What Does Employers’ Liability Insurance Cover?

Employers’ liability insurance covers the legal costs and compensation payments a business may face if an employee becomes ill, injured, or dies due to working at the company. It protects against claims from current and former employees and covers legal fees of defending against unfounded claims, as well as genuine ones.

Compensation claims may be made for loss of earnings or potential loss of earnings, medical and other expenses, the cost of pain and trauma, plus other effects of the accident or illness.

A business must still make sure it is compliant with health and safety rules and regulations, though, and if found to be in breach, an insurance company can sue the business for compensation.

Employers’ liability insurance is straightforward because it simply deals with work-related injury, illness or death of an employee. However, there are certain incidents the policy does not cover.

  • Vehicle accidents: This would usually be covered under commercial motor insurance.
  • Deliberate acts: Where a business has been negligent.
  • Admission of liability: Where a business has said it was to blame.
  • Unsanctioned offers: Where a business makes an offer to an employee without consent from the insurance provider.
  • Lapse of notification period: There is usually a time limit, often around seven days, where an employer needs to inform their insurance provider of a claim or potential claim.

All policies are different, so it is worth a business checking the conditions to see whether any of the above apply to its policy.

Employers’ liability insurance definition

Employers’ liability insurance protects an employer who could be blamed or found at fault for a staff member’s ill health. While the word employer may suggest it protects just permanent members or staff, the term is quite broad. It covers temporary staff and freelancers as well other workers. There are also some exemptions, such as contractors who work for other people.

Employers’ liability insurance is usually needed for workers who:

  • Use the business’ equipment and materials to do the job.
  • Work hours set by the business in a location specified by the business.
  • Have national insurance and income tax deducted by the business.
  • Must offer some or all profit made to the business it is working for.
  • Is treated the same as other employees, ie. Has the same working conditions.
  • Must carry out the specified work themselves rather than subcontracting.

Employers’ liability insurance is not usually needed for workers who:

  • Supply the majority of their own equipment and materials to do the job.
  • Do not work exclusively for the business.
  • Are based abroad (and do not spend at least 14 continuous days in Great Britain (or seven on an offshore location)
  • Are a close family member (This doesn’t apply to limited companies, which must have employers’ liability insurance for family members working for them).
  • Operate as a business.
  • Do not have national insurance and income tax deducted by the business. However, if the worker classes themselves as self-employed for their own benefit but they are still treated like other employees the business needs employers’ liability insurance.

Employers’ liability (compulsory insurance) act 1969

The employers’ liability (compulsory insurance) act 1969 sets out the definition of an employee and those exempt from having to hold a policy.

The Health and Safety Executive has simplified the legal text and put together a comprehensive guide.

The act defines the type of worker that does and does not need to be covered by employers’ liability insurance and the type of business that does not need the policy.

Types of business that do not require employers’ liability insurance:

  • Health service bodies: The National Health Service, Scottish health boards and primary care trusts
  • Some publicly-funded organisations such as magistrates’ court.
  • Local authorities
  • Police and other nationalised industries
  • Most government departments
  • Family businesses that hire only close relations (unless the business is a limited company). A close relative is defined by the Health and Safety Executive as a husband, wife, civil partner, son, daughter, stepson, stepdaughter, father, mother, grandfather, grandmother, grandson, granddaughter, brother, sister, half-brother or half-sister.


Is employers’ liability insurance necessary?

Employers’ liability insurance is necessary for most businesses. It is required by law for most businesses hiring a worker, except for the exemptions outlined above.

The statistics speak for themselves. About 1.6 million people suffered a work-related illness in Great Britain in 2019/20. Another 700,000 people sustained an injury in that time, while 111 people died at work, according to the Health and Safety Executive. It estimated work-related illness and injury cost £16.2 billion in 2018/19.

Suppose a business does not hold employers’ liability insurance and doesn’t qualify for an exemption. In that case, it is liable to pay a £2,500 fine for every day it does not have a policy.

The law also states employers’ liability insurance must be held with a limit of at least £5 million.

Not only that, but proof of the company’s employers’ liability insurance must be visible for all members of staff to see. That could be in the form of a poster in an accessible place or, as of 2008, it can be posted electronically. Employers must ensure members of staff know how to find it and have reasonable access to it.

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