What is fiduciary liability insurance?
Fiduciary liability insurance is liability coverage for those who act as fiduciaries. These are the individuals who either have a part in the decision-making of an employee benefit plan, administer a plan or its assets, or whose name or title is included on benefit plan documents. The insurance, also referred to as management liability insurance, is designed to provide financial resources when a business or representative has a lawsuit filed against them for claims of negligence or breach of duty. Those covered by a fiduciary plan may include directors and officers, plan trustees, employers (plan sponsors), internal investment committees, and plan administrators.
Synonyms for fiduciary liability insurance
You will come across other terms for fiduciary coverage, and some of those terms share the same meaning. One synonym includes:
- Fiduciary responsibility insurance: The specific duties undertaken by a fiduciary are covered under this insurance plan. Because there are several types of fiduciaries, this policy would address the unique aspects of the position, whether it is the explanation of benefits, the enrollment, or the oversight of plan aspects.
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When do I need to be aware of fiduciary liability insurance?
Those who are engaged in direct administration, management, or oversight of an employee benefits plans are exposed to fiduciary liability through the requirements of the ERISA law passed in 1974. Claims can arise from errors during enrollment or termination, misinformation or advice given to guide enrollment, or allegations of making risky investments. Small companies with employees without a strong knowledge of ERISA law tend to have greater exposure.
What is important to know about fiduciary liability insurance?
There is a difference between employee benefits liability and fiduciary liability insurance. Fiduciary coverage address mismanagement, imprudent investments, or other decision-making, rather than administrative errors. This policy addresses any benefits administration, whether health insurance, stock options, or retirement contributions. There are some other important items you should know about fiduciary liability insurance:
- Though it provides protection against ERISA-related allegations, the law itself does not require companies or individuals to carry a fiduciary insurance policy.
- Fiduciary liability is the only employer liability coverage that will protect both a company and specific individuals from fiduciary-related claims.
- Fiduciary coverage does not apply when a criminal act has taken place or intentional wrongdoing has occurred, but when applicable, the coverage handles damages handed down through the court, negotiated settlement amounts, legal defense expenses, and investigation costs.