Employers Liability Insurance: Part Two of Workers Comp

Employers liability insurance is Part Two of the standard workers compensation policy (form WC 00 00 00 C). It defends the employer and pays damages in lawsuits over workplace injuries that fall outside workers compensation benefits. Part One pays statutory, no-fault benefits with no dollar limit; Part Two responds to lawsuits for damages, most often 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 is the part of the workers compensation policy that covers an employer sued over a work-related injury, beyond the statutory benefits workers compensation pays. The workers compensation system rests on the exclusive remedy bargain: the employee gets prompt, no-fault benefits and gives up the right to sue the employer in tort.

That protection is real but not complete. Some states have exceptions that let an injured worker sue despite the workers compensation law. And people outside the bargain, such as the injured employee's spouse or children or a third party pulled into the loss, were never bound by it. Employers liability insurance fills those gaps. Part One responds to claims for workers compensation benefits; Part Two defends lawsuits for damages. That one-word difference, benefits versus damages, is the whole point, and the duty to defend matters as much as the duty to pay.

What does employers liability insurance cover?

Employers liability insurance pays what the employer becomes legally obligated to pay for employee bodily injury outside the workers compensation statute, plus the cost of defending those lawsuits. The form covers four kinds of claims, which are really four different people who might sue you over an injury at your workplace. The CGL and business auto policies typically exclude all four, so Part Two is the only place they are covered:

Third-party action over is the claim brokers see most, and it raises a contract question. When the third party's claim against the employer comes through a hold harmless agreement, the general liability policy responds instead, under its insured contract coverage. The rule of thumb is simple: if there is an insured contract, look to the CGL; if there is no contract, 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, shown in Item 3.B of the Information Page, are:

• $100,000 bodily injury by accident, each accident
• $500,000 bodily injury by disease, policy limit
• $100,000 bodily injury by disease, each employee

The cost is built into the workers compensation premium rather than billed separately, so buyers rarely notice how low these limits are.

The disease limits work together. 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 the policy term.

Those amounts have not changed in decades and are far too low for any employer with a real payroll. The fix is inexpensive. The North Carolina Rate Bureau's 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, and most exist because another policy or statute is meant to respond. Contractual liability belongs on the CGL or business auto policy. Punitive damages are excluded, which is worth noting because the unendorsed CGL does not exclude them. Employment-related claims (demotion, harassment, discrimination, termination and the like) need a separate EPLI policy. A federal group of exclusions removes work under the Longshore and Harbor Workers' Compensation Act, the Federal Employers' Liability Act, the Defense Base Act and others, along with injuries to masters and crew members of vessels. Most of these can be added back by endorsement if you have the 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. The first is payroll in a monopolistic state. Four states (Ohio, Washington, Wyoming and North Dakota) sell workers compensation only through state-run funds, which provide statutory benefits only, so those states never appear in Item 3.A of a standard policy. The fix is stop gap coverage, an endorsement to the CGL that adds employers liability back for the listed states. Our guide to the monopolistic states walks through the placement mechanics.

The second is workers exempted by statute. States exempt some kinds of employment, such as domestic workers, some farm laborers and employers below a minimum number of employees. In North Carolina, for example, an employer must carry coverage only when it regularly employs three or more people, under N.C. Gen. Stat. 97-2.^[3] Exempt employees keep their right to sue, so the exclusive remedy does not protect the employer. The Voluntary Compensation And Employers Liability Coverage endorsement (WC 00 03 11 A) brings these employees into the system and protects both sides.

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.

Checking your employers liability limits

Employers liability insurance is Part Two of the workers compensation policy, and it defends you when an employee injury becomes a lawsuit instead of a benefits claim. The standard $100,000/$500,000/$100,000 limits have been in place for decades and are too low for any real payroll, and raising them to $1,000,000 costs about 1 percent of premium. Pull your Information Page, read Item 3.B and match it to what your umbrella requires underneath.