What is employer's liability insurance and do I need it?

Employer's liability is Part Two of the standard workers compensation policy. Part One pays the benefits the law requires; Part Two pays damages and defense when an employee injury turns into a lawsuit that workers comp does not resolve (standard policy form). If you buy a standard workers comp policy in North Carolina, you already have it.

Most employee injury claims stop at workers comp, because North Carolina makes it the employee's exclusive remedy against an employer who complies with the Act (G.S. 97-10.1). Employer's liability is for the exceptions. Forms vary by insurance company, and whether a given lawsuit is covered depends on the facts and your policy wording.

What employer's liability covers

Third-party over claims. When an injured employee sues someone else, such as an equipment maker or a property owner, that party may turn around and claim against you. Part Two covers damages you legally owe in that situation, where the law allows recovery.

Claims by family members. Covers damages for care and loss of services, and consequential bodily injury to a spouse, child, parent, brother or sister of the injured employee, when those damages flow directly from the work injury.

Dual capacity claims. Covers a claim against you in a capacity other than as employer, for example as the maker of a product the employee was using.

Claims outside the exclusive remedy. Covers suits that fall outside workers comp's exclusive remedy, subject to the policy's exclusions. Whether an intentional misconduct claim is covered is often disputed; see the North Carolina rules below.

Defense. The insurance company has the right and duty to defend covered suits at its expense, until the applicable limit has been paid.

Three limits. Standard limits are $100,000 bodily injury by accident each accident, $500,000 bodily injury by disease policy limit, and $100,000 bodily injury by disease each employee. Higher limits are available and are often required by contracts and umbrella policies.

Stop gap coverage. A few states require employers to buy workers comp from a state fund that may not include employer's liability. Stop gap coverage fills that gap. North Carolina is not one of those states, but it matters if you have employees working elsewhere.

Umbrella connection. Most commercial umbrella policies list employer's liability as required underlying coverage at a set limit. If your Part Two limits are lower than the umbrella requires, you can have a gap.

What it usually does not cover

• Benefits owed under the workers compensation law itself (that is Part One)
• Liability assumed under a contract, except a warranty that your work is done in a workmanlike manner
• Bodily injury intentionally caused or aggravated by you
• Employment practices claims such as discrimination, harassment, demotion or termination
• Punitive damages for an employee employed in violation of law, and fines or penalties
• Work under federal compensation laws (Longshore, FELA) and vessel crew members, unless endorsed
• Bodily injury outside the United States and Canada, except to citizens or residents temporarily abroad

Forms, endorsements and availability vary by insurance company. Your own policy governs.

Who needs employer's liability

• Every employer that buys a standard workers comp policy, since it comes as Part Two
• Businesses with contracts that require specific employer's liability limits
• Businesses with an umbrella policy, which usually needs employer's liability underneath it
• Contractors and manufacturers, where third-party and product claims tied to employee injuries are more likely
• Employers with workers in other states, especially states with state-fund workers comp

North Carolina rules that shape employer's liability

Workers comp is the exclusive remedy. If the employer and employee are subject to and have complied with the Act, the employee's workers comp rights replace other claims against the employer for the injury (G.S. 97-10.1). This is why most employee injuries never become lawsuits against the employer.

Employees can still sue third parties. An injured employee keeps the right to sue a third party whose negligence caused the injury, and the Act sets out how that recovery is shared with the employer and insurer (G.S. 97-10.2). Those suits are where third-party over claims start.

The Woodson exception. The NC Supreme Court held that when an employer intentionally engages in misconduct knowing it is substantially certain to cause serious injury or death, the employee or estate may sue the employer in addition to a workers comp claim, with only one recovery (Woodson v. Rowland). The standard policy excludes bodily injury intentionally caused or aggravated by you (standard policy, Part Two), so coverage for a Woodson claim depends on the wording and is often contested.

Standard limits in North Carolina. The NC Rate Bureau's Basic Manual sets standard employer's liability limits of $100,000 each accident, $500,000 disease policy limit and $100,000 disease each employee, and allows increased limits (NCRB Rule 3).

Part of the same regulated policy. The NC Rate Bureau handles rate filings for workers compensation and the employer's liability insurance written with it (G.S. 58-36-1). Employers who cannot get coverage in the regular market get the same standard policy through the assigned risk plan (NCRB Rule 4).

No state fund in North Carolina. North Carolina employers insure with an authorized insurer or qualify to self-insure (G.S. 97-93). Stop gap coverage is only needed for employees working in states with a monopolistic state fund.

What drives the cost of employer's liability

Employer's liability is priced as part of the workers comp premium. These factors move it:

• The limits you choose above the standard
• Your workers comp classifications and payroll
• Your experience modification
• Whether you have employees in states with a state fund (stop gap)
• Contract and umbrella requirements that set minimum limits
• Claims history, especially lawsuits tied to employee injuries

We do not publish average prices. A licensed advisor quotes your actual situation across more than 100 insurance companies.