General Liability insurance does not cover Workers’ Compensation. The two are distinct types of coverage designed to address fundamentally different risks a business faces. General Liability protects a business from financial loss due to claims made by third parties, such as customers or vendors, who allege they suffered bodily injury or property damage because of the business’s operations. Workers’ Compensation, in contrast, provides benefits exclusively to a business’s employees who suffer work-related injuries or illnesses.
Understanding General Liability Insurance
General Liability (GL) insurance serves as a defense against claims brought by people who are not employees, known as third parties. This policy is primarily concerned with the business’s legal liability arising from its premises, operations, and advertising activities. Standard GL coverage is divided into three main areas: bodily injury, property damage, and personal and advertising injury.
Bodily injury coverage pays for medical expenses and legal defense costs if a customer or other member of the public is injured on the business premises. Property damage coverage addresses the costs if the business or an employee accidentally damages a third party’s physical property. Personal and advertising injury provides protection against non-physical harms like libel, slander, or copyright infringement in advertising.
General Liability protects the business from the financial consequences of a negligence lawsuit brought by an outside party. For example, if a delivery driver slips on a wet floor in a store and sues the business, the GL policy would respond to the claim. This coverage is not a statutory requirement in all states, but it is frequently mandated by contracts, such as commercial leases or client agreements.
Understanding Workers’ Compensation Insurance
Workers’ Compensation (WC) insurance is a system designed to provide medical and wage benefits to employees who are injured or become ill as a direct result of their job. This coverage is considered a no-fault system, meaning an employee does not have to prove the employer was negligent to receive benefits. The system provides a streamlined process for injured workers to receive necessary support without the delays of a traditional lawsuit.
In exchange for these benefits, the employee generally gives up the right to sue the employer for negligence related to the workplace injury, a trade-off known as the exclusive remedy provision. WC policies cover an injured employee’s medical care, rehabilitation costs, and a portion of their lost wages.
Why General Liability Policies Exclude Employee Injuries
The separation between the two policies is enforced through specific language within the General Liability contract, known as the “Employee Exclusion” or “Employers Liability Exclusion.” This clause explicitly states that the GL policy will not cover bodily injury to an employee of the insured arising out of and in the course of their employment. The exclusion prevents any overlap between the two different insurance structures.
Workers’ Compensation was established as a separate statutory liability system, which means the obligation to pay benefits is mandated by state law, not based on common law negligence. General Liability policies are structured to cover common law tort liability, where fault must be proven. Excluding employee injuries from the GL policy avoids the insurer having to pay benefits that fall under the separate, state-mandated WC system.
Employer’s Liability: The Second Part of Workers’ Compensation
A common source of confusion arises because a standard Workers’ Compensation policy is typically divided into two sections. Part One covers the employer’s statutory obligations under state WC laws, providing the no-fault benefits to injured workers. Part Two of the policy is known as Employer’s Liability (EL) coverage.
Employer’s Liability protects the business from specific lawsuits brought by an employee that fall outside the typical no-fault WC system. These lawsuits occur when the employee is able to bypass the exclusive remedy provision of Workers’ Compensation. Examples of claims covered by EL include “Third-Party Over” lawsuits, where an employee sues a third party for injury, and that third party then sues the employer for contribution.
The EL portion also covers claims for consequential bodily injury, such as a spouse of an injured employee suing the employer for their own emotional distress or loss of consortium. Employer’s Liability acts as a bridge, providing legal defense and damages for these specific, often rare, employee-related lawsuits that neither the statutory WC nor the General Liability policy would cover.
Practical Scenarios Requiring Both Coverages
The different purposes of the policies can be seen clearly in how they respond to specific incidents at a business location. Consider an incident where a customer slips on a spill in the aisle of a retail store and suffers a broken arm. The customer is a third party, and any claim or lawsuit for medical costs and other damages would be handled by the business’s General Liability insurance.
Now consider an employee who slips on the same spill while stocking shelves and also breaks an arm. The employee’s medical treatment and lost wages are covered by the Workers’ Compensation policy, regardless of who was at fault for the spill. The General Liability policy would not pay any part of the employee’s claim. This distinction highlights that GL protects against third-party claims, while WC protects against employee claims.
Mandatory Requirements and Consequences of Non-Compliance
Workers’ Compensation insurance is mandatory for most businesses with employees in almost every state. The specific threshold for needing coverage varies, but many states require it as soon as the first employee is hired. This state-mandated nature is a significant difference from General Liability insurance.
Failing to carry the required Workers’ Compensation coverage can lead to severe legal and financial consequences for a business. Penalties can include substantial fines, which can reach thousands of dollars per day of non-compliance, and in extreme cases, criminal charges and jail time for business owners. Furthermore, if an uninsured employee is injured, the employer is directly liable for all medical bills and lost wages that the WC policy would have covered, often with additional penalties.
General Liability coverage, while not typically mandated by state law, is often a contractual requirement. Landlords, clients, and vendors frequently demand proof of General Liability insurance before entering into a business relationship. Not having this coverage does not usually result in state fines, but it exposes the business to the full financial burden of a third-party lawsuit.