Agents selling commercial insurance should not fail to determine the need for and offer Fiduciary Liability, Employee Benefits Liability and an ERISA bond to clients. A business that provides any type of employee benefit plan (including workers compensation, health insurance or a retirement plan) needs one or all of these products.
Fiduciary Liability insurance is designed to protect individuals within the organization who design, administer and manage retirement and other benefit plans, primarily those subject to the Employee Retirement Income Security Act (ERISA). ERISA broadly defines "employee benefit plans" as "any one plan, fund or program established or maintained for the purpose of providing to its participants or beneficiaries employee benefits."
Individual fiduciaries can be personally liable for breaches of duty, and can also be held liable for the acts, errors, and omissions of outside entities that provide administrative and related services to the pension and benefit plans.
Fiduciary liability coverage can be written on a claims-made basis as a stand-alone policy or as part of a package of executive liability coverage offered by many insurers under a variety of trade names.
Employee Benefits Liability
Employee Benefits Liability coverage can be provided on an inexpensive endorsement to the CGL policy (ISO CG 04 35 or its equivalent). The endorsement covers claims arising out of administrative errors in the handling of employee benefit plans, including group health, workers compensation and savings or retirement plans.
For example, if the personnel clerk fails to add a new employee to the company health insurance plan, the employer can be held legally liable for medical bills that would have been paid by the plan had the employee been properly enrolled.
The standard ISO EBL coverage endorsement (and most company-specific forms) is a claims-made coverage form with a retroactive date. This can present a problem when renewing a CGL policy with an EBL endorsement, especially when the policy is moved from one company to another - either as new business to the agency or as an agency renewal. Producers and CSRs who are unfamiliar with claims-made provisions may overlook an advanced retro date on the new policy, and that can be an E&O claim waiting to happen. Be sure your agency has a procedure in place to require the producer or CSR to verify that the EBL retro date has not been advanced when a CGL policy is renewed or placed elsewhere. See technical report Claims-Made Management Liability Policy Forms.
In addition to imposing fiduciary liability on individuals who manage employee benefit plans, ERISA imposes a bonding requirement.
All fiduciaries and persons who handle plan funds or other plan assets must be bonded. The required amount of insurance is 10 percent of the funds handled, subject to a minimum of $1,000 and a maximum of $500,000. However, if the plan includes employee securities, other than as part of a broadly diversified fund such as a mutual or index fund, the maximum required amount of insurance is $1 million.
The bonding requirement can be fulfilled by including the names of the employee benefit plans as named insureds on the company's existing employee theft coverage.