Insurance has always been a key player for businesses when it comes to maximum protection against unforeseen circumstances. Modern businesses must protect themselves against legal and financial risks that may arise in the course of their daily operations. One possible way of mitigating these risks is by buying employer liability insurance coverage. It serves as a hedge against potential legal and financial pitfalls involving employees. Although it’s not mandatory, like workers’ compensation insurance, it’s still relevant. This is because it comes into play when workers’ liability insurance is insufficient. Today, our purpose is simply to explain what employer liability insurance is, what it covers, and everything you need to know about it.
Employer Liability Insurance
Employer liability insurance is a policy that assists with the financial obligation that business owners face in the event of a legal dispute arising from an employee’s injury or illness that occurred during their employment. Simply put, an employee who encountered an accident or sustained injury in the course of work may likely sue the boss if he feels he wasn’t compensated enough. In the absence of the employer’s liability insurance, the business owner will have to personally bear the financial burden of the legal expenses, a circumstance that can potentially incur significant costs. According to The Hartford, this type of coverage is included as a component of a workers’ compensation insurance policy. However, in jurisdictions characterized by monopolistic structures, business owners may have to buy it as a single policy. Businesses can also by it as an add-on to workers’ compensation insurance.
Although this policy provides coverage for employees, like other insurance coverage, it has limitations too. Employer liability insurance does not provide coverage for legal expenses incurred as a result of employee lawsuits alleging acts of discrimination, sexual harassment, or wrongful termination. To address these circumstances, an employer would be required to procure a distinct form of coverage known as employment practices liability insurance (EPLI).
How Does Employer Liability Insurance Work?
According to Investopedia, most states mandate employers to buy workers’ compensation insurance. Private-sector employees are covered under workers’ compensation laws enacted at the state level (government employees operate under federal workers’ compensation rules). Worker’s compensation is only one part of the coin, while employer’s liability is the second part.
The first part, which is workers’ compensation insurance, offers a certain degree of financial protection for medical costs and income loss incurred by employees or their dependents in cases where the employee sustains an injury, falls ill, or experiences fatality due to work-related circumstances.
This simply means that if any of these circumstances occur, the employee will be compensated without having to sue the employer for benefits. However, if an employee thinks that the benefits they receive from workers’ compensation are not enough to make up for their losses, possibly because they think that their employer’s actions led to their accident, they may decide to sue their employer for punitive damages, such as but not limited to pain and suffering.
Should this happen, then the employer’s liability insurance will come into play. The purpose of this insurance policy is to cover expenses that general liability insurance or workers’ compensation laws do not cover. In summary, it offers supplementary safeguards to mitigate potential financial losses for the company or enterprise.
Employer Liability Insurance Coverage
Employer’s liability insurance provides coverage for four distinct categories of claims: Each of them is explained below:
#1. Loss of Consortium Lawsuits
In cases where an employee has a severe illness, sustains significant bodily harm, or succumbs to a work-related accident, the family members of the employee may pursue punitive damages from the employer.
#2. Third-party-over Action Lawsuits
third-party overreaction lawsuits happen when an employee files a legal claim against a third party following a workplace accident, which prompts the third party to file a counterclaim against the employer.
#3. Consequential Bodily Injury Lawsuits
This situation pertains to the submission of a claim by an individual who is not employed by the organization but is affected by an employee’s accident or illness that occurred in the course of their employment. An example of such an individual could be a family member who experiences health issues as a result of providing care for an injured worker.
#4. Dual-capacity Lawsuits
Dual capacity lawsuits occur when legal action is initiated by an employee who sustains injuries while using a product manufactured by their employer. The lawsuit is filed against the corporation in its dual roles as both an employer and a manufacturer.
Employer Liability Insurance Cost
The costs of employer liability insurance vary from one insurer to the next. The cause of the varying cost depends on the insurance provider, policy options, limits, geographical area, payroll size, industry type, level of risk, and past claims history. But in general, the cost of your employer’s liability insurance is between $170 and $250 per month. The primary determinants of policy pricing are the number of employees and the inherent hazards associated with their occupational activities. The most effective strategy for cost reduction in insurance policies is implementing reduced salaries. It also extends to ensuring a safe work environment and maintaining a minimal record of workers’ compensation claims.
Employers’ liability insurance Limits
Like every other insurance policy, there are always exclusions. What this simply means is that your employer’s liability insurance doesn’t cover certain damages or situations. Criminal or dishonest behavior, illegal gains or advantages, willful violations of the law, and claims arising from layoffs, downsizing, factory closings, strikes, mergers, or acquisitions are some of the things that are not covered.
If an employer deliberately exacerbates a work-related injury or illness suffered by an employee, that’s an intentional act, and as a result, the employer will bear the financial consequences. In other words, employers’ liability insurance will not provide coverage for the employer’s financial responsibilities towards the employee. Consequently, if the employee prevails in a court of law, the employer will be obligated to personally bear the financial burden.
Moreover, a considerable number of states have implemented regulations that prohibit insurance coverage from being extended to punitive damages. Nevertheless, it is worth noting that numerous firms’ liability insurance policies effectively address these expenses by incorporating a “most-favored jurisdiction” clause. That part of the clause says that the policy’s coverage will be based on state law, which lets employers’ liability insurance pay for punitive damages. This jurisdiction demonstrates a preference for such damages.
Is Employer Liability Insurance the Same as Workers’ Compensation Insurance?
No, it’s not. Workers’ compensation is not the same as the employer’s liability insurance. Although most employers must obtain workers’ compensation insurance by law, employer liability insurance is more crucial as the second layer of defense against unforeseen events involving employees. While workers’ compensation insurance assists employees in paying their medical bills and expenses, employer liability insurance protects employers against legal expenses.
Employer’s Liability vs. Employment Practices Liability Insurance (EPLI)
Employer liability insurance (EPLI) is not the same as employer liability insurance. EPLI protects the owner of a business from employment-related lawsuits such as discrimination, wrongful termination, and harassment. On the other hand, employer liability insurance protects a business owner from lawsuits and claims resulting from an employee’s injury or illness as a result of their work.
What are the Benefits and Risks of Employer Liability Insurance?
Generally, buying employer liability insurance is more expensive than workers’ compensation insurance. However, the advantages significantly surpass the associated costs. The following are some of the benefits of buying employer liability insurance:
- It gives you the legal authorization to carry on with your company’s operations without fear that an employee will sustain injury.
- It saves you the stress of possible lawsuits. Not having employer liability insurance may result in lawsuits and such activities can have detrimental effects on a corporation, even with a successful outcome. The financial burden of compensating for damages in the event of a loss has the potential to deplete one’s revenues and consequently undermine the viability of the organization. Employer’s liability insurance provides coverage for all legal expenses.
- Having the assurance that your organization is adequately protected in the event of unforeseen circumstances enables you to concentrate on your professional activities without excessive worry about potential adversities.
Employers Liability Insurance vs General Liability
Employers liability insurance falls under workers’ compensation insurance, whereas general liability insurance is a separate policy. If an employee suffers a work-related injury or illness, the employer’s liability insurance protects your company’s assets. Workers’ compensation pays for the injured claimant’s recovery, while this coverage focuses on keeping your business safe and free of superfluous liabilities.
General liability, on the other hand, addresses the various hazards associated with business operations. It safeguards you against third-party claims involving corporeal injuries, property damage, and advertising injuries resulting from your products or services.
In summary, employer liability insurance covers employee injury claims while general liability includes all lawsuits filed by third parties who visit or patronize your business.
What is Employer Liability Called?
Employer’s liability insurance is also called stop-gap coverage.”
Why do I need employment practices liability insurance?
You need Employment Practices Liability Insurance (EPLI) because it covers legal costs and damages for several employment-related claims, such as claims of wrongful termination, discrimination, harassment at work, and retaliation.
Is EPLI Insurance Worth It?
Yes, EPLI is worth every penny spent on it. This is because it helps a business defend itself against some claims linked to employment, like unfair hiring practices and harassment.
What does EPLI insurance not cover?
Most of the time, EPLI insurance doesn’t cover criminal behavior or fines, penalties, punitive damages, or civil fines. Additionally, EPLI does not cover claims for losses like property damage or personal injuries that fall under the purview of other insurance plans.
What insurance protects against employee lawsuits?
Employment practice liability insurance (EPLI) is a special kind of insurance that protects you from losing money when you have to go to court or settle a claim of wrongful employment practices liability. It’s usually set up as gap insurance for the business.
What is EPLI insurance for small businesses?
In the business world, employment practices liability insurance, also called EPL insurance or EPLI, protects employers from claims made by workers of harassment (because of something like sex, race, age, or disability) or termination without cause.
What are the disadvantages of liability insurance?
The primary disadvantage of liability insurance is that it doesn’t cover the following:
- It doesn’t cover damage to your car.
- The insurance doesn’t cover your medical bills.
- It doesn’t pay for costs that exceed your responsibility limit
- It doesn’t cover the court fees that come with an accident.
Guidelines for Purchasing Employer Liability Insurance
The requirements necessary for buying employer liability insurance might present complexities and challenges, depending on your insurer. When evaluating the cost of an employer’s liability insurance, it is advisable to collaborate with an independent agent. Hiring an independent insurance agent with specific knowledge about your business can help you get the right insurance coverage. Insurance agents can guide individuals toward the most suitable service providers, even at competitive rates. You can also look into possible discounts that might be available by combining this coverage with workers’ compensation insurance.
Final Thought
Employer Liability Insurance is an essential tool for businesses of all sizes. This is because it protects the business’s financial stability and reputation in the face of employment-related legal challenges. It also provides peace of mind and a safety net that can be invaluable in today’s litigious work environment. Lastly, it’s better to consult with insurance professionals to assess your business-specific needs. This will help you get the right coverage at an affordable rates.
- What Is Employment Practices Liability Insurance (EPLI)?)
- Workers Compensation Insurance Florida: The Ultimate Guide
- WORKERS COMPENSATION VIRGINIA: The Ultimate Guide
- Commercial General Liability Insurance: Cover, Cost & Best Practice
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