What Does "Stop Gap" Mean?
Stop gap insurance means many things to different people. Some individuals think it means gap coverage to supplement Medicare. Stop gap insurance, however, is coverage required by businesses to cover additional liability that arises from injury. Most states have private insurers to cover this on the workmen's compensation policy. States that are monopolistic insure workmen's comp through a state fund, and don't have this additional coverage. That's where stop gap insurance comes into place.
Four States fund their own Workman’s Compensation programs. These states include North Dakota, Ohio, Washington and Wyoming. In all other states, the employer simply adds the employer liability rider to his workmen's compensation package. It's not available in the four states mentioned, so Businesses in these states must secure Stop Gap Insurance.
Stop Gap and Employers Liability cover potential suits faced by employers. These might be third-party suits, intentional endangerment, public tort claims, dual capacity claims and health and injury claims not covered by the workmen's compensation program. Workmen's compensation doesn't cover leased employees.
Third Party Lawsuits
If you're in a state that runs its own workmen's compensation program, you have the potential for lawsuits from a family member or third party over suits caused by the injury to a worker. Spousal and family suits run the gamut from loss of consortium services to the loss of parenting services. Third party over suits come from your employee suing a manufacturer because of injury from its equipment. The manufacturer then sues you for not training the employee.
Dual Capacity Actions
Besides being an employer, you also have a relationship to the public and its safety. Because of this, you have a dual capacity in relationship to the employee. The injured employee can use this fact to sue you under state tort and liability law.
Stop gap insurance is designed for those states that don't offer employer liability coverage. Ohio created a state intentional tort fund to provide this coverage. This raised the requirement for proof and offered a fund to offset suits. Later the state discontinued the fund when the court deemed it unconstitutional.
The policy limits include the total amount paid for claims and legal representation, including an aggregate maximum amount on disease-related claims. Even if you have 100 workers filing suit, the aggregate amount is the upper end limit for payment. There's a ceiling for the amount paid to one worker also. This coverage is an annual limit set. In order to receive coverage the insured has to notify the carrier of any accidents or potential claims. The company must not make any out of pocket payment but must consult the insurance company first. The only exception is for immediate first aid.
Insurance companies base the cost of stop gap insurance on the amount of your payroll. It might be in your general liability policy if you live in a state that runs its own workmen's comp fund. Normally it's an endorsement to the general liability policy and costs a minimum amount. If you’re not certain that your current policy has coverage for this exposure, give me a call and I’ll gladly review it for you.