What Is Employers Liability Insurance? Part Two of the Workers Comp Policy

Part Two is Employers Liability Insurance, which is a part of the standard Workers Compensation Policy (Form WC 00 00 00 C) to defend against and pay for damages for workplace injuries that do not qualify under workers compensation. Where Part One provides statutory, no fault benefits without a coverage limit, Part Two will respond to lawsuits filed against employers for damages, most often as the result of third-party action over, loss of consortium, consequential bodily injury, and dual capacity claims. Standard limits are $100,000 each accident, $500,000 disease policy limit, and $100,000 disease each employee.

Most employers never read past Part One. That is a mistake, because the claims Part Two exists for are rare but expensive, and they land squarely on the employer rather than the benefits system.

What is employers liability insurance?

Employers liability insurance (ELI) provides coverage for employers in the workers compensation policy if they are being sued over a work-related injury. ELI provides additional protection beyond what workers compensation provides, which simply pays statutory benefits. The workers compensation system rests on the exclusive remedy bargain: the employee receives prompt, no-fault benefits and gives up the right to sue the employer in tort.

This protection does exist, however this protection is not complete. Different by State, some States have exceptions to allow an injured worker to bring suit regardless of the Workers Compensation Laws. The people outside that bargain, an injured employee's spouse or children and a third party dragged into the loss, were never bound by it. Therefore, employers liability insurance fills these gaps. Part One will defend lawsuits for workers compensation benefits. Part Two will defend lawsuits for damages. In both cases the one word difference makes all the difference. Direct Defense Obligations are just as important as Indemnity Obligations.

What does employers liability insurance cover?

Employers Liability Insurance (ELI) pays out employers' legal obligation for employee bodily injury claims that fall outside the scope of coverage provided by state Workers Compensation Statutes, and ELI also includes the cost of defending against such lawsuits. The ELI form lists four categories of claims that are essentially four different people who have decided to file suit against you based on an injury suffered while working at your place of employment. All four categories would typically be excluded from coverage under either CGL or Business Auto Policies, which is why Part Two is the only place they live:

Third-party action over is the one brokers see most, and this type of case also introduces a contractual issue. When the third party sues the employer under a hold harmless agreement, and the suit comes back through that contract, the general liability policy responds as an insured contract instead. The general approach is straightforward. Insured contract in effect, look to CGL for coverage. No contract in existence, look to Part Two.

Employers liability vs workers comp: what is the difference?

Workers compensation and employers liability are two separate coverages sold together in one policy. Part One pays benefits on a no-fault basis, carries no limit of liability, and has no exclusions, because the workers compensation law itself defines what is and is not paid. Part Two pays tort damages only when the employer is legally liable, is capped by the Item 3.B limits, and carries exclusions. The employers liability limits do not erode by anything paid under Part One, so a $2,000,000 medical and indemnity claim under Part One leaves the full Part Two limit intact for the consortium suit that follows it.

What are the standard employers liability limits?

The standard employers liability limits are as follows.

A) $100,000 bodily injury by accident, each accident B) $500,000 policy limit bodily injury by disease C) $100,000 each employee bodily injury by disease

All three are shown in Item 3.B of the Information Page.

The cost is rolled into workers compensation premium instead of being billed out separately. Because of that buyers rarely notice how low these limits really are.

These disease limits work together. For example, if several employees develop respiratory illnesses from exposure to the same chemical, no single employee collects more than $100,000 and the insurer pays no more than $500,000 across all of them for a full policy term.

Those amounts haven't changed in decades and are far too low for any employer with real payroll. The solution is inexpensive. North Carolina's Rate Bureau increased limits table prices $1,000,000/$1,000,000/$1,000,000 limits at about 1.2 percent of premium with a $120 minimum charge.^[1] Ask your broker for the factor that was filed in your state.

The umbrella is the other reason to raise them. Its schedule of underlying insurance lists the exact employers liability limits the umbrella or excess policy expects beneath it, and $1,000,000 across all three is the customary entry. Construction contracts built on AIA documents leave those limits blank for the parties to fill in for each accident, each employee, and the policy limit, which is why contractors raise them as a matter of course.^[2] Quote increased limits on every workers comp account.

What does employers liability insurance exclude?

Part Two has 12 exclusions. The underlying reason for most of them is there's another policy or statute meant to respond. Contractual liability belongs on either the CGL or Business Auto Policy. In addition, punitive damage is also excluded which is something to note since this exclusion does not apply to the unendorsed CGL. Employment related claims (demotions, harassments, discriminations, terminations etc.) require an additional EPLI insurance policy. There is a federal group that excludes work under the Longshore and Harbor Workers Compensation Act, Federal Employers Liability Act, Defense Base Act, and others, along with injuries to Masters and Crews of Vessels. Most of these can be purchased through endorsements if you have an applicable exposure.

When do you need coverage outside the standard policy?

Two situations leave an employer without Part Two even when workers compensation benefits are fully in place. One is where a company's payroll is located in a monopolistic state. There are four monopolistic states that only sell workers comp insurance through state run programs (Ohio, Washington, Wyoming, and North Dakota) and those monopolistic states always provide statutory benefit-only policies, so those states never appear in Item 3.A of a standard workers compensation policy. The solution is Stop Gap Coverage. Stop Gap Coverage is an additional coverage endorsement to a CGL form that would carve employers liability back into the policy for the listed states. Our guide to the monopolistic states walks through the placement mechanics.

The second area of exemptions are workers who have been exempted by statute. States exempt various employments in certain employment areas such as, but not limited to domestic workers, some farm laborers and small employers with less than an established number of employees. For instance, in North Carolina, employers need to insure their employees only when they have at least three employees on a regular basis, under N.C. Gen. Stat. 97-2.^[3] Exempt employees always retained the ability to file suit. Therefore, the exclusive remedy provisions do not offer protection. The Voluntary Compensation And Employers Liability Endorsement (WC 00 03 11 A) adds these types of employees into the system, along with their employer, thereby offering them both protection.

This guide is for educational purposes and summarizes standard NCCI policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

Employers liability insurance is Part Two of a Workers Compensation policy which will provide you with defense if an employee injury results in a Lawsuit as opposed to a Benefits Claim. The standard $100,000/$500,000/$100,000 limits of Liability on most policies have been in place for decades and would be insufficient for any real payroll. Raising these limits to $1,000,000 would cost approximately 1 percent in premiums. Please pull out your information page, review section Item 3.B and match it to what your umbrella requires beneath it.