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Jury award for compensatory damages.
When a software solutions provider fails to live up to performance commitments made via a contract for a new software system, a local jury awards the plaintiff in excess of $2 million in compensatory damages.
Indemnity Paid: $2,400,000
Defense Cost Paid: $345,000
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Fiduciary
Liability and Employee Benefits Liability |
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When it comes to fiduciary
liability, and employee benefits liability coverages,
there are two schools of thought on how the coverages
should be handled, assuming both are necessary. The
first is that both coverages should be combined into
one policy. The second school of thought is that they
should be handled separately.
Whether one method is more advantageous over the other
is something that cannot be determined until the facts
involving a given insured are considered, even though
each of these coverages serves different purposes. This
is an important point to remember, particularly since
there is a tendency of insurers to combine both into
one fiduciary liability policy. |
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Employee Benefits Liability |
| Employee benefits liability
insurance typically is a component of fiduciary liability
coverage. Employee Benefits Liability Insurance covers
claims involving administrative errors pertaining to
pension and benefit plans, such as failing to name an
intended beneficiary on a life insurance policy.
It was the 1962 court case of Gediman v. Anheuser Busch
that is said to have prompted the need for employee
benefits liability insurance. In this case an employer
was held accountable to the estate of a former employee
for providing incorrect information. Employee benefits
liability coverage appeared on the market shortly after
that case was decided.
The intent of Employee benefits liability insurance
coverage, is to protect entities, their officers, directors,
stockholders, partners and partnerships, as well as
employees who are authorized to act in the administration
of any plan, in the event of a claim against them by
former, present, or future employees, their beneficiaries,
or legal representatives. The damages, if they are to
be covered, hinge in part on negligent acts, errors
or omissions in the administration of various plans.
Two of the typical exposures that would be considered
an object of employee benefits liability coverage are
the following: When an benefits administrator
- erroneously calculates the amount
of pension program and an employee elects early retirement
only to find out that the amount is considerably less;
and
- forgets to enroll an employee for the company's
hospitalization program and the employee finds out
about this omission following a serious illness.
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Fiduciary Liability Claims are on The Rise |
| It's better to evaluate
your Fiduciary Liability Insurance coverage in the boardroom
than in the courtroom. Retirement plans and fiduciaries
are prey for litigation, which has increased in significantly
in severity in recent years.
In its most recent, 1993 study of fiduciary liability
insurance, Watson Wyatt Worldwide reported fiduciary
liability lawsuits involving 23% of the studied companies-nearly
triple the 8.7% that reported suits in 1987. And the
average indemnity payment grew to more than $875,000
over the same period, from $715,000 in 1987. |
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Fiduciary Liability Coverage is Nonstandard in Nature |
| Although it has been
available for many years, it still contains enough differences
among policies so as to warrant fine-tooth-comb inspection.
About the only similarity in these policies is that
most (but not all) are on a claims-made basis and may
combine employee benefits liability coverage, thereby
dispensing with the need for the endorsement commonly
added to the CGL policy.
The fiduciary liability limits selected also need to
be handled with care because fiduciary liability coverage
is seldom subject to umbrella liability coverage. If
there are exceptions whereby an umbrella policy applies
as excess, they would be rare.
InsureCast specializes in risk assessment, the ERISA
act 1974 and Fiduciary Liability Insurance. Please go
to our online CoverageCoach
questionnaire to get a free no obligation Fiduciary
Liability Insurance quote and risk assessment analysis.
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Fiduciary Liability Insurance |
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What is Fiduciary Liability Insurance? |
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| Fiduciary Liability Insurance pays, on
behalf of the insured, the legal liability arising from
claims for alleged failure to prudently act within the meaning
of the Pension Reform Act of 1974. “Insured” is
variously defined as a trust or employee benefit plan, any
trustee, officer or employee of the trust or employee benefit
plan, employer who is sole sponsor of a plan and any other
individual or organization designated as a fiduciary. Group
life and medical expense plans, as well as pension and retirement
plans, are within the scope of the law.
Two other types of coverage are related to fiduciary liability
insurance.
- Fidelity bonds are
required by law (ERISA bonding). This is a form of insurance
for dishonesty situations. When dishonest administrators
or trustees have financially harmed an employee benefit
plan, these bonds may be used, but only for the benefit
of the plan and the plan's beneficiaries. This bonding insurance
will not protect the trustees themselves from liability
claims and is completely distinct from fiduciary liability
insurance.
- Employee Benefit Liability Insurance.
Employee Liability Insurance policies cover many
claims arising out of errors or omissions in the administration
of a benefit plan, including the failure to enroll an employee
in the plan as well as the administration of improper advice
as to benefits.
Employee benefits liability coverage often is combined with
fiduciary liability insurance policies, subject to the single
limit. This is a distinct disadvantage because fiduciary liability
presents an exposure that is infrequent but severe. The purpose
for purchasing a fiduciary liability insurance policy, therefore,
can be wiped out with frequent employee benefits liability
claims.
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When do I need Fiduciary Liability Insurance?
And what is ERISA act 1974? |
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Are you a fiduciary? Are your personal assets
at risk? Are you subject to lawsuits, fines, and penalties?
Many people are and don't know it.
If you are an owner or officer who makes decisions about
your company's 401(k) plan or other qualified employee benefit
plan(s), odds are, your personal assets are at risk! Under
the ERISA act of 1974 (Employee Retirement Income Security
Act), fiduciaries can be held personally liable for losses
to a benefit plan incurred as a result of their alleged errors,
omissions, or breach of their fiduciary duties.
Employment Liability Insurance does not cover all situations
of fiduciary responsibility, especially those regarding imprudent
investment of funds.
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Why do I need Fiduciary Liability Insurance? |
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Under ERISA, fiduciaries may be held personally
liable for breach of their responsibilities in the administration
or handling of employee benefit plans. Fiduciary Liability
Insurance is not required by ERISA. However, it is strongly
recommended if you are a fiduciary of a welfare and/or pension
plan because your personal assets are at stake. Many fiduciaries
believe incorrectly that their ERISA fidelity bond protects
their personal assets.
Furthermore, many think that this type of coverage is included
in their D&O policy. Most D&O policies exclude fiduciary
liability exposures as well as those exposures pertaining
to the Employee Retirement Income Security Act (ERISA).
ERISA also broadly defines the types of employee benefit
plans for which fiduciaries are responsible. This extensive
list can include pension plans, profit sharing plans, employee
stock ownership plans (ESOPs), and even health and welfare
plans.
Moreover, designated fiduciaries are not the only targets
of such lawsuits; targets can also include the employer and
even the plan itself. Claims can be brought by plan participants,
participants’ legal estates, the Department of Labor,
and the Pension Benefit Guaranty Corporation. Such claims
may include allegations of:
- Improper advice or disclosure
- Inappropriate selection of advisors or service providers
- Imprudent investments
- Lack of investment diversity
- Breach of responsibilities or fiduciary duties imposed
by ERISA
- Negligence in the administration of a plan
- Conflict of interest with regard to investments
A private company can help mitigate the personal liability
of its fiduciaries by following the advice of outside experts
and by selecting diverse, financially sound investments. But,
it cannot entirely eliminate their personal liability .
In order to help protect private companies, their fiduciaries
and the benefit plans they manage, against fiduciary liability
claims, InsureCast offers Fiduciary Liability Insurance coverage.
Please go to our online CoverageCoach
questionnaire to get a free no obligation Fiduciary Liability
Insurance quote. |
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Typical Fiduciary Liability
Insurance coverage highlights: |
- Broad definition of insured including the company, its
benefit plans and its fiduciaries
- Optional $100,000 sublimit for qualifying voluntary settlement
fees
- Optional coverage for defense outside the limits of liability
- Coverage for 502(i) and 502(l) civil penalties
- Broad employee benefit plan language including plans
outside the United States of America and any excess benefit
plans
- Broad wrongful acts definition includes allegations of
breach of fiduciary duty and errors and omissions
- No deductible will apply for most risks
Actual coverage is subject to the language of the policies as issued. |
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Who is considered a Fiduciary? |
Any individual included in the plan document
by name or title, or any one who has discretionary authority
over the administration or management of a plan or its assets.
The term is intentionally loosely defined to hold accountable
all individuals who may be responsible for misuse of plan
assets or a loss to plan participants.
Any employee who has discretionary authority over a plan
or who assists in its administration can be exposed to liability.
This list of individuals might include an appointed fiduciary,
a plan administrator, a human resources employee, or anyone
who helps to administer a plan. |
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