Fiduciary Liability Coverage

Why You Need a Fiduciary Liability Policy

If your company sponsors a retirement or health plan for the employees and if you are involved in any way with the management of that plan, you are likely considered a “Fiduciary” and can be held personally liable* for what happens to the plan (under ERISA law.)  ERISA places strong personal liability on any person considered a “Fiduciary” under the law’s broad definition of the term.  Indemnification provisions in corporate bylaws are NOT applicable to this personal liability.

*As a fiduciary, you cannot wholly transfer your liability to another party, such as an insurance company, professional investment firm or third party plan administrator, so you need to protect your personal assets as well as those of your company. 

Fiduciary Liability

In contrast to EBL coverage, a fiduciary liability policy not only covers administrative errors and omissions, but also your personal liability for a breach of a fiduciary duty in connection with an employee benefit policy.

Claim Scenarios:

  • Delayed transfer balance - $1,250,000

    A group of employees alleged that the newly selected outside plan administrator improperly delayed transferring fund balances in the plan from one investment option to another, as directed by the participants.  Subsequently the employees sued the plan trustees to recover more than $1,000,000 in lost investment income.  Defense expenses were $250,000.

  • Failure to divest underperforming option--$400,000

    Plan participants alleged that the fiduciaries of a 401(k) plan had failed to divest the plan of an investment option that was not keeping pace with the performance of the comparable index and resulted in poor returns.  The case settled for $250,000 after $150,000 in legal fees had been spent.

  • Failure to disclose information - $250,000

    Employees sued the plan fiduciaries alleging that they breached their fiduciary duties by providing an option to invest in a guaranteed investment options backed by a poorly performing insurance company.  They further alleged that the plan fiduciaries breached their duty of disclosure by providing misleading or incomplete communications to participants.  The case eventually settled for $250,000.

  • Failure to monitor investments - $858,000

    Legal action brought by employees alleged the wrongful elimination of a profitable investment option and improper selection of another and failure to monitor the actions of the outside investment manager.  Defense costs were $358,000 and the court awarded the plaintiffs $500,000 in damages.

  • Breach of Fiduciary Duty - $250,000

    A Midwestern manufacturer failed to submit the requisite forms for an employee’s life insurance policy, but continued to deduct premium from the employee’s paycheck.  When the employee died, the life insurer denied the claim.  The employee’s heir sued the plan fiduciary, and recovered $250,000.

  • Denial of Benefits - $500,000

    The HMO under the company’s health plan denied payment of medical costs for an employee who was hospitalized following an accident.  The HMO claimed the employee never notified the HMO of her hospitalization, as required under the health plan.  In fact, the employee had called her employer’s plan administrator, who advised her that because she’d called the employer it wasn’t necessary that she call the HMO, forgetting that the notification rules had recently changed.  The employee sued her employer and the plan administrator over the benefits denial, alleging that she had received improper advice. The case settled for more than $500,000—the amount of the benefits, plus attorney fees.

  • Lapse in Benefits - $160,000

    An employer allowed existing insurance coverage to lapse while shopping for a new insurer. An employee’s son was seriously injured during this period and the employee’s insurance benefits were denied. In addition, the employer neglected to notify the employees of their rights during the lapse period. The employer settled with the employee and pursued the matter against its insurers. Damages assessed exceeded $160,000 judgment.

    • To learn more about Fiduciary Liability coverage, contact us today.