Stop Gap Insurance for Texas Nonsubscribers

Short answer: if the request applies only to a Texas workers compensation policy, stop gap is the wrong term. TDI says stop gap coverage does not apply to Texas workers compensation policies. A Texas nonsubscriber may need a different occupational injury and employers liability program, while a Texas business sending employees into a monopolistic fund state may have a genuine out-of-state stop gap issue.

The term travels because risk managers, certificate reviewers, and contract templates move between states and carry vocabulary with them. A Texas contractor gets handed an insurance requirements exhibit written by an Ohio general contractor's broker, sees "stop gap" on it, and starts searching. Or a Texas employer opens a location in Washington and suddenly the term is genuinely correct.

Both situations are real. They need different answers. This page separates them, then spends most of its length on the one that matters more to Texas businesses: what actually covers you when an employee gets hurt and you do not subscribe to workers compensation. If you want someone to look at your current policies and tell you where the hole is, start with a business insurance checkup.

What stop gap actually is

A stop gap endorsement provides employers liability coverage for work-related injuries arising out of exposures in monopolistic fund states. The reason it exists is structural. In a monopolistic state, the employer must buy workers compensation from a state fund, and those fund policies do not provide employers liability coverage. Employers liability is the part of a standard workers compensation policy that responds when an injured worker, or someone connected to the worker, sues the employer rather than simply collecting statutory benefits.

The monopolistic states are North Dakota, Ohio, Washington, and Wyoming.

Where the endorsement attaches depends on the employer's footprint. If the employer also has operations in nonmonopolistic states and carries a workers compensation policy for them, the stop gap endorsement is typically attached to that workers compensation policy. If the employer operates exclusively in a monopolistic fund state, the endorsement is attached to the general liability policy, because there is no private workers compensation policy to attach it to.

Notice what the endorsement is for. It is not filling a benefits gap. The state fund pays the benefits. It is filling a liability gap, the suit against the employer that the fund policy does not defend.

Why Texas is a different problem

Texas is not monopolistic. Private carriers write workers compensation here, and most private employers are not required to buy it. A major statutory exception applies to governmental building or construction projects, and other laws or contract terms can also require coverage.

That can produce a coverage gap that looks superficially similar to the monopolistic state gap but operates differently.

In a monopolistic state without stop gap, the injured worker still gets statutory benefits from the fund. The uninsured piece is the lawsuit.

In Texas, a nonsubscriber has neither. There is no fund paying benefits, and there is a lawsuit the employer is unusually poorly positioned to defend. Labor Code Section 406.033 provides that in an action by an employee not covered by workers compensation, it is not a defense that the employee was guilty of contributory negligence, that the employee assumed the risk of injury or death, or that the injury or death was caused by the negligence of a fellow employee.

So calling what a Texas nonsubscriber needs "stop gap" understates it. A stop gap endorsement fills a defined liability gap on top of a functioning benefits system. A Texas nonsubscriber is missing both halves.

The exclusion that catches people

Here is the specific mechanism, because this is where employers discover the problem at the worst possible time.

Standard commercial general liability forms contain an employers liability exclusion. It removes coverage for bodily injury to an employee of the insured arising out of and in the course of employment by the insured. It typically extends to claims by a spouse, child, parent, brother, or sister of that employee that derive from the injury, and it applies whether the insured is liable as an employer or in any other capacity.

The exclusion exists because that exposure is supposed to live on the workers compensation policy. In a subscriber's world, the two policies fit together with no seam: the workers compensation part pays statutory benefits, and the employers liability part on that same policy responds to suits.

A Texas nonsubscriber with only a general liability policy may have bought coverage that excludes this loss. General liability can cover a customer who slips in the lobby while excluding the business's own employee who falls from a ladder. That is why the employee-injury program must be reviewed separately rather than inferred from the general liability certificate.

What Texas nonsubscribers actually buy

Employers who deliberately choose nonsubscription generally assemble two pieces.

An occupational injury benefit plan. A written employer-sponsored plan that pays medical, disability, and death or dismemberment benefits to employees injured on the job. These are typically structured as employee welfare benefit plans under federal law, which brings its own compliance requirements, and they define benefits by plan terms rather than by the Texas Labor Code. That is the point of them for the employer, and it is also the source of the trade.

Employers liability coverage for nonsubscribers. Subject to its terms, this coverage can respond when an employee sues by funding covered defense costs and damages. It is often the liability piece people are reaching for when they use the phrase stop gap in a Texas-only conversation.

Both matter. A benefit plan without liability coverage can leave a lawsuit unfunded. Liability coverage without a benefit plan can leave medical and wage benefits outside the intended program. The documents have to be reviewed together.

Two things to be precise about.

First, TDI is explicit that these are not workers compensation. Texas law does not consider alternative policies and coverage bought from unlicensed insurance companies to be workers compensation. Buying one does not restore the exclusive remedy protection under Labor Code Section 408.001, which is available to employers with coverage obtained in the manner the Act authorizes. TDI further notes that alternative policies have dollar and time limits, and that if an injured employee's care expenses exceed the limit, the employer might have to pay the rest of the cost.

Second, insurance does not change the statute. Buying employers liability coverage does not give you back the contributory negligence, assumption of risk, or fellow servant defenses. It pays for the fight. It does not improve your position in it.

When stop gap is genuinely the right answer for a Texas business

There is a real out-of-state case.

A Texas company with employees who travel to or work in North Dakota, Ohio, Washington, or Wyoming has to obtain benefits coverage from that state's fund. That fund policy will not include employers liability. If an employee working in that state is injured and brings a suit that the fund does not defend, the exposure is uninsured unless the employer has stop gap.

For out-of-state work, ask the applicable state fund and private carriers to determine where employers liability or stop gap coverage is placed and how it should be documented. TDI specifically says stop gap does not apply to a Texas workers compensation policy, so a Texas certificate should not be used to imply coverage that the underlying policies and endorsements do not provide.

This is worth checking whenever you take work across state lines. See our guide to additional insured status versus certificate holder status for how these requirements typically arrive in the contract exhibit.

Reading a certificate request that says stop gap

If a contract or insurance requirements exhibit sent to you asks for stop gap coverage, work through it in this order.

Ask where the work is being performed. If the answer is Texas only, the requester may be using an imprecise template or may mean a different employers liability requirement. Confirm the intended coverage in writing before you go shopping.

Ask whether they require workers compensation. Most Texas contract templates that mention stop gap also require statutory workers compensation, in which case the nonsubscriber conversation ends and you are buying a policy.

Ask for the required limits. Employers liability limits are usually stated per accident, per employee for disease, and as a disease policy limit. If the exhibit gives one number, ask which one it is.

Check for a waiver of subrogation requirement. Very common alongside these requirements, and it needs to be endorsed onto the right policy.

Do not certify coverage you do not have. A certificate is a representation. If you are a nonsubscriber and the exhibit requires statutory coverage, say so before you sign rather than after a claim.

What this costs you to get wrong

Three failure modes show up repeatedly.

The accidental nonsubscriber. Nobody bought a policy, nobody filed anything, and the business has been operating with a general liability policy that excludes the exposure. The first serious employee injury can become a negligence suit with no responsive coverage and several common-law defenses removed by statute.

The plan with no liability coverage. An occupational injury plan pays medical bills but has no employers liability component, or has one at a limit that made sense five years and forty employees ago. The plan handles the routine strain. It does nothing for the serious injury that becomes litigation.

The mismatched certificate. A Texas contractor sends work into Ohio or Washington on a certificate that never contemplated it. The fund coverage was obtained, the stop gap was not, and the suit lands in the uninsured zone.

All three are safer to identify before work begins than during a claim.

The compliance duties that come with nonsubscription

Whatever you buy, if you are not a subscriber, Texas has filing and notice duties and they are enforced.

You must file DWC Form-005, the Employer Notice of No Coverage or Termination of Coverage, unless your only employees are exempt from coverage under the Act. The filing schedule is annually between February 1 and April 30, within 30 days of hiring your first employee unless that falls inside the annual window, and within 10 days of a DWC request. TDI states that failure to file when required may subject the employer to administrative penalties.

You must post the Notice to Employees Concerning Workers' Compensation in Texas in the workplace in English, Spanish, and any other language common to your workforce, and give the same notice to each employee at time of hire.

If you have five or more employees, you must report work-related injuries and diseases using DWC Form-007, no later than the 7th day of the month following the month in which a work-related death occurred, an employee was absent more than one day from an on-the-job injury, or you learned of an occupational disease.

Buying a benefit plan and employers liability coverage does not remove any of these duties. You are still a nonsubscriber in the eyes of the statute.

Questions worth asking before you buy anything

• Am I a subscriber or a nonsubscriber right now, and can I prove which?
• Does my general liability policy contain the standard employers liability exclusion? Assume yes until you have read it.
• If I have an occupational injury plan, what are its dollar limits and time limits, and what happens to a claim that exceeds them?
• Do I have employers liability coverage that responds to a negligence suit by an employee, and at what limits?
• Do any of my employees work in North Dakota, Ohio, Washington, or Wyoming, even occasionally?
• Does any contract I have signed require workers compensation, stop gap, or employers liability at stated limits?
• Have I filed DWC Form-005 this year, posted the notices, and given the notice to every new hire?
• What would statutory workers compensation actually cost me? Get the number before assuming nonsubscription is cheaper.

Frequently asked questions

Is stop gap insurance available in Texas?

Not on a Texas workers compensation policy. TDI says stop gap does not apply to Texas workers compensation policies. The term commonly refers to employers liability coverage for work in monopolistic fund states, so the correct answer depends on where employees work and which policy is intended to respond.

What does a Texas nonsubscriber need instead of stop gap?

A Texas nonsubscriber may need a dedicated occupational injury and employers liability program rather than a product labeled stop gap. The structure, policy terms, benefit plan compliance, and legal consequences should be reviewed by a licensed agent and qualified counsel.

Does my general liability policy cover employee injuries?

Standard commercial general liability forms contain an employers liability exclusion for bodily injury to an employee arising out of and in the course of employment. Depending on the policy and facts, a nonsubscriber with only general liability can therefore have no responsive coverage for a serious employee injury claim.

When does stop gap actually apply to a Texas business?

It can be relevant when a Texas business has employees working in a monopolistic fund state and the state fund coverage does not include employers liability. The carrier, state fund, and policy terms determine where the coverage is placed and how it should be documented.

Is an occupational injury plan the same as workers compensation?

No, and the difference is legally decisive. The Texas Department of Insurance states that Texas law does not consider alternative policies, or coverage bought from unlicensed insurance companies, to be workers compensation. Buying one leaves you a nonsubscriber, without the exclusive remedy protection, and TDI notes these products carry dollar and time limits that can leave the employer paying the balance of an injured employee's care.

Does buying employers liability coverage restore the defenses a nonsubscriber lost?

No. Insurance does not change the statute. Labor Code Section 406.033 still bars the contributory negligence, assumption of risk, and fellow servant defenses, and Section 408.001 exclusive remedy protection is only available to employers with coverage obtained in the manner the Act authorizes. Subject to its terms, employers liability coverage may fund covered defense costs and damages, but it does not restore the legal position.

Where Argo fits

Argo Insurance is an independent agency, and most of the value here is diagnostic before it is transactional. The phrase stop gap usually arrives attached to a contract exhibit written for a different state, and the first useful step is figuring out what the requester actually needs and what your current policies actually do.

Send us your general liability policy, your workers compensation policy or your DWC Form-005 filing, any occupational injury plan documents, and the insurance requirements exhibit that prompted the question. We will tell you whether you have the exposure you think you have, whether the exclusion in your general liability form leaves you open, whether real stop gap applies because of out of state work, and what statutory coverage would cost so the nonsubscriber decision is a comparison rather than an assumption. If coverage is hard to place, Texas Mutual Insurance Company operates as the insurer of last resort under Insurance Code Section 2054.351 and generally cannot reject a risk outright, though it may charge a higher premium and impose conditions.

Start with a business insurance checkup or read the broader Texas workers compensation guide for employers.

This page is general information about insurance and Texas law, not legal advice. Forms, exclusions, endorsements, and eligibility vary by carrier and by risk, and the policy issued controls.