What Is Employers’ Liability Insurance?
Employers’ liability insurance (ELI) is a liability policy that protects employers from the costs of certain employee claims arising from job‑related injuries or illnesses that fall outside the scope of workers’ compensation. It’s commonly sold as “Part 2” of a workers’ compensation policy; Part 1 pays medical bills and partial lost wages under state workers’ compensation law, while ELI protects the employer if an employee sues for additional damages (for example, alleging employer negligence that caused pain and suffering or punitive damages).
Key takeaways
– ELI supplements workers’ compensation and pays legal costs, settlements, and judgments for employee lawsuits not covered by workers’ comp. (Investopedia)
– ELI is often bundled with workers’ compensation as Part 2 of the policy; many employers purchase both together. (Investopedia)
– Typical ELI policy limits can be as low as $100,000 per person / $100,000 per incident / $500,000 aggregate, but limits vary; employers should choose limits that reflect their risk. (SFM; Investopedia)
– ELI does not cover employment‑practice claims (discrimination, harassment, wrongful termination). Employers need Employment Practices Liability Insurance (EPLI) for those exposures. (Investopedia; Insureon)
– Some states prohibit insurers from covering punitive damages; ELI policies sometimes include “most‑favored jurisdiction” wording to obtain more favorable law. (IRMI; Investopedia)
How employers’ liability insurance works
– Primary purpose: pay defense costs, settlements, and court judgments when an employee sues the employer for damages beyond workers’ compensation benefits (e.g., claims for negligence, pain and suffering, punitive damages if allowed). (Investopedia)
– Triggering events: employee files a civil suit alleging employer liability (e.g., negligent training, maintenance, failure to provide protective equipment) rather than relying solely on workers’ compensation benefits.
– Relationship to workers’ comp: Workers’ compensation is typically the first line of coverage (no‑fault medical and wage benefits). ELI picks up lawsuits and exposures that arise outside strict workers’ comp statutes or where an employee sues for additional damages. (Investopedia; U.S. Dept. of Labor)
What employers’ liability insurance covers
Common covered items (policy language varies):
– Defense costs (attorney fees, court costs) for covered employee claims.
– Settlements and judgments for compensatory damages where workers’ compensation does not apply or is insufficient.
– Damages for loss of consortium, pain and suffering, and other non‑compensatory awards where permitted by law.
– Often available as part of the workers’ compensation policy (Part 2). (Investopedia; SFM)
Common exclusions and limits
Typical exclusions (read your policy):
– Intentional acts by the employer (including deliberate harm, fraud, illegal profit, or purposeful violation of law).
– Criminal acts and fraud by the insured.
– Claims arising from employment‑practice issues such as discrimination, sexual harassment, wrongful termination—these require EPLI. (Investopedia; Insureon)
– Claims arising from corporate restructuring events (mass layoffs, plant closures, mergers/acquisitions) are often excluded.
– Independent contractors and employees working outside the U.S. and Canada are typically excluded. (Investopedia)
Limits:
– Policies set per‑employee, per‑incident, and aggregate limits. Examples sometimes cited: $100,000 per employee / $100,000 per incident / $500,000 aggregate (but these are illustrative; carriers and employers select limits to reflect exposure). (SFM; Investopedia)
Punitive damages:
– Many states restrict insurer payment of punitive damages. ELI policies may include a “most‑favored jurisdiction” clause that applies the law of a jurisdiction that allows coverage, when certain conditions are met. (IRMI; Investopedia)
How is employers’ liability different from general liability?
– General liability (commercial general liability, CGL) protects a business from third‑party claims—customers, vendors, or the public—such as bodily injury on business premises, or property damage caused by the business.
– Employers’ liability specifically addresses claims by employees for work‑related injuries/illnesses that go beyond workers’ compensation. CGL typically excludes employee injury claims; ELI fills that gap. (Investopedia)
Employment Practices Liability Insurance (EPLI)
– EPLI is a separate policy that covers claims by employees related to employment practices: discrimination (sex, race, age, disability), harassment (including sexual harassment), wrongful termination, retaliation, failure to promote, and related allegations. (Insureon)
– ELI does not cover these exposures. Most employers who are concerned about employment‑related lawsuits purchase EPLI in addition to workers’ comp + ELI.
Do you need EPLI and ELI?
– If you have employees, you will almost certainly need workers’ compensation (state requirement in most states).
– Employers’ liability is commonly included with workers’ compensation as part of the same policy and is advisable because employees can—and do—file lawsuits seeking damages beyond workers’ comp. (Investopedia)
– If you want coverage for discrimination, harassment, wrongful termination, and related claims, you must purchase EPLI separately. Many employers carry EPLI to protect against potentially costly employment‑practice lawsuits. (Insureon)
Practical steps for employers (purchase, limits, risk control, and claims handling)
1. Confirm statutory workers’ compensation obligations
– Check state law (or federal rules for federal employers) to ensure you carry required workers’ compensation coverage. Noncompliance can lead to fines and the loss of defenses against employee suits. (The Hartford; U.S. Dept. of Labor)
2. Buy workers’ compensation with employers’ liability (ELI) included
– Most carriers sell ELI as Part 2 of a workers’ compensation policy. Make sure ELI is included or added. Ask for the policy’s ELI limits, exclusions, and definitions.
3. Set appropriate limits and consider excess/umbrella
– Evaluate your industry’s claims history, payroll, number of employees, and potential severity of suits. Typical small‑business limits may be modest; larger or higher‑risk employers should choose higher limits or buy excess/umbrella liability for additional protection. (SFM)
4. Purchase EPLI if you have employees
– To cover discrimination, harassment, and wrongful termination claims, buy EPLI. Review EPLI limits, defense provisions, and retroactive dates (prior acts coverage). (Insureon)
5. Review policy exclusions and special clauses
– Look for punitive‑damage limitations and whether the policy has a “most‑favored jurisdiction” clause that may broaden coverage in multistate operations. Understand exclusions for intentional acts and restructuring events. (IRMI; Investopedia)
6. Confirm geography and employee definitions
– Ensure your policy covers employees working in locations where you operate (states, U.S. territories, Canada if applicable). Confirm whether independent contractors are covered (they usually are not) and whether temporary/seasonal workers are included.
7. Implement robust prevention and documentation systems
– Reduce the chance of injury and lawsuits with safety programs, training, PPE, hazard assessments, clear policies, and employee handbooks. Document training, safety inspections, incident reports, and medical care—this evidence is crucial if a claim arises.
8. Maintain an incident response plan
– Prompt reporting to your insurer, documenting the incident, preserving evidence, and cooperating with investigations help contain costs. Use a standard incident form and designate a person responsible for claims reporting.
9. Manage disputes proactively
– Consider early mediation or structured settlement negotiations to limit defense costs. When settling, require a release that discharges the employer and insurer from further liability tied to the incident (standard in settlements). (Investopedia)
10. Work with experienced advisors
– Use a broker or risk manager to compare carriers and terms, and retain defense counsel experienced in workers’ compensation and employment litigation. For multistate exposures, consult counsel about jurisdictional issues and the implications of “most‑favored jurisdiction” wording.
Checklist for buying/maintaining coverage
– Verify workers’ comp statutory obligations for every jurisdiction where you have employees. (The Hartford; U.S. Dept. of Labor)
– Confirm ELI is included with workers’ comp policy; get written limits and exclusions. (Investopedia)
– Choose ELI limits appropriate to your risk and consider umbrella/excess policies. (SFM)
– Buy EPLI to cover employment‑practice exposures (discrimination, harassment, wrongful termination). (Insureon)
– Review policy language for punitive‑damage treatment and most‑favored jurisdiction clauses. (IRMI)
– Implement safety programs and document all incidents and training. (Investopedia)
– Ensure prompt claims reporting and retain counsel for defense. (Investopedia)
Example risk scenario (illustrative)
– A construction worker slips on an inadequately secured platform and suffers a serious injury. Under workers’ compensation, the employee receives medical benefits and partial wage replacement. If the employee sues alleging the employer’s negligence caused additional harm and seeks pain and suffering and punitive damages, ELI can provide defense and pay covered judgments/settlements beyond workers’ comp—subject to policy limits, exclusions, and state law.
The bottom line
Employers’ liability insurance fills an important gap alongside workers’ compensation by protecting employers against employee lawsuits for work‑related injuries and illnesses that result in claims beyond statutory workers’ comp benefits. Because employers face multiple exposures—personal injury suits, employment‑practice claims, punitive‑damage risk—most prudent employers carry workers’ compensation with ELI and also purchase EPLI and, if necessary, excess liability coverage. Effective risk management, clear policies, prompt incident reporting, and working with knowledgeable brokers and counsel reduce both the chance of claims and their financial impact.
Sources and further reading
– Investopedia. “Employers’ Liability Insurance.” https://www.investopedia.com/terms/e/employers-liability-insurance.asp
– The Hartford. Workers’ Compensation Laws by State. https://www.thehartford.com/workers-compensation/workers-comp-by-state
– U.S. Department of Labor. Workers’ Compensation. https://www.dol.gov/general/topic/workcomp
– Insureon. Employer’s Liability Insurance; What Does Employment Practices Liability Insurance Cover? https://www.insureon.com
– Hiscox. The 2017 Hiscox Guide to Employee Lawsuits. (statistic referenced regarding typical additional sums employers might face)
– SFM. What Are Employer Liability Limits? https://www.sfm.com
– ProInsuranceGroup. What Does Employers Liability Insurance Cover? https://www.proinsurancegroup.com
– IRMI (International Risk Management Institute). Most Favored Venue Wording. https://www.irmi.com
If you’d like, I can:
– Review actual policy language (redact sensitive data) and summarize coverage gaps, or
– Provide a sample checklist tailored to your industry (construction, healthcare, retail, etc.). Which would you prefer?