Stop-Gap Coverage

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.