Fiduciary Liability Insurance: Because making health care plan decisions is risky business

It’s risky business, not having fiduciary liability insurance. Business owners and upper-level management who choose and administer retirement funds and health care plans for their companies are putting their personal assets in danger if they are not covered. Companies that offer employee benefits and retirement accounts are held accountable by the Employee Retirement Income Security Act (ERISA) to ensure employee premiums and investments -- as well as funding promised by the employer -- are dutifully handled and invested. By law, they have a “fiduciary duty” to handle those funds properly, with the best interest of the employee in mind.

Fiduciary Liability Insurance

The allegations that are made against business owners are largely mistakes in judgment and often include:

  • Administrative error
  • Cash balance plan conversions
  • Civil rights denial or discrimination
  • Denial or change of benefits
  • Failure to adequately fund a benefit program
  • Improper advice or counsel
  • Imprudent investment
  • Inappropriate selection of advisers or service providers
  • Incorrect benefit calculation
  • Lack of investment diversity
  • Misleading representation
  • Wrongful termination of plan

Unfortunately some companies blindly believe that their employee benefits liability endorsement on the commercial general liability policy is sufficient to cover the above listed grievances. That is not the case, as that type of coverage only accounts for administrative mistakes such as failing to add an employee to a health insurance plan or failing to provide information to an employee when he or 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 ERISA.

Fiduciary liability insurance is designed specifically to cover the assets of the people who make those decisions on 401k and health care plans. If you are CEO or owner of a business and are selecting your company plan – or have any involvement in choosing and overseeing the administration of those plans -- you need to take note. ERISA laws guarantee that you are responsible . And despite what you may think, your business can’t protect your personal assets.

The good news is that you can have coverage. Fiduciary Liability Insurance covers claims from “wrongful acts,” and protects the personal assets of leadership whereas the company can’t indemnify the person making the decision and the administration. Additionally, it also provides coverage for American Disabilities Act, the Older Workers Benefits Act, Equal Pay Act of 1963, Civil Rights Act of 1964, ERISA 1974,  Uniform Guidelines on Employee Selection of 1978, COBRA 1985, IRCA 1986, WARN 1988, ADA 1990, Older Workers Benefit Protection Act of 1990, FMLA 1993, USERRA 1994, HIPAA 1996, NMHPA 1996, MHPA 1996, EGTRRA 2001, Medicare Act of 2003, PPA 2006.

The cost for Fiduciary Liability Insurance is minimal, approximately $500 - $750 per $1 million of limits on a company with fewer than 150 employees. Surprisingly, it’s been our experience that roughly 50% of new companies we speak with actually have Fiduciary Liability Insurance. I suspect the reason that ratio is so low is that most agents only sell their clients what they ask for, and most business fiduciaries don't even know to ask for Fiduciary Liability Insurance. At  Swingle Collins, we help people with coverage that actually protects them and their company’s assets.

Swingle, Collins & Associates specializes in Chubb insurance commercial and personal property and casualty insurance coverage in Dallas, Southlake, Highland Park, and Plano. The descriptions of coverage listed on this website are brief and subject to the provisions, limitations, and exclusions that can only be expressed in your policy and related endorsements. For additional information of how Swingle, Collins & Associates can assist in meeting your coverage needs for property and casualty insurance please contact your dedicated risk manager to discuss the benefits and services of personal homeowners insurance coverage.

The information contained on this page is provided for informational and educational purposes only. It contains general information on insurance issues and may not reflect the most current developments in insurance coverage and is unlikely to apply in all factual scenarios. The information does not include all the terms, coverage, exclusions, limitations or conditions that may be contained in the actual insurance contract language. The policies themselves must be read for those details. Sample policy forms will be made available upon reasonable request.