Employers’ Liability Insurance

What it is

Employers’ liability insurance protects businesses from legal claims made by employees for job-related injuries, illnesses, or deaths that fall outside standard workers’ compensation coverage. It is typically sold together with workers’ compensation (often called “Part 2” of a workers’ comp policy) and helps pay damages and legal defense costs when injured workers sue their employer.

How it works

• Workers’ compensation provides no-fault benefits (medical costs, partial lost wages, survivor benefits) without requiring the employee to prove employer negligence.
• If an employee believes workers’ compensation is insufficient—or seeks punitive or additional damages for employer negligence—they may sue. Employers’ liability insurance covers many such suits.
• Employers’ liability commonly sits alongside workers’ compensation to create broader protection against workplace injury claims.

What it typically covers

Employers’ liability insurance can cover:
– Legal defense costs and court-awarded damages or settlements when an employee sues for job-related injury or illness beyond workers’ comp.
– Third-party claims where another party sues the employer after an employee incident (for example, a manufacturer sues the employer after an employee is injured by equipment).
– Loss of consortium claims by family members of a deceased or disabled employee.
– Consequential bodily injury claims by non-employees harmed as a result of an employee’s injury (for example, a spouse who becomes ill from caregiving stress).
– Dual-capacity claims when an employer is sued both as an employer and in another role (e.g., premises owner or product maker).

Note: Employers often include a policy clause that, upon payout, releases the employer and insurer from further liability for that claim.

Typical limits and scope

• Policies usually impose limits per employee, per incident, and per policy year (examples commonly seen are $100,000 per employee, $100,000 per incident, $500,000 aggregate, though limits vary widely).
• Coverage generally applies only to employees (full- or part-time), not to independent contractors or workers located outside the geographic scope specified by the policy (commonly U.S. and Canada).

Common exclusions

Employers’ liability insurance does not cover:
– Criminal acts, intentional harm, fraud, or illegal profit by the employer.
– Claims arising from layoffs, downsizing, restructurings, mergers, or acquisitions.
– Some policies and state laws exclude punitive damages, although insurers may include “most-favored jurisdiction” wording to apply more favorable law where permitted.
– Employment-related claims such as discrimination, sexual harassment, wrongful termination, slander, or libel—these require a separate employment practices liability insurance (EPLI) policy.

Employers’ Liability vs. General Liability vs. EPLI

• General liability insurance protects a business from claims by third parties (customers, visitors) for bodily injury or property damage; it does not cover employee injury suits.
• Employers’ liability specifically addresses legal claims by employees for work-related injury or illness beyond workers’ compensation.
• EPLI (Employment Practices Liability Insurance) is separate and is needed to cover workplace lawsuits alleging discrimination, harassment, wrongful termination, or related employment practices claims.

When to consider it

• Employers’ liability is essential for most businesses that have employees because it fills gaps beyond workers’ compensation and helps manage the financial risk of employee lawsuits.
• Consider higher limits or additional coverages if your business has higher-risk operations, a large workforce, multi-state exposure, or if your operations expose you to potential third-party or dual-capacity claims.

Bottom line

Employers’ liability insurance complements workers’ compensation by covering many employee lawsuits and related legal costs that workers’ comp does not. It does not replace EPLI or general liability; together, these policies form a more complete risk-management strategy for workplace injury and employment-related claims.