What is stop gap coverage?
Stop gap coverage protects business owners from lawsuits filed over workplace injuries. Business owners are protected from such lawsuits by employer’s liability insurance, which is typically included in workers’ compensation coverage. However, in states that require business owners to purchase workers’ compensation from a monopolistic state fund – meaning they cannot purchase it from a source other than the state, unless they qualify as a self-insurer – this coverage may be excluded. Business owners may need to purchase employer’s liability insurance as a separate policy from an insurance provider to ensure they are protected. The term stop gap coverage, or a stop gap endorsement, refers to the employer filling a gap in their workers’ compensation insurance by purchasing an additional policy.
The following states run monopolistic workers’ comp funds, in addition to Puerto Rico and the U.S. Virgin Islands:
- North Dakota.
Business owners only need to look into stop gap insurance if they are located in the above states – otherwise employer’s liability insurance should be included in your workers’ compensation coverage at no additional cost.
Stop gap coverage examples
Workers’ compensation coverage protects employees who are injured or become ill in the workplace. However, if that illness or injury results from negligence on the part of the employer, the worker could file a lawsuit. Employer’s liability insurance protects a business owner from these lawsuits by helping with attorney’s fees, court costs, and other related expenses.
For example: A housekeeper in a Cleveland hotel slips and falls on a poorly lit stairwell at a hotel. She receives money for her medical fees as well as partial wages for the time she lost at work following the incident from workers’ compensation. However, she decides her employer is liable for the injury since he failed to provide sufficient lighting. The housekeeper files a lawsuit.
The hotel’s owner purchased workers’ compensation through Ohio’s state-operated insurance fund. He did not purchase stop gap coverage, which would have provided employer’s liability insurance. Therefore, he is forced to pay the costs of defense and damages out of pocket.
In most states, the hotel owner would have already had employer’s liability insurance as part of workers’ compensation insurance. The hotel was located in a monopolistic fund state, so the owner needed to purchase stop gap coverage to reach the same level of coverage provided by most workers’ compensation plans.
Stop gap coverage details
Stop gap coverage provides protection against allegations that an employer has not provided a safe work environment. While workers’ compensation pays for job-related injuries, employer’s liability is a separate clause of the policy. Instead of protecting the employee, it protects the employer from being held liable for worker injury or illness. A workers’ compensation policy from a monopolistic state fund does not include the part the policy dealing with employer liability. To prevent a worker from holding the employer liable for an injury or illness, the employer should consider purchasing stop gap coverage from an insurance provider.
Stop gap coverage can be confusing – it’s not a standard policy, so the specifics will vary. It can be added as an endorsement to either a workers’ compensation policy or a general liability policy, depending on the situation. Talk to an Insureon agent to learn more about stop gap coverage, or to find out if your workers’ compensation coverage provides the protection your company needs.
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