Stop-Gap Insurance: Filling The Gaps

Stop gap insurance, sometimes called stop loss insurance or excess loss insurance, is a type of insurance policy that provides financial protection to businesses or self-insured entities against employee lawsuits. It is used by businesses to cover litigation by employees who receive injuries on the job. In most states, stop gap coverage is attached to the existing worker's compensation policy by default, so it is mandatory. However, in monopolistic states, the employer's liability coverage aspect of worker's compensation is not provided by default. Therefore, it's up to the employer to seek stop gap coverage to protect itself from any litigation.

Stop gap insurance is used by businesses to cover litigation by employees who are injured at work

Stop gap insurance is a type of insurance coverage that businesses can purchase to protect themselves from lawsuits filed by employees who are injured at work. It serves as a safety net for business owners in the event of litigation arising from workplace injuries or illnesses.

In most states, when business owners obtain workers' compensation insurance, the policy includes employer's liability insurance, which safeguards them from legal action related to work-related injuries or illnesses. However, in certain states known as monopolistic states, businesses are required to purchase workers' compensation insurance from a state fund, and this coverage does not include employer's liability insurance. These monopolistic states include North Dakota, Ohio, Washington, and Wyoming.

This is where stop gap insurance comes into play. Stop gap insurance fills the gap in coverage for business owners in monopolistic states, providing them with protection from employee lawsuits. It is an additional policy that can be purchased from a private insurance company and added to the business's general liability insurance.

Stop gap insurance is not required by law, but it is highly recommended for businesses in monopolistic states. Without this coverage, business owners may find themselves vulnerable to costly lawsuits and have to pay legal fees out of pocket. Stop gap insurance offers protection in various situations, including dual capacity actions, third-party suits, public tort claims, intentional endangerment, and injury claims.

It is important for business owners to understand the specifics of insurance requirements in their state and to consider the benefits of stop gap insurance to ensure they are adequately protected from potential litigation arising from workplace injuries.

It is required in monopolistic states that do not offer employers liability insurance

Stop gap insurance is an endorsement that provides employers with liability coverage for work-related injuries in monopolistic fund states. In these states, workers' compensation policies do not include employers' liability coverage, which leaves employers vulnerable to lawsuits from employees.

Monopolistic states are where state agencies, rather than private insurance companies, own and operate a required workers' compensation insurance program for all eligible workers. There are currently four monopolistic states in the US: North Dakota, Ohio, Washington, and Wyoming. In these states, business owners are required to purchase workers' compensation insurance through state agencies.

Since workers' compensation insurance in monopolistic states does not include employer's liability insurance, employers can seek out and pay for this coverage separately to help protect themselves against the costs of lawsuits from employees injured on the job. This is where stop gap insurance comes in.

Stop gap insurance is required in monopolistic states to fill the gap in coverage left by the absence of employer's liability insurance in workers' compensation policies. It is important for business owners in these states to understand the need for stop gap coverage, as it can help protect them from costly lawsuits. Without it, they would have to pay for legal costs out of pocket.

In summary, stop gap insurance is necessary for business owners in monopolistic states to ensure they have adequate protection against lawsuits arising from work-related injuries or illnesses. By purchasing stop gap insurance, employers in these states can mitigate their financial risk and ensure they are not left vulnerable to legal action.

It is purchased separately to fill the gaps in workers' compensation insurance

Stop gap insurance is a type of insurance that employers may purchase to fill potential gaps or limitations in their workers’ compensation coverage. This gap in coverage is called employers' liability insurance, which protects against workplace injury lawsuits.

In the US, workers' compensation insurance is designed to provide injured employees with a schedule of benefits in exchange for their giving up the right to sue their employer. However, there are instances when an employer can be sued for injuries to employees, regardless of the existence of workers' compensation.

In non-monopolistic states, employers' liability insurance is typically included in workers' compensation coverage at no additional cost. However, in monopolistic states, the government is the sole provider of workers' compensation insurance, and private insurance companies are not allowed to sell this coverage. The four monopolistic states in the US are North Dakota, Ohio, Washington, and Wyoming.

In monopolistic states, employers can purchase stop gap coverage from private insurers to give themselves employers' liability coverage. This coverage is not standardized, and the terms can vary depending on the insurer. Stop gap coverage can be added as an endorsement to either a general liability policy or a workers' compensation policy, depending on the situation of the insured and the underwriting guidelines of the insurer.

By purchasing stop gap insurance, employers in monopolistic states can protect themselves from lawsuits filed by employees who receive injuries on the job. This includes dual capacity actions, third-party suits, public tort claims, intentional endangerment, and injury claims. Stop gap insurance can also help defray defence costs, including attorneys' fees and court costs, even if the lawsuit is found to be frivolous or is dismissed.

It covers costs such as defence and court costs

Stop gap insurance is a type of insurance policy that provides financial protection to businesses against employee lawsuits. It is designed for states that don't offer employer liability coverage as part of their workers' compensation insurance. In these states, employers may be vulnerable to litigation by employees who are injured on the job and decide to sue for additional damages not covered by workers' compensation.

The purpose of stop gap insurance is to fill this coverage gap and protect business owners from the costs associated with employee lawsuits. These costs can include defence and court costs, as well as any settlements in favour of the injured employee. Without stop gap insurance, businesses would have to pay for these legal costs out of pocket.

Defence costs covered by stop gap insurance can include attorney fees and other expenses related to mounting a legal defence. Court costs refer to the various fees and expenses associated with the court system, such as filing fees, transcript fees, and witness fees. Stop gap insurance can help businesses cover these costs, which can quickly add up, especially in lengthy or complex legal proceedings.

In addition to defence and court costs, stop gap insurance can also provide coverage for settlements or judgements against the business. This means that if the court rules in favour of the injured employee, the business won't have to bear the full financial burden of the judgement. Stop gap insurance can provide valuable financial protection in the event of a costly lawsuit, helping businesses avoid significant financial strain.

It's important to note that stop gap insurance is not required by law in most states. However, it is mandatory in some monopolistic states, where employers are required to obtain workers' compensation policies through a state fund that does not include employer liability coverage. Even in non-monopolistic states, stop gap insurance can be a valuable form of protection for businesses, helping them manage the risks associated with employee litigation.

It does not cover liabilities outside of workers' compensation

Stop gap insurance is a type of insurance coverage that protects business owners from lawsuits filed by employees who have been injured on the job or become ill due to their work. It is particularly relevant in the four monopolistic states of North Dakota, Ohio, Washington, and Wyoming, where employers must purchase workers' compensation coverage from a state fund that does not include employer's liability insurance.

While stop gap insurance covers a wide range of liabilities, it does not cover liabilities outside of workers' compensation. This means that it is limited to workplace injuries and illnesses and does not extend to other areas of business operations. Here are some examples and further details to illustrate this point:

• Non-Workplace Incidents: Stop gap insurance is specifically designed to address workplace injuries and illnesses. If an employee suffers an injury or illness that is unrelated to their work or occurs outside of the workplace, stop gap insurance will not provide coverage. For instance, if an employee sustains an injury while on vacation or during their personal time, it would not be considered a workplace injury and, therefore, would not be covered under stop gap insurance.
• Non-Employee Claims: Stop gap insurance is focused on protecting employers from lawsuits filed by employees or their families. If a customer, client, vendor, or any other non-employee third party files a lawsuit against the business for injury or property damage, stop gap insurance would not be applicable. In such cases, the business's general liability insurance or other relevant insurance policies would come into play.
• Intentional Acts or Omissions: While stop gap insurance covers a range of workplace injuries, it typically does not cover liabilities arising from intentional acts or omissions by the employer. For example, if an employer knowingly exposes employees to hazardous substances without providing proper safety equipment or warnings, it could be considered intentional endangerment. In such cases, stop gap insurance may not provide coverage, as it is generally designed for unintentional workplace injuries or illnesses.
• Property Damage: Stop gap insurance is primarily concerned with protecting against liabilities arising from bodily injury or illness. It does not typically cover property damage claims. If a business faces a lawsuit due to damage to a customer's or employee's property, they would need to rely on their general liability insurance or other specialized property insurance policies for coverage.
• Non-Workplace-Related Illnesses: As mentioned earlier, stop gap insurance covers work-related illnesses. However, it is important to note that it does not extend to illnesses that are not related to the workplace. For example, if an employee contracts an illness during their personal travel or from a source unrelated to their work environment, stop gap insurance would not provide coverage for any resulting liabilities.

In summary, while stop gap insurance is a valuable tool for business owners to protect themselves from lawsuits arising from workplace injuries and illnesses, it is important to recognize that its scope is limited to workers' compensation-related liabilities. Business owners should carefully review their insurance policies and consider additional coverage to ensure they are protected across all aspects of their operations.

Frequently asked questions