What Is Stop Gap Coverage? Coverage & Common Exclusions
Nathan Weller is an Insurance Expert focusing on insurance for small business. He has 15 years experience in insurance operations, FNOL, and claims handling.
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 have employer liability insurance included automatically. However, some policies don’t have this protection, leaving business owners with a “gap” in their coverage—and stop gap insurance covers that gap.
What Stop Gap Liability Insurance Covers
Workers’ compensation is considered “no-fault” insurance, meaning it offers protection regardless of who is at fault: the employer or the employee. There are instances, however, where an employee may seek additional damages.
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 offers protection for a business from allegations like these by paying for 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
How Does Stop Gap Coverage Work?
Stop gap insurance is a complementary part of workers’ compensation. Workers’ compensation insurance is split into two parts. 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. Both parts are standard in non-monopolistic state policies.
However, monopolistic states—North Dakota, Ohio, Washington, and Wyoming—require businesses to purchase workers’ compensations through a state fund, and state fund policies exclude employer’s liability coverage. 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.
Who Needs Stop Gap Coverage
Business owners in monopolistic states—North Dakota, Ohio, Washington, and Wyoming—need to consider stop gap coverage. Because policies from those states usually exclude employer’s liability, there is a gap in coverage for those businesses.
However, even if your business is in a nonmonopolistic state, you may still need stop gap insurance. For example, an Oregon-based company has a permanent office in Seattle. Oregon law requires the company to get workers’ compensation for all Oregon employees.
Additionally, it may be required to purchase insurance from the Washington state fund for its Seattle employees. The Washington state fund won’t have employer’s liability included, and so the Oregon-based employer has a gap of coverage where they’re exposed to the potential for Washington-based employees.
How To Get Stop Gap Insurance
Stop gap coverage can be purchased from any provider that offers workers’ compensation. You can get it either through an agent or broker or by contacting a provider directly. It’s available as an endorsement for the workers’ compensation policy or as a standalone policy. If your business operates exclusively in one of the states with monopolistic workers’ compensation funds, it’s usually added as an endorsement to the general liability policy.
Bottom Line
If your business is operating in a monopolistic state, 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 and 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.
