When workers suffer an injury on the job, employers may be liable for the resulting medical bills and lost wages. Although workers’ compensation insurance can help cover these costs, there may be some coverage gaps, particularly in states with monopolistic workers’ compensation programs. Stop gap insurance for employers can help to close these gaps.
What is stop gap insurance?
Stop gap insurance provides coverage for worker injury lawsuits that workers’ compensation and standard general liability insurance policies don’t cover.
To understand why stop gap insurance is sometimes necessary, it’s helpful to understand workers’ compensation. This type of insurance provides coverage for workers who become ill or injured as a result of their jobs. State law typically requires employers to carry workers’ compensation. However, some states allow companies with a small number of employees to forgo coverage. Unlike other states, Texas doesn’t require private companies (except those contracting with government agencies) to carry workers’ compensation insurance.
If an employee experiences a job-related injury, workers’ compensation will help to pay for their medical care and lost wages. If an employee dies on the job, workers’ compensation may also pay benefits to the worker’s family. However, workers’ comp policies typically exclude some types of injuries. For example, if the employee intentionally causes their own injuries or is injured as a result of intoxication or horseplay, insurers may deny the claim.
Even when workers’ compensation is not a legal requirement, employers may want to purchase coverage because it can help shield them from expensive lawsuits. When employers have workers’ compensation policies, employees are often required to file a workers’ comp claim for illnesses or injuries, rather than needing to file a lawsuit in order to receive compensation.
However, there are situations in which employees could still file a lawsuit for illnesses or injuries. Some workers’ compensation policies cover these lawsuits by providing employer liability coverage, but others do not. When workers’ compensation excludes employer liability coverage, stop gap insurance helps to fill the coverage gap.
Stop Gap Coverage in Monopolistic States
A monopolistic state is one that requires employers to purchase workers’ compensation insurance from a state fund. Stop gap insurance is primarily used in these monopolistic fund states. Businesses can usually secure it as an endorsement to their general liability policy.
States that use a monopolistic fund for workers’ compensation typically exclude coverage for lawsuits, which is why employers in these states may need to purchase stop gap insurance. According to Investopedia, only six U.S. jurisdictions are monopolistic:
- Ohio
- North Dakota
- Washington
- Wyoming
- Puerto Rico
- U.S. Virgin Islands
Stop Gap Insurance in Non-Monopolistic States
In non-monopolistic states, employers are able to purchase workers’ compensation from private insurance companies. Since employers in non-monopolistic states can purchase a workers’ compensation policy that includes employer liability coverage, they may not need stop gap insurance. However, since policy terms can vary, it’s important to discuss your coverage with your insurance advisor to determine if a stop gap policy is a smart option.
When can employees sue over injuries?
Employees may be able to sue for punitive damages if they believe an employer’s negligence caused their injury or illness. Lawsuits may also be permissible if a third party (such as a vendor or supplier) contributed to the injury or illness.
When such lawsuits occur, they are often expensive. For example, The City says a construction worker who was injured on the job received a $25 million settlement. The worker fell through the roof while working on a warehouse, and the contractor allegedly filed forged safety logs after the event to make it seem like the worksite was safe. In another case, Hawaii News Now says a construction worker received a $6.6 million settlement after being seriously injured in an incident that, according to his legal representation, could have been prevented through adequate safety training, equipment and policies.
Does general liability insurance cover worker injuries?
Standard general liability insurance does not cover worker injuries. However, it is possible to add a stop gap endorsement to obtain coverage for lawsuits stemming from worker injuries.
Commercial general liability insurance provides coverage for third-party injuries, as well as for third-party property damage liability and personal and advertising injury liability. For example, if a customer slips on a wet floor, general liability insurance may provide coverage.
Does employment practices liability insurance cover worker injuries?
Employment practices liability insurance also does not cover worker injuries.
Although employer liability coverage and employment practices liability insurance sound similar, they provide quite different protections.
Employment practices liability insurance (EPLI) provides coverage for lawsuits stemming from employment-related decisions, such as discriminatory hiring, firing or promoting, as well as from harassment.
On the other hand, employer liability coverage provides protection for lawsuits stemming from worker injuries. It often comes in a package with workers’ compensation coverage. If your workers’ compensation policy does not include this protection, stop gap insurance can fill the gaps in coverage.
Is stop gap insurance a legal requirement?
Most employers must carry workers’ compensation insurance, but stop gap insurance is not a legal requirement in any states.
For employers that have workers’ compensation insurance and operate solely in non-monopolistic fund states, stop gap insurance is likely unnecessary since most workers’ compensation policies include employer liability insurance for worker injuries. However, employers that operate either fully or partly in monopolistic fund states should consider adding a stop gap endorsement to their general liability insurance. Otherwise, they could face lawsuits over worker injuries without any insurance protection.
Do you need stop gap insurance?
Don’t wait until your business is hit with a lawsuit to find out that you don’t have adequate insurance coverage. The following questions can help determine if you should discuss stop gap insurance with your insurance broker.
- Is your company located in a state or territory that uses a monopolistic fund? Since workers’ compensation typically excludes employer liability coverage for lawsuits, you may need stop gap insurance.
- Are you protected by workers’ compensation insurance? If you are located in Texas and you don’t carry workers’ compensation insurance, ask your insurance agent if you should have a stop gap policy.
- Do you have employees in multiple states? Companies with employees in multiple states should ensure they have coverage for injuries everywhere they operate. Stop gap insurance may be necessary if you have no coverage for lawsuits in certain states.
- Does your workers’ compensation policy come with employer liability insurance? These two coverages are typically packaged together. Review your policy terms with your insurance broker to make sure you’re covered.
Do you have protection against worker injury lawsuits? Higginbotham can help you review your business insurance coverage to identify potential gaps in coverage. And, if you don’t have the right insurance for your company’s needs, we can help secure cost-effective, comprehensive coverage options, including stop gap insurance protection. To learn more, talk to one of our commercial insurance specialists today.
