3 ways to close coverage gaps with Fiduciary Liability
A common misconception among business owners is that their existing insurance coverage will continue to grow alongside the needs of the business. More employees, complex benefits, greater scrutiny — growth often creates gaps in coverage that can lead to costly claims, and businesses often don’t recognize these new exposures until it’s too late.
Many businesses offer benefits like health and retirement plans to help attract and retain their employees, but there are many requirements businesses must follow when offering these benefits. Even if the plan is managed by a third party, a business owner can be held liable and may be required to pay out not only from business assets but also personal assets. As a broker, you have an opportunity to educate your clients and help them close coverage gaps.
Your clients may assume their Employee Benefits Liability (EBL) insurance would cover claims related to benefit plans, but EBL only covers errors and omissions in the administration of a plan. Similarly, your clients may assume their General Liability (GL) insurance or Business Owner’s Policy (BOP) would cover any lawsuits they might face, but neither offers the specific and crucial coverages afforded by Fiduciary Liability insurance.
Here are three key coverages to look for when quoting Fiduciary Liability:
1. Coverage for ERISA violations
The Employee Retirement Income Security Act of 1974 (ERISA) holds benefit plan sponsors and their trustees personally liable for losses to the company's benefit plan if they breach their fiduciary duties.
In 2022, the Employee Benefits Security Administration recovered over $1.4 billion for plans, participants, and beneficiaries.
Businesses especially need sufficient coverage for ERISA violations because ERISA cases are easy to pursue. If an employee makes a credible claim against an employer, the employer is expected to justify the decisions related to a benefit plan. Without Fiduciary Liability insurance, your clients may be vulnerable to penalties stemming from ERISA violations, as well as legal defense costs.
2. Excessive fee coverage
If a business fails to adequately vet the fees to participate in a benefit plan, and if the fees could have gone to contributions for investments, an employee can take legal action.
Excessive fee claims are difficult to dismiss and often require costly attorney fees (averaging $1,200/hour). Highly specialized lawyers are known to target these cases and mount aggressive class-action lawsuits.
Despite the perception that they're too small to need Fiduciary Liability coverage, small businesses are becoming increasingly bigger targets for excessive fee litigation. Approximately 46% of excessive fee lawsuits filed between 2018 and 2020 were against plans with less than $1 billion in plan assets, which is why businesses of all sizes need Fiduciary Liability coverage to protect against excessive fee claims.
3. Settlor coverage
A settlor is a person or organization that makes business decisions. In their capacity as a settlor, an employer may choose to do things like establish or terminate an employee benefit plan.
While a fiduciary is required to act in the best interest of employees, a settlor is permitted to act with broad discretion in the administration of employee benefits.
Without settlor coverage, a business may be denied an insurance claim if it’s determined that the employer was acting as a settlor rather than a fiduciary, leaving a business open to a large financial burden. It’s critical that your clients are protected, especially as our society becomes increasingly litigious and social inflation has increased settlements from many lawsuits.
How to leverage our suite of Active Executive Risks Insurance products
Coalition provides comprehensive Fiduciary Liability coverage up to $10 million in limits for businesses with up to $250 million in plan assets. Coverage highlights include:
Excessive fee coverage
ERISA penalties sublimit
Settlor coverage
COBRA penalties sublimit
HIPAA penalties sublimit
Health Care Reform Act penalties sublimit
Pension Protection Act penalties sublimit
United Kingdom Pensions penalties sublimit
Fiduciary Liability insurance is the latest Active Insurance offering from Coalition. Businesses can maximize their coverage by leveraging multiple products at once from our full suite of Executive Risks products, including:
All of our Executive Risks products are powered by Coalition’s data-driven approach to insurance. As a broker, you can save time and energy by getting instant quotes for Fiduciary Liability and other Executive Risks products on our Broker Platform.
Business growth is a good thing, but it comes with new risks. Support your clients by helping them navigate a new world of digital risks, and join us in our mission to protect the unprotected with Executive Risks insurance.
