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What Is Employee Benefit Liability Insurance?

What Is Employee Benefit Liability Insurance? Employee benefits Liability insurance provides coverage to an employer for errors or omissions in the employer’s administration of its employee benefit program.

For example, if a new employee requests to receive medical insurance through the employer and the employer failed to add the new employee to the plan. Then the health insurance company later denies coverage for the employee’s medical claim. The Employee Benefits Liability coverage would pay for the benefits that would have been payable under the health insurance plan but for the employer’s error.

This coverage applies to a wide range of employee benefits including health, life and disability insurance, retirement plans, and other benefits offered through plans administered by the employer.

What Is Employee Benefit Liability Insurance? Insurance Diaries Explains

Employers can be held liable for errors in the administration of their employee benefit programs, even for honest mistakes. For instance, if the insurance benefit coordinator mistakenly tells an employee that they have coverage for vision care, the employee can file a case against the employer.

If the employer’s liability insurance includes employee benefit liability coverage, the policy can pay for the mistake.

All employers have to have employee liability insurance so that if anyone employed in the business is injured or becomes ill because of the work they are doing, they will be able to be compensated.

All employers have to have employee liability insurance so that if anyone employed in the business is injured or becomes ill because of the work they are doing, they will be able to be compensated.

Many people use the word ‘protect’ when they talk about insurance, but of course having insurance doesn’t make anyone safer. All it does is make sure that there is financial backup should the worst happen. As an employer, you are still very much the person responsible for your employees’ health, safety and wellbeing whilst they work for you.

When you start any business, especially if you are a mum working from home, probably part time, the last thing on your mind is taking on staff but you would be surprised at the short time it often takes for a business to need more help.

If you employ close family members you are not compelled by law to take out employee liability insurance, but of course commonsense suggests that you will do so anyway, because your family deserve the best financial back up you can give them. It is simply a matter of it not being the law to provide it.

If you are in the business of contracting to perform a specific task, you will probably be employing temporary staff, but this is fine; your insurance policy will cover numbers of people, not specific individuals.

Insurance companies will be happy to help you when you first realize you need insurance, but for all legal issues in business, expert advice is a good idea. When you take out your policy, a good insurance company will give you information on what your responsibilities are as an employer, over and above taking out the insurance.

If you and your employees work with anything hazardous, there are COSHH guidelines to help you with how to deal with them and these should be copied to every employee. Protective clothing should also be made available to everyone and training should be given where appropriate.

This is important because if you don’t do this, you may find your policy is void. If you are a sole trader, this could mean that you may be personally sued and the consequences could be catastrophic.

As a business which began as just one person working from home part time, suddenly you might find yourself as a major employer. Before you take the step from working for yourself to having staff, you need to take a hard look and decide whether you want to keep your business small and simple or grow the business and take on more responsibilities.

In the end, if you are a woman entrepreneur with real vision, you will be happy to take on the legal side to see your business start up really flourish and perhaps help other mums to find work in the home or outside it. Flexible work arrangements need a bit of back up and so with a staff you can make sure that you can maintain your work life balance.

When Can Employees Be Liable for Mistakes Made at Work?

Employers are usually responsible for mistakes made by employees, but there are exceptions to this rule. Find out more here.

Key points

  • Employers are normally liable for the actions and mistakes of their employees (vicarious liability)
  • Employees can be liable if they are negligent or engage in misconduct and the employer took all steps to prevent harm from occurring
  • Both employers and employees can jointly liable in particular cases


If you run a business and employ workers, you may wonder if you’re responsible for every action they take. Employers are generally responsible for everything that happens in the workplace. This includes the actions of their employees and any mistakes they make. This is because employees are acting on the employer’s behalf.

In some cases, workers themselves can also be personally liable. Conversely, you may wonder as an employee if you can be held legally responsible if anything happens at work. This guide outlines where this can occur and what the law says about it.

Liability for the mistakes of employees

In the workplace, employers are normally liable for the actions and mistakes of their employees. Employers subsequently need to ensure that they train their employees properly and provide guidance.

This is known as vicarious liability. For example, if an employee at your local grocery store spills something without cleaning it up and you slip over, the store would be legally liable. However, in some cases both the employee and employer can be legally responsible.

This can happen if the employer can prove they took all reasonable steps to prevent the conduct of the employee. Further, joint liability can arise in cases involving bullying, harassment, discrimination and negligence. Similarly, negligence cases usually involve joint liability. An exception to this is if the employee displayed serious or willful misconduct.

Personal liability

Personal liability can also arise in cases of negligence on the part of the employee, especially if that employee is a professional. Cases which hold employees personally liable often involve employee misconduct (such as giving improper advice, or deceptive or misleading information), if the misconduct leads to damages to a party.

Personal liability may also arise in regards to obtaining confidential information and intellectual property without the consent of the employer. Both of these examples would ordinarily also involve a breach of the employment contract. 

Employees have a general duty to behave in a way that is not dangerous or harmful to themselves or others. Most workplaces have health and safety requirements put in place to prevent workplace misfortunes, such as a drugs and alcohol policy.

If an employee behaves recklessly (eg. misusing equipment, ignoring hazards, or ignoring WHS instructions), they can be personally liable for the injury or damage caused. This can also lead to criminal prosecution.

How to Protect Yourself Against Liability

Protection should start at the beginning of employment with an employment contract. By ensuring you have adequate protection under the contract, you could protect yourself against claims for personal liability.

You may even want it looked over by a contract lawyer to ensure you are properly covered. If you’re an employer, you should dedicate time to ensure your employees understand safety guidelines.

If you already have a personal liability claim against you, then you may be able to claim damages from your employer if you were performing a duty instructed by them. Such instances are covered under the Employees Liability Act 1991 (NSW).

It does not include breaches under the Trade Practices Act or the Fair Trading Act. Most of the protection in regards to employees comes under the responsibility of the employers. They should ensure that their practices do not contravene these relevant acts or any other rules and regulations. This includes getting public liability insurance to protect the company and employees from claims for damage of property and also personal injury to third parties.


Employees can be personally liable for conduct and their mistakes in the workplace, although this is rare. This can include joint and also personal liability, and can arise for a number of reasons. For an employee, the best form of protection is to understand your employment conditions and follow all rules and procedures.

If anything is unclear, it’s always better to ask your employer rather than operate under assumptions. If you’re an employer and want to make sure you’re protected in the event your employees make mistakes, it is recommended that you talk to an employment lawyer.

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