Employers Liability Insurance vs. Workers' Compensation Insurance

As your business grows, so does your potential exposure. Because of this, employers need different types of insurance coverage to protect them from possible liabilities. As a business owner, you should understand two types of coverage: employers liability insurance and workers' compensation insurance.

But what's the difference between employers liability insurance vs. workers' compensation insurance?

Employers liability insurance is typically included as part of a workers' compensation policy. It protects companies from potential financial loss because of a workplace injury or illness. Although these coverages are often bundled in a policy, they each serve a different purpose.

In this article, we'll explore the difference between workers' compensation and employers' liability insurance and what each covers.

What Is Employers Liability Insurance?

Employers liability ("EL") insurance is insurance that handles claims from workers who have suffered a job-related injury or illness not covered by workers’ compensation. It protects employers from potential financial losses due to employee lawsuits related to workplace injuries or illnesses.

Most workers’ compensation policies automatically include employers liability coverage. However, the exception is for employers in monopolistic states who must obtain coverage through a state fund (North Dakota, Ohio, Washington, and Wyoming). In such cases, employers liability coverage is not provided in their policy and will need to be obtained as a standalone policy or more commonly as a stop-gap endorsement to their general liability or workers’ compensation policy they may have in place for other states.

What is the definition of employers liability? It’s the legal obligation of an employer to compensate employees for any injuries, illnesses, or damages they suffer while performing their job duties.

Employers liability insurance is designed to protect employers from financial losses if they are found to be legally liable for a workplace accident or illness. This includes situations where the employee claims that the employer's actions or negligence, such as not maintaining equipment or providing a safe working environment, contributed to the incident. The insurance coverage typically helps cover the costs of legal defense, settlements, or judgements related to such claims.

You may also hear this type of insurance referred to more generically as "liability insurance for businesses" or "business insurance."

What Does Employers Liability Insurance Cover?

In workplace accident or injury lawsuits that are beyond the benefits provided by workers’ compensation, such as third-party over action, dual-capacity, consequential bodily injury and loss of consortium lawsuits, employers liability insurance typically covers:

• Damages
• Court judgments
• Court fees
• Settlements
• Any other legal costs related to the lawsuit

Without adequate insurance coverage, one employee lawsuit could significantly impact your business, negatively affecting your bottom line. When considering who needs employers liability insurance, remember that this type of coverage serves as an extra layer of protection for your business.

What Does Employers Liability Insurance NOT Cover?

Although EL insurance can help protect your business, it does not cover everything employee related. For example, employers liability insurance does not cover:

• Criminal acts
• Intentional injuries
• Discrimination
• Harassment
• Retaliation
• Violation of an employee’s rights
• Wrongful termination

What Is the Difference Between Employment Practices Liability Insurance (EPLI) and Employers Liability (EL) Insurance?

Other types of business insurance exist, including employment practices liability insurance (EPLI). But what is the difference between EPLI and EL?

Employers liability (EL) insurance relates to workplace injury or illness claims. On the other hand, employment practices liability insurance (EPLI) provides coverage for claims related to other employee-related risks, such as wrongful termination, workplace harassment, discrimination, breach of contract, slander, or libel.

Like EL insurance, EPLI covers legal costs, judgments, and settlements.

Workers' Compensation Insurance, Defined

Workers' compensation, or workers' comp, is insurance coverage that provides employees with certain benefits if they suffer a workplace injury or illness. These benefits include medical expenses, rehabilitation costs, and lost wages.

Most states require employers to carry workers' compensation, although the number of employees required before workers' comp is mandatory varies state by state.

The U.S. Bureau of Labor Statistics reported that non-fatal private company-related injuries and illnesses reached 2.8 million in 2022.¹ Keep in mind that employers liability is typically included with workers compensation coverage. Obtaining workers' comp coverage may benefit you and your business, even if you're not required to carry it.

What Does Workers' Compensation Cover?

Like EL insurance, workers' comp protects against certain expenses. What does workers' comp cover?

• Medical expenses
• Ongoing treatment for a workplace illness
• Disability benefits
• Death and survivor's benefits, including funeral expenses
• Lost wages

What Does Workers' Compensation NOT Cover?

The injury or illness must be work-related for workers' compensation benefits to apply to you or your employees. However, if the accident or illness occurs outside of the employee's work activities, workers' comp does not provide any benefits.

Additionally, the following injuries and illnesses are usually not covered by workers' compensation insurance if:

• The injury occurred because of the employee's intoxication while at work
• The injury goes unreported
• The injuries are minor, such as a small cut requiring first-aid treatment
• The worker is self-employed or an independent contractor performing work is outside of your normal scope of business and not under your direction or control

Who Needs Workers' Compensation?

Most states require employers with one to five (or more) employees to carry workers' compensation. For example, Arizona requires businesses with one or more employees to carry workers' comp, while Tennessee requires coverage for non-construction businesses with 5 or more employees.

You should familiarize yourself with your state's workers' compensation requirements, ensuring you're compliant.

However, even if you're not required to carry workers' compensation in your state, you may want to weigh the benefits of having this coverage in place – for you and your employees.

What Is the Difference Between Workers' Compensation and Employers Liability Insurance?

Understanding the differences between workers' compensation and employers liability insurance is essential when protecting your business.

	Workers' Compensation	Employers Liability
Medical Costs
Lost Wages
Disability Payments
Death Benefits
Vocational Trainings
Legal Settlements
Legal Judgments
Court Costs

Protect Your Business With the Right Insurance Coverage

Understanding how to protect your business is key when you employ workers. One way to do this is to recognize the business protections of employers liability insurance vs. workers' compensation. When the unexpected happens, know you're covered with the right business insurance.

¹Bureau of Labor Statistics, U.S. Department of Labor, Survey of Occupational Injuries and Illnesses, Employer News Release Nov 8, 2023