customer injuries or negligence, employers’ liability insurance focuses on legal claims brought by injured employees.
What Employers’ Liability Insurance Does Not Cover
Exclusions from employers’ liability insurance encompass criminal acts, fraud, illegal profit, law violations, and claims arising from organizational changes like layoffs or mergers.
Do You Need EPLI and ELI?
Employment practices liability insurance (EPLI) supplements employers’ liability insurance (ELI) by addressing employee lawsuits involving discrimination, harassment, or wrongful termination, which are not within the scope of employers’ liability insurance.
The Bottom Line
In conclusion, employers’ liability insurance acts as a safety net for companies facing legal claims from employees due to job-related injuries or illnesses. It serves as a critical supplement to workers’ compensation, protecting businesses from potential financial losses. Understanding coverage limits, exclusions, and the need for additional policies like EPLI is crucial for comprehensive risk management in the workplace.