What Is Stop Gap Coverage?
Kimberlee has over 20 years of experience as a financial consultant and insurance agency owner. Her expertise is featured across Fit Small Business life insurance and business insurance content.
This article is part of a larger series on Workers' Compensation Insurance.
Stop gap coverage is an insurance product that covers a business owner’s liability if their employee sues over a workplace injury. Most workers’ compensation insurance protects employers in that situation by paying their legal bills. However, some policies don’t have this protection, leaving the business owner with a “gap” in their coverage. Stop gap insurance covers that gap.
Workers’ compensation coverage is split into two parts.The first part is the portion most people understand as workers’ comp, the policy that pays for employees’ injuries. However, there is a second part that pays when an injured employee sues, and it’s called employer’s liability insurance. States that require businesses to purchase workers’ compensation insurance through a state fund typically do not include employer’s liability coverage. Employers in these monopolistic states are left exposed to an employee’s accusation that the business is responsible for their injuries.
Businesses with employees in one of the four monopolistic states―North Dakota, Ohio, Washington, and Wyoming―need to make sure they have the appropriate protection in place. 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.
What Stop Gap Insurance Covers
Workers’ compensation typically is considered “no-fault” insurance, meaning it provides protection regardless of who is at fault: the employer or employee. There are instances, however, where an employee may claim they’re entitled to additional damages. For example, an employer may face a lawsuit from:
- Employees claiming gross negligence caused their injuries
- An injured employee’s spouse claiming loss of consortium
- Employees who have opted out of workers’ comp coverage
Like employer’s liability insurance, stop gap coverage is designed to protect a business from allegations like these by paying for the employer’s legal expenses, such as lawyers, investigators, and court fees, as well as settlements and court awards. The amount an insurer pays in a claim depends on the coverage limits set in the policy.
Common Stop Gap Insurance Exclusions
Stop gap insurance isn’t standardized, so the specifics can vary from insurer to insurer. However, like all insurance policies, stop gap coverage has notable exclusions, including:
- 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
- Fines assessed for an employer’s noncompliance
- Contractual liabilities assumed by the employer
- Emotional injuries and damages based on managerial actions like assessments, demotions, termination, or harassment
- Illnesses or injuries resulting from working on a vessel or aircraft
- The employer’s court-ordered punitive damages
It’s important to read through the stop gap coverage to understand fully what is covered and what isn’t.
Who Needs Stop Gap Coverage
Many employers don’t need stop gap coverage because their workers’ compensation insurance policies automatically come with employer’s liability insurance. However, policies from monopolistic states do not include employer’s liability, and that means those business owners have exposure to employee lawsuits that require stop gap insurance.
The states where employers should look into stop gap coverage are:
- North Dakota
- Ohio
- Washington
- Wyoming
Moreover, business owners in nonmonopolistic states may also need stop gap insurance if they have employees working in a monopolistic state.
For example, let’s say an Oregon-based company has a permanent satellite office in Seattle. Not only is the company required to get a primary workers’ compensation policy for all Oregon workers, but it may also need a policy from the Washington state fund for its Seattle employees. Because Washington is a monopolistic state, its policy does not include employer’s liability. This leaves the Oregon-based employer exposed to lawsuits from its Washington-based employees. Getting stop gap coverage protects the employer from that exposure.
How to Get Stop Gap Coverage
Stop gap coverage can be purchased from a private carrier either as an endorsement or a standalone policy. When sold as an endorsement, coverage is usually added to your general liability policy if your business operates exclusively in one of the states with monopolistic workers’ comp funds. Businesses that operate in monopolistic and nonmonopolistic states may need a stop gap endorsement added to their workers’ compensation policies.
Bottom Line
When operating a business in a monopolistic state, you need additional protection against employer liability lawsuits in case employees are injured on the job. Rather than fight these liability lawsuits on your own with your own capital, stop gap insurance provides the necessary protection. Talk to your insurance agent about adding this to your insurance coverage.
If you’re looking to add stop gap coverage, you may want to talk to an agent with The Hartford. The Hartford is a leading workers’ compensation insurance provider, and its agents can establish the right coverage within minutes.
