Fiduciary Liability Insurance (or “FLI”) is an insurance policy generally designed to pay for the defense costs and any damages resulting from a claim brought against a business or a trustee arising from the alleged errors and omissions in the administration of and/or mismanagement (including unlawful or imprudent decisions) regarding employee 401(k) plans or retirement plan benefits.
Fiduciary liability is a stand-alone insurance policy and can also be packaged in a management liability policy. It is NOT a commonly included coverage in a standard Business Owner’s Policy and is NOT covered under commercial general liability.
Why Do You Need Fiduciary Liability Insurance?
Because providing and administering employee benefit plans shouldn’t mean putting your private assets on the line. Without fiduciary liability insurance, that’s exactly what you’re doing.
Whether it’s for retirement, health, profit share or disability, virtually all employer plans providing employee benefits are regulated by the Employee Retirement Income Security Act of 1974 (ERISA).
Regulations found inside of ERISA mandate that if a benefits plan isn’t managed properly and/or benefits are lost, fiduciaries are ‘personally liable’ to ‘make good’ any losses they’ve caused.
Yes. You are Personally liability for the mismanagement of employee benefit plans.
So, if one of your staff thinks their retirement plan has been mismanaged. They can sue the individual looking after it as well as anyone who may be responsible in any regard. That could be you, or it could be one of your employees who’s acting as fiduciary.
It doesn’t matter what their job title is – senior director, payroll manager – ERISA doesn’t care.
The actions involved in operating a plan make someone a “fiduciary,” not their job title.
Without fiduciary liability insurance that individual is going to have to pay all expenses and damages out of their own pocket, (legal fees, settlements or awards, etc).
Neither ERISA nor state business regulations requires a business to carry fiduciary liability. But with lawsuits running as high as 5, sometimes 6 figures, carrying fiduciary liability is vital to longevity and vitality of your business.
Fiduciary Liability Claim Example
The Trustees of a privately held company were in charge of investment decisions for an employee stock ownership plan and in this case, made a poor decision.
They were sued by the company employees, (with the support of the Department of Labor), who claimed the firm’s fiduciaries had made unwise investment decisions. The court found the fiduciaries failed to conduct impartial reviews of investment options and the suit finally settled for $1,000,000.
Are you ready for the owners, officers, trustees and/or staff of your company to take on this level of risk?
Here are just of few of the findings from fiduciary cases investigated by the Department of Labor where the company was found to have violated ERISA provisions:
- failing to forward amounts withheld from employees on a timely basis
- improperly allowing the plan to make loans to shareholder-employees
- making illegal employer contributions to the plan
- failing to make timely payments to terminated employees
- filing annual 5500 reports which falsely indicated the plan was funded in accordance with ERISA’s minimum funding requirements
The list goes on. The point is, there are things you may not even realize violate your fiduciary responsibility that create massive risk exposure to your business.
What Fiduciary Liability Insurance Is Not
It’s important not to confuse fiduciary liability insurance with other forms of liability coverage. Fiduciary liability is a unique coverage that often specifically excluded from other forms of liability (especially general liability).
Here are a few types liability insurance coverage that are often confused with fiduciary liability:
- Fidelity bond
- Directors and officers insurance
- Commercial general liability
- Professional liability insurance
- Employer practices liability insurance
- Workers compensation insurance
Do not assume you have fiduciary liability insurance. If you offer benefits in any capacity to your employees it’s important you talk to your insurance professional about this coverage.
Additionally, fiduciary liability is NOT employee benefits insurance. These are two separate policies with separate coverages and purposes.
What Does Fiduciary Liability Cover?
Fiduciary liability insurance provides coverage for, but is not limited to the following:
- Claims made worldwide (as long as they’re filed in the U.S., a U.S. territory or Canada)
- Any kind of employee benefit plan, including stock ownership plans
- Any employee (including directors and officers) acting as a fiduciary for the firm, the organization itself and the option to extend to spouses and partners
- HIPAA and ERISA fines and penalty payments
- Legal defense costs and damages
- No demand to settle a claim
Here are a few examples of the types of claims commonly filed under a fiduciary liability policy:
- failure to administer the plan according to plan documents
- imprudent investment of assets/lack of investment diversity
- imprudent selection of third-party service providers (or failure to monitor them)
- wrongful denial or improper change in benefits
- improper enrollment or advice
- conflict of interest
What is NOT Covered Under Fiduciary Liability?
Under this coverage, your policy will not cover fraudulent (or intentional) acts (such as stealing or deliberately defrauding). These types of risks you need a fidelity bond.
Additionally, you will not have coverage for outside advisors, consultants and administrators you’ve hired to look after your employee benefit plans. They should have their own policy. Before hiring an outside vendor to manage your benefits require a certificate of insurance proving they have coverage in place.
Be aware, hiring an outside vendor to manage your benefits program does not entirely transfer risk away from you or those responsible for the decision. Leadership and other parties will most likely be brought into any lawsuit involving mismanagement by the outside vendor.
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Top Fiduciary Liability Insurance Companies
The best fiduciary liability insurance companies provide more than just excellent coverage, they seek to train employers on safety and make the process of buying and paying for coverage straight-forward and affordable.
We reviewed all the top-rated fiduciary liability companies to give you the best five from which to consider when working with your independent insurance agent.
Chubb is a large national carrier offering personal and commercial lines of insurance. The company offers excellent fiduciary protection programs, helping small business owners manage their risk from employee benefits program administration.
Chubb can write policies for nearly any-sized business, but it’s known for treating every account the same when it comes to customer service and claims. Some of the features Chubb offers small business owners include:
- Wrongful denial or improper change in benefits
- Error or omission in plan administration
- Improper advice or counsel
The Rogue Take
Chubb insurance has been a world-class brand name in business insurance for decades and there is good reason, they take care of their clients. We work hard to get our clients into Chubb products for their superior claims handling and preferred pricing options.
The Hartford leverages it’s size and scope of business risks to provide world-class coverage. Many insurance companies offer the same coverages but finding one that truly has your back can make all the difference. For more than 200 years, The Hartford has helped over 1 million businesses like yours prevail through the unexpected.
Additionally, The Hartford has an exceptional claims approach that moves the business and injured employees forward quickly. The Hartford automatically adds coverage that are paid endorsements with other carriers:
- Easy payment options
- Flexible policy coverages
- Business package bundling discounts
The Rogue Take
While The Hartford may be a generalist insurance company providing a wide range of commercial insurance products to a wide variety of business classes, their fiduciary liability product is rock solid.
Whether you’re buying fiduciary liability insurance for first time or renewing a policy in place for years, Travelers can help you protect this prized possession with homeowners’ insurance that fits your priorities and your budget.
Travelers has been around for more than 165 years and has earned a reputation as one of the best property casualty insurers in the industry because they take care of our customers. Their expertise and focus on innovation have made them a leader in personal, business and specialty insurance and the only property casualty company in the Dow Jones Industrial Average.
Travelers fiduciary liability covers organizations such as:
- Financial Institutions
- Nonprofit Organizations
- Private Companies
- Public Companies
The Rogue Take
Travelers is known throughout the insurance industry as a commercial insurance company that pays claims. That may sound like a given, but in Travelers case they look to find ways to pay. That’s a good thing for you.
Fiduciary liability is an insurance coverage often overlooked in a commercial insurance package. Unfortunately, the frequency and severity of claims is rising rapidly as economic conditions become stressed.
If your current insurance professional has never addressed issues such as fiduciary liability with you before, then I’d encourage you to reach out to us today.
- You can call or text us at 518.960.6600
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I look forward to introducing you to a new way of viewing your insurance program.