What is Fiduciary Liability Insurance?
Fiduciary Liability insurance is designed to protect companies that sponsor an employee benefit plan, including ERISA and non-ERISA retirement plans and profit-sharing plans, medical benefit plans, life insurance, and disability plans. The coverage protects an insured against allegations that the fiduciary —the money or benefits handler—has breached his or her duty. Allegations can involve an error or negligence in administering a plan, including but not necessarily limited to misinterpretation of plan documents, providing imprudent investment options to plan participants, misrepresenting investments, mishandling enrollment or other paperwork, and giving bad advice or faulty instructions to participants.
Policies are available to cover expenses associated with civil lawsuits, written demands for damages that haven’t gone to court, administrative or regulatory actions, and government investigations. Policy options legal defense fees, awards to or settlements with claimants, and voluntary correction programs even when there isn’t a claim. The specific coverage you receive depends on the insurance agreement you select.
Coverage related to Fiduciary Liability includes ERISA Bonds, which are required by law for all applicable plans. The bond is for the benefit of the plan and the plan’s beneficiaries and can be used in the event dishonest administrators or trustees have financially harmed an employee benefit plan. The bond does not, however, protect the trustees themselves from liability claims.
Another related coverage includes Employee Benefit Liability (EBL) insurance, which can enhance a General Liability policy, and is designed to cover errors in the administration of a plan, including failing to enroll a employee in the plans in addition to administering improper advice as it to relates to the benefits. However, these EBL endorsements should not be confused with the coverage you can obtain through fiduciary liability insurance policies, as these endorsements may not provide coverage for breach of fiduciary duty claims. EBL endorsements may only provide coverage for errors in the administration of a plan (which fiduciary liability insurance also covers) and, even then, may often be subject to more restrictive terms and conditions than those of a fiduciary liability insurance policy.
Fiduciary Claims on the Rise
It should be noted that Fiduciary Liability claims have been on the rise over the last several years. The average claim today is more than $800,000 and defense costs in the last five years have increased 471%. More than 90% of the claims are filed by plan participants, followed by unions, government agencies, and other entities. What’s more, 50% of the claims arise out of benefits disputes.
Axis specializes in providing Fiduciary Liability insurance. Talk to one of our professionals about the type of coverage available for your company. Give us a call at (877) 787-5258.