Fiduciary Liability & EBL - They are not the same

Fiduciary Liability and EBL
What You Need To Know

Community Webinar

Insurance forms and endorsements vary based on insurance company; changes in
edition dates; regulations; court decisions; and state jurisdiction. The
instructional materials provided by The Insurance Community Center and its
authors is intended as a general guideline and any interpretations provided by
The Community do not modify or revise insurance policy language.
Information which is copyrighted and proprietary to Insurance Services
Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO
Material is limited to ISO Participating Insurers and their Authorized
Representatives.
The Insurance Community Center assumes neither liability nor responsibility to
any person or business with respect to any loss that is alleged to be caused
directly or indirectly as a result of the instructional materials provided.
Insight Insurance Consulting
laurie@insurancecommunitycenter.com
marjorie@insuranceacommunitycenter.com
www.insuranceacommunitycenter.com
Copyright 2011©

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Marjorie L.
Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR
, CISR
Insurance Community Center, LLC
6 Director of Education

 EBL coverage
 Fiduciary Liability coverage
 ERISA requirements

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Bodily Injury
WC / EL

Discrimination / Harassment Benefits
EPLI EBL / Fiduciary

Theft
Employee Dishonesty
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No obligation to provide benefits

When provided, must do so within the law

Most employers today provide some form of benefits
• Group health insurance
• Dental insurance
• Pension, retirement or profit sharing programs.

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Balance need for skilled
Employees have little to
staff with risk attached
lose by suing
to providing benefits
• New laws and new • If they win their
regulations creating case, lawyer fees are
additional unknown almost always
risk assigned by the court
• Increased # of lawyers
entering this field

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Employers may • Section 409 of this
not be aware of federal law imposes
personal liability
the risk imposed upon many persons
upon them by within the
ERISA organization

All employers face
this expensive
litigation

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The plan sponsor (employing company)

The company management
• Executive officers or managing employees
• Board of directors

Investment committees

The plan administrator
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Named fiduciaries

The plan trustee

HR administrator/manager

Investment manager(s)

Consultants, including Accountants and Attorneys

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Settlor Fiduciary
activities activities

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Establishes the Makes changes
plans to the plans

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Exercises
Has
discretionary
discretionary
authority or Gives
authority over
control over the investment
plan
plan advice for a fee
administration
management or
or
plan assets or

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An individual may have either one
or the other or both roles

Class action suits typically name all
parties connected to an ERISA plan
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The Fiduciary Liability policy requires that a
claim must include a demand for damages
arising out of the insured’s breach of
FIDUCIARY duty or administrative duties –
does not include settlor duties

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 Welfare benefit plan includes
 Medical plans
 Disability benefit plans
 Vacation plans
 Pension benefit plan is any plan that
 Provides retirement income to employee
 Defers income to periods beyond termination

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 Frequent loss
 Denial of benefits
 Improper reimbursement
 Miscalculation of benefits
 Surviving spouse did not receive proper benefits

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 Severe loss
 Plan fiduciaries imprudently offered employer
stock and/or misrepresented risk of investment
 Excessive plan fees
 Promised benefits were cut
 Change in post-retirement medical benefits
 Premiums charged for insurance were excess
 Fiduciaries failed to scrutinize cost vs. benefit
ratio properly
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Errors and Omissions coverage
for negligent errors or
omissions in administration of
employee benefit plans

Typically a Claims-Made and
Reported type of coverage

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Pays only the benefits that
should have been paid had
no error or omission occurred

Often provided as a
coverage addition to the
Commercial General
Liability policy
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This is ISO’s language - most insurers’ forms follow similar language

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1.Insuring Agreement
a. We will pay those sums that the insured
becomes legally obligated to pay as damages
because of any act, error or omission, of the
insured, or of any other person for whose acts
the insured is legally liable, to which this
insurance applies. We will have the right and
duty to defend the insured against any "suit"
seeking those damages.
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b.This insurance applies to damages only if:
(1)The act, error or omission, is negligently
committed in the "administration" of your
"employee benefit program";

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The amount paid shall not exceed, and will be
subject to, the limits and restrictions that
apply to the payment of benefits in any plan
included in the "employee benefit program".

 This is a critical restriction and can leave a
gap between the financial loss to the
employee and the coverage amount

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 Broad definition of insured
 Broad definition of employees
 Broad definition of “administration”
 Broad definition of “employee benefit plan”
 Group life and medical expense plans, as well as
pension and retirement plans, are within the
scope of the law

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 “Insured” is variously defined as a trust or
employee benefit plan, any trustee, officer or
employee of the trust or employee benefit
plan
 The employer (company)
 Any other individual or organization
designated as a fiduciary

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 Definition of employees include
 Full-time
 Part-time
 Temporary
 Leased
 Volunteers / Interns
 Contract employees

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 Advising
 Counseling
 Giving notice to employees
 Providing plan interpretations
 Handling records
 Effecting enrollment
 Terminating or canceling employees,
participants, or beneficiaries under any plan

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 Any benefit plan, whether or not subject to
ERISA sponsored for the sole benefit of the
“employees”
 Fringe benefits and excess benefit plans
 New or proposed plans – automatic coverage
 All plans – US or foreign

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 To include written demand for monetary or
non-monetary or injunctive relief
 A criminal proceeding
 A formal administrative or regulatory
proceedings
 A fact-finding investigation by the DOL,
USPBGC, or any similar authority located
outside the US

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 Duty to defend
 In addition to limit
 Some policies include within the limit
 Twelve-month or longer discovery period
 The cost for an ERP should be shown in the policy
 The discovery clause should be bilateral

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 Specific language extending coverage to
managed care liability claims
 Specific language extending coverage to
HIPAA claims, fines and penalties and COBRA
claims
 Punitive damages and exemplary damages
where permitted by law

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 Automatic coverage for voluntary settlement
 Often a sub-limit
 Pollution coverage extension
 Waiver of recourse provisions (no provision
for recourse by insurer against fiduciary)
 Non-cancelable except for non-payment of
premium
 90 Days notice of non-renewal

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Fiduciary Liability Employee Benefit
Covers Liability Covers

A mistake, error or
Damages and omission in
defense costs handling of
arising out of a administrative
“wrongful act” matters

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 The Federal Code refers to the necessity of a
fidelity bond to cover the employee plan
assets against fraud or theft
 An ERISA Bond may be provided separately
or the plan may be listed as a Named Insured
on the Employee Dishonesty Insurance Policy


 Federal law requires the plan sponsor to
carry employee dishonesty coverage that
extends to protect the plan assets from any
person handling the plan assets.
 A TPA providing employee dishonesty coverage
for their employees should be viewed as a
contractual obligation and not fulfillment of the
above obligations


 $1,000 minimum limit per plan
 10% of plan assets up to
 $500,000 coverage
 $1,000,000 coverage if the plan contains the plan
sponsor’s stock
 No deductible
 One year discovery period for loss


 ERISA requires the fidelity coverage to be
purchased and reported
 ERISA does NOT require the purchase of
Fiduciary Liability insurance, but the law
allows the purchase of this coverage
 Fiduciary Liability can include the EBL
administrative coverage
 EBL will NEVER include the Fiduciary Liability
coverage
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 This area is developing law around the
country in both state and federal courts
 Help your client understand that their risk is
great and growing
 ALWAYS offer Fiduciary Liability IN WRITING
 Get a rejection signed
 Give them insurance guidance but don’t step
over the line into the area of law

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 Laurie Infantino
 laurie@insurancecommunitycenter.com
 714 803 5830
 Marjorie Segale
 marjorie@insurancecommunitycenter.com
 714 206 9583

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Fiduciary Liability & EBL - They are not the same

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