In most states, businesses that employ workers are obligated by law to purchase workers compensation insurance. This ensures that employees injured on the job will receive workers compensation benefits. As long as they are provided those benefits, injured workers are prohibited from suing their employer.
Yet, workers compensation laws don't cover all workers or all types of injuries. Injured workers who aren't covered by the law may sue their employer for work-related injuries. Fortunately, employers are protected against employee suits by employers liability coverage. This coverage is automatically included under Part Two of the standard NCCI workers compensation policy.
Suits From Worker Injuries
While state laws generally bar workers (or their family members) from suing the employer for work-related injuries, the laws have some exceptions. Workers may be permitted to sue under the following circumstances:
- The worker isn't covered by the state WC law. Workers compensation laws typically exclude workers engaged in certain types of employment, such as agricultural or domestic work. If excluded workers are injured on the job, they may sue the employer for damages.
- The worker sustains an injury or illness not covered by the WC law. Non-occupational injuries and illnesses aren't covered by workers compensation laws. Moreover, some illnesses acquired on the job may not qualify as an occupational disease under state law. For example, suppose a worker believes his rheumatoid arthritis was caused by exposure to chemicals at your workplace. He files a WC claim but is denied benefits on the basis that arthritis is not an occupational disease. The worker then files a lawsuit against you seeking damages for his disease.
- The injured employee has rejected WC benefits. Some states allow workers to reject WC benefits and sue the employer instead. To collect damages, the worker must prove that the employer was negligent and that its negligence caused the injury.
- The injured worker sues a third party, which then sues your firm. This type of claim is called a third-party-over suit. Here's an example: A plumbing company you own has been hired by a general contractor to replace pipes in a building. Jim, one of your employees, injures his back at the job site. Jim collects workers compensation benefits from your WC insurer. He then sues the general contractor, claiming it is responsible for his injury because it failed to maintain a safe workplace. The GC settles Jim's claim and attempts to recoup the amount of the settlement by suing your firm for damages.
- The injured worker’s spouse sues your firm for loss of consortium. Suppose that Jim, in the previous example, suffers paralysis due to his back injury. Jim’s wife, Jane, sues your company for loss of consortium (marital relations).
- A family member of the injured worker sues your company for consequential injury. In the previous example, suppose that Jane sues you not only for loss of consortium but also for a consequential injury. She claims that stress over Jim’s back injury has caused her to develop migraine headaches. She demands that you pay for her treatment.
- The injured worker sues your firm in a capacity other than as an employer. So-called dual capacity suits are typically filed against manufacturers. For example, your company manufactures and sells pool cleaning supplies. Jill, a sales rep at your firm, is transporting bottles of two types of cleaner, one containing chlorine and the other containing muriatic acid. Several bottles are defective and begin leaking. Jill is injured when the two cleaners are mixed and create toxic fumes. Jill collects workers comp benefits from your WC insurer. She then sues you in the capacity of a manufacturer, filing a product liability suit against your firm. The suit isn't covered under your general liability policy because it arose from an injury to an employee.
Employers liability insurance would likely cover the suits described above. For coverage to apply, the employer must be legally liable for the employee’s injury or occupational disease. The injury must arise out of the worker’s employment and occur during the policy period of the workers' compensation policy. If the worker has sustained an occupational disease, the disease must be caused or aggravated by the conditions of his or her employment. The employee's last exposure to the disease-causing conditions (such as asbestos fibers or silica dust) must occur during the policy period.
Employers liability coverage does not cover all employee lawsuits. Here are some key exclusions.
- Liability you assume under a contract. Suppose your firm leases office space. You have signed a rental contract in which you have assumed liability for any damages your landlord is obligated to pay to your employees for injuries they sustain on the job. An employee of yours is injured on the job and sues your landlord for negligence. If any damages are assessed against your landlord as a result of the worker's suit, you are obligated to foot the bill. Your employer's liability insurance will not cover those damages because of the contractual liability exclusion. The damages may be covered by the contractual liability coverage that is included in your general liability policy.
- Injury to a worker knowingly employed by you or an executive officer in violation of the law. For example, you have employed a 14-year-old worker, even though you know the law requires workers to be at least 16. If the worker is injured and sues you for damages, the claim will not be covered.
- Punitive damages because of injury to an employee employed in violation of the law. Your policy will not pay any punitive damages assessed against you because you have employed a worker illegally.
- Intentional injuries. There is no coverage for injuries you have inflicted on an employee intentionally. For instance, you injure a worker with a baseball bat to punish him for being late to work. If the worker sues you for the injury, the suit will not be covered.
- Employment-related torts. Your policy won't cover injuries resulting from employment-related torts like defamation, discrimination, humiliation, and wrongful termination.
- Injury to any employee outside the U.S. or Canada. There is no coverage for employees who are injured outside the U.S. or Canada, except for an American or Canadian citizen who is temporarily outside these locations (while on a business trip, for instance).
- Injuries to individuals covered under federal laws. Workers covered under U.S. laws like the Longshore and Harbor Workers Compensation Act, the Defense Base Act, and the Federal Employers Liability Act are excluded.
- Masters or crew members. No coverage is afforded for injury to any master or crew member of any vessel. These individuals are covered for workplace injuries under various maritime laws.
Employers Liability Limits
While no limits are stated in the policy for workers compensation benefits (as the limits are determined by law), limits are included for employers liability coverage. These are listed in the Information Page (declarations). There are three separate limits:
- Bodily Injury by Accident. This is the most the insurer will pay for all injuries sustained by all employees injured in a single accident. If one accident injures three employees and each files a lawsuit against your firm, the limit will apply to all three suits.
- Bodily Injury by Disease - Policy Limit. This is the most the insurer will pay for occupational disease sustained by all employees during the policy period.
- Bodily Injury by Disease - Each Employee. This is the most the insurer will pay for occupational disease sustained by any one worker.
Employers liability insurance includes defense coverage. It covers expenses your insurer incurs to defend you against an employer's liability suit. These costs are covered in addition to the limits. That is, attorneys fees, litigation expenses, and other costs attributed to your defense will not reduce your employers liability limits.