Who Needs to Carry Fiduciary Liability Insurance?

The Department of Labor (DOL) caused a stir recently as the deadline approached for changing the rules under ERISA about the definition of “fiduciary.” Although the DOL change, as well as possible action by the Securities and Exchange Commission, has been tabled, the question remains: Just who qualifies as a fiduciary and who needs to carry fiduciary liability insurance?

This question frequently comes up when agents are conducting exposure reviews with commercial clients and prospects. Businesses that offer employee benefits and retirement accounts are charged with being sure employee premiums and investments, as well as funding promised by the employer, are dutifully handled and invested. They owe a fiduciary duty to handle those funds properly, with the best interest of the employee in mind. But does that make these employers fiduciaries in the strictest sense?

Read More FC&S Blog Posts at the Coverage Cafe!

Should the employer purchase fiduciary liability insurance, or is an employee benefits liability coverage endorsement on the CGL policy sufficient?

As we note in FC&S Online, the generic difference is that the employee benefits liability endorsement covers only administrative mistakes, such as failing to add an employee to a health insurance plan or failing to provide information to an employee when she becomes eligible to participate in a 401(k) or other retirement income plan. It specifically excludes (among other items) inadequate performance of investments and damages for which any insured is liable as a fiduciary as defined by the Employee Retirement Income Security Act of 1974 (ERISA) and its amendments.

Conversely, the fiduciary liability insurance coverage form covers “claims” arising from “wrongful acts.” The wrongful acts are negligent acts, errors, or omissions that result in an actual or alleged breach of fiduciary duties as imposed by ERISA and in the administration of employee benefit programs. It also applies to any matter claimed against a fiduciary solely because of his service as such.

The obvious differences are between administrative mistakes (a payroll manager failing to add an employee to the health insurance plan) and fiduciary mistakes (investment advice, choice of plans and, as the fiduciary liability form states, “discretionary authority or discretionary control with respect to the management of an ‘employee benefit program’ or the disposition of its assets”). (Source: ISO Fiduciary Liability Coverage Form MP 00 07 10 06)

Fiduciary liability coverage is a hard sell to commercial clients who are not pension advisors. But what about the choices the employer makes in choosing a management company, in choosing the funds that a 401(k) plan offers, in conducting educational meetings with employers? Does that open the door for these employers to incur at least defense costs when sued as a fiduciary—even if the suit is later thrown out?

ERISA is one of the most complicated federal laws in existence. I cannot begin to think I understand even its simplest portions. However, I believe that employers who provide employee benefits—especially retirement plans—need to seriously consider the choice between an employee benefits liability endorsement and actual fiduciary liability coverage.

I'm interested to see whether other insurance professionals have encountered resistance from commercial clients and prospects when discussing fiduciary liability insurance. Do you think they should buy fiduciary liability coverage or simply the employee benefit liability endorsement to the CGL?

See Related Articles:

About the Author
Diana B. Reitz, CPCU

Diana B. Reitz, CPCU

Diana Reitz, CPCU, is editorial director for the professional publishing division of The National Underwriter Company, which includes FC&S Online. She may be reached at dreitz@sbmedia.com


Resource Center

View All »

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

Increase Sales Conversion with this Complimentary White Paper

This whitepaper will share proven techniques - used by many of the industry's top producers...

D&O Policy Definitions: Don't Overlook These Critical Terms

Unlike other forms of insurance where standard policy language prevails, with D&O policies, even seemingly...

Environmental Risk: Lessons Learned from Willy Wonka and the Chocolate...

Whether it’s a chocolate factory or an industrial wastewater treatment facility, cleanup and impacts to...

More Data, Earlier: The Value of Incorporating Data and Analytics...

Incorporating more data earlier in claims lifecycles can help you reduce severity payments by 25%*...

Looking for Markets?

Search Kirschner’s Insurance Directory to help service your hard to place risks.

497 Risk Categories | 70,000 P&C Insurance Markets

Specialty Markets Insight eNewsletter

Receive updates and analyses on hard to place and challenging coverages. Sign Up Now!

Advertisement. Closing in 15 seconds.