Understanding Stop Gap Insurance: A Comprehensive Guide

Smart business owners know that safeguarding their company against risks isn't just important, it's essential for long-term success.

While most are familiar with general liability and workers' compensation insurance, another crucial coverage often flies under the radar: Stop Gap Insurance.

What is Stop Gap Insurance?

Also known as Employers Liability Insurance, Stop Gap Insurance bridges the gap between workers' compensation and general liability policies. It provides essential protection for employers against lawsuits filed by employees for work-related injuries or illnesses not covered by standard workers' compensation insurance.

Unlike regular liability insurance, which typically covers third-party claims, Stop Gap Insurance specifically addresses claims made by employees against their employers. This unique coverage can shield your business from potentially devastating financial losses resulting from employee lawsuits, making it particularly important for businesses in certain states or industries.

When is Stop Gap Insurance Necessary?

Stop Gap Insurance becomes particularly important in specific scenarios:

• Monopolistic States: If your business operates in Ohio, North Dakota, Washington, or Wyoming, you're in what's known as a monopolistic state. These states require employers to purchase workers' compensation insurance directly from the state fund, which often doesn't include employer's liability coverage. In these cases, Stop Gap Insurance is essential to fill this coverage void.
• High-Risk Industries: Businesses in industries with higher rates of workplace injuries, such as construction, manufacturing, or healthcare, may find Stop Gap Insurance especially beneficial. The increased risk of employee injuries in these sectors makes having comprehensive coverage crucial.
• Multi-State Operations: If your company operates across multiple states, including both monopolistic and non-monopolistic states, Stop Gap Insurance can help ensure consistent coverage across all your locations.

Coverage Provided by Stop Gap Insurance

Stop Gap Insurance offers protection against a variety of employee claims, including:

• Bodily Injury: This covers claims for physical injuries sustained by employees in the course of their work.
• Property Damage: If an employee's personal property is damaged due to work-related incidents, this coverage can help.
• Third-Party Liability: In cases where an injured employee sues a third party, who then seeks compensation from the employer, Stop Gap Insurance can provide protection.
• Loss of Consortium: This covers claims made by an injured employee's spouse for loss of companionship or services.
• Consequential Injury: This includes claims for injuries or illnesses that occur because of a work-related injury, such as a family member contracting an illness from an injured worker.

Stop Gap Insurance can also help cover defense costs, including attorneys' fees and court costs, in the event of an employee lawsuit over work-related injuries—even if the lawsuit is frivolous or dismissed.

Benefits of Stop Gap Insurance

The primary benefits of Stop Gap Insurance include:

• Financial Protection: By covering legal defense costs and potential settlements or judgments, Stop Gap Insurance can protect your business from significant financial losses.
• Filling Coverage Gaps: It addresses areas not typically covered by workers' compensation or general liability policies, ensuring more comprehensive protection for your business:
  • Third-party actions (when an injured employee’s family member sues).
  • Loss of consortium claims.
  • Dual capacity claims (when an employee sues as both an employee and customer).
  • Consequential bodily injury.
• Protection in Monopolistic States: In states like Ohio, North Dakota, Washington, and Wyoming, where workers' comp must be purchased through the state fund, stop gap insurance is particularly valuable since state-funded policies typically don't include employer liability coverage.
• Cost-Effective Risk Management: The cost is relatively modest compared to the potential financial exposure from uncovered claims, making it a worthwhile investment for protecting your business.
• Peace of Mind: Knowing that you have this additional layer of protection can provide peace of mind, allowing you to focus on running and growing your business.

Common Exclusions in Stop Gap Coverage

While Stop Gap Insurance provides valuable protection, it's important to understand its limitations. Common exclusions include:

• Intentional Acts: The policy won't cover injuries or damages that were deliberately caused by the employer or their representatives.
• Contractual Liability: Claims arising from specific contractual obligations or agreements the employer has made generally aren't covered.
• Punitive Damages:Most policies exclude exemplary or punitive damages resulting from employer misconduct.
• ERISA Obligations: Employee benefits liability related to the Employee Retirement Income Security Act is typically excluded.
• Federal Laws: Claims arising under federal laws like:
  • The Jones Act
  • Federal Employers Liability Act.
  • Americans with Disabilities Act.
  • Age Discrimination in Employment Act.
• Employment Practices: Issues related to wrongful termination, discrimination, or harassment are usually excluded as these should be covered under Employment Practices Liability Insurance (EPLI).
• Non-Physical Injuries: Most policies exclude purely emotional or mental injuries that aren't connected to physical harm.

It's crucial to review your policy carefully and understand these exclusions to ensure you have appropriate coverage for your specific business needs.

How to Obtain Stop Gap Insurance

There are typically two ways to obtain Stop Gap Insurance:

• As an Endorsement: In many cases, Stop Gap coverage can be added as an endorsement to your existing general liability or workers' compensation policy. This is often the most cost-effective option for businesses.
• Stand-Alone Policy: Some insurers offer Stop Gap Insurance as a separate, stand-alone policy. This might be necessary if your current insurance company doesn't offer Stop Gap coverage as an endorsement.

Working with experienced insurance professionals, like those at Dean & Draper Insurance, can help you determine the best approach for your business.

They can assess your specific needs, considering factors such as your industry, location(s), and current coverage, to recommend the most appropriate Stop Gap Insurance solution.

Assessing Your Need for Stop Gap Insurance

To determine if your business needs Stop Gap Insurance, consider the following four questions:

1. Do you operate in a monopolistic state?
2. Does your industry have a higher-than-average risk of workplace injuries?
3. Do you have operations in multiple states?
4. Are there gaps in your current workers' compensation coverage?

If you answered yes to any of these questions, it's worth exploring Stop Gap Insurance options for your business.

The Cost of Stop Gap Insurance

The cost of Stop Gap Insurance can vary widely depending on several factors, including:

• Your industry and associated risks.
• The size of your workforce.
• Your claims history.
• The limits of coverage you choose.

While it represents an additional expense, the potential financial protection it offers often outweighs the cost, especially for businesses operating in high-risk industries or monopolistic states.

Implementing a Comprehensive Risk Management Strategy

While Stop Gap Insurance is an important component of risk management, it should be part of a broader strategy to protect your business. This strategy might include:

• Regular safety training for employees.
• Implementing and enforcing safety protocols.
• Conducting regular risk assessments.
• Maintaining open communication with employees about workplace safety.
• Staying informed about changes in workers' compensation laws in your state(s) of operation.

By combining these practices with appropriate insurance coverage, including Stop Gap Insurance, you can create a robust shield against potential workplace injury claims.

As with any insurance decision, it's crucial to carefully assess your business's specific needs and consult with experienced insurance professionals.

Contact the team at Dean & Draper Insurance today for expert guidance on Stop Gap Insurance and help to ensure your business has comprehensive protection against workplace injury claims.

The recommendation(s), advice, and contents of this material are provided for informational purposes only and do not purport to address every possible legal obligation, hazard, code violation, loss potential, or exception to good practice. Dean & Draper Insurance Agency specifically disclaims any warranty or representation that acceptance of any recommendations or advice contained herein will make any premises, property, or operation safe or in compliance with any law or regulation. Under no circumstances should this material or your acceptance of any recommendations or advice contained herein be construed as establishing the existence or availability of any insurance coverage with Dean & Draper Insurance Agency. By providing this information to you, Dean & Draper Insurance Agency does not assume (and specifically disclaims) any duty, undertaking, or responsibility to you.  The decision to accept or implement any recommendation(s) or advice contained in this material must be made by you.