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Does Liability Insurance Nullify the Need for Workers’ Comp?

Purchasing a liability insurance policy does not nullify the need for workers’ compensation. General liability policies provide coverage for claims and lawsuits filed by members of the general public, while workers’ compensation protects the business from claims/lawsuits filed by employees.

General Liability Policy

General liability policies protect businesses against third-party claims. Liability policies respond to bodily injury and property damage claims arising as a result of the business’s operations. For example, a customer files a claim or lawsuit because she trips, falls and injures herself while shopping at a retail operation. The general liability policy protects the business owner by defending the business in court, if necessary, and issuing a check to pay for any damages if the business is found liable.

Workers’ Compensation

Any business that hires employees must purchase workers’ compensation insurance. Workers’ compensation is governed on a state level and therefore varies from state to state. Some states, such as New York, require coverage as soon as one employee is hired, while others, such as Arkansas, allow employers to hire three employees before having to purchase workers’ comp coverage.

Workers’ Compensation and Employer Liability

A workers’ compensation policy is a two-part policy. The first part, workers’ compensation, compensates employees for bodily injury or illness that occurs as a result of employment. The amount paid to the injured employee is determined by the state, which takes into consideration the employee’s average weekly wage and the extent of the injury. After calculating the benefit amount, it is then compared with the state’s schedule of benefits, which sets forth the minimum and maximum amount an injured employee receives.

The second part of the policy is called employer’s liability, which protects the employer if the employee declines the benefits under the first section (workers’ compensation) and elects to sue the employer instead. The employer’s liability section of the policy will defend the employer in a court of law and pay damages if the employer is found liable.

General Liability vs. Workers’ Compensation

Purchasing liability insurance does not nullify the need for workers’ compensation, as each policy addresses different types of exposures. Additionally, workers’ compensation is a mandatory coverage and therefore cannot be eliminated from a business insurance program. It is recommended that a business purchase both workers’ compensation and general liability for increased insurance protection.

About the author: Felicia A. Williams is a former insurance broker who is now a freelance writer.

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