Stop Gap Coverage

Overview

Stop Gap Coverage is an Employers' Liability insurance solution for businesses operating in monopolistic fund states — states where workers' compensation insurance must be purchased exclusively from a state-run fund. Because these state funds provide only Part One (Workers' Compensation) benefits and do not include Part Two (Employers' Liability), employers need Stop Gap Coverage to fill this gap and protect against employee lawsuits seeking damages beyond statutory benefits.

How It Works

In most states, a standard Workers' Compensation and Employers' Liability policy includes both Part One (statutory benefits) and Part Two (Employers' Liability). However, four states operate monopolistic workers' compensation funds:

• Ohio: Ohio State Insurance Fund (BWC)
• North Dakota: Workforce Safety & Insurance
• Washington: Washington State Department of Labor & Industries
• Wyoming: Wyoming Workers' Compensation Division

In these states, employers must obtain workers' compensation from the state fund, which covers statutory benefits only. Part Two — Employers' Liability — is not included. This leaves employers exposed to lawsuits from employees who have legal grounds to sue beyond workers' compensation.

Stop Gap Coverage fills this gap through one of two mechanisms:

• CGL endorsement: An endorsement added to the employer's Commercial General Liability policy that provides Employers' Liability coverage for the monopolistic fund state(s). This is the most common approach.
• Standalone policy: A separate Employers' Liability policy purchased specifically for the monopolistic fund state operations.

The coverage mirrors standard Employers' Liability limits — Each Accident, Disease-Policy Limit, and Disease-Each Employee — and responds to the same types of claims.

Compliance Relevance

Stop Gap Coverage creates unique compliance challenges:

• Multi-state vendors: A vendor operating in both standard and monopolistic fund states needs standard Workers' Compensation/Employers' Liability for most states and Stop Gap Coverage for monopolistic fund states. Compliance teams must verify both.
• Certificate presentation: Stop Gap Coverage may appear on the ACORD 25 in different locations — sometimes in the Workers' Compensation section with a note, sometimes referenced in the Description of Operations, or sometimes on a separate certificate linked to the CGL policy.
• Coverage verification: Because Stop Gap is typically an endorsement on the CGL rather than part of the workers' compensation policy, compliance teams must confirm the endorsement exists and applies to the correct state(s).
• Limit matching: The Stop Gap Employers' Liability limits should match the contractual requirements, which are typically the same as standard Employers' Liability minimums ($1,000,000/$1,000,000/$1,000,000).

Example

A national janitorial company has employees in Ohio, a monopolistic fund state. Their Ohio workers' compensation is through the Ohio BWC state fund, which provides statutory benefits only. To meet a property management client's requirement for $1,000,000 Employers' Liability limits, the janitorial company adds a Stop Gap endorsement to their CGL policy. The compliance team verifies that the Stop Gap endorsement specifically lists Ohio and provides $1,000,000 in each of the three Employers' Liability limit categories.