You need employers liability insurance to protect your business from employee lawsuits that fall outside of workers compensation coverage. This insurance covers legal fees, settlements, and court judgments when employees sue for workplace injuries or illnesses, claiming negligence or unsafe working conditions. Workers compensation pays for medical bills and lost wages, but employers liability insurance protects you when an employee believes those benefits do not fully cover their losses.
According to the Bureau of Labor Statistics, 5,283 workers were killed on the job in 2023, and private industry employers reported 2.5 million nonfatal workplace injuries that same year. Healthcare alone accounted for 308,000 injuries in 2024. These numbers show why protecting your business against employee lawsuits is not optional—it is essential.
Here is what you will learn in this article:
- 💼 The exact difference between employers liability insurance and workers compensation
- ⚖️ The four specific lawsuit types this insurance covers (and when they trigger)
- 🗺️ Which states require special coverage and how to fill the gaps
- 💰 How much this insurance costs and what policy limits mean for your business
- 🚫 The common mistakes that leave businesses exposed to six-figure lawsuits
What Does Employers Liability Insurance Actually Cover?
Employers liability insurance handles claims from workers who suffered a job-related injury or illness not covered by workers compensation. This coverage is often called “Part Two” of a workers compensation policy. Part One pays the employee directly for medical expenses, lost wages, and rehabilitation costs. Part Two protects the employer from lawsuits seeking additional damages beyond those statutory benefits.
Many organizations choose to carry employers liability insurance to help cover the costs of defending the organization in court. Claims can become complicated and costly for employers. Even a legitimate claim can drain business resources. A frivolous lawsuit can still cost tens of thousands in legal fees. Their liability coverage applies to both court-awarded sums and payments reached in out-of-court settlements.
Workers compensation operates on a “no-fault” system. Employees receive benefits regardless of who caused the injury, as long as the injury occurred within the course of employment. In exchange for this guaranteed coverage, employees generally give up the right to sue their employer. This trade-off is called the “exclusive remedy” provision.
Workers compensation is considered an exclusive remedy, meaning that employees who receive benefits through this insurance generally cannot sue their employer for additional damages related to the injury or illness. The purpose is to provide a streamlined and predictable system of benefits for injured workers. Employers liability insurance addresses the situations where this exclusive remedy does not apply.
The Four Lawsuit Types Employers Liability Insurance Covers
Employers liability insurance specifically addresses the legal liability of employers arising from employee claims beyond the scope of workers compensation. Four specific categories of lawsuits trigger this coverage.
Third-Party Over Action Lawsuits
A third-party over action is an action in which an injured employee, after collecting workers compensation benefits from the employer, sues a third party for contributing to the employee’s injury. Then, because of some type of contractual relationship between the third party and the employer, the liability is passed back to the employer by prior agreement.
| Scenario | Consequence |
|---|---|
| Employee trips on broken floor tile at work and collects workers compensation | Employee cannot sue employer directly due to exclusive remedy |
| Employee sues the building owner for negligent maintenance | Building owner demands indemnification from employer under the lease |
| Employer’s lease contains an indemnity clause | Liability for the employee’s lawsuit passes back to the employer |
| Employer has employers liability insurance | Insurance covers defense costs and potential damages |
For example, John works for Acme. John trips on a broken floor tile while at work. Despite collecting benefits under Acme’s workers compensation insurance policy, John also sues the owner of the building where Acme’s offices are located because it negligently failed to repair the broken tile. Under Acme’s lease, Acme is contractually required to indemnify the building owner for any claims brought by Acme’s employees.
Loss of Consortium Lawsuits
Loss of consortium refers to the negative impact a serious injury has on a marital relationship. This can include the loss of emotional support, affection, companionship, and even sexual intimacy. A loss of consortium claim is filed by the spouse of the injured person, not the worker themselves.
The California Supreme Court recently found that an employee’s spouse could not recover for loss of consortium in his civil employment action, even considering certain exceptions to the Labor Code. The court ruled that under workers compensation, derivative claims such as loss of consortium remain barred and not an available benefit resulting from an industrial injury.
State laws vary widely on these claims. In some states, spouses and dependents of injured employees can sue an employer. Employers liability insurance provides coverage in those cases.
| State Approach | What It Means For You |
|---|---|
| Most states bar loss of consortium claims under workers comp | Spouse cannot sue employer; employers liability not triggered |
| Some states allow limited spousal claims | Employers liability insurance pays for defense and settlements |
| Fatal injury cases often allow spousal claims | Death benefits and potential lawsuits both possible |
Consequential Bodily Injury Lawsuits
Consequential bodily injury lawsuits are filed by a non-employee who gets affected by an employee’s injury or illness. The classic example involves occupational diseases that can spread to family members.
A healthcare worker becomes HIV positive from work-related contact with a patient. The healthcare worker’s illness is covered by workers compensation. If the worker’s spouse then becomes HIV positive because of contact with the healthcare worker, the spouse is not entitled to workers compensation benefits. This is where employers liability insurance would respond.
These claims sit outside the normal workers compensation framework because the injured party is not the employee. The spouse never signed an employment agreement. The spouse never accepted the workers compensation “exclusive remedy” trade-off. This means the spouse can pursue a civil lawsuit.
Dual-Capacity Lawsuits
Dual-capacity lawsuits arise when an employer has a second relationship to the employee beyond the employment relationship. This doctrine is controversial and rejected in many states, but where it applies, employers liability insurance provides coverage.
Under the dual capacity doctrine, an employer normally shielded from tort liability by the exclusive remedy principle may become liable in tort to their own employee if they occupy, in addition to their capacity as employer, a second capacity that confers obligations independent of those imposed as employer.
The most common example involves employer-provided medical care. If an employee is injured on the job and the employer’s doctor provides medical treatment, the employer now occupies two capacities: employer and healthcare provider. If the doctor commits malpractice while treating the work injury, the employee may be able to sue the employer in their capacity as healthcare provider.
In Duprey v. Shane, the California Supreme Court held that when an employing doctor elected to treat an industrial injury, the doctor assumed the same responsibilities that any doctor would have assumed. The court found the employer in a dual capacity as both employer and treating physician.
Not all states recognize the dual capacity doctrine. In McCormick v. Caterpillar Tractor Co., the Illinois Supreme Court prohibited an employee from suing his employer based upon negligent medical treatment administered by the employer’s physicians. The court reasoned that the dual capacity doctrine was inapplicable under Illinois law.
How Employers Liability Insurance Differs From Workers Compensation
Workers compensation and employers liability insurance work together but serve very different functions. Workers compensation insurance pays lost wages and medical expenses for your employees, while employers liability insurance helps you if there is a lawsuit related to the accident.
| Workers Compensation | Employers Liability Insurance |
|---|---|
| Pays employee medical expenses | Pays employer’s legal defense costs |
| Covers lost wages | Covers court judgments against employer |
| Provides disability benefits | Pays settlements |
| No-fault coverage | Fault-based claims |
| Required in most states | Included in most workers comp policies |
| Benefits defined by state law | Coverage defined by policy limits |
Workers compensation kicks in whenever there is an injury in the workplace. Employers liability insurance is triggered when an employee sues the employer for negligence. Workers comp must cover the accident-related costs, whereas employers liability covers the employer if they are somehow responsible for the incident.
The coverage breadth also differs. Employers liability coverage is broader than workers compensation coverage because it responds to a wide array of claims. An employee suing a machine manufacturer for negligence could lead to the manufacturer suing the employer. Family members can take legal action against an employer if their loved one’s injury causes problems at home.
What Employers Liability Insurance Does NOT Cover
Employers liability insurance has specific exclusions that leave gaps in protection. Understanding these exclusions prevents costly surprises.
| Exclusion | Why It Matters |
|---|---|
| Criminal acts by employer | Intentional harm is never covered |
| Fraud | Deception voids coverage |
| Illegal profit or advantage | Insurance does not reward wrongdoing |
| Purposeful violation of law | Knowing violations disqualify coverage |
| Punitive damages for illegally employed workers | Hiring violations create personal liability |
| Intentionally caused injuries | No coverage if employer aggravated injury on purpose |
| Wrongful termination claims | Requires separate EPLI policy |
| Discrimination and harassment | Requires separate EPLI policy |
The exclusions include criminal acts, fraud, illegal profit or advantage, purposeful violation of the law, and claims arising out of downsizing, layoffs, workforce restructurings, plant closures, strikes, mergers, or acquisitions.
Wrongful termination, discrimination, and harassment claims require a completely different policy. Employment practices liability insurance (EPLI) handles legal claims filed by injured workers charging discrimination, sexual harassment, or wrongful termination.
| Employers Liability Covers | EPLI Covers |
|---|---|
| Third-party over actions | Wrongful termination |
| Loss of consortium | Discrimination |
| Consequential bodily injury | Sexual harassment |
| Dual-capacity claims | Retaliation |
| Workplace injury lawsuits | Defamation |
Employers liability insurance does not cover allegations tied to unfair decision-making about hiring, firing, promoting, or disciplining employees. If an employer has a product liability exposure because they manufacture equipment used by their employees, that exposure requires separate product liability coverage.
Understanding Policy Limits: How Much Coverage Do You Need?
Employers liability insurance has three separate limits that work together to cap your protection.
The basic employers liability limit is usually $100,000/$500,000/$100,000. That is $100,000 per accident, $500,000 per policy, and $100,000 per employee. These limits determine how much your insurance will pay before you must pay out of pocket.
| Coverage Type | Basic Limit | Common Upgrade | Higher Option |
|---|---|---|---|
| Per accident | $100,000 | $500,000 | $1,000,000 |
| Per policy aggregate | $500,000 | $500,000 | $1,000,000 |
| Per employee | $100,000 | $500,000 | $1,000,000 |
Employers liability insurance with limits of $500,000 per accident and occupational disease is part of the standard workers comp insurance policy. An aggregate limit applies to all occupational disease damages across the policy term.
Some organizations have more complex limit structures. An organization may have a $500,000 limit for each accident, a $250,000 limit for each type of injury or illness, and a $100,000 limit for every employee.
Policyholders who choose to increase their limits typically do so because of contractual requirements or requests from their umbrella carrier. A general contractor might require all subcontractors to set their employers liability limits at a particular level. Because the coverage is rarely used, increasing coverage limits is typically inexpensive.
For example, the cost to raise the limits to $500,000/$500,000/$500,000 is 0.8 percent of premium in most states. The cost to increase the limits to $1 million/$1 million/$1 million is 1.1 percent of premium in most states.
How Much Does Employers Liability Insurance Cost?
Premiums for employers liability insurance can range from $170 to $250 per month. The actual cost depends on your business type, employee count, and risk level.
| Number of Employees | Typical Annual Premium |
|---|---|
| One office worker | $60 |
| One worker (general) | $210 |
| Three workers | $350 |
| Five workers | $750 |
Employers liability insurance is usually not a separate purchase. Most workers compensation policies automatically include employers liability insurance. The premium for employers liability is built into your workers compensation premium.
The type of business you operate has a significant impact on the cost. Some industries, such as manufacturing, carry more risk of accident, personal injury, or even fatality than other sectors such as admin and clerical work. The more risk your business carries, the higher your premium will be.
The Monopolistic States: Why You Need Stop Gap Coverage
Four states require employers to purchase workers compensation from a state-run fund: Ohio, North Dakota, Washington, and Wyoming. These are called monopolistic states. In these states, private insurance companies cannot sell workers compensation coverage.
The critical problem: state-run workers compensation policies in monopolistic states do not include employers liability coverage. Unlike most private workers compensation policies, monopolistic state policies typically do not include employers liability coverage, which helps protect businesses from lawsuits related to workplace injuries.
| State | Agency That Provides Coverage |
|---|---|
| Ohio | Ohio Bureau of Workers’ Compensation (BWC) |
| North Dakota | Workforce Safety & Insurance (WSI) |
| Washington | Department of Labor & Industries (L&I) |
| Wyoming | Wyoming Department of Workforce Services |
Stop gap coverage provides a form of employers liability insurance for employers who do not have the coverage because they operate in a monopolistic state. Coverage for defense costs is typically included.
Employers can buy stop gap coverage from private insurers. A stop gap endorsement is primarily used to provide employers liability coverage for work-related injuries arising out of exposures in monopolistic fund states. If the employer has operations in non-monopolistic states, the endorsement is attached to the workers compensation policy providing coverage in those states.
For employers operating exclusively in a monopolistic fund state, the endorsement is attached to the employer’s general liability policy. This creates a standalone employers liability coverage where none existed before.
Texas: The Non-Subscriber Exception
Texas operates differently from every other state. Private employers can choose whether to provide workers compensation insurance coverage. Employers that choose not to provide Texas workers compensation coverage to their employees are known as non-subscribers.
Non-subscriber employers lose crucial legal shields. Under the Texas Workers’ Compensation Act, employers who elect not to carry workers compensation insurance are labeled “nonsubscribers” or “bare employers.” In exchange for avoiding the cost and regulatory burdens of workers compensation coverage, these employers expose themselves to significantly increased liability in the event of a workplace injury.
| Subscriber Status | Legal Protections |
|---|---|
| Subscriber (has workers comp) | Protected by exclusive remedy rule |
| Subscriber (has workers comp) | Can raise contributory negligence defense |
| Non-subscriber | Cannot use exclusive remedy defense |
| Non-subscriber | Cannot claim contributory negligence |
| Non-subscriber | Cannot claim assumption of risk |
| Non-subscriber | Cannot blame fellow employee negligence |
Non-subscriber employers cannot rely on employee negligence, assumption of risk, or co-employee negligence as defenses. This means if an employee gets hurt on the job due to any negligence caused by their non-subscriber employer, the gates open wide for potential claims covering everything from medical expenses, lost wages, pain and suffering, mental anguish, disfigurement, and punitive damages.
Texas non-subscribers must still provide notice to workers. Employers must post a notice of no coverage in the workplace in English, Spanish, and any other language as needed. They must also give written notice of no coverage to new employees.
State Penalties for Not Having Workers Compensation
States take workers compensation requirements seriously. Penalties range from fines to criminal charges.
| State | Penalty for Non-Compliance |
|---|---|
| California | Criminal offense; up to one year in jail; fine of at least $10,000; up to $100,000 for illegally uninsured employers |
| Illinois | $500 per day of non-compliance; minimum fine of $10,000 |
| New York | Misdemeanor or felony; fines from $1,000 to $50,000; plus $2,000 penalty for every 10 days without coverage |
| Pennsylvania | Felony of the third degree; up to $15,000 fine and seven years in jail |
Nearly every state requires employers to carry workers compensation insurance. Typically, the number of employees determines when a business must obtain coverage. Some states require coverage with even one employee.
OSHA Penalties Add Another Layer of Risk
Workplace injuries can trigger not just insurance claims but also OSHA penalties. These fines add to your total exposure.
| Violation Type | Maximum Penalty (Effective Jan. 2025) |
|---|---|
| Serious violations | $16,550 per violation |
| Other-than-serious violations | $16,550 per violation |
| Posting requirement violations | $16,550 per violation |
| Failure to abate | $16,550 per day beyond abatement date |
| Willful or repeated violations | $165,514 per violation |
Under the new guidelines, the minimum penalty for failing to report a qualifying workplace injury has been increased to $5,000. In special circumstances, Area Directors have the leeway to increase the $5,000 penalty to $7,000 to achieve the necessary deterrent effect.
Cal/OSHA in California implements its own penalties. The maximum penalty for willful and repeat violations is $162,851, with a minimum penalty of $11,632 for such violations.
Real-World Examples: When Employers Liability Insurance Saves Your Business
Understanding how these claims work in practice shows why coverage matters.
Example 1: The Defective Equipment Scenario
Maria works for a landscaping company. She is injured when a lawn mower blade malfunctions and cuts her leg. Workers compensation pays her medical bills and lost wages. She also sues the lawn mower manufacturer for product defects. The manufacturer’s investigation reveals the landscaping company failed to perform required maintenance. The manufacturer sues the landscaping company for contribution to the injury. Employers liability insurance covers the landscaping company’s defense and any settlement.
Example 2: The Spouse’s Loss of Consortium Claim
Robert sustains a severe back injury at a construction site. His workers compensation benefits cover his surgery, rehabilitation, and temporary disability payments. Robert’s wife experiences significant changes in their marriage. Robert can no longer help with household tasks, participate in family activities, or maintain physical intimacy. In states that allow such claims, Robert’s wife files a loss of consortium lawsuit against the employer. Employers liability insurance responds to defend the employer.
Example 3: The Third-Party Over Action
ABC Subcontractor signs a contract with XYZ General Contractor, agreeing to indemnify XYZ for actions of ABC’s employees. ABC’s employee gets injured while working on XYZ’s job site. The employee collects workers compensation from ABC. The employee then sues XYZ, claiming the general contractor created unsafe conditions. XYZ turns to ABC, demanding indemnification under their contract. ABC’s employers liability insurance covers this contractually transferred liability.
| Action | Consequence |
|---|---|
| Employee injured on job site | Workers compensation pays medical bills |
| Employee sues general contractor | General contractor invokes indemnity clause |
| Liability transfers to subcontractor | Employers liability insurance triggered |
| Insurance responds | Defense costs, settlement, and judgment covered up to policy limits |
Mistakes to Avoid With Employers Liability Insurance
Business owners frequently make errors that leave them exposed to significant liability.
Mistake 1: Assuming Workers Compensation Is Enough
Workers compensation only pays employee benefits. It does not protect you from lawsuits. One employee lawsuit could significantly impact your business, negatively affecting your bottom line.
Mistake 2: Operating in a Monopolistic State Without Stop Gap Coverage
If you do business in Ohio, North Dakota, Washington, or Wyoming, your state-provided workers compensation policy does not include employers liability coverage. Failing to buy stop gap coverage leaves your business completely unprotected from employee lawsuits.
Mistake 3: Not Reading Policy Exclusions
Insurance policies contain exclusions. Small business owners sometimes fail to thoroughly understand these exclusions, leading to unpleasant surprises when they need to make a claim.
Mistake 4: Keeping Basic Limits When Contracts Require Higher Coverage
General contractors, property managers, and clients often require specific coverage limits. Keeping the basic $100,000 limits when contracts require $1 million violates your contractual obligations and could void your coverage entirely.
Mistake 5: Confusing Employers Liability With Employment Practices Liability
These are different coverages. Employers liability covers workplace injury lawsuits. EPLI covers wrongful termination, discrimination, and harassment. Using the wrong policy leaves you without coverage when you need it most.
Do’s and Don’ts of Employers Liability Insurance
DO: Review your policy limits annually. Your business changes. Your risks change. Your coverage should change too.
DO: Verify coverage in every state where you have employees. Each state has different rules. Monopolistic states require special attention.
DO: Understand your umbrella policy requirements. Your umbrella carrier may require specific employers liability limits before providing excess coverage.
DO: Keep incident records. Accurate documentation helps your insurance company investigate claims and defend you in court.
DO: Report workplace injuries promptly. Delayed reporting can result in OSHA fines and complicate insurance claims.
DON’T: Skip stop gap coverage in monopolistic states. The gap in coverage could cost you everything.
DON’T: Assume your general liability policy covers employee injury lawsuits. General liability only covers outside claims including customer injuries. It does not protect against employee-related negligence claims.
DON’T: Forget about subcontractor agreements. Indemnity clauses in contracts can transfer massive liability to you through third-party over actions.
DON’T: Delay notifying your insurer about potential claims. Late notice can void coverage entirely.
DON’T: Rely on verbal notice for workplace injuries. State laws require written notice within specific deadlines.
Pros and Cons of Employers Liability Insurance
| Pros | Cons |
|---|---|
| Covers lawsuit defense costs that could reach hundreds of thousands | Does not cover intentional acts or criminal behavior |
| Protects business assets from court judgments | Policy limits cap total coverage |
| Usually included in workers compensation policy | Exclusions may leave gaps in coverage |
| Covers settlements reached out of court | Does not cover wrongful termination or discrimination |
| Relatively inexpensive to increase limits | Monopolistic states require separate purchase |
| Provides coverage for spouse and family member lawsuits | Cannot protect against punitive damages for illegal employment |
| Handles contractually transferred liability | Complex claims require specialized legal defense |
Key Entities You Need to Know
National Council on Compensation Insurance (NCCI): NCCI publishes the standard workers compensation and employers liability policy form used in most states. They also set classification codes that determine premium rates.
State Workers Compensation Boards: Each state has an agency that oversees workers compensation requirements. These agencies enforce compliance and handle disputes.
OSHA: The Occupational Safety and Health Administration enforces workplace safety regulations. OSHA violations can trigger inspections that uncover additional liability issues.
Insurance Carriers: Private insurance companies write most workers compensation and employers liability policies. In monopolistic states, state-run funds provide workers compensation only.
Umbrella Insurance Carriers: These insurers provide excess liability coverage above your primary policy limits. They often require specific employers liability limits before extending coverage.
FAQs
Is employers liability insurance required by law?
No. Employers liability coverage is not required by states. Workers compensation is required in most states, and employers liability is typically included automatically.
Is employers liability insurance the same as workers compensation?
No. Workers compensation pays employee benefits. Employers liability insurance protects the employer from lawsuits seeking damages beyond workers compensation benefits.
Do I need employers liability insurance if I have workers compensation?
Yes. Workers compensation does not protect against employee lawsuits. Employers liability insurance covers defense costs and judgments when employees sue.
What is stop gap coverage?
Stop gap coverage is employers liability insurance for monopolistic states. It fills the gap left by state-run workers compensation policies that do not include liability protection.
Can employees sue me if I have workers compensation?
Yes, in some situations. Third-party over actions, loss of consortium claims, and dual-capacity lawsuits can bypass the exclusive remedy rule.
How much employers liability insurance do I need?
It depends on your contracts and risk level. Basic limits are $100,000/$500,000/$100,000. Many businesses increase to $1 million per category.
What is a third-party over action?
A lawsuit where liability for an employee’s injury is transferred back to the employer. This happens when employees sue third parties who then invoke indemnity agreements with the employer.
Does employers liability cover wrongful termination?
No. Wrongful termination requires employment practices liability insurance (EPLI). Employers liability only covers workplace injury lawsuits.
What are the monopolistic states?
Ohio, North Dakota, Washington, and Wyoming. These states require employers to buy workers compensation from state-run funds that do not include employers liability.
Can a spouse sue my business for an employee’s injury?
Possibly. Some states allow loss of consortium claims. The spouse can sue for loss of companionship and affection caused by the employee’s injury.