What is stop gap coverage?
In most states, a standard workers’ comp insurance policy from a private insurer automatically includes two parts:
- Coverage for your employees’ medical costs and lost wages.
- Employers liability coverage that protects you if an employee sues over a workplace injury.
In monopolistic states, the state fund only provides the first part, which leaves employers without protection against lawsuits. Stop gap coverage steps in to help provide that missing piece of coverage.
Think of it this way: Workers’ comp from the state fund takes care of your employees after a workplace injury. Stop gap coverage can help take care of you if that same employee decides to sue.
What are monopolistic states?
A monopolistic state is a state where the government is the sole provider of workers’ compensation insurance. Private insurance companies aren’t allowed to sell workers’ comp coverage in these states. Instead, employers are required to buy coverage directly from a state-run fund.
There are four monopolistic states in the U.S.:
If your business is located in any of these states — or if you have employees who work there even if your business is based elsewhere — you’re required to get your workers’ compensation coverage from the state fund.
Learn more about monopolistic states.
Why do monopolistic states create a gap in coverage?
State-run workers’ comp insurance funds in monopolistic states cover medical bills and lost wages for injured employees, but they don’t include employers liability coverage.
In a non-monopolistic state, this protection comes bundled into your private workers’ comp policy automatically. In a monopolistic state, it simply doesn’t exist in the state fund.
That means if an employee in a monopolistic state gets hurt on the job and decides to take legal action against your business — claiming, for example, that unsafe equipment or working conditions at your place of business caused their injury — you could face legal defense costs, settlements and court judgments that you’ll have to pay out of pocket.**
That’s the gap that stop gap coverage is designed to close.
To understand what’s at stake, the National Safety Council found the cost per medically consulted workplace injury reached $48,000 in 2024. For employers in monopolistic states without stop gap coverage, a single negligence claim could mean facing those legal costs with no insurance protection.
What does stop gap coverage cover?
Stop gap coverage can help protect employers against lawsuits filed by employees related to work-related injuries or illnesses. Specifically, it could help cover:
- Negligence claims. If an employee claims your unsafe working conditions or equipment caused their injury, stop gap coverage could help cover the cost of defending that claim.
- Legal defense costs. Attorney fees, court costs and other legal expenses related to covered claims.
- Settlements and judgments. If a claim results in a settlement or court-awarded damages, stop gap coverage could help cover those costs.
Note that stop gap coverage doesn’t cover injuries that are already handled by the state workers’ compensation fund, intentional acts or illnesses unrelated to work.
How does stop gap coverage work?
Here’s how it works in practice:
- Your employee is injured at work. You file a claim with the state workers’ compensation fund which covers their medical expenses and a portion of their lost wages.
- The employee decides to sue. If the employee believes your negligence contributed to their injury they may file a lawsuit against your business.
- Stop gap coverage responds. Because the state fund doesn’t cover employer lawsuits, your stop gap endorsement could step in to help cover legal defense costs, settlements or court judgments.
Note that ERGO NEXT does not sell stop gap coverage insurance.
Do business owners need stop gap coverage?
Stop gap insurance is only relevant for businesses in the four monopolistic states: North Dakota, Ohio, Washington and Wyoming. If your business is in any other state, you likely don’t need it because employers liability coverage is almost always included in a private workers’ comp policy.
For example, if you buy workers’ compensation insurance through ERGO NEXT, employers liability coverage is already included in your policy — which means you won’t need stop gap coverage.
Here’s when you should consider stop gap coverage:
- Your business is located in a monopolistic state. If you’re buying workers’ comp from a state fund, your policy doesn’t include employers liability coverage — and stop gap fills that gap.
- Your business is based outside a monopolistic state but you have employees working in one. If even one employee works in North Dakota, Ohio, Washington or Wyoming, you may have a coverage gap for that exposure.
- You operate in a high-risk industry. Construction and other industries where workplace injuries are more common face a higher likelihood of employee lawsuits — making stop gap coverage especially worth having.
Stop gap coverage isn’t required by law in any state, but for businesses in monopolistic states it’s an important additional protection.
