Employers whose goal is to retain a solid workforce increase their odds of success by offering a stellar employees benefit plan as a way to attract workers. But this can backfire if, for instance, the chosen fiduciary is held personally liable with good reason, plus his or her assets may also be at risk if they do not carry out their obligations. That is why fiduciary liability coverage is important for any company and its fiduciaries.
Let’s say, for instance, a plaintiff alleges that he was misinformed as to his rights and obligations under the plan for securing disability benefits and that his disability benefits were improperly denied, or that a participant of a benefits plan offered by the company decides to bring suit against a fund manager for allegedly failing to pay the benefits under that plan. Just two fiduciary liability insurance claim examples illustrating how serious a matter this can easily become.
Employers, perhaps more now than ever before, are increasingly being held accountable for the benefits options they offer employees. Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors or omissions or breach of their fiduciary duties.
What fiduciary liability coverage protects against
Fiduciary liability insurance helps fill in gaps in any traditional coverage. It’s a common misconception that the employee benefits liability (EBL) section of general liability (GL) insurance or directors and officers (D&O) liability insurance will take care of every possible lawsuit against fiduciaries.
EBL insurance will protect against claims of errors in plan administration, but not against the more expensive and complex ERISA violation claims. D&O liability insurance typically excludes claims for both EBL and breach of ERISA fiduciary duty.
To avoid any possible fiduciary liability insurance claim scenarios, accessing the advice of experts and choosing and offering quality, diverse investments will serve you well. Remember, you can mitigate your fiduciary liability exposure, but you can’t eliminate it. Consider the aforementioned fiduciary liability insurance claim examples. Do you see the negative impact that could result from this? Speak to an agent about any questions or concerns you may have.