Why You Need Employer's Liability Insurance Coverage

Everyone workplace carries risks of accidental injury. In some cases, the operation of the business seems normally benign, whereas other businesses are dangerous because of the nature of their operations. It's for these reasons that employers liability insurance often is required.

Employer's liability coverage is designed to shield employers from losses incurred by employees as a result of on-the-job injuries, illnesses resulting from workplace conditions, or death as a result of a work practice or accident.

For instance, suppose somebody spills their coffee in the employees' break room and fails to clean up the spill promptly. A co-worker comes along, slips in the spilled coffee, and falls hard to the tile floor, breaking a hip.

The employer is legally liable for the employee's injury and any losses resulting from it, such as medical expenses or lost pay. That's the reason for employer's liability insurance.

Employer's liability coverage belongs to an insurance type known as "risk financing." For example, the now-famous firm Lloyd's of London was founded by a group of shipping company owners who created a common fund to repay their costs when ships were lost.

Today there are many insurance carriers like Lloyd's that specialize in liability insurance. Large and even some medium-sized companies have an employee, or an entire department devoted to managing workplace risk. The job of risk managers is to whose job is to keep tabs on potential liabilities and to administer liability protection.

In the case of employer's liability insurance, the business owner pays a premium to an insurance carrier for protection against employee claims, also called "third-party claims." Third-party claims are those brought by others outside the contract between the business owner and the insurance carrier. In the above scenario, the injured employee could demand that the employer's liability coverage pay for his or her medical expenses and any lost wages. It might even be to the business owner's advantage for the employee to file such a claim with the insurance company, instead of paying for the employee's losses from business income.

However, if the liability situation is less clear-cut, an insurance company may elect to defend the insured in court rather than pay the claim. An expensive legal battle might follow to determine who actually is responsible for the accident that caused the employee's injury.

Certain businesses, such as transportation companies, factories, building contractors, various types of professionals and factories often are required to have employer's liability insurance. That's because there's an inherent risk in their type of business that could result in injury, so the local or state government seeks to protect employees from the outset.

If you have employees, then you probably are required to have employers liability insurance which protects you against employee lawsuits. Another specialized kind of business liability protection is directors and officers insurance which protects key management members from job performance related lawsuits.