Employer’s Liability Coverage: The Half of Workers’ Comp Nobody Reads
Your comp policy has two parts. Part One pays your injured employee. Part Two is what pays when the general contractor comes after you.
- Part One pays statutory benefits; Part Two covers suits outside that schedule
- Third-party-over actions are the most common trigger and the most expensive
- Common limits are $1M per accident, per disease and per employee
- An action-over exclusion on your general liability policy can undercut it
- State fund states provide no Part Two — stop gap coverage fills the gap
What Part Two actually covers
Workers’ compensation is a trade: guaranteed statutory benefits for the employee, immunity from tort suits for the employer. Employer’s liability covers the claims that fall outside that trade.
Three categories matter. Third-party-over actions, where a general contractor or owner sued by your injured employee seeks indemnity from you. Loss of consortium claims, brought by a spouse for harm to the relationship. And dual capacity claims, where you are alleged to be liable in a role other than employer — as a product manufacturer, for example.
Why contractors care most
On a construction site the chain is predictable. Your employee is injured, cannot sue you because of exclusive remedy, so sues the general contractor. The general contractor invokes the indemnity clause in your subcontract and comes to you.
That indemnity demand can exceed the comp benefits substantially, and it is not a benefit claim. Without adequate Part Two limits, it is yours to fund.
The limits, and what defeats them
Standard Part Two limits are often $100,000 by default, which is well below what most subcontracts require. Increasing to $1 million per accident, per disease and per employee is inexpensive and usually contractually required — check your insurance exhibit.
Then check your general liability policy for an action-over exclusion. Some carriers add it, and it removes coverage for precisely the employee-injury indemnity claims that matter most. Finding it at renewal is far better than finding it during a claim.
Where it does not exist
Exclusive state fund policies in North Dakota, Ohio, Washington and Wyoming provide statutory benefits only. Employers there have no Part Two at all unless stop gap coverage is added by endorsement to the general liability policy.
That gap is cheap to close and routinely missed when a business hires its first employee in one of those states.