What Is Stop Gap Coverage? The Workers Comp Hole in Four States

Send a crew into Ohio for a two week job and you will do the responsible thing. You will buy workers compensation from the state, because Ohio requires it and there is no other option.

You will also, without knowing it, be walking onto that site with half a policy.

Workers comp is two policies wearing one jacket

Every standard workers compensation policy has two parts, and most business owners have never been told there is a second one.

Part One is workers compensation. It pays statutory benefits to an injured worker. Medical, lost wages, death benefits. No-fault, set by the state, paid to the employee.

Part Two is employers liability. It pays when somebody sues you over that injury. Not the benefits claim. The lawsuit.

In the 46 states and DC where private carriers sell workers comp, those two parts arrive stapled together. One policy, one premium, both parts. Nobody thinks about it because nobody has to.

Four states do not work that way.

The four states where you only get Part One

In Ohio, Washington, Wyoming, and North Dakota, workers compensation is sold by the state and only by the state. Private carriers are not allowed to write it. The industry calls these monopolistic states.

The US Virgin Islands and Puerto Rico have the same structure, through the Government Insurance Fund and the State Insurance Fund Corporation.

Here is the part that matters: the state funds sell Part One. They do not sell Part Two.

So you pay Ohio. Ohio pays your injured worker's medical bills and lost wages. Then the worker's spouse sues you for loss of consortium, and you look at your policy for the coverage that handles lawsuits, and it is not there. It was never there. The state does not offer it.

Your general liability policy will not rescue you either. Every standard CGL carries an employers liability exclusion, written on the assumption that Part Two lives on the workers comp policy. In these four states, that assumption is wrong, and the exclusion still applies.

That is the gap. Stop gap coverage is the patch.

The five lawsuits that land in the hole

"Employers liability" sounds abstract until you look at what actually gets filed. Five scenarios come up again and again, and the state fund covers none of them.

Third-party-over actions. Your employee gets hurt on a job site and sues the general contractor or the property owner. That party turns around and sues you for indemnity. This is the most common one on construction sites, and the money involved is not small.

Loss of consortium. The injured worker's spouse sues you for the loss of companionship, services, and support. Separate claim, separate plaintiff, not covered by the worker's benefits.

Consequential bodily injury. A family member is injured as a downstream consequence of the original work injury.

Dual capacity. The worker sues you in a role other than employer. You were also the manufacturer of the defective part, or the owner of the building. Two hats, two theories of liability.

Care and loss of services. The family seeks damages for the care they have provided to the injured worker.

Without stop gap, every one of those is money out of your own pocket, including the defense costs. The state fund is paying the worker's medical bills while you are paying an attorney by the hour.

Two ways to fix it, and one is better

There are two places the stop gap endorsement can go, and which one you use depends on where else you have employees.

On the workers comp policy, when you already have one. If you have employees in states with private carriers, you already carry a real workers comp policy with a real Part Two. Your carrier endorses stop gap onto that policy to extend employers liability into the monopolistic states. This is the better path. The coverage sits where it belongs, it reads consistently with the rest of your program, and the limits line up with your umbrella.

On the general liability policy, when the monopolistic state is all you have. If every employee you have works in Ohio, there is no private workers comp policy to endorse. So the stop gap goes on the CGL instead, carving back the employers liability exclusion. It works. It is structurally narrower than the workers comp path, and it is a patch rather than the clean answer.

The rule is simple: if the workers comp policy can carry it, put it there.

Get the limits right

Employers liability is written with three separate limits, and they usually match:

• Bodily injury by accident, each accident
• Bodily injury by disease, each employee
• Bodily injury by disease, policy limit

Most contractors sit at $500,000 or $1,000,000 across all three. If you carry an umbrella, check this carefully. Umbrellas almost always require $1,000,000 of employers liability underneath them. If your stop gap endorsement is written at $500,000 and your umbrella schedule says $1,000,000, you have a hole between the two, and you will find it on the day of the claim.

General contractors and hiring networks have started catching this too. A certificate showing only a state fund policy is increasingly getting rejected on commercial work, because it advertises the missing Part Two to anyone who knows how to read it. Many contracts now name $1,000,000 of employers liability outright.

Who trips over this

This is not an Ohio problem or a Washington problem. It is a crossing-state-lines problem, and it catches contractors from every part of the country:

• Excavation, civil, highway, pipeline, and energy contractors chasing work wherever it is funded
• Telecom, utility, and low voltage crews deployed to multi-state projects
• Crane operators, concrete pump operators, and specialty subs who travel to the job
• HVAC, plumbing, and electrical contractors with regional commercial accounts
• Equipment haulers and anyone running trucks through these states with employees aboard

The exposure does not require a permanent office. A two week job, a service call, or a single crew on a single project is enough. If an employee is working there and gets hurt, the gap is open.

How to check your own policy tonight

You do not need an agent to find out where you stand. Pull the declarations pages and look.

1. Ask yourself the real question first: does anybody who works for me ever perform work in Ohio, Washington, Wyoming, or North Dakota? Occasional counts.
2. Pull the workers comp dec page. Look for an employers liability section listing those states, or a stop gap endorsement by name.
3. Pull the general liability dec page. Look for a stop gap liability endorsement.
4. If employees work in any of those four states and neither policy shows it, you have the gap.

If you find it, do not wait for renewal. This gets endorsed with an effective date of today, because the crew is on the site this morning.

Why your last agent missed it

Not because they were bad at the job. This one hides well.

The client bought workers comp directly from the state, so the agent never touched the transaction and never saw the policy. Nothing shows up in the file. Nothing triggers at renewal. The dec pages the agent does control look complete, because the CGL and the other states' workers comp are all in order. The gap only exists in the space between the two, and you have to go looking for it on purpose.

The way you find it is to ask where the employees actually work, every year, and not assume last year's answer still holds. Geography changes faster than paperwork.

Coverage descriptions here are general. Forms, endorsements, and availability vary by carrier and state, and coverage is subject to the terms of the policy actually issued. Have a licensed advisor review your specific policies before relying on any of this.

Have the Grit team look at your dec pages

If you run crews across state lines, this is a ten minute check and we would rather find it now than after a claim. Send us your workers comp and general liability declarations pages and we will tell you straight whether stop gap is on there.

Call the Grit team at (801) 505-5500 or reach us at gritinsurance.com. We write workers compensation and full commercial programs for contractors nationally, and if you carry surety bonds, we will look at both sides of the file at once.

Grit Insurance Group