Stop-Gap Coverage
Also known as: Stop-Gap Employers Liability, Employers Liability Stop-Gap Endorsement, Coverage B (monopolistic states)
In most states, a workers' compensation policy has two parts: Part One pays the statutory benefits (medical bills and lost wages) an injured worker is owed regardless of fault, and Part Two, employers liability, defends and pays lawsuits an employee (or their family) brings against the employer outside the no-fault benefit system. In a monopolistic state, however, the government fund sells only Part One. Stop-gap coverage is the endorsement — usually added to a commercial general liability policy — that restores the missing employers liability protection.
This matters because the no-fault deal is not airtight. An employer can still be sued for things like a spouse's loss-of-consortium claim, a dual-capacity claim, or an action-over claim in which an injured worker sues a third party who then drags the employer back into the suit. A standard general liability policy specifically excludes bodily injury to employees, so without stop-gap there is a real coverage gap: the state workers' compensation fund won't defend these suits, and the CGL won't either. Stop-gap steps in to provide defense costs and damages up to a stated limit, commonly $1 million.
A practical nuance for buyers: any business with even one employee working in North Dakota, Ohio, Washington, or Wyoming should confirm stop-gap is listed on the policy, because the state fund coverage they buy there will not include it by default. Interstate employers frequently overlook this when they add a location or send crews across state lines. Stop-gap does not replace the state benefits themselves — those still must be purchased from the monopolistic fund — it simply adds the liability layer that the private market provides automatically everywhere else.
Real-world scenario
Buckeye Precision Machining LLC, a 22-employee CNC shop in Columbus, Ohio, carries its workers compensation through the Ohio Bureau of Workers' Compensation because Ohio is a monopolistic state — private carriers cannot write comp there, and the state fund pays about $42,000 a year in premium but includes no employers liability. That gap left the shop exposed to lawsuits that comp benefits alone don't resolve, so the owner added a Stop-Gap endorsement to the shop's commercial general liability policy at a premium of just $850 per year, layered onto a $6,200 CGL premium on $3,200,000 in revenue and roughly $1,400,000 of covered payroll.
The endorsement bought limits of $1,000,000 each accident, a $1,000,000 disease policy limit, and $1,000,000 disease each employee, with a $0 deductible. Eighteen months later a machinist lost partial use of a hand when a guard failed. Ohio BWC paid his statutory benefits — about $95,000 in medical and roughly $61,000 in indemnity — but he then filed a workplace-intentional-tort suit seeking $750,000, alleging the employer knowingly removed the safety guard. That is exactly the action-over claim that pierces the exclusive remedy shield of the comp system.
The Stop-Gap coverage responded as the shop's employers liability policy would in a private-market state: it funded $180,000 in defense costs and a negotiated settlement of $500,000, for a total payout of $680,000 against the $1,000,000 each-accident limit. Without the $850 endorsement, Buckeye Precision would have paid the entire $680,000 out of pocket — an 800-to-1 return on a single line item.
How it affects your premium
Stop-Gap Coverage is inexpensive relative to the exposure it closes, but a handful of factors move the premium up or down:
- State of operation: Coverage only applies in the monopolistic jurisdictions — Ohio, North Dakota, Washington, and Wyoming — plus certain U.S. territories where the state fund omits employers liability.
- Payroll and headcount: Like the underlying workers compensation, exposure scales with total payroll and number of employees, so larger workforces pay more.
- Class of business / injury severity: Manufacturing, construction, and trucking classes with high injury frequency and severe potential harm are rated higher than clerical or retail operations.
- Limits selected: Standard limits are $100,000/$500,000/$100,000, but many contracts and lenders require $1,000,000 across all three, which raises premium.
- Action-over exposure: Employers who use subcontractors or place workers on third-party sites face more action-over lawsuit risk and pay accordingly.
- Loss history: Prior intentional-tort suits or a poor employers liability claim record can surcharge the endorsement or trigger a separate underwriting review.
- Whether it is written as an endorsement vs. standalone: Adding Stop-Gap by endorsement to an existing CGL is far cheaper than buying a standalone policy.
Common misconceptions
Myth: My state workers' comp policy already includes employers liability, so I don't need Stop-Gap Coverage.
Reality: That is only true in the 46 states with private-market comp, where Part Two of the policy provides employers liability. In the four monopolistic states, the state fund pays statutory benefits only — Stop-Gap is the sole way to buy back that missing protection.
Myth: Workers' comp is the exclusive remedy, so an injured employee can never sue me anyway.
Reality: Exclusive remedy has real exceptions — intentional-tort suits, action-over claims from a third party seeking indemnity, and consequential-injury suits by family members can all pierce it, and those are exactly the losses Stop-Gap Coverage pays.
Myth: Stop-Gap Coverage replaces my state fund workers' comp premium.
Reality: No — it sits alongside your state fund comp. You still pay statutory benefits through the monopolistic fund; Stop-Gap only adds the employers liability piece the fund leaves out.
Frequently asked questions
Which states require Stop-Gap Coverage?
How is Stop-Gap Coverage purchased?
What limits should I carry on Stop-Gap Coverage?
Does Stop-Gap Coverage support my umbrella policy?
What does Stop-Gap Coverage NOT cover?
Sources cited
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