Understanding Employee Liability Insurance: A Crucial Safeguard for Businesses Against Legal Risks

Employee liability insurance, also known as Employer's liability insurance, is an important part of a commercial insurance program for businesses across all industries. This insurance safeguards businesses from financial losses due to legal claims made by employees who suffer injuries or illnesses on the job. This may sound like workers' compensation as they both address employee-related injuries, but they have very different triggers for when they would apply.

Workers' compensation is a mandated insurance* that provides benefits to employees who are injured or become ill during the course of their employment. It covers medical expenses, rehabilitation costs, and a portion of lost wages for employees injured on the job without the employee needing to file lawsuits.

On the other hand, employee liability insurance protects businesses when employees file lawsuits alleging negligence and unsafe working conditions. This coverage can be added to a Package Policy as “Stop Gap” insurance. If your business is located in a monopolistic State, the State provides Workers’ Compensation, but it still does not provide Employee Liability.

Side note: Employee Liability Insurance does not protect against claims of discrimination, harassment, or wrongful termination. These types of claims fall under employment practices liability insurance (EPLI), a separate coverage designed specifically to protect employers against allegations of discrimination, harassment, wrongful termination, and similar employment-related issues.

Unlike workers' compensation, this insurance isn't mandatory in all places, but it's a crucial safeguard against potential legal expenses, settlements, or judgments that might arise from such claims.

Companies should consider having employee liability insurance for several reasons:

• Legal Protection: It shields businesses from the financial impact of legal claims and lawsuits filed by employees. Legal defense costs and settlement fees can be substantial, and this insurance helps cover these expenses.
• Complement to Workers' Compensation: While workers' compensation covers medical expenses and lost wages, it doesn't necessarily protect against legal claims for damages beyond the scope of the benefits it provides. Employee liability insurance fills this gap, offering broader coverage for legal defense and settlements.
• Risk Mitigation: No workplace is immune to potential disputes or claims. Having this insurance helps mitigate the financial risk associated with employee lawsuits, allowing businesses to operate without the looming threat of substantial legal expenses.

In essence, employee liability insurance offers a layer of protection beyond what workers' compensation provides, safeguarding businesses from the financial implications of lawsuits made by employees. While not mandatory, it's a prudent investment for companies looking to mitigate potential legal risks and ensure a more secure operational environment.

*As a mandated coverage, there are States that do provide Workers Compensation to employers. Those States are Ohio, Wyoming, Washington and North Dakota, known as Monopolistic States. In these cases, the State does provide coverage for employee injuries that are job related. It does not provide employee liability insurance that would protect businesses when employees file lawsuits alleging negligence and unsafe working conditions.