Your Guide to Employers' Liability Insurance

Employers' liability insurance is one of those covers that gets set up early and rarely revisited.

Which is fine, until your headcount has doubled, your workforce looks completely different, and a claim arrives that your policy wasn't built for.

What is employers' liability insurance?

If someone gets hurt or becomes ill because of their work, you are responsible. Employers' liability insurance means that when something happens, the cost of defending and settling a claim doesn't land directly on the business.

It is also a legal requirement, by the way! Many new employers don’t realise that.

Any business with one or more employees must hold a minimum of £5 million cover under the Employers' Liability (Compulsory Insurance) Act 1969. Failing to have it in place can result in fines of up to £2,500 per day. Which is pretty steep.

What's covered?

Not exactly a thrilling list, but worth knowing. As you can imagine, this list is not exhaustive and there are always exceptions and additions to check;

• Legal defence costs if an employee brings a claim against you
• Compensation awarded to employees injured at work
• Illness or health conditions caused or worsened by the working environment
• Claims from temporary, casual, and contract workers
• Historic claims from former employees relating to their time at your business

That last one catches people out more than you'd think. Even if the employment has ended, the liability hasn't.

What's not covered?

Claims from self-employed contractors sit outside this policy. So do injuries caused by deliberate or reckless acts (obvious one, no?), and fines or penalties imposed by regulators.

If you have employees based outside the UK, you will likely need separate cover too as a UK employers' liability policy does not automatically extend overseas. It sounds complicated, but we can help. That’s actually one of the real benefits of purchasing via a broker, rather than buying from insurers directly - free advice!

The contractor grey area

This is where growing businesses regularly get caught out as scaling your workforce with contractors is a common strategy.

If someone works exclusively for you, uses your equipment, follows your processes, and is integrated into your team… a court might just determine that they’re a worker rather than a contractor. The contract they signed is not always the thing that settles it.

If that happens and they bring a claim, you need to know your policy covers it. Make sure your broker understands how your workforce is structured in real life, not just how it looks on paper. We understand there can be tax advantages one way or the other, but don’t compromise your cover as a result.

Hear from an insurance industry veteran

Alex Littlejohn, Insurance Operations Director at REALLY HONEST, has handled plenty of employers' liability claims across a wide range of businesses. Here's what he sees most often;

"The thing most businesses don't think about is keeping their employee numbers and wages up to date with their insurer. People hire through the year and just don't flag it. Insurers rarely penalise you for that at claim time, but it's still a gap.

The bigger issue is contributory negligence and proving a lack thereof. The law fundamentally sides with the employee in most cases, so it's an uphill battle for the employer to prove there was no negligence. Something as simple as not having the right policy in place, even something you thought was irrelevant, not recording that training had taken place, or not recording HR and employee feedback that seemed irrelevant at the time but has since become connected, can cause the insurer to consider you negligent.

What makes it harder is that insurers will often pay a small claim rather than defend it, because it's cheaper. So you can end up fighting your own insurer to contest something that morally should be contested, rather than just sweeping it under the carpet.

And if you want a look at what's coming down the road, working from home is already on the radar. We're going to see ergonomic claims come out of the woodwork over the next few years, the same way noise-induced hearing loss swept through after decades of factory work."

So, that raises an obvious question…

Do I need employers' liability insurance?

If you have employees, yes, and legally you have no choice in the matter. The more useful question is whether your current cover reflects the business you're actually running.

Headcount grows. People move. Job titles change. Most businesses don't update their employers' liability cover to keep pace with any of it. If yours has been sitting untouched for a couple of years, it probably deserves five minutes. Get a quote.

If you’re looking at hiring your first employee in the near future, we’d be delighted to talk to you ahead of time so you’re ready when the time comes.

The point of no return

Realistically, you can stop reading here. But a “guide to Employers’ Liability Insurance” wouldn’t be complete without a dull explanation the common clauses/phrases relevant to the article above. So here you go.

Retroactive cover and long-tail claims

Claims don't always arrive quickly. Some of the most significant ones land years after the exposure ended. As Alex notes, a wave of noise-induced hearing loss claims followed decades of factory work, and the same pattern is already forming around WFH ergonomics. Check your policy responds to historic claims, not just your current headcount - especially if you have employees working remotely.

Territorial limits

Standard UK cover applies to employees working in the UK. People based overseas, travelling internationally, or operating across borders will likely need separate or extended cover. A common gap for businesses expanding quickly without revisiting their insurance.

Indemnity to principals

If your employees work on client sites, your client may be named in a claim alongside you. This clause extends your cover to those third parties where required.

Health and safety investigation costs

Some policies cover the legal costs of an HSE investigation, not just the civil claim running alongside it. Not all do. Worth confirming if your business operates in an environment where an incident could attract regulatory attention.

Subrogation waiver

Where a third party caused or contributed to an employee's injury, your insurer would ordinarily pursue that third party to recover costs. A subrogation waiver limits or removes that right in certain circumstances. You could end up being forced to sue your deal old granny!

Cross liabilities

If multiple entities are insured under the same policy, a cross liabilities clause ensures each is treated as a separate insured. Without it, a claim between connected businesses on the same policy can become complicated.

Unsatisfied court judgments

Less relevant for employers, more of a protection mechanism built into the market. If a judgment is awarded against an employer who then can't pay, this clause ensures the employee isn't left without recourse.

Record keeping: the hidden factor

This doesn't appear in the policy wording, but it matters as much as anything that does. Not recording that training took place, or failing to keep HR notes that seemed routine at the time, can hand the insurer grounds to consider you negligent. As Alex puts it: something as simple as not recording HR and employee feedback that seemed irrelevant at the time, but has since become connected, can cause the insurer to consider you negligent.

If you’d like to learn more about employer’s liability (why, though?) please feel free to get in touch.