Monopolistic States & Stop Gap Coverage: What you need to know?


North Dakota, Ohio, Washington, and Wyoming are monopolistic states. If you just thought to yourself, ‘Huh!?’, you should read further if you already work, plan to work or perform in these states.


Jurisdictions where an employer must obtain workers’ compensation insurance from a compulsory state fund or qualify as a self‐insurer (as allowed in two jurisdictions). Such insurance is not subject to any of the National Council on Compensation Insurance (NCCI) procedures or programs. Instead, each jurisdiction has its own rules and regulations that govern the placement and administration of workers’ compensation insurance. The following states/jurisdictions are monopolistic fund states: North Dakota, Ohio, Washington, Wyoming, Puerto Rico, and the U.S. Virgin Islands.

Unlike the other states in the nation that allow workers’ compensation insurance companies meeting specific financial requirements to participate in a competitive open market, these states do not. And your insurance agent can’t obtain workers’ compensation in these states for you. You (the business owner) must contact the state directly.

That doesn’t mean you shouldn’t discuss this with your agent. While these states work directly with the business owner to provide workers’ compensation coverage, the coverage differs from non‐ monopolistic states in that it does not contain Employers’ Liability.


An insurance policy provides coverage for an employer’s two key exposures arising from injuries sustained by employees. Part One of the policy covers the employer’s statutory liabilities under workers’ compensation laws, and Part Two covers liability arising from employees’ work‐related injuries that do not fall under the workers’ compensation statute. The standard workers’ compensation and employers’ liability policy published by the National Council on Compensation Insurance (NCCI) is the required policy form in most states.

Most employers understand that a workers’ compensation policy will pay for their employees’ job‐related injuries according to the terms and conditions of their policy. Many employers don’t understand what might happen if they are negligent in providing a safe and healthy work environment for their employees. It is called ‘Employers’ Liability.’


This coverage provided by part 2 of the workers’ compensation policy provides coverage to the insured (employer) for liability to employees for work‐related bodily injury or disease, other than liability imposed on the insured by a workers’ compensation law.

I find that most don’t understand that there is no Part 2 or Employers’ Liability part of the policy in monopolistic states. Part 2 of the policy protects the employer that is sued by an employee for their negligence contributing to a work‐related bodily injury or disease.


Let’s say your employee is injured while operating a piece of equipment. The employee reports the injury and receives treatment covered by Part 1 of your workers’ compensation policy. However, the injury was not simply an ‘accident’ and was caused in whole or in part because you had failed to properly maintain the employee’s equipment at the time of the injury. In this situation, a case could get made that the worker could have avoided injury if not for your negligence in providing a safe and healthy work environment. The employee can bring a lawsuit against you, the employer, directly.

Part 2 of the workers’ compensation policy is then triggered, which provides a limit of insurance to protect the employer. It is called ‘Employers’ Liability Coverage.’ You’re on your own without it, and the workers’ compensation carrier will not provide for defense or damages.

In monopolistic states such as North Dakota, Ohio, Washington, and Wyoming, there is no Part 2 – Employers’ Liability provided in the policy. It is known as a ‘gap’ in coverage.


You must obtain a ‘stop gap’ coverage endorsement when doing business in a monopolistic state. But it may not be that easy. Your current liability or workers’ compensation carrier may not offer this valuable coverage endorsement, leaving the liability for such claims resting squarely on your company. Ouch!


An endorsement provides employers’ liability coverage for work‐related injuries arising out of exposures in monopolistic fund states (fund workers’ compensation policies do not provide coverage). If the employer operates in non‐monopolistic states, the endorsement is attached to the workers’ compensation policy providing coverage in those states. For employers operating exclusively in a monopolistic fund state, the endorsement is attached to the employer’s general liability policy.


Don’t keep it a secret that you’re doing business in a monopolistic state(s). I understand that those business owners view their agent as a ‘salesperson.’ Because they directly purchase the workers’ compensation coverage from the monopolistic state, they feel they can avoid a conversation with their agent. However, this is a big mistake on many different levels.

Your insurance agent is your first line of defense in protecting your company. Get a new agent if you believe your agent only focuses on selling you insurance. You need (and deserve) an agent who is a trusted advisor and an advocate for your company.

Do you have a question about monopolistic states, workers’ compensation, employers’ liability coverage endorsement, or stop-gap coverage?