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A Few Thoughts on Stop Gap

As a general liability underwriter, one of the most common coverage extensions requests I received was to add “stop-gap” coverage to the general liability policy. This is particularly true for me since a large portion of my underwriting career was spent in Ohio. In my own mind, it is a relatively simple and straight forward coverage extension but based on some of the questions I would receive, it is not entirely understood.

I am starting off with the most basic explanation. Stop-Gap coverage is basically employers’ liability coverage in monopolistic workers’ compensation states. When I broke into underwriting, there were 6 monopolistic workers’ compensation states. Fortunately, that list has dwindled down to 4 states, North Dakota, Ohio, Washington, and Wyoming (technically Wyoming is not 100% monopolistic). The need for the coverage arises from the fact that the state funds in those states only provide statutory workers’ compensation coverage and does not provide any employers’ liability coverage.

For a touch of remedial knowledge, employers’ liability covers suits by employees against their employers for workplace injuries which fall outside the state workers’ compensation statutes. Employees are prohibited from suing their employers for injuries through the course of their employment. Exceptions to this rule are relatively rare. If fact, during my underwriting career, I have never had a client who generated an employer’s liability incident. That is the good news. The bad news is when they do happen, they are usually bad.

There are two scenarios likely to generate claims. The first is dual-capacity suits. In the suits the employer is not sued as an employer but in another capacity. For example, an injured employee suing their employer as the manufacturer of a product they were using at work. The other likely scenario is a third party over action. In this case, an employee is injured on the job and sues another entity for negligence. In turn, that party sues the original employer as they were not enforcing safety rules. In both these instances, the basic general liability policy does not respond as they exclude all injuries to employees in the course of their employment.

Okay so that is what stop gap does. It provides employers’ liability coverage in monopolistic states. So, if your client has a workers’ compensation exposure in North Dakota, Ohio, Washington, or Wyoming they should add stop gap? That or endorse the monopolistic state on to a policy covering a non-monopolistic state using Employers Liability Coverage Endorsement (WC 00 03 03) and list the state. Which one is better? The coverage is basically equal, but I would rate using the Employers Liability Coverage Endorsement under the workers compensation policy for a couple of reasons.

The first reason is the language is identical to the language of employer’s liability as written on the workers’ compensation policy (WC 00 00 00). While acceptable, the ISO stop gap wording is not identical. For the sake of consistency, I prefer using the Employers Liability Coverage Endorsement.

The other reason is that there is not usually any charge to add the additional state onto the workers’ compensation policy, whereas most companies make a flat charge for Stop Gap. That charge may be a nominal amount or into the thousands. Either way, according to Ben Franklin, “a penny saved is a penny earned.” Who is going to argue Ben Franklin’s logic?

One last thing about Stop Gap. During my last couple years underwriting in the E&S market, I started getting questions about coverage for or exclusions of over-actions. I am sure confused look crossed my face communicating “what the hell are you talking about?”

Perhaps this is a result of spending most of my career working for standard carriers. My confusion came from a place of never knowing either an employer’s liability policy or ISO Stop Gap form excluding third party-over-actions. Perhaps there are some stop gap forms used by non-admitted carriers that excludes coverage, but both the Employers Liability Coverage Endorsement and the ISO Stop Gap forms do cover these claims.

And that’s all I have to say about Stop Gap.

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