Understanding Employee Benefits Liability Insurance

As a landscaping company or nursery owner, you might use employee benefits to encourage prospective employees to join your team. You’re not alone — amid the country’s ongoing labor shortage, comprehensive benefit packages can make all the difference when a candidate is weighing your hiring offer against a competitor’s.  

While employee benefits are a powerful recruitment tool, improperly handling employee benefits can make you vulnerable to liability risks. As you consider your staffing levels and employee benefits this year, familiarize yourself with the potential hazards of professional errors or mistakes involving company-sponsored benefit plans and what you can do to protect your business. 


When a Benefits Error Leads to Litigation

As a small business owner, you often wear many hats. If the head of Human Resources (HR) is among them, you’re responsible for ensuring your employees have a clear understanding of their benefits. Not only is it a good business practice, but employees who understand their benefits are happier and have a greater sense of stability at work, according to MetLife’s 21st annual U.S. Employee Benefit Trends Study (EBTS). 

However, even the best-laid plans can go awry. For example, let’s say that six months ago, you hired a tree cutter to join your team. She is a good, hardworking employee, and you’re pleased to have won her over with your company’s comprehensive benefits package. One day, she is injured in a car accident outside of work hours. She calls you from the emergency room to report the incident and inform you that she can’t make it to work in the morning. You wish her the best and hope she has a speedy recovery. 

Hours later, you received another call from your tree cutter, but she’s panicked. The hospital claims she does not have health insurance; despite this, you both distinctly remember the onboarding process and your conversation regarding her insurance options. You know she opted to enroll in the company-provided health insurance, so why is the hospital saying the opposite? Determined to get to the bottom of the issue, you examine your HR files and make a shocking discovery: She did elect to enroll in coverage, but you never completed the process. 

Due to your mismanagement of company benefits, she must shoulder the cost of her emergency hospital visit and treatment alone. This mistake can spell financial peril for your employee, who was injured outside of work hours and therefore cannot claim workers’ compensation, as well as throw the future of your business into doubt. 

Next week, the tree cutter’s attorney reaches out to you. In the face of her mounting bills and anticipated long-term absence from work, your employee has no choice but to sue your business to recoup her losses. Now, you must prepare for your defense — hiring an attorney, pulling together all necessary documentation and planning for any potential settlements or award amounts. You’d have to cover these out of pocket without the proper insurance. But with Employee Benefits Liability (EBL) insurance, you can insulate your business against the cost of benefits-related mistakes or errors.

Protecting Your Business with Employee Benefits Liability Insurance

Similar to the other business liability risks you face — such as an employee damaging customer property or getting into a car accident with a company vehicle — EBL insurance is a policy you can carry to help mitigate the exposures associated with your benefit plans. 

EBL insurance covers businesses from errors and omissions that occur in the administration of employee benefit plans. These errors and omissions can include failing to enroll a new employee in a medical plan — something that could result in a scary shock if an injured employee goes to the hospital only to discover they’re uninsured — as well as other common issues, such as:

  • Failing to enroll or terminate an employee.

  • Enrolling an employee in the wrong plan.

  • Incorrectly describing company benefits to an employee.

  • Not informing an employee of spouse or dependent eligibility.

  • Misclassifying an eligible employee as ineligible.

  • Administrative and benefit calculation errors.

EBL insurance covers a wide range of essential benefit plans commonly offered by employers, such as health, dental and life insurance. It also provides coverage for disability insurance, retirement plans and profit-sharing plans. Even though EBL insurance isn’t a legal requirement, it can provide an important safety net if an unhappy employee sues over a benefits mistake.

As an employer, the benefits you offer can hold considerable weight when someone considers joining the team; a comprehensive benefits package can also help you retain current employees by supporting their family’s health needs. Erroneously offering an employee insurance coverage when they’re not eligible or making an error during enrollment are just two examples of the costly mistakes you can encounter while administering benefits. 


By following our tips, you can create a lively office party atmosphere that is fun and celebrates the achievements of the past year while still being appropriate for the modern workplace. Similarly, staying alert for the liability risks posed by office parties — and carrying the proper insurance coverage — can help safeguard your company against employment-related claims. Contact MNLA’s insurance expert, Ashley Thomas, for a free risk analysis to ensure your business has successfully reduced its holiday party liability. Learn more about available coverage at or contact for a coverage review. 


The information contained herein is offered as insurance Industry insight and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. Insurance brokerage and related services to be provided by Gallagher Affinity Insurance Services, Inc. (License No. 100310679 | CA License No. 0783129).

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