Employers' Liability Insurance - Agents Need to Know What Lawyers Already Do

Christopher J. Boggs, CPCU, ARM, ALCM
August 20, 2008

Workers' compensation insurance was designed as and remains the employee's sole remedy to recover medical costs and lost wages resulting from bodily injury suffered in the "course of employment" (as defined in earlier articles). There are, however, bodily and financial injuries that: 1) fall outside workers' compensation protection, and 2) are excluded by the general liability policy.

Part Two - Employers' Liability Insurance dovetails between and connects the workers' compensation policy and the commercial general liability policy; filling gaps created by the narrowness of the workers' compensation policy and exclusions in the commercial general liability policy.

Although included as part of the workers' compensation policy, employers' liability insurance is similar to and contains components of both the commercial general liability and the workers' compensation policy. Part II shares slightly more similarities with the commercial general liability policy than it does with workers' compensation (Part One).

Employers' Liability and Commercial General Liability

Employers' liability and commercial general liability both:
• Require negligence be proven by the injured person or entity before any payment of benefits. Workers' compensation is a "no-fault," exclusive remedy system where the only requirement to receive the statutorily-prescribed benefits is an injury arising out of and in the course of employment. Conversely, the employers' liability section (Part Two) requires the injured party (be they the employee, a family member or another entity) to prove that: 1) there was a duty owed to them; 2) the duty was breached by the insured; 3) an injury occurred; and 4) the breach of duty was the proximate cause of the injury. If negligence cannot be proven, the insured and the insurer have no legal liability and the policy does not indemnify the injured party.

• Apply a specific limit. Limits in the workers' compensation policy are mandated by individual state statute, regardless of the limits. Employers' liability coverage has a specific limit of liability - except in one (NY) or possibly two states (Mass.) where the coverage is unlimited. Basic employers' liability limits are $100,000 per occurrence for bodily injury; $100,000 per employee for bodily injury by disease; and $500,000 aggregate for bodily injury by disease. These limits can be increased by endorsement and the payment of additional premium.

• Coverage is written on a per occurrence basis with an aggregate limit for injury by disease. As above, the bodily injury limit is per occurrence with no aggregate; however, bodily injury by disease is subject to an annual aggregate limit.

• Additional limits are available from an umbrella/excess policy. Part One - Workers' Compensation, as stated above, pays whatever is required by statute with no limits cap. Employers' liability (Part Two) is subject to the limits shown on the declarations page. If additional limits are desired, the underlying limits are adequate and the insurance company is willing to provide the additional protection, the umbrella or excess policy can sit over the employers' liability coverage to increase the limits available.

Employers' Liability and Workers' Compensation

Employers' liability coverage dovetails and correlates with workers' compensation benefits by requiring that:
• Bodily injury or financial injury for which the insured is held legally liable must arise out of and in the course of the employee's employment for the insured. Employers' liability coverage is payable only when an outside party suffers bodily injury or financial injury as a direct result of the work-related injury suffered by the employee. There is one extension of employers' liability coverage allowing the eligible "outside party" to be the employee. The breadth and provisions of coverage will be discussed in a later section.

• The employment leading to injury must occur in or be attributable to a 3.A. listed (primary) state. Subject to the extraterritorial jurisdiction requirements of each state and the additional considerations highlighted in a previous article, this coverage part only extends protection if the employee is injured in a state or strictly eligible for benefits from a state specifically scheduled under 3.A. Employees injured while working in a non-3.A. state may not be eligible for extraterritorial extensions of coverage from the primary state of domicile due to lack of reciprocity between the subject states; if such reciprocity is unavailable, employers' liability coverage does not extend to any third party claims arising out of that injury.

• Bodily injury must occur during the policy period and the last day of any exposure causing or aggravating a bodily injury by disease must occur during the policy period. These same requirements apply before an injury can be compensable in the workers' compensation policy.

"Outside Party"

Before moving any further into the discussion of employers liability protection, the term "outside party," used several times above and several more times in the remainder of the employers' liability discussion, must be understood as it relates to the workers' compensation policy and the commercial general liability policy. For this discussion, "outside party" has two definitions based on which coverage form is being discussed. This difference must be clearly evident before moving forward in this discussion.

Workers' compensation is a "three-known-party" policy: 1) the employer/insured; 2) the employee (the injured); and 3) the insurance carrier. All three are known from the beginning. Any individual or entity not qualifying as one of these known parties is considered an "outside party."

Commercial general liability coverage also involves three parties, but only two are known up front: 1) the insured (as defined in the policy); and 2) the insurer. The third party, the injured party is unknown making them the "outside party" in a commercial general liability policy.

Following

Over the next several posts the employers' liability section, historically and wrongfully ignored as part of the workers' compensation policy, will be detailed. This can actually be a very valuable and important coverage once the policy limitations and coverage gaps creating its need are understood.

Since the coverage is just a throw-in (except in monopolistic states), little attention is paid to the provisions of the protection, but lawyers know - so should agents.

All terms in this glossary and the glossary itself is taken from the book "The Insurance Professional's Practical Guide to Workers' Compensation: From History through Audit." The book is available now to add to your insurance library.