When can an employee rely upon an employer's liability coverage?

Contrary to assumption, your employer’s insurance also may not adequately protect you. For example, an employer’s insurer may not be obliged to defend or pay a judgment against the employee. Employers ordinarily and automatically share liability with their negligent employee; therefore, a judgment against the employee usually brings a simultaneous judgment against the employer. The employer’s liability would be paid by the insurer, which would normally cover the employee. That’s the theory. Nevertheless, employees who rely solely on their employer’s coverage run several risks.

One risk is that you have no protection if your employer is not liable for an error or omission that occurred outside the scope of employment. Or you lose your protection if your employer’s policy is terminated without your knowledge. Or your employer may have inadequate insurance. Or too many employees may be sued on the same claim (as is often the case) and the shared liability limits are too low. Or your employer’s plan may be a claims-made policy that will cover you only for claims made during the policy period. But you may change jobs before a lawsuit is filed. Or lose your job. If you are sued after your employment ends, you then have no coverage. That’s why we urge our clients to review their employer’s policy. Your employer’s insurer must defend and protect you and your employer. Evaluate your employer’s financial stability. A company in financial difficulty may lose, reduce or cancel their insurance. That’s why every employee should buy their own supplemental insurance. It’s inexpensive and essential.