Overview
Stop-gap coverage is a type of insurance that protects employers who operate in states that do not allow them to purchase workers’ compensation insurance from private insurers. These states are known as monopolistic states, and they include North Dakota, Ohio, Washington, and Wyoming. In these states, employers must obtain workers’ compensation coverage from the state-run fund, which may not cover all the liabilities that employers face from work-related injuries or illnesses.
Employers in monopolistic states may incur substantial financial losses and legal risks if they face lawsuits from their employees or their families for work-related injuries or illnesses, making stop-gap coverage necessary. The state fund may not cover these claims or may have low limits or exclusions that leave the employer exposed. Stop-gap coverage provides an extra layer of protection and peace of mind for employers who operate in these states.
Benefits of Stop-Gap Insurance
Though Stop-gap coverage is not intended as a long-term solution, it can offer several benefits:
- Bridge Gap in Coverage: Stop-gap coverage can be used to fill gaps in insurance protection. For example, if you are between jobs and waiting for your new employer’s health insurance to start, you can use short-term health insurance to ensure you have coverage during the transition.
- Flexibility: It offers flexibility in terms of coverage duration. You can typically purchase stop-gap coverage for periods ranging from a few days to several months, allowing you to tailor the policy to your specific needs.
- Lower Premiums: Short-term insurance policies often have lower premiums compared to long-term plans. This can be cost-effective for individuals or businesses facing a temporary situation where full coverage might be unnecessary or unaffordable.
- Quick Enrollment: The application process for stop-gap coverage is usually faster and simpler than that of traditional insurance plans. This means you can get coverage quickly when you need it.
- Customizable Coverage: Many short-term insurance plans allow you to choose the level of coverage you need, such as selecting specific benefits or coverage limits. This flexibility allows you to design a policy that aligns with your requirements.
- Protection Against Unexpected Events: Short-term insurance can protect you from unexpected medical bills, accidents, or other unforeseen events while you are without long-term insurance coverage.
Types of Stop-Gap Coverage
There are three main ways to obtain stop-gap coverage: through employer’s liability insurance, through Occupational Disease Insurance, or an endorsement to a general liability policy.
Employer’s Liability Insurance
Employer’s liability insurance, also called Part B of the workers’ compensation policy, covers the liability for work-related injuries or illnesses not covered by workers’ compensation benefits.
Employers in monopolistic states can separately purchase employer’s liability insurance to obtain stop-gap coverage when they obtain workers’ compensation coverage from the state fund. This option may be more convenient and cost-effective for employers who operate in multiple states.
Occupational Disease Insurance
This insurance handles the employer’s liability for occupational diseases not covered by workers’ compensation benefits. Illnesses by exposure to harmful substances or conditions in the workplace, such as asbestos, silica, or radiation are Occupational diseases.
Employers’ Liability Coverage Endorsement
An employer’s liability coverage endorsement is an addition to a general liability insurance policy that extends the coverage to include the employer’s liability for work-related injuries or illnesses that are not covered by the workers’ compensation benefits. Also known as a stop-gap endorsement or a monopolistic state endorsement.
Stop-Gap Coverage Insurance
Stop-gap insurance covers three main claim types for work-related incidents: bodily injury, property damage, and legal defense.
Bodily Injury Coverage
Bodily injury coverage pays for medical expenses, lost wages, and other damages resulting from workplace injuries or illness. This covers injuries or diseases caused by employer negligence, such as the failure to provide adequate safety equipment, training, or supervision.
Bodily injury coverage also covers funeral expenses and death benefits owed to the employee’s family or dependents in case of a fatal injury or illness.
Property Damage Coverage
Property damage coverage typically covers the replacement or repair of property damaged or destroyed by the employee’s work-related injury or illness. This encompasses employer-owned property like tools, equipment, and vehicles. Along that, it consists of third-party property like that of customers, vendors, or landlords.
Property damage coverage also pays for the loss of use or income resulting from the property damage. It includes claims brought by the property owner against the employer for business interruption, rental income, or other consequential damages.
Legal Defense Coverage
Legal defense coverage pays for the legal costs and damages of a work-related injury or illness claim or lawsuit. It covers employer legal costs and compensation, including some punitive damages to employees or third parties.
Common Exclusions in Stop-Gap Coverage
Stop-gap insurance does not cover all types of claims that may arise from work-related injuries or illnesses. Some common stop-gap coverage exclusions are:
Intentional acts – Claims that are caused by intentional acts of the employer or the employee are not covered. This includes acts such as violence, fraud, harassment, discrimination, or retaliation.
Punitive damages: Stop-gap insurance excludes coverage for most punitive damages, which intend to punish the employer for gross negligence.
Employee claims – Stop-gap workers’ comp insurance excludes employee-to-employee work injury claims. Workers’ compensation benefits or employer’s liability insurance typically cover these claims.
Third-party claims – Stop-gap insurance excludes third-party claims for work-related injuries caused by employees acting outside their job scope.
Conclusion
Stop-gap coverage is vital for employers in monopolistic states where private insurers can’t provide workers’ comp insurance. It bridges the gap between the state fund and the standard policy, covering the employer’s liability for work-related injuries.
When you are looking for stop-gap coverage, you should consider factors like the location of the business, the nature of your business and industry, the size of your business and financial situation, and the location of your other business operations. To learn more, read our insurance category blog.
Frequently Asked Questions
How Do I Get Stop-Gap Liability Insurance?
It is an endorsement that you can add to your general liability policy or your workers’ compensation policy. Stop-gap liability depends on the state where you operate your business. You can purchase stop-gap liability insurance from a private insurer that offers this coverage.
