If your business is in a monopolistic state then stop gap insurance is a crucial policy that provides liability protection to an employer when an employee gets injured on the job.
What Is Stop Gap Coverage? Coverage & Common Exclusions
This article is part of a larger series on Workers' Compensation Insurance.
Stop gap insurance is a policy to protect a business owner’s liability if their employee sues because of a workplace injury. Most workers’ compensation policies include employer liability insurance automatically. However, some policies don’t have this protection.
The four monopolistic states—Ohio, North Dakota, Washington, and Wyoming—do not include employer liability in the workers’ comp policies. The absence of this protection results in business owners having a “gap” in their coverage. Stop gap insurance coverage fills that gap.
What Stop Gap Insurance Covers
Workers’ compensation is considered “no-fault” insurance, which offers protection regardless of who is at fault: the employer or the employee. There are instances, however, where an employee may seek additional damages.
So then, what does this mean for you as a small business owner? It means you risk costly lawsuits and legal expenses if your workers’ compensation policy lacks employer liability coverage. Stop gap coverage is the safety net that protects you.
For example, an employer may face a lawsuit from:
- Employees claiming gross negligence caused their injuries
- An injured employee’s spouse or family members claiming loss of consortium
- Employees who have opted out of workers’ comp coverage
Stop gap coverage protects a business from allegations by paying for the defense costs, including the employer’s legal expenses, settlements, and court awards. The amount an insurer pays in a claim is set by the limits in the policy.
Common Stop Gap Insurance Exclusions
The specifics vary by policy and insurer, so make sure to review the policy with your agent. However, like all insurance policies, stop gap coverage has notable exclusions, such as:
- Fines assessed for an employer’s noncompliance
- Contractual liabilities assumed by the employer
- Illnesses or injuries resulting from working on a vessel or aircraft
- Court-ordered punitive damages
- Injuries intentionally caused by the employer
- Fines and penalties assessed by regulatory agencies on the employer for dangerous working conditions
- Injuries or illnesses arising from illegally employing a worker
The New Jersey Supreme Court recently upheld lower court decisions that an insurance company did not have to provide defense coverage when an injured employee sued the employer. The reason was intentional harm. This is one of the exclusions listed above. It is important to understand what is and is not covered in a policy by studying it and reviewing it with your agent so that, as a business owner, you can take whatever steps are needed at work to ensure a safe environment.
How Does Stop Gap Coverage Work?
Stop gap insurance is a complementary part of workers’ compensation. Workers’ compensation insurance is split into two parts. Both parts are standard in non-monopolistic state policies.
- The first part is coverage for employees’ injuries and helps by paying the medical bills and lost wages.
- The second part is employer’s liability insurance, which protects the employer if the employee alleges that negligence by the employer contributed to or caused their injury.
A monopolistic state is a state where the state provides workers’ comp insurance through a state fund and not through a marketplace of private insurance companies. There are four monopolistic states:
The state fund policies sold in these states do not include employer liability. This results in employers in monopolistic states being at risk of an employee’s accusation that their business is responsible for the employee’s injuries because it doesn’t have the appropriate coverage. This is why it is so important to purchase a stop gap policy if your regular workers’ comp excludes coverage for employer liability.
Who Needs Stop Gap Coverage
Business owners in monopolistic states need to consider stop gap coverage. However, even if your business is in a non-monopolistic state, you may still need stop gap insurance.
For example, an Oregon-based company has a permanent office in Seattle, Washington. Oregon law requires the company to get workers’ compensation for all Oregon employees. This business may be required to purchase insurance from the Washington state fund for its Seattle employees. The Oregon-based employer has a gap of coverage where they’re exposed to the potential for Washington-based employees.
How To Get a Stop Gap Insurance Policy
If you are looking to add stop gap insurance coverage to your business, there are several options: a provider, a broker, or an agent.
Agents and brokers are similar in that both work as an intermediary between the customer and the insurance company. Some are independent and can offer quotes for the same policy from multiple carriers and some are captives and work on behalf of a specific insurance company. An advantage of going this route is the opportunity to get personalized service and save money by comparing quotes.
Alternatively, most carriers offer quotes directly online or over the phone. Many will be priced more competitively if you go directly through them. But you’ll lose the ability to compare quotes at one time.
A stop gap insurance policy can be purchased as a standalone policy or as an endorsement. If your business operates exclusively in one of the states with monopolistic workers’ compensation funds, it’s usually available as an endorsement of the general liability policy.
Frequently Asked Questions (FAQs) About Stop Gap Coverage
A stop gap policy is employer liability protection, helping a business if an employee becomes injured or ill due to their job. Most workers’ comp policies include this, but in Ohio, North Dakota, Washington, and Wyoming, this type of insurance is not included. If your workers’ comp doesn’t have employer liability, it is one you should consider.
No, stop gap coverage is not required for business insurance. Workers’ comp is required, but workers’ comp specifically helps the injured employee. However, if you want your business to have employer liability in the event an employee does get injured, then you should purchase a stop gap insurance policy.
Any high risk industry, specifically construction, transportation, and manufacturing, would benefit from purchasing stop gap insurance. Ideally, this is a policy that every business owner who carries workers’ comp but doesn’t have employer liability should consider.
Bottom Line
If your business is operating monopolistic, your workers’ comp policy is missing a key coverage: employer’s liability insurance. This gap in coverage exposes you to the cost of fighting a lawsuit. Stop gap insurance provides protection.
As one of the leading workers’ compensation insurers in the United States, The Hartford can evaluate your situation, recommend the right coverage for your business, and give you a quote for stop gap coverage. It’s the best workers’ compensation insurance provider, and its agents can help get you the right coverage in just minutes.
