Most employers generally understand the tradeoff at the heart of the workers' compensation system: employees receive benefits for workplace injuries without having to prove fault, while employers receive protection from most workplace injury lawsuits. But when a catastrophic injury or death occurs, plaintiffs often seek ways to move the claim beyond workers' compensation and pursue the broader damages available in traditional tort litigation.

A recent Seventh Circuit decision serves as an important reminder that those efforts can create a significant insurance coverage problem for employers. In many cases, there is no middle ground. A claim either falls within workers' compensation exclusivity or falls outside the workers' compensation system because it alleges intentional conduct. If it is the latter, insurance coverage may be unavailable.

How Workers' Compensation and Employers’ Liability Coverage Fit Together

Workers' compensation benefits are generally more limited than damages available in a tort lawsuit. Employees typically cannot recover damages such as pain and suffering or punitive damages, but in exchange they receive a streamlined recovery process and employers receive protection through the exclusive remedy provision.

Because of these limitations, plaintiffs' attorneys often explore theories that would allow a workplace injury claim to proceed outside the workers' compensation system. In many cases, that means pursuing claims against third parties. When the employer remains the target, however, plaintiffs frequently attempt to avoid workers' compensation exclusivity by alleging intentional misconduct.

Those allegations can create a separate problem for employers. Most employers' liability policies exclude both:

• Claims subject to workers' compensation laws; and
• Injuries intentionally caused by the employer.

As a result, a claim that remains within the workers' compensation system is often excluded by a workers' compensation exclusion, while a claim that successfully alleges intentional conduct may be excluded by an intentional-acts exclusion.

The Seventh Circuit Confirms There Is No Middle Ground

In Insurance Company of the West v. High Performance Alloys, Inc., No. 25-1327 (7th Cir. Aug. 4, 2026), the estate of a deceased employee alleged that the employer knew of dangerous conditions, failed to implement available safety measures, and acted with actual intent to cause injury. The employer sought coverage under its employers' liability policy, while the insurer argued that coverage was barred by both the workers' compensation exclusion and the intentional-acts exclusion.

The Seventh Circuit agreed with the insurer.

The employer argued that allegations showing it knew injury was "substantially certain" to occur were sufficient to take the claim outside Indiana's Workers' Compensation Act. The court rejected that argument and concluded that Indiana law provided a clear framework for distinguishing accidental workplace injuries from truly intentional injuries.

More importantly, the court concluded that regardless of how the allegations were characterized, the insurer had no duty to defend. If the injury was accidental, the claim fell within the workers' compensation system. If the injury was intentional, it fell within the policy's intentional-acts exclusion. Either way, coverage was unavailable.

As the court summarized, the allegations described either an accidental injury covered by the Workers' Compensation Act, an intentional injury excluded from coverage, or both. Under any scenario, the insurer owed no duty to defend the employer.

What Employers and HR Leaders Should Take Away

Insurance coverage disputes often involve shades of gray. This decision did not.

The Seventh Circuit reaffirmed that an employer generally cannot occupy the space between workers' compensation exclusivity and intentional-act exclusions. If the allegations are insufficiently intentional, workers' compensation applies. If they are sufficiently intentional to escape workers' compensation exclusivity, they may also trigger an intentional-acts exclusion.

For employers and HR professionals, the lesson is straightforward: the same allegations a plaintiff uses to pursue larger tort damages may also become the basis for denying insurance coverage. When a workplace injury claim moves beyond the workers' compensation system, employers should not automatically assume that liability insurance will follow. In many cases, the path that takes a claim outside workers' compensation is the same path that takes it outside insurance coverage.

In an environment where there may be no coverage middle ground between workers' compensation exclusivity and intentional-act exclusions, robust safety practices, thorough documentation, effective training, and the prompt correction of known hazards remain essential tools for protecting both employees and the organization itself.

Need Help Assessing Your Coverage and Safety Exposure?

This decision is a clear signal that employers can't take liability coverage for granted when a workplace injury escalates. Ice Miller's Workplace Solutions team can help employers strengthen safety programs, tighten documentation and training practices, and evaluate insurance coverage before a claim ever arises.

Contact our Workplace Solutions attorneys to review your organization's exposure and build a proactive risk-management strategy.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.