Are you confident that your workplace is safe from accidents? Even with the best safety measures in place, unexpected incidents can happen.
They can have a significant impact on your company's finances if you aren't prepared for them. You may also believe that if you contribute to a provincial workers' compensation fund, you are immune from legal action. This is not always the case.
In the event of an on-the-job accident or illness, a worker has the right to file a lawsuit against their employer, regardless of the nature of their business or the nature of the injury or illness sustained.
This is why it's important to have employer liability insurance to protect your business and employees. It covers things such as negligence lawsuits over occupational illness and accidents sustained in the workplace. Let's dive into the details.
What is Employer’s Liability Insurance?
Employer's liability insurance protects your company from legal expenses resulting from employee-related illness, injury, or death. It protects you regardless of whether you pay into a provincial workers' compensation system or not. Without employer's liability insurance, you will be responsible for paying legal fees, damages, and settlements out of pocket.
These costs can easily run into the thousands, if not millions, of dollars per lawsuit. So the question you should be asking is, "Can my business afford them?". If the answer is no, you should get employers' insurance coverage.
Employer’s liability insurance covers costs that your company may be held liable for in a lawsuit, such as:
- Legal Fees: If your company is sued as a result of a work-related injury, you will incur costs such as legal fees and court costs. You cannot rely on workers' compensation to cover them.
- Damages: Workers' compensation does not cover negligence, pain, and suffering. If you lose the case, your company could face significant financial penalties. In such cases, an employer's liability insurance policy can keep your business from going bankrupt.
- Indirect liabilities: A work-related illness or injury may affect more than just employees. Third parties, such as a spouse, may be affected and file a claim for damages. For example, an injured employee's spouse may sue if the work-related injury interferes with their marital relationship. If you have employer's liability insurance, the insurer will cover these costs up to the policy limits.
- Settlements: Your policy covers legal costs, including the cost of hiring a legal representative and settlement payments, in the event of an out-of-court settlement.
Why Do You Need Employer’s Liability Insurance?
Workers' compensation is an excellent program, but it only covers medical bills and lost wages. This means that, even if you have workers' compensation, your company could be held liable for an injury or illness at the workplace.
Consider the following scenario: an employee is injured while performing his or her job. The workers' compensation board rejects the claim or decides it is inapplicable because you did not maintain your equipment or premises. In this case, the employee may file a lawsuit against you.
Companies that opt out of workers' compensation or are exempt from paying into it face even greater financial consequences. In the event of a workplace accident, your company may end up footing the bill for legal fees, legal wages, medical expenses, and settlements.
What Does Employer’s Liability Insurance Cover?
Employer’s liability insurance covers costs related to different types of liability lawsuits, including the following:
- Direct claims: If an injured employee files a lawsuit insinuating negligence, your employer liability coverage will help cover the costs.
- Third-party-over action lawsuit: Assume a worker is injured while using a workplace tool and sues the manufacturer successfully. The manufacturer, on the other hand, believes the injury was caused by your poor maintenance practices rather than a defective tool and decides to sue you to recoup its losses. Employer liability insurance will protect you from these lawsuits as well.
- Loss of consortium: Loss of consortium is a legal term that refers to the effect an injury has on relationships. In a personal injury case, the non-injured spouse can sue for non-economic damages such as loss of companionship, inability to have children, sexual constraints, and inability to do activities together (like biking, traveling, taking walks, etc.).
- Consequential injury: If an injured worker sustains a new injury as a direct result of a work-related injury caused by your negligence, he or she may file a claim for consequential injury.
- Dual-capacity lawsuits: Employees who suffer a workplace injury as a result of a product manufactured by the employer can end up suing the latter as both an employer and a manufacturer.
What Is Not Covered By Employer’s Liability Insurance?
Employer's liability insurance only covers your liability if a worker is injured or becomes ill while working for your company.
It does not cover the following:
- Injuries sustained by employees while not at work
- Injuries you suffer while at work
- Damage to the property of others as a result of your work
- Injuries suffered by a member of the public as a result of your work.
You could be held liable if someone is injured while at work. The same is true if someone's property is damaged as a result of your work. However, in these cases, public liability insurance — not employer liability insurance — will cover the legal fees, settlements, and compensations, among other things.
A serious personal injury at work may result in a total or significant loss of income for you. However, your employer's liability insurance would not cover you in this situation. You'd need a personal accident policy instead. It would cover the lost income as well as the medical expenses.
How Does Employer’s Liability Insurance Work?
Workers' compensation is regulated at the provincial level in Canada and is generally required of all employers. Certain industries, such as insurance and banking, are exempt.
Workers' compensation provides some level of coverage for lost wages and medical expenses in the event of an employee-related workplace illness, injury, or death. To be eligible for benefits, the employee does not need to prove that the employer was at fault.
However, if a worker believes he or she has not been adequately compensated, for example, due to the employer's alleged negligence, he or she may sue the latter for damages. Employer's liability insurance can be useful in this situation. It pays for expenses not covered by workers' compensation, giving your company vital protection if a worker is injured on the job.
Who Needs Employers Liability Insurance?
Almost every business requires some form of employer's liability insurance. This includes companies that do low-risk work, such as online marketing firm. Even if all of your employees work from a desk, the possibility of a workplace accident cannot be ruled out.
An employee, for example, may slip and fall at work and sustain injuries. They have the right to sue you if they believe you are at fault. You would have to pay the legal costs, such as the lawyer's fee, without employer's liability insurance coverage.
How Much Does Employer’s Liability Insurance Cost?
The kind of work your company does, the total number of employees, and your claim history can all impact your insurance cost.
You can expect to receive a good premium rate if:
- You don’t have many employees
- Your employees' jobs are considered low-risk
- You have not filed workers’ compensation before.
On the other hand, if you have a large number of employees with high salaries or your company is involved in high-risk work, such as construction, you will have to pay more. Expect a higher monthly premium if you have multiple worker's compensation claims filed against you.
Finally, the amount of employer's liability coverage you need affects the overall cost. While increased liability coverage means a higher premium, the added coverage may be worth the extra cost. The last thing you want is to have to pay thousands of dollars out of pocket if you have a successful claim just to save a few dollars a month on insurance premiums.
Even businesses that participate in Canada's worker compensation system are not entirely safe from lawsuits. That's why it's important for businesses to have employer liability insurance. It protects you against having to pay medical bills, funeral expenses, and other costs incurred as a result of an employee being sick, injured or dying at work.