Karen Condor is an insurance and finance writer who has degrees in both journalism and communications. She began her career as a reporter covering local and state affairs. Her extensive experience includes management positions in newspapers, magazines, newsletters, and online marketing content. She has utilized her researching, writing, and communications talents in the areas of human resources...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Joel...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Mar 15, 2022

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Most states require some form of workers compensation insurance and carry different laws regarding benefits.

Work Comp coverage offers benefits to employees of companies and must be purchased by employers.

A workers compensation policy has three parts; state benefits, referred to simply as work comp, employer’s liability (discussed here), and “other states” benefits.

Employer’s liability coverage protects a business when an employee sues the company for workplace injury or illness. Employer’s liability insurance is part of workers’ compensation coverage. Workers’ compensation pays for medical expenses and partial lost wages from work-related injuries and illnesses. Employer’s liability insurance provides protection to business owners if the company is blamed for an employee injury or illness.

Employers liability insurance covers legal defense costs when an employee blames your business negligence for their injury or illness. The costs include: hiring a lawyer, court fees, and paying a settlement or judgement. So, employers liability insurance coverage covers negligence lawsuits over work-related injuries and occupational diseases.

If an employee sues the company, this policy will cover the legal costs. When employees get workers compensation benefits, they agree not to sue the company. The type of lawsuit covered by an employers liability insurance is only when an employee sues the business directly.

Coverage part 2 of the worker’s compensation insurance policy details the employer’s liability section of the policy.

There are two instances where employer’s liability would be necessary:

First, an employee may reject coverage under part 1 of the work comp policy, or for some reason, may not be able to collect for benefits under part 1.

An example may be when someone is performing the work of a household employee. This type of work can be excluded for coverage under certain state laws.

Another situation would arise when a surviving spouse or dependent sues the employer for damages as a result of the death of their family member.

For example, if your spouse were to die as a result of an explosion at a factory, you may retain the right to sue the employer for damages.

This concept is known as loss of consortium, which can be described as the loss of the normal benefits one would receive in the event a relationship they were in ceased.

As mentioned earlier, each state has different laws, so be sure to contact your employer or state department of insurance to determine what benefits you may be eligible for as a result of a work-related accident.

Most workers compensation policies automatically include employers liability insurance. However, if you live in monopolistic states such as North Dakota, Ohio, Washington, or Wyoming, you can purchase this policy as stopgap coverage through private insurance to ensure protection against employee benefits.