Employer's liability insurance
Employer's liability insurance is Part Two of a workers' compensation and employers' liability policy. It protects an employer against covered legal liability for damages from an employee's work-related injury or disease when the claim falls outside workers' compensation benefits, subject to the policy's exclusions, conditions, listed states and limits.
Also called: employers liability
Employer's liability insurance is the lawsuit side of your workers' compensation policy. Part One of the policy pays the statutory benefits an injured employee is owed, while Part Two, employers' liability, pays damages and defense when an employee's work injury or illness leads to a legal claim against you outside that benefit system, according to the California Department of Insurance (opens in a new tab). It covers "legal liability stemming from work-related employee injuries and illnesses that are not covered under workers' compensation insurance," in the NAIC's (opens in a new tab) words.
How Part Two limits apply to a claim
Part Two pays up to three separate limits, not one combined amount. The standard limits are $100,000 for bodily injury by accident per accident, $100,000 for bodily injury by disease per employee, and $500,000 for bodily injury by disease across the whole policy, according to the New York Compensation Insurance Rating Board (opens in a new tab).
Here is how an example $150,000 covered claim from a single accident works against those standard limits:
Hover or tap a row to highlight it.
| Item | Amount |
|---|---|
| Covered damages and defense costs (example) | $150,000 |
| Bodily injury by accident limit, each accident | $100,000 |
| Most the insurer pays under that limit | $100,000 |
| Amount above the limit | $50,000 |
The arithmetic is $150,000 minus $100,000, which leaves $50,000 of potential uninsured exposure for the employer, depending on the policy, the judgment and the law that applies. Workers' compensation benefits paid under Part One sit outside these limits entirely.
Options that change the coverage
The standard limits are a starting point, and several choices change what Part Two covers or how far it reaches:
- Increased limits. The accident, per-employee disease and policy disease limits can each be raised, which raises the most the insurer will pay. Ask the carrier how each limit changes your premium.
- Stand-alone employers' liability. A policy can provide employers' liability without workers' compensation benefits, and it must then exclude any obligation to pay those benefits, according to the NYCIRB (opens in a new tab).
- Voluntary compensation. An endorsement can extend coverage to employees or classes that state law does not require you to cover.
- Other States Insurance. Part Three can extend coverage to work in states listed on the information page.
- Federal or maritime exposure. The policy can address Federal Employers' Liability Act or maritime claims unless they are excluded, according to the Pennsylvania Compensation Rating Bureau (opens in a new tab).
Premiums generally reflect payroll, job classifications, the states you operate in, your claims history and the limits you select.
How it differs from workers' comp and general liability
These three coverages divide employee and third-party injuries between them. Workers' compensation insurance under Part One pays medical, wage, disability and death benefits for covered work injuries, generally without anyone proving fault. Employers' liability under Part Two answers a covered claim an employee can bring outside that remedy. General liability insurance handles injury, property damage, personal injury and advertising injury claims from third parties, and employee work-injury claims are typically addressed by workers' compensation rather than general liability, according to the NAIC (opens in a new tab).
Because workers' compensation is generally the exclusive remedy for covered work injuries, an employee injury does not automatically lead to an employers' liability lawsuit. Part Two is there for the claims that fall outside it under state law.
Where you see the term
Employers' liability appears in commercial workers' compensation policies, often under the combined name "workers compensation and employers liability." It is not part of auto, home, renters, life, health or pet insurance. On the policy, look at Part Two, Employers Liability Insurance, and at the information or declarations page, especially Item 3.B, where the three limits are listed. It also appears in quote proposals, binders, renewal documents, claim correspondence and on a certificate of insurance that a landlord, lender, general contractor or customer asks you to provide.
Connecticut and New York requirements
Both states require most employers to carry the workers' compensation policy that Part Two sits inside. In Connecticut, an employer that cannot prove its solvency to the Workers' Compensation Commission must insure its full liability under the Act, use approved security or an approved combination, under Conn. Gen. Stat. § 31-284 (opens in a new tab). The same section bars most employee damage claims against an employer that complies, leaving the rights the Act provides.
In New York, employers must secure compensation through the New York State Insurance Fund, an authorized insurer, or approved self-insurance, under Workers' Compensation Law § 50 (opens in a new tab). Coverage is mandatory for most employers with one or more employees, according to the New York Workers' Compensation Board (opens in a new tab). Neither state sets the Part Two limits, which come from your policy's information page.
Questions to ask an agent or insurer
- What are my Part Two limits for bodily injury by accident, by disease per employee and by disease policy limit? Each is a separate cap on what the insurer pays.
- Which states and territories are listed on my policy? Work in an unlisted state may need Other States Insurance or another arrangement.
- Does the policy cover everyone who works for me, including officers, members, owners, leased workers and independent contractors? Employee status and owner or officer elections vary by state and policy.
- Does Part Two cover defense costs, third-party-over claims, loss-of-consortium claims or federal and maritime claims, and what is excluded? The insuring agreement and exclusions decide whether a specific lawsuit is covered.
- What notice must I give after an injury, a disease allegation, a lawsuit or a demand letter? Reporting duties are policy conditions, and state workers' compensation systems add their own.
Frequently asked questions
These come up when reading a workers' comp quote, a renewal or a certificate request.
Is employer's liability insurance the same as workers' comp?
No. Workers' comp, Part One, pays statutory benefits to injured employees, while employers' liability, Part Two, defends and pays covered legal claims against the employer. The two parts share one policy but have separate limits.
Does employer's liability cover every employee injury?
No. Covered injuries normally go through workers' compensation benefits, and Part Two applies only to covered claims outside those benefits. Exclusions, such as obligations under workers' compensation or disability-benefits laws, and state law decide the rest.
Can a claim go over the employers' liability limit?
Yes. A covered claim larger than the limit that applies leaves the excess with the employer. Higher limits are available, and the information page shows what you currently carry.
Are independent contractors covered?
It depends on state law and the policy. Who counts as an employee varies by state, and misclassifying a worker can lead to uninsured liability, penalties or premium adjustments, according to the NAIC (opens in a new tab).