Here's something that catches most business owners off guard: workers' compensation doesn't actually cover all workplace injury lawsuits. You might think that once you've purchased workers' comp, you're fully protected. But there's a whole category of employee lawsuits that slip right through those cracks. That's where employers' liability insurance comes in.
Think of it this way: workers' compensation is a no-fault system. Your employee gets hurt, they get medical care and lost wages covered, and nobody argues about who's to blame. But what happens when your employee's spouse sues you for loss of companionship? Or when a third party wins a lawsuit against your employee and then turns around and sues you? Workers' comp won't touch those claims. That's your employers' liability coverage stepping up to bat.
What Employers' Liability Insurance Actually Covers
Employers' liability insurance is typically Part Two of your workers' compensation policy. While Part One handles standard workplace injuries through that no-fault system, Part Two kicks in for lawsuits related to workplace injuries that don't fit the workers' comp mold.
The most common scenario is a negligence lawsuit. Let's say an employee suffers a permanent injury and argues that you didn't provide a safe workplace. Maybe you knew a piece of equipment was faulty but didn't replace it. Or you failed to provide proper safety training. Workers' comp will cover their immediate medical bills and lost wages, but if they sue you for negligence, that's an employers' liability claim.
Then there are third-party action-over lawsuits. Here's how those work: Your employee gets injured by a defective tool and sues the manufacturer. The manufacturer pays out damages, but then discovers you modified a safety guard on that tool. Now the manufacturer sues you to recover their costs. Your employers' liability coverage handles your defense and any settlement.
Loss of consortium claims are particularly heartbreaking but surprisingly common. When an employee suffers a serious injury or dies on the job, their spouse or family members can sue for loss of companionship, care, and support. Workers' comp provides death benefits, but family members can argue those benefits don't compensate for their emotional and relational losses. Your employers' liability coverage pays for your legal defense and any damages awarded.
Dual capacity lawsuits happen when you have more than one relationship with your employee. If you manufacture equipment that your employees also use, and that equipment injures someone, they can sue you both as their employer and as the product manufacturer. The same principle applies if you're both employer and property owner, landlord, or service provider.
Consequential bodily injury claims are less common but can be devastating. This is when a family member claims they suffered a physical injury because of an employee's workplace injury. For example, a spouse develops high blood pressure and has a heart attack, which they attribute to the stress of caring for an employee who was paralyzed in a workplace accident.
How It's Different From Workers' Compensation
The fundamental difference comes down to fault. Workers' compensation operates on a no-fault basis. Your employee gets injured at work, and the insurance pays out regardless of who caused the accident. There's no lawsuit, no argument about negligence, just automatic benefits. In exchange for this guaranteed coverage, employees give up their right to sue you for most workplace injuries.
Employers' liability insurance, by contrast, kicks in precisely when someone is alleging fault. They're claiming you were negligent, that you failed in your duty to provide a safe workplace, or that your actions directly caused harm. These are adversarial legal proceedings where someone is trying to prove you did something wrong.
Another key difference is who can file claims. Workers' comp claims come from injured employees. Employers' liability claims can come from injured employees who are arguing their workers' comp benefits aren't sufficient, from family members, from third parties, or from other businesses. The pool of potential plaintiffs is much wider.
Workers' comp benefits are defined by state law and are relatively predictable. Employers' liability claims, however, can result in much larger awards because they're not capped by workers' comp statutes. A jury can award damages for pain and suffering, emotional distress, and punitive damages if they find your conduct was particularly egregious.
What It Costs and What Coverage You Need
Here's the good news: employers' liability insurance is typically bundled into your workers' compensation policy, so you're not buying two separate policies. Most businesses pay between $170 and $250 per month for the combined coverage, though your actual cost depends on several factors.
The biggest cost driver is your number of employees and your total payroll. More employees mean more potential for claims, so premiums scale up accordingly. Interestingly, the per-employee cost typically decreases as you add more workers, because insurers can spread risk across a larger pool.
Your industry matters enormously. An office with administrative staff faces minimal risk and pays accordingly. Construction companies, manufacturing facilities, or any business with heavy machinery or hazardous work conditions will pay significantly more. Your claims history also factors in. If you've had multiple workplace injuries or previous lawsuits, expect higher premiums.
Standard coverage limits are typically $100,000 per accident, $500,000 per policy period, and $100,000 per employee for disease claims. For most small businesses, these limits are adequate. However, if you're in a high-risk industry or have significant assets to protect, you should consider higher limits. The good news is that increasing your limits usually doesn't cost much extra, often just a few hundred dollars annually for substantially higher protection.
How to Get Coverage and Protect Your Business
For most business owners, getting employers' liability coverage is straightforward because it's automatically included in your workers' compensation policy. When you purchase workers' comp, you're getting both Part One (standard workers' comp benefits) and Part Two (employers' liability coverage) in a single package.
The exception is if you're in North Dakota, Ohio, Washington, or Wyoming. These monopolistic states require businesses to purchase workers' compensation through state-run funds, and those funds may not include employers' liability coverage. If you operate in one of these states, you'll need to purchase employers' liability insurance separately from a private insurer.
Beyond having insurance, the best protection is preventing claims in the first place. Document everything related to workplace safety. Conduct regular safety training and keep records of who attended and what was covered. Maintain equipment properly and document all maintenance. When accidents do happen, investigate thoroughly and document findings. If you need to discipline employees for safety violations, document that too.
Create a written safety program and actually follow it. This isn't just bureaucratic box-checking. If you ever face a negligence lawsuit, your safety program and documentation become your primary defense. They demonstrate that you took reasonable steps to protect your employees, which is exactly what you need to defeat a negligence claim.
Review your coverage limits annually, especially if your business is growing or changing. If you're taking on riskier work, hiring more employees, or expanding into new locations, your standard limits might no longer be adequate. A conversation with your insurance agent takes fifteen minutes and could save you from catastrophic financial exposure.
The bottom line is this: if you have employees, you need employers' liability insurance. The good news is you probably already have it bundled with your workers' comp policy. The key is making sure your limits are adequate for your business and that you're taking proactive steps to create a safe workplace. Because the best insurance claim is the one you never have to file.
