What Is Employers’ Liability Insurance And What Does It Cover? (2025 Guide)

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 family lawsuits, not customer injuries or employee harassment cases.

Your coverage needs depend on industry risk, employee count, potential settlement size and state legal climate.

Employers’ Liability Insurance: How It Works

Employers' liability insurance is Part Two of your workers' compensation policy. While Part One covers standard workplace injuries through no-fault benefits, Part Two kicks in when employees decide to sue your business directly.

Most people don't realize there's a gap between what workers' comp covers and what can actually happen. When an employee gets hurt, workers' comp automatically pays their medical bills. But if they later claim you were negligent or their spouse wants compensation for loss of companionship, you'll need employers' liability insurance to pay your legal defense costs, attorney fees and any settlements.

Employer's Liability and Workers' Comp Insurance

In most states, you get both workers' comp and employers' liability bundled together from one insurer. But monopolistic states like North Dakota, Ohio, Washington and Wyoming work differently.

These four states run their own workers' comp programs, which don't include employers' liability coverage. You buy workers' comp from the state and employers' liability from a private insurer.

What Does Employers’ Liability Insurance Cover?

Employers' liability coverage protects you from specific workplace lawsuits, but it doesn't cover every situation your business faces. The table below shows which scenarios trigger coverage and which need other types of business insurance.


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' comp 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 employees. You'd need general liability insurance for non-employee injuries instead.
Spouse sues for loss of companionship after employee's work-related death.	✅	When a construction worker dies in an accident, their spouse sues for emotional distress and loss of consortium because employers' liability protects against these third-party family claims that workers' comp doesn't address.
Employee steals company funds, and you want to recover the money.	❌	An office manager embezzles $50,000 from company accounts. However, recovering stolen funds requires crime insurance or an employee dishonesty bond since employers' liability only covers injury-related lawsuits, not theft.
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.
Employee claims workplace harassment created a hostile environment.	❌	A sales rep sues for sexual harassment by their supervisor, which falls outside employers' liability coverage because discrimination and harassment claims need employment practices liability insurance (EPLI) to handle workplace conduct issues.

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:

1
Your 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.
2
Your 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.
3
How many employees you have.
Large retailers with hundreds of employees or growing tech companies face more exposure simply because more people could file lawsuits.
4
What lawsuits could cost you.
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 does. If employees sue you for negligence or their families want compensation that goes beyond regular workers' comp payouts, this coverage kicks in. 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:

How much does employers' liability insurance cost?

Costs depend on your state's legal climate, industry risk and employee count. Construction and manufacturing businesses pay more than offices since workplace injuries are more serious. Since it bundles with workers' comp, most businesses find the additional cost reasonable for lawsuit protection.

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 kicks in 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.

Is employment liability insurance the same as employers' liability?

Yes, they're the same thing. Both terms describe coverage that protects you from employee lawsuits beyond standard workers' comp benefits. Insurers use the terms interchangeably, though you'll see "employers' liability" more often in policy documents. Either way, you're getting the same financial protection.

How do I get a quote for employers' liability insurance?

Contact several business insurance providers since this coverage typically comes bundled with workers' compensation. Your agent will need details about your industry, employee count, annual payroll and claims history. You'll need separate quotes in monopolistic states since they handle workers' comp directly through state programs.

What is payroll insurance?

Payroll insurance isn't a specific type of coverage. People often use this term when talking about employment-related insurance that's calculated based on your payroll amounts. Workers' comp and employers' liability premiums use your annual payroll to help insurers figure out your risk exposure.

What happens if I don't have employers' liability insurance?

You'd be liable for legal costs and settlements when employees sue beyond workers' comp coverage. These expenses can easily hit hundreds of thousands for severe injury cases. Most states require this coverage, so going without it puts you in violation of insurance laws.

Does employers' liability insurance cover independent contractors?

No, it only covers people who are actual employees under your workers' comp policy. However, coverage applies if courts later decide a contractor was an employee. For contractor-related liability protection, you'd typically need general liability or professional liability insurance instead.

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!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

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What is Employer's Liability Insurance?