Thursday, May 29, 2008

Does My Insured Need Fiduciary Liability? (5/15/08 Knowledge Knugget)

Does your insured need fiduciary liability coverage?

Quite possibly.

  • Fiduciary liability coverage protects fiduciaries (those individuals in a company who bear *personal* liability for the caretaking of employee welfare and benefit plans and the funds that drive them) from financial disaster.
  • An ERISA Bond is not the same as fiduciary liability coverage. An ERISA bond is required to secure plan assets against dishonest acts. The bond comes in to play if there is an act of dishonesty -- absconding with the funds and a co-worker and heading for the Bahamas, let's say.
  • Fiduciary liability is more like professional liability coverage for the management members or owners who are responsible for establishing, authorizing, and/or overseeing the plans. This includes health insurance and any other plans subject to ERISA.
  • Even if your insured has outsourced day-to-day management of plans to a third party vendor, the individual fiduciaries cannot relieve themselves of their personal liability as fiduciaries. Therefore, they still need the coverage at least to fund their defense.
  • Recent events in the stock market and other investment vehicles (think sub-prime and bond rating disasters!) have made the likelihood of fiduciary liability claims much higher.
  • This coverage is very inexpensive, and is available both on a monoline basis, and as part of a D&O or Management Liability placement. It generally has a $0 deductible, and underwriting is quick and easy, if the insured has filed their Form 5500s such that they are available on line.

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