Stop Gap Coverage: The Employer’s Liability Gap in Four States
If you employ people in North Dakota, Ohio, Washington or Wyoming, there is a hole in your comp coverage that a general liability endorsement fills.
- State fund comp policies generally provide statutory benefits without employer’s liability coverage
- Employer’s liability responds to third-party-over suits, loss of consortium and dual capacity claims
- Stop gap coverage is added by endorsement to your general liability policy, not the comp policy
- Required for employees in North Dakota, Ohio, Washington and Wyoming
- Match the limit to your contracts, commonly $1 million
The two parts of a comp policy
A private workers’ compensation policy has Part One and Part Two. Part One pays statutory benefits — medical and indemnity under the state schedule. Part Two is employer’s liability, and it responds to injury suits that fall outside the benefit schedule.
Part Two matters more than most employers realize. It is what covers third-party-over actions, where an injured employee sues a general contractor and the general contractor seeks indemnity from you under the subcontract. It also covers loss of consortium claims by a spouse and dual capacity claims.
What the state funds leave out
Exclusive state fund policies in North Dakota, Ohio, Washington and Wyoming generally provide Part One only. So an employer in those states with only a state fund policy has statutory benefits and no employer’s liability coverage at all.
On a construction site, that is a gap around exactly the claims most likely to be expensive.
How stop gap works
Stop gap coverage is an endorsement to your general liability policy providing the employer’s liability coverage the state fund omits. It is inexpensive, and the limit should match what your contracts require for employer’s liability — commonly $1 million per accident, per disease and per employee.
Two things to check alongside it. First, whether your general liability policy carries an action-over exclusion, which can undercut the stop gap coverage for exactly the claims it is meant to address. Second, whether every state where you have employees is listed.
Who needs it
Any business with employees in the four exclusive fund states. It is most urgent for contractors, staffing firms and anyone working on someone else’s site, because that is where third-party-over claims originate.
It is also a contract compliance item. If your subcontract requires employer’s liability limits and your state fund policy provides none, you are out of compliance with an agreement you already signed.