Maintaining a comprehensive business insurance policy is a must for any business. But while general liability insurance covers things such as theft and property damage, you’ll need additional insurance to cover employees in the case of a work-related injury.
The U.S. Bureau of Labor Statistics reported a 7.5% increase in workplace injuries and illnesses in 2022, underlining the need for workers’ compensation insurance coverage. But do you need employers’ liability coverage as well?
Here’s what business owners need to know about employers’ liability insurance vs. workers’ compensation and whether or not you need both types of coverage.
Employers’ Liability Insurance vs. Workers’ Comp
Both employers’ liability insurance and workers’ comp insurance come into play if an employee experiences a workplace injury. Workers’ comp provides compensation for the injured worker’s medical bills and lost wages while employers’ liability insurance covers the employer’s court costs and legal fees if the employee sues them.
Let’s take a closer look at the difference between these two types of insurance.
What Is Workers’ Compensation Insurance?
Workers’ compensation insurance is intended to protect employees who get injured on the job or as a result of their occupation. It covers both acute bodily injuries, such as a fall or accident, as well as occupational diseases, including asthma and carpal tunnel syndrome, that arise due to repetitive motions or exposure to chemicals.
Workers’ comp doesn’t apply outside of work hours (including the commute to work), and there are exclusions for intoxication and self-inflicted injuries.
Workers’ compensation benefits cover some or all of the following costs:
- Lost wages
- Medical expenses
- Disability benefits
- Death benefits
What Is Employers’ Liability Insurance?
Employers’ liability insurance protects the employer if an injured employee believes they weren’t properly compensated for their injury or it was due to the employer’s negligence. For example, they might claim that the injury was caused by improper safety training or a failure to maintain equipment. Or, they might argue that the worker’s comp benefits aren’t sufficient to account for the pain or suffering they experienced.
If an injured employee takes the employer to court, then they could be held liable for punitive damages and legal defense costs.
Employers’ liability insurance may cover some or all of the following expenses:
- Legal fees
- Court costs
- Settlements
- Punitive damages
5 Things to Know About Employers’ Liability vs. Workers’ Comp
Trying to understand where one type of insurance policy ends and other begins can be tricky, even for experienced HR teams. Here are five things to keep in mind about the differences between employers liability insurance vs. workers compensation.
1. Workers’ compensation coverage is a legal requirement in most states.
Most states have workers’ compensation laws that require you to provide coverage — except for Texas, where workers’ compensation coverage is optional, as long as you make employees aware that you don’t have it.
The amount of workers’ comp that each state requires can vary, though, so be sure to double-check your state’s workers’ compensation requirements and other employment laws. In some states, certain categories of workers, such as independent contractors and casual employees, may be exempt from workers' comp coverage.
2. Workers’ compensation insurance covers medical bills, but not legal costs.
You might assume that workers’ compensation covers everything to do with a workplace injury, but there are plenty of exceptions, especially if it isn’t a cut-and-dried case. Maybe your employee got injured while working remotely or across state lines, and there are questions about whether your workers’ comp coverage will apply.
Although a workers’ comp case manager can help you navigate complex cases, there may be times when you can’t resolve it without going to court. That’s when employers’ liability insurance will step in to cover your court fees and other legal costs.
3. Employers’ liability insurance covers more than one type of lawsuit.
Employers’ liability insurance isn’t just for situations when the injury was caused by the employer’s negligence. It can also project you from some of the following lawsuits:
- Loss of consortium: If an employee dies or is so severely injured that they can’t perform their job or other daily functions, the employee’s family members can file this type of lawsuit to receive compensation from the employer.
- Third-party over-action: Third-party over-action occurs when the employer sues a third-party company — such as the manufacturer of the equipment that injured them — and that company in turn chooses to sue you.
- Dual-capacity lawsuits: Dual-capacity lawsuits apply when the faulty equipment isn’t produced by a third-party, but by your own business. The injured employee may decide you were at fault in both capacities and decide to sue you.
- Consequential bodily injury: This type of lawsuit refers to a situation in which an employee’s carer or family member gets injured while caring for them — or has a heart attack due to stress associated with the injury.
4. Employers may also need EPLI coverage.
Employers’ liability insurance covers some types of employer negligence, but not all. An employment practices liability insurance (EPLI) policy covers situations that arise during the recruitment and employment process, such as hiring and firing decisions made by your HR team. An EPLI policy may cover legal costs associated with:
- Wrongful termination
- Sexual harassment
- Discrimination
- Invasion of privacy
Although EPLI coverage isn’t mandatory, it can protect you from damages associated with employee misconduct and other types of workplace incidents.
5. Employees may be entitled to a leave of absence.
Employees who experience an injury or illness may be eligible for a leave of absence, even if the situation isn’t covered by your workers’ compensation policy. For example, an employee who gets hurt off-site or outside of work hours may still be entitled to a leave of absence under the Family and Medical Leave Act (FMLA).
A leave of absence management platform like Pulpstream can help you approve LoA requests, track leave balances, and streamline the return-to-work process.
Do You Need Employers’ Liability Insurance and Workers’ Comp?
Maintaining sufficient workers’ comp coverage is a legal requirement in most states, but having an employers’ liability insurance policy is not. The good news is that employers’ liability insurance may be offered as part of your workers’ compensation insurance, so you may not need to purchase a separate policy.
If you don’t have employers’ liability insurance yet, ask your insurance company if they can add it to your existing workers’ compensation policy or include it as part of a small business insurance package. Even if it isn’t mandatory, paying a higher premium may be worth it if it protects you from legal expenses arising from a workplace incident.
Streamline Business Insurance Claims With Pulpstream
Managing workers’ compensation claims and other types of business insurance claims can be a lot of work for your HR department. Depending on the nature of an employee’s injury, you may also have to navigate a short-term disability leave of absence, the ADA interactive process, or the FMLA return-to-work process.
Pulpstream can help you streamline the claims process by centralizing your workflows for each type of claim in the same claims management platform. Our cloud-based tool allows you to administer any type of claim in one place and automate recurring tasks such as claims notifications and OSHA report generation.
Plus, our claims analytics tools let you track the nature and frequency of each type of claim, so you can make more informed decisions and reduce business risk.
Request a free demo today to see Pulpstream in action and learn more!
