Employers' liability insurance is Part Two of your workers' compensation policy. Part One covers standard workplace injuries through no-fault benefits, while Part Two kicks in when employees sue you directly. Workers' comp automatically pays medical bills when employees get hurt, but it won't cover lawsuits claiming you were negligent or third-party claims like loss of consortium from a spouse. Employers' liability insurance pays your legal defense costs, attorney fees and settlements when these lawsuits hit you.
What Is Employers' Liability Insurance?
Employers' liability insurance covers lawsuits from employees claiming negligence or families seeking damages beyond workers' comp benefits.
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Updated: October 27, 2025
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Key Takeaways
Employers' liability insurance is Part Two of workers' comp that covers employee lawsuits beyond medical bills and lost wages.
It covers negligence claims and certain family lawsuits related to workplace injuries, but doesn't cover customer injuries or employee harassment cases, which require different insurance types.
Your coverage needs depend on industry risk, employee count, potential settlement size and state legal climate.
Employers’ Liability Insurance: How It Works
EMPLOYERS' LIABILITY AND WORKERS' COMP INSURANCE: WHAT'S THE DIFFERENCE?
In most states, you get workers' comp and employers' liability bundled together from one insurer. But monopolistic states like North Dakota, Ohio, Washington and Wyoming run their own workers' comp programs that don't include employers' liability coverage. In these states, you buy workers' comp from the state fund and employers' liability from a private carrier.
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COMPLETE YOUR BUSINESS PROTECTON
Employers' liability insurance protects you from employee lawsuits, but you'll need other coverage types for other workplace risks it won't handle:
- Workers' Compensation Insurance: Automatically pays medical bills and lost wages when employees get hurt.
- General Liability Insurance: Covers customer injuries and property damage that happen at your business location.
- Commercial Property Insurance: Protects your buildings, equipment and inventory from fires and other physical damage.
- Professional Liability Insurance (Errors & Omissions): Covers claims that your professional services cost clients money or caused financial harm.
- Business Owner's Policy (BOP): Bundles property, liability and business income coverage at lower rates than buying separately.
- Commercial Umbrella Insurance: Adds extra liability protection when lawsuits exceed your other policy limits.
What Does Employers’ Liability Insurance Cover?
Employers' liability coverage protects you from specific workplace lawsuits but doesn't cover every situation your business faces. The table below shows which scenarios are covered and which need other types of business insurance.
An employee sues, claiming inadequate safety training led to their injury. | ✅ | A warehouse worker falls from an improperly secured ladder and claims you didn't train them on ladder safety protocols, which employers' liability insurance covers because they're alleging negligence beyond what workers' compensation handles. |
A customer slips on a wet patch and falls in your store lobby. | ❌ | A customer injures themselves on wet floors, but employers' liability won't cover this since they aren't your employees. You'd need general liability insurance for customer injuries instead. |
A spouse sues for loss of companionship after an employee's work-related death. | ✅ | When a construction worker dies in an accident, the employee's spouse sues for emotional distress and loss of consortium because employers' liability protects against these third-party family claims that workers' compensation doesn't address. |
An employee steals company funds, and you want to recover the money. | ❌ | An office manager embezzles $50,000 from the company accounts. But you'd need different insurance for theft — like crime insurance or an employee dishonesty bond — since employers' liability covers only injury-related lawsuits. |
An employee gets injured due to faulty equipment you knew was dangerous. | ✅ | A factory worker loses fingers in a machine with broken safety guards you knew about, then sues for failing to maintain safe conditions. You're covered since it's a direct negligence claim against your company. |
An employee claims workplace harassment created a hostile environment. | ❌ | A sales rep sues for sexual harassment by their supervisor. This falls outside employers' liability coverage because you'd need employment practices liability insurance (EPLI) for discrimination and harassment claims. |
How Much Employers’ Liability Insurance Do I Need?
Every business with employees needs employers' liability insurance since any worker can sue you beyond what workers' compensation covers. Most companies start with standard coverage limits, but you’ll need more depending on what kind of business you run and how big it is.
A few key things affect how much coverage makes sense for you:
- 1Your state's regulations and legal climate
Settlement amounts and court decisions vary widely. Some states favor plaintiffs more, increasing what you might pay. Each state sets different coverage rules, including minimum limits and mandatory requirements. Your state insurance department has the specific details for your area.
- 2Your industry's risk level
If you're in construction, manufacturing or transportation, you'll likely need higher limits because workplace injuries are more serious and costly.
- 3Your number of employees
Large retailers with hundreds of employees or growing tech companies face more exposure simply because more people could file lawsuits.
- 4Potential lawsuit costs
When an employee becomes permanently disabled or dies, their family's lawsuit can be substantial. That's why restaurants and trucking companies with significant assets often go with higher coverage limits.
Your insurance agent can explain these factors and help you figure out what coverage limits make sense for your situation. Getting the right amount matters because it directly affects your employers' liability insurance cost while ensuring you're adequately protected.
Employers’ Liability Insurance: Bottom Line
Employers' liability insurance handles a different type of claim than workers' compensation. This coverage applies if employees sue you for negligence or their families want compensation beyond regular workers' comp payouts. It won't protect against every workplace issue, but it takes care of the serious lawsuits that could hurt your business financially.
Employers’ Liability Coverage: FAQ
Employers' liability insurance coverage raises plenty of questions for small business owners. We've answered the most frequently asked questions about it:
What's the difference between employers' liability and workers' compensation?
Workers' comp automatically pays medical bills and wages when employees get hurt at work. Employers' liability starts if they sue you for negligence beyond what workers' comp covers. Most states bundle both together, except North Dakota, Ohio, Washington and Wyoming, where you buy them separately.
What is payroll insurance?
Payroll insurance isn't a type of coverage. People often use this term when discussing employment-related insurance calculated based on payroll amounts. Workers' comp and employers' liability premiums use your annual payroll to help insurers determine your risk exposure.
Can I buy employers' liability insurance separately from workers' comp?
In most states, you can't. It automatically comes bundled with workers' compensation and isn't sold separately. The exceptions are North Dakota, Ohio, Washington and Wyoming, where you buy workers' comp from the state but get employers' liability coverage from private insurers instead.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
He writes about economics and insurance, breaking down complex topics so people know what they're buying.