What it means
Coverage A pays the benefits the law requires, but there are situations where an injured worker, or a family member, can still bring a lawsuit against the employer. Coverage B steps in for those cases.
Some insurers label this Part Two, so the wording differs, but the purpose is the same. Typical examples include a claim by a spouse for loss of the worker's company, a claim by a third party who was sued by the worker and now seeks to recover from the employer, and a claim where the employee argues the compensation system does not apply.
The details depend heavily on local law, so what Coverage B responds to in one place may not be possible in another. The cover works through limits of liability, usually shown as three figures.
These are the most the insurer will pay for each accident, the most it will pay in total for injury by disease across the policy, and the most it will pay for disease for each employee. A policy limit of 100/500/100 means $100,000, $500,000 and $100,000 respectively.
For the finance team, Coverage B is usually priced into the same policy as Coverage A at little or no extra cost for standard limits. Higher limits can be bought and are worth considering for businesses with many employees or hazardous work.
Defence costs may sit inside or outside the limit depending on the wording, which is a detail worth confirming with the broker. The nuance is that Coverage B excludes many things, including the statutory benefits covered under Coverage A, intentional harm caused by the employer and fines or penalties.
It is a backstop, not a substitute for good safety management. Gaps tend to appear when a business operates in several locations.
Some states and countries run their own compensation funds, and the employer liability protection in those places may need a separate arrangement. A finance leader should ask the broker to list every location, confirm which policy responds there and show the limits in a single schedule, so nobody discovers a gap after an accident has happened.
In practice
Real-world examples.
Example
A factory worker is injured by a machine made by an outside supplier and sues the supplier. The supplier then brings a claim against the factory for contribution, and Coverage B responds to defend and pay that claim up to the limit.
Example
A construction firm is sued by the husband of an injured labourer for loss of companionship. The firm's Coverage B pays the lawyers and any damages up to the policy limit.
Example
A restaurant chain with 300 staff reviews its limits after a competitor faces a large claim. The CFO asks the broker to price an increase from 100/500/100 to 500/500/500 and weighs the extra premium against the exposure. She also asks whether defence costs sit inside or outside the limit before approving the change.
Case study
Seen in the real world.
Redstone Metalworks is an illustrative, fictional manufacturer with 120 employees. A worker was injured on a press that Redstone had modified, and the worker sued the equipment supplier. The supplier argued that Redstone's modification caused the accident and brought the company into the case.
Statutory benefits for the worker had already been paid under Coverage A, so the employer's remaining exposure was the supplier's claim. Redstone's Coverage B provided a defence, and the claim settled for $140,000, which was above the policy's $100,000 each accident limit.
The company absorbed the extra $40,000 from its own cash. In the illustrative aftermath, the CFO raised the limit to $500,000 each accident for a small additional premium, concluding that the cheap extra protection was good value for a manufacturing business.
Watch out
Common mistakes.
- Thinking Coverage B pays the injured worker's compensation benefits, which are paid under Coverage A.
- Never checking the limits, so a large claim exceeds the cover and the balance falls on the business.
- Assuming every lawsuit about a workplace injury is covered, when intentional acts, fines and some contractual liabilities are usually excluded.
Questions
People also ask.
What is the difference between Coverage A and Coverage B?
Coverage A pays the statutory benefits to the employee, while Coverage B protects the employer against certain lawsuits that arise from the injury.
Do defence costs count towards the limit?
That depends on the policy wording, so ask the insurer or broker whether defence is paid in addition to the limit.
Can the limits be increased?
Yes, insurers will usually quote higher limits for an extra premium, and an umbrella policy can sit above them. The right level depends on headcount, the hazard of the work and how much loss the business could absorb from its own cash.
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