Fiduciary liability insurance is targeted at protecting businesses’ and employers’ assets against fiduciary-related claims of mismanagement of a company’s employee benefit plans. The policy helps cover the legal expenses of defending against the claim. In addition, it will pay for any financial losses the plan may have incurred due to errors, omissions or breach of fiduciary duty.
Let’s look at a few fiduciary liability insurance claim examples in order to see just how the policy would take effect in certain scenarios.
Fiduciary claims examples
The following example demonstrates a “failure to disclose” vital information. Let’s say that an employee is injured on the job and later discovers their employer, unbeknownst to them, switched medical insurance carriers. The change ended up providing the employee with a reduced coverage amount, which meant they owed money for unpaid medical bills. They would certainly sue the employer for any unpaid medical bills because of failing to disclose this change.
Another example is an administrative error, whereby Human Resources personnel might incorrectly communicate the wrong contribution percentage of a new employee to the plan trustee. If at the end of the year, the employee claims that they lost out on investment gains and tax benefits due to the error this would also be considered a fiduciary liability issue.
Other violations include failing to enroll an employee into the company sponsored disability program when they have paid into it, or violations of the tax code, which is likely to include penalties and fines when investigated by the Internal Revenue Service. These fiduciary liability insurance claim examples clearly demonstrate how mistakes are often made unintentionally but can result in costly consequences.
If you purchase fiduciary liability insurance for your company and employees engaged in fiduciary roles, realize that the policy doesn’t extend to any outside advisers, consultants, or administrators of your benefits plans. These providers are solely responsible for securing their own coverage. Also, you should consider that even if you hire outside advisors to take on your plans’ fiduciary functions this doesn’t automatically exclude you from any associated liabilities. You can still be held responsible for monitoring these fiduciaries’ activities.