Lewis & Ellis, LLC

A Brief Introduction To Stop Gap Insurance Coverage

Property and Casualty Insurance
by Traci Hughes
Learn more about stop gap insurance coverage in this brief introduction.
Learn more about stop gap insurance coverage in this brief introduction.

Stop gap coverage, like other insurance language, can be difficult to understand. Is it mandatory? Is it in the best interests of employers to acquire it?

Here, we have insight into stop gap coverage, including a brief description of what it is, who it's for and how it works.

What Is Stop Gap Coverage?

Stop gap coverage, sometimes called stop loss insurance or excess loss insurance, is a type of insurance policy that provides financial protection to businesses or self-insured entities against employee lawsuits.

This type of protection is typically associated with employee health insurance plans. Stop gap coverage is purchased separately to fill the "gaps" in workers compensation insurance. Without it, employers may have to pay out-of-pocket for any expenses not covered by worker's compensation.

What does stop gap insurance cover?
Worker's compensation provides coverage for employee medical expenses for an injured worker. Stop gap insurance, on the other hand, helps employers cover many of the costs associated with a lawsuit that comes from a liability claim. This includes costs such as:

  • Attorney fees.
  • Defense and court costs.
  • Judgments.
  • Settlements.

Is Stop Gap Coverage Mandatory?

In most states, stop gap coverage is attached to the existing worker's compensation policy by default. So, in a majority of states, it is mandatory. However, if your business operates out of a monopolistic state, the employer's liability coverage aspect of worker's compensation is not provided by default. That's because a business in any of those four states must obtain a workers compensation policy through a state fund, which does not include employer liability as part of its insurance coverage. Therefore, it's up to the employer to seek stop gap coverage to protect itself from any litigation.

What are the monopolistic states?

  • North Dakota.
  • Ohio.
  • Washington.
  • Wyoming.

In these states, stop gap coverage is not required by law. However, it's often in an employer's best interests to acquire protection against employee litigation. Stop gap coverage helps to cover the costs — which can be substantial — that arise from employee claims. Acquiring stop gap coverage in monopolistic states is also an effective risk management strategy, which is a great sign to potential investors when you're looking for funding.

Stop Gap Coverage Exclusions

Stop gap coverage has limitations which are important to know about when seeking coverage. In general, intentional, criminal and fraudulent acts are excluded:

  • Intentional acts: Coverage is usually excluded for injuries or illnesses resulting from the deliberate actions of the employer or employees.
  • Criminal acts: Injuries or illnesses that result from criminal activities or violations of the law by the employer or employees may be excluded from coverage.
  • Fraudulent claims: Coverage may not apply if the employer or employee engages in fraudulent activities related to the workers compensation claim.
  • Employment practices liability: Stop gap coverage is designed to provide liability coverage as it relates to workplace injury and illness. It typically does not cover claims related to employment practices liability, such as discrimination, harassment, wrongful termination or other employment-related disputes.
  • Property damage: Stop gap coverage does not generally cover property damage.
  • Liabilities outside of workers compensation: Stop gap coverage is specifically related to workers compensation liabilities and does not extend to other types of liabilities or risks unrelated to workplace injuries and illnesses.

As long as a business is operating lawfully and with its employee's best interests in mind, most employers won't need to worry about these exclusions.

Learn More About Stop Gap Insurance

Interested in stop gap insurance or available alternatives? Contact Lewis & Ellis today to learn which insurance options are best for your business.

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