Definition of Stop Gap Coverage in Business Insurance

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Stop Gap Coverage

Workers’ compensation covers employees who have suffered work-related injuries or illnesses. Normally, this form of insurance protects the employer from future lawsuits. However, there are exceptions in certain jurisdictions. In these situations, stop gap coverage could fill the “gap” and provide necessary liability insurance.

Filling the Gap

Stop gap coverage is a form of endorsement from an insurer. It allows the insured, in this case, a business, to cover liability exposure not handled by workers’ compensation. In doing so, the insured receives a new policy, something similar to a rider, that continues coverage.

Typically, an employer is protected via a form of liability coverage that’s part of workers’ compensation. This prevents the employee from opening up an additional lawsuit. However, this isn’t always the case in certain states.

State Fund

There are areas of the country where workers’ compensation is covered within a state-run fund. This is called a monopolistic fund. Currently, North Dakota, Ohio, Wyoming, and Washington operate this form of workers’ comp.

In these states, the liability clause may not always exist. Thus, an employee has the option to file an additional lawsuit for reimbursement of medical bills and lost wages. It’s in these situations that the employer would request stop gap coverage.

What It Covers

Stop gap coverage handles protections when a worker alleges their employer was negligent in maintaining a safe work environment. While a liability clause would handle this type of suit, state-run funds don’t have that protection. Thus, without a stop gap, the employer would need to pay legal fees and reimbursement out of their pocket.

For example, let’s say an employee falls and breaks their arm in the warehouse. In this circumstance, workers’ compensation would cover medical bills and lost income. At some point in time, if the worker believed their injury was due to the employer’s recklessness, they could file a separate civil lawsuit. The stop gap coverage would cover this for the business.


The cost of stop gap coverage depends on a few elements. First, insurers will consider the size of the company and the number of employees. Secondly, the price will reflect risk factors that might result in increased liability. Third is the amount of workers’ compensation plans previously claimed.

The resulting premium reflects the total amount of risk the insurer feels they can handle. Smaller firms might charge more because they lack the necessary revenue. On the other hand, an insurance company that regularly deals with high-risk businesses might have packages with lower premiums.