Employer's Liability Insurance vs. Workers' Compensation Insurance

Employer’s liability insurance and workers’ compensation insurance are terms often used together. Although they both involve employee injuries or illnesses, their coverage differs.

Workers’ compensation insurance pays for an employee’s medical costs, lost wages, disability benefits and more in the event of a workplace injury or illness. However, if the employee or a third party sues the employer, employer's liability coverage pays for legal fees and any additional compensation. In other words, employer's liability coverage serves as an extra layer of protection for your business.

Employer's liability and workers' compensation, although often bundled together, have distinct differences. Identifying these differences is essential to determining which is right for your business.

Employer’s liability coverage pays for any legal costs related to workplace injuries and illnesses. These include, but are not limited to, court costs, settlements and damages. Claims can fall under the following categories:

• Negligence: Employer negligence claims occur when the employee holds the employer responsible for failing to provide a safe working environment. For example, an employee injured by an outdated piece of equipment or due to lack of training can claim negligence.
• Third-party over action: A third party can file a claim against an employer when the actions of one of its employees cause injuries to the third party. For instance, a customer can sue a business if they are injured due to an employee’s lack of training.
• Dual capacity: Claims where the injured employee asserts that you acted in some capacity in addition to your role as an employer, such as a product manufacturer or property owner, resulting in the injury. For example, if you own the property where the employee is injured, they can sue you as both their employer and the property owner.
• Consequential bodily injury: Claims made for secondary injuries resulting from the initial injury or illness. For instance, if your employee's spouse contracts the same illness as your employee and sues you, it’s considered a consequential bodily injury claim.
• Loss of consortium: Claims where the injured or ill employees’ loved ones seek compensation for the loss of companionship, affection and support resulting from the workplace injury.

In most states, businesses are legally required to purchase workers’ compensation insurance, which typically includes professional liability coverage. Self-employed business owners without employees qualify for workers’ compensation exemptions and are typically not legally required to get workers’ comp or employer's liability insurance.

Additional exemptions can vary from state to state. Georgia, for instance, only requires businesses to have workers’ compensation insurance if they have three or more employees. Texas, on the other hand, does not require private employers to carry workers’ compensation unless they have business with the government.

Employer’s liability (EL) coverage and employment practices liability (EPLI) address different aspects of employer-related risks. While employer’s liability coverage focuses on workplace injuries and illnesses, EPLI covers claims related to employment practices and relationships with employees. These include, but are not limited to:

• Wrongful termination: Termination alleged to be unjust or unlawful.
• Discrimination: Claims of unfair treatment because of a person's race, gender, age or disability.
• Harassment: Workplace claims involving sexual, verbal or physical abuse.
• Slander or libel: Reputational damage claims resulting from false statements about an employee.
• Breach of an employment contract: Claims that an agreement has been violated.

EPLI covers the legal costs, settlements and judgments if your business faces such claims.

Employer’s liability insurance and workers’ compensation insurance cover different aspects of work-related injuries and illnesses. MoneyGeek answers frequently asked questions to help you learn more about the differences between employer’s liability insurance and workers’ compensation.