fiduciary liability & ebl - they are not the same

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Fiduciary Liability and EBLWhat You Need To Know

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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

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Copyright 2011©

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Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR

Insurance Community Center, LLCDirector of Education6

They are not the same


EBL coverageFiduciary Liability coverageERISA requirements

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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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This is ISO’s language - most insurers’ forms follow similar language

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1. Insuring Agreementa. 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 insuredBroad 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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AdvisingCounselingGiving notice to employeesProviding plan interpretationsHandling recordsEffecting enrollmentTerminating 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 proceedingA formal administrative or regulatory

proceedingsA 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-renewal43


Damages and defense costs

arising out of a “wrongful act”

Employee Benefit Liability

Covers

Fiduciary Liability Covers

A mistake, error or omission in

handling of administrative

matters


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 plan10% of plan assets up to$500,000 coverage

$1,000,000 coverage if the plan contains the plan sponsor’s stock

No deductibleOne 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 [email protected] 714 803 5830

Marjorie Segale [email protected]

m 714 206 9583

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