Employer's Liability Insurance vs. Workers' Compensation Insurance

Employer's liability and workers' compensation insurance both cover workplace injuries but focus on different aspects. Employer's liability insurance (ELI) covers legal costs and damages if the employer faces a lawsuit for negligence or other claims. On the other hand, workers' compensation insurance (WCI) covers medical expenses and lost wages for injured employees, regardless of who is at fault.

Workers' compensation insurance is a no-fault coverage designed to provide immediate medical and wage benefits to employees who suffer work-related injuries or illnesses. It ensures that employees receive the care they need without litigation. It allows employees to claim benefits easily and helps employers manage workplace injuries.

Employer's liability insurance, on the other hand, comes into play when an employee decides to sue the employer for negligence or unsafe working conditions that led to the injury. This insurance covers the legal costs and any damages awarded to the employee. It is not a substitute for workers' compensation but an additional layer of protection for employers against lawsuits. This coverage is particularly useful when workers' compensation does not cover specific claims, such as those involving third-party lawsuits, dual capacity claims or injuries caused by intentional acts.

Workers’ compensation and employer's liability insurance cover different types of claims relevant to businesses. Understanding the difference between these two types of coverage will help you be better informed about your insurance policies and what kind of coverage your business needs.

Employer’s liability coverage pays for any legal costs related to workplace injuries and illnesses. These include, but are not limited to, court costs, settlements and damages. Employer's liability claims can fall under the following categories:

• Negligence: Employer negligence claims occur when the employee holds the employer responsible for failing to provide a safe working environment. For example, an employee injured by outdated equipment or due to a lack of training can claim negligence.
• Third-party overaction: A third party can file a claim against an employer when the actions of one of its employees cause injuries to the third party. For instance, a customer can sue a business if injured due to an employee’s lack of training.
• Dual capacity: Claims where the injured employee asserts that you acted in some capacity in addition to your role as an employer, such as a product manufacturer or property owner, resulting in the injury. For example, if you own the property where the employee is injured, they can sue you as both their employer and the property owner.
• Consequential bodily injury: Claims made for secondary injuries resulting from the initial injury or illness. For instance, if your employee's spouse contracts the same illness as your employee and sues you, it’s considered a consequential bodily injury claim.
• Loss of consortium: Claims where the injured or ill employees’ loved ones seek compensation for the loss of companionship, affection and support resulting from the workplace injury.

Meanwhile, workers' compensation insurance provides comprehensive benefits to employees who suffer work-related injuries or illnesses. These include, but are not limited to, medical expenses, rehabilitation costs and partial wage replacement. Coverage under workers' compensation typically consists of the following categories:

• Medical expenses: Workers' compensation covers all necessary medical treatments for the injured employee, including hospital stays, surgeries, medications and physical therapy. For example, if an employee breaks a leg on the job, workers' compensation will cover the costs of medical care and rehabilitation.
• Wage replacement: Provide partial wage replacement to employees who cannot work due to work-related injuries or illnesses. This usually amounts to a percentage of the employee's average weekly wage. For instance, if an employee cannot work for several months due to a severe back injury, workers' compensation will provide a portion of their lost wages.
• Permanent disability benefits: Employees who suffer permanent impairments due to workplace injuries. These can include payments for loss of function or the inability to return to the same type of work.
• Temporary disability benefits: These payments are made to employees who are temporarily unable to work due to a work-related injury or illness. These benefits continue until the employee can return to work or reaches maximum medical improvement.
• Vocational rehabilitation: Offers services to help injured employees return to work in their previous job or a new position. This can include job training, resume assistance and career counseling. For example, workers' compensation might cover retraining costs for a new role if an employee can no longer perform their previous job due to an injury.
• Death benefits: Provides compensation to the dependents of employees who die as a result of a work-related injury or illness. This can include funeral expenses and ongoing financial support for the deceased employee's family.

Workers' compensation and employers' liability insurance also have certain exclusions from their standard coverage. For example, workers' compensation insurance generally excludes the following from its coverage:

Meanwhile, employer's liability insurance coverage excludes certain events, including the following:

In most states, businesses are legally required to purchase workers’ compensation insurance, which typically includes professional liability coverage. Self-employed business owners without employees qualify for workers’ compensation exemptions and are generally not legally required to get workers’ compensation or employer's liability insurance.

Additional exemptions can vary from state to state. Georgia, for instance, only requires businesses to have workers’ compensation insurance if they have three or more employees. However, Texas does not require private employers to carry workers’ compensation unless they have business with the government.