Employer’s liability insurance is an essential type of insurance for all businesses, regardless of size or industry. There is always a chance that an employee will file a lawsuit, even if the company has a strong safety record and fair employment practices. Employer’s liability insurance can help protect businesses from the financial costs of defending against these lawsuits, as well as any settlements or judgments that may be awarded to employees.
In this blog post, we will discuss everything you need to know about your employer’s liability insurance, including:
- What is an employer’s liability insurance?
- Who needs employer’s liability insurance?
- What does an employer’s liability insurance cover?
- How much does an employer’s liability insurance cost?
- How to choose the right employer’s liability insurance policy
We will also provide some tips for managing an employer’s liability risk.
If you are a business owner, we encourage you to learn more about your employer’s liability insurance. It is an essential type of insurance that can protect your business from the financial costs of employee lawsuits.
What is Employer Liability Insurance?
Employer’s liability insurance is essentially workers’ compensation coverage that covers work-related injuries, illnesses, and deaths. As an employer, you are legally responsible for ensuring the safety of your workers while they are at work and in the workplace. It is unusual to discover a workplace that is fully free of occupational injury or fatality.
What Does Employers’ Liability Insurance Cover?
Employers’ liability insurance may also cover the following types of claims:
- Third-party litigation: This is filed by a third party who was not directly involved in the workplace incident. When a piece of equipment causes an employee harm on the job, the equipment manufacturer may then sue the employer.
- Loss of consortium lawsuits: Family members of a deceased or disabled employee file loss of consortium lawsuits to seek compensation for the relative’s or their income loss.
- Bodily injury suit: Non-employees who suffer physical harm as a result of an employee’s accident, such as a spouse who develops health difficulties while caring for the wounded worker, may file a consequential bodily injury case.
- Dual-capacity lawsuits: When an employee sues their employer as both an employer and as something else (a manufacturer, a service provider, a landlord, etc.). As an example, suppose a piece of a ceiling in the workplace falls and hits a worker, and they sue their employer in its dual status as employer and premises owner.
Many businesses choose employers’ liability insurance to help cover the costs of defending the company in court. Claims can become confusing and costly for employers, especially if a lawsuit is filed. A claim may be genuine or not, but many firms cannot accept that degree of danger and take precautions to protect themselves. Their liability coverage extends to both court-awarded and out-of-court settlement payments.
A company can help limit its losses if its liability insurance policy pays out. One way to do this is to include a clause that releases the company and their insurance company from any further responsibility or liability for the incident in question as a condition of the payout.
Employers’ liability insurance policies typically impose compensation limits per employee, per injury, and overall. These limits might be as low as $100,000 per worker, $100,000 per occurrence, and $500,000.5 Employers’ liability insurance covers only full-time or part-time employees. It does not cover independent contractors or workers operating in countries other than the United States or Canada.
Employers’ Liability Insurance Limits
Employer-provided liability insurance does not cover every eventuality. Criminal activities, fraud, illegal gain or advantage, willful breaking of the law, and claims arising from firings, downsizing, restructuring of the workforce, factory closures, strikes, mergers, or acquisitions are all not covered.
If an employer purposefully aggravates an employee’s work-related injury or illness, the employer’s liability insurance will not cover the employee’s financial obligations, and the employer will have to pay if the employee wins in court.
Furthermore, several states do not permit insurers’ coverage to extend to punitive damages. Many employers’ liability insurance policies, however, cover these fees via a “most-favored jurisdiction” clause. The policy’s language states that state law, which permits employers’ liability insurance to provide compensation for punitive damages—in other words, a jurisdiction that favors them—would govern the coverage.
Consider a corporation that has offices and work sites all across the United States. There is a claim in a state where employers’ liability insurance does not cover punitive damages. After all, if the company is created in a state that allows punitive damages coverage, the company’s employers’ liability insurance policy can protect it.
Employment Practices Liability Insurance (EPLI)
Employers’ liability insurance and workers’ compensation do not cover employers for employee claims of discrimination (for example, based on gender, race, age, or disability), wrongful termination, harassment, slander, libel, and other employment-related issues such as failure to promote. For this form of coverage, the employer would need to acquire a separate policy known as employment practices liability insurance (EPLI).
The Function of the Provincial Workers’ Compensation Fund
In order to comply with the rules and regulations for employers, most employers prefer to pay into their local province’s worker’s compensation fund. Those who are excluded from doing so or who choose not to participate in the program, on the other hand, face severe consequences if a claim for work-related injury or death is filed against them. They could face the following:
- Legal fees associated with the litigation
- Medical expenses
- Settlement payments to the victim’s or wounded person’s family
The Worker’s Compensation Board typically takes a “no-fault” approach, which means that workers are not required to prove negligence on the part of the employer that directly caused the harm or injury. On the other hand, an employer’s liability insurance requires proof of negligence and is often added to commercial general liability (CGL) policies as coverage.
Another key point to remember is that even if employers contribute to the Worker’s Compensation Provincial Fund on a regular basis, they are not immune from all potential claims and liabilities. If the Worker’s Compensation Board rules that the claim is not valid, the employee may file a lawsuit against the employer.
A key distinction between the two types of plans is that worker’s compensation covers the majority of workplace accidents that cannot be avoided. Employer liability insurance, on the other hand, protects the employer against a wide range of claims that can be filed against an employer.
Workplace Injury Example
Let’s look at an example of how a workplace injury can occur and result in legal consequences for the company.
The employer runs his garment business out of an ancient building. Several employees became infected with Legionnaire’s disease, which is essentially an airborne bacterial disease that causes coughing, shortness of breath, and other respiratory symptoms.
Following an investigation, it was determined that the cause of the incident was an old air conditioning system that the employer failed to maintain to a specific quality. It would make the employer liable for the worker’s medical bills, missed earnings, and other damages.
Employer Liability Insurance Benefits
#1. Demonstrating consistent adherence to the law
In order to receive legal protection, it is imperative to show conformity. The employer demonstrates trustworthiness by contributing to the provincial workplace compensation fund and purchasing the employer’s liability insurance. It also boosts their reputation and entices people to work for a company that respects the laws and procedures.
#2. Concern for employees
It is critical for an employer to show concern for their employees’ well-being. It also has a psychological benefit because if workers feel happy and comfortable at work, their mental health improves and they become better and more productive.
#3. Compensation for lost wages or medical expenses
Worker’s compensation does not cover all of the expenditures and incidentals associated with an incident. As a result, an employer’s liability insurance coverage shields them from severe and unexpected financial strains brought on by claims that worker’s compensation funds would not otherwise be able to cover.
#4. Legal fees coverage
Legal fees, like missing pay and expenditures, can quickly add up. As a result, employee liability insurance offers employers an additional layer of protection against such financial responsibilities.
What Is the Difference Between Employers’ Liability and General Liability Insurance?
In terms of coverage, general liability insurance only protects a company from outside claims such as consumer injury or negligence. It does not shield a company from employee negligence. Employers’ liability insurance covers lawsuits brought by harmed workers.
Do You Need EPLI and ELI?
Employment Practices Liability Insurance (EPLI) is distinct from Employers’ Liability Insurance (ELI). Employers must purchase EPLI to ensure that they are protected from employee lawsuits alleging discrimination, sexual harassment, or wrongful termination, which are not covered by Employers’ Liability Insurance.
How Much Does Liability Insurance for Employers Cost?
There is no predetermined price for employers’ liability insurance, just as no two businesses are alike. When purchasing insurance, you’ll need to examine how many employees you have, what type of business you run, and how you pay your employees.
Is It Necessary for Me to Have Employers’ Liability Insurance?
Workplace injuries happen, no matter how careful you are. In the case of occupational disorders, claims can occur many years later. As a result, if you hire someone (even if just temporarily), employers’ liability insurance can cover compensation costs and legal expenditures. It is usually a legal necessity.
If you do not have employers’ liability insurance, you may pay a high price, and not just for a compensation claim.
Is Liability Insurance for Employers Necessary?
Yes, assuming you have the necessary personnel. It is a legal obligation for nearly all firms with employees. (Immediate family members are free from this duty, but if something happens, you’ll have to pay up if you lose a claim.)
But who is considered an employee? Did you realize that while volunteers are theoretically working under your supervision, they are legally considered your responsibility? That implies you’re required by law to obtain insurance to safeguard them.
If you do not, you may be fined for each day you are not properly insured.
Is Employer Liability Insurance the Same as Workers’ Compensation Insurance?
Employer liability insurance is not the same as workers’ compensation insurance. When it comes to employer liability vs. workers’ compensation, consider this:
- Workers’ compensation insurance assists employees in paying their medical bills and expenses.
- Employer liability insurance protects employers against legal expenses.
Employers’ liability insurance protects a corporation from legal claims made by workers who have been injured or ill on the job. It is a sort of liability insurance that, when combined with workers’ compensation insurance, protects businesses from the costs and claims of injured employees. Criminal activities, fraud, and violations of the law are only a few of the things that employers’ liability insurance does not cover. Employment Practices Liability Insurance (EPLI) covers employee lawsuits alleging discrimination, sexual harassment, or wrongful termination.
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