What Is Employer’s Liability Insurance?

Definition

Employer’s liability insurance is coverage that protects your business from the various costs associated with employee lawsuits. While in most cases employer’s liability insurance is included in your worker’s compensation insurance, there are instances where it is not.

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Definition and Examples of Employer's Liability Insurance

Employer’s liability insurance covers costs that arise from legal claims filed by employees who incurred a work-related illness or injury. This type of insurance should not be confused with workers’ compensation insurance, which strictly covers medical expenses for employees in those scenarios. 

For example, if you broke your foot while at the office, you would file for workers’ compensation to have your medical bills paid by the company. However, if you believed that the coverage was not enough or that your employer was negligent, you might sue the company. This is where employer’s liability insurance would kick in—to help with the associated legal costs.

Another example would be if you contracted a serious illness that was found to be work-related. If your spouse ended up having to become a caretaker for you, your spouse could file a claim against the business, which would be a covered expense under its liability coverage.

Note

Workers’ compensation insurance covers medical payments for injured or sick employees, and employer’s liability insurance protects businesses from legal costs.

How Employer's Liability Insurance Works 

When you’re shopping for workers’ compensation insurance, you may notice that employer’s liability insurance is already bundled in. However, four states instead use a state fund and do not include coverage:

  • North Dakota
  • Ohio
  • Washington
  • Wyoming

If you live in one of these states, you will need to look for separate stop-gap coverage to get a policy for your business. Sometimes this will be covered by an insurance carrier’s general liability insurance.

Whether you have to buy a separate policy or not, every state has different requirements when it comes to overall workers’ compensation laws. Though worker’s comp and employer’s liability insurance are not the same, they are connected. That is why you should check your state laws to make sure you are compliant. Also, keep in mind that not all sizes or types of businesses have to carry either type of insurance.

Note

Once you have your policy, it covers many expenses that are not covered by workers’ compensation insurance. Your liability insurance would cover liabilities for additional compensation, legal fees, and damages.

Types of Employer's Liability Insurance

Though there is only one type of employer’s liability insurance, whether it is a separate insurance or part of workers’ comp insurance. The types of liabilities it covers typically fall into four different categories: court costs, damages, settlement claims, and consequential claims.

Court Costs

When legal action is filed against your business, you will need to hire legal counsel. This comes with associated costs and fees. Your policy will help cover the fees associated with the lawsuit.

Damages

An employee or affected third party may sue for punitive damages in certain scenarios. For example, if an employee’s injury or disease results in death. Or, if an employee files for emotional pain and suffering due to a work incident. Depending on your state, your insurance may provide coverage.

Settlements

In some cases, you may choose to settle a case. Coverage is included under employer’s liability insurance—for both out-of-court settlements and sums that may be court-ordered.

Consequential Claims

These are claims where a third party like a family member may file a lawsuit against the company if they were affected by the employee’s injury or illness. 

Note

Employer’s liability insurance is only for injuries and illnesses related to work, not for lawsuits related to employment practices. Lawsuits due to sexual harassment, wrongful termination, or discrimination are covered under employment practices liability insurance (EPLI).

Employer’s liability insurance does not cover all employee injuries and illnesses. Some common exclusions are if an employee is intentionally harmed, hired illegally, or has an injury covered by federal law.

Key Takeaways

  • Employer’s liability insurance provides protection for your business when an employee files a lawsuit.
  • Workers’ compensation policies often include employer’s liability insurance, but not all do.
  • Exclusions to liability insurance for employers include cases when employees are harmed intentionally or hired illegally. 

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. The Hartford. “Employer's Liability Insurance.”

  2. The Hartford. “State Fund for Workers' Comp.”

  3. Society for Human Resource Management. “What Is Employment Practice Liability Insurance?