Fiduciary liability insurance is a specialized type of errors and omissions insurance coverage. Fiduciaries are individuals or companies responsible for administering employee benefit plans or managing assets belonging to another individual or entity. If they’re sued, fiduciary liability insurance covers legal defense costs and damages. This type of coverage typically costs $500 and $2,500 annually.
Fiduciaries need special liability coverage and should be sure to work with an insurance company that understands their unique needs. The Hartford is a great provider that offers coverage specifically designed to help fiduciaries. Visit The Hartford today to get a quote for fiduciary liability insurance in minutes.
Top Fiduciary Liability Insurance Providers
|The Hartford||Easily getting the right coverage thanks to packaged policies|
|Travelers||Companies looking for help from local agents to get the right coverage|
|Trusted Choice||Comparing prices from different insurers with the help of independent agents|
|United Educators||Educators looking for fiduciary liability coverage for benefit plans|
|RLI Insurance||Very broad coverage and no deductible for investigative costs for favorably-resolved claims|
If you don’t want to struggle to piece together all the coverage you need, get fiduciary liability insurance from The Hartford. This insurer has packages for different company types, including public companies, private companies, healthcare organizations, and nonprofits. Not only do the packages make shopping simpler, but they also provide cost-efficiencies since bundled coverage is cheaper.
When you need advice from a local agent to find the right fiduciary liability insurance, Travelers is your best choice. Travelers has a nationwide network and focuses not just on coverage, but also on helping policyholders understand rules under ERISA. You’ll get personalized advice from a knowledgeable agent, comprehensive coverage, and access to information about ERISA obligations.
If you want an independent agent to help you get quotes from a vast network of top-rated insurers, Trusted Choice is the best option. An agent will assist in determining coverage needs and obtaining multiple quotes so you can compare prices. Easy comparison shopping makes this an ideal solution when you’re concerned about keeping costs down.
If you’re an educator, look to United Educators for a policy tailored to address your needs. Educational institutions often offer different benefits plans than for-profit corporations, and United Educators has appropriate coverage. Covered plans include trustee and welfare benefits, pensions and retirement plans, fringe benefits, and even plans administered outside the United States.
RLI Insurance has some of the broadest coverage of any provider, making it an ideal choice when you want the ultimate protection. The definition of an insured person is broadly defined by RLI fiduciary liability policies, and it is possible to buy not only liability insurance, but also fidelity bonds that ERISA requires in case of employee dishonesty.
What Is Fiduciary Liability Insurance?
Fiduciary liability insurance specifically provides insurance coverage for a legal claim arising from a breach of fiduciary duty. Fiduciaries include individuals and organizations that manage employee health plans, as well as corporate directors or board members, agents, and investment advisors. These individuals have legal duties imposed by laws such as the Employee Retirement Income Security Act, and policies protect them from claims they failed to fulfill their obligations.
Examples of fiduciaries who could be subject to a claim for breach include:
- Individuals or organizations that exercise control or authority over the management of any employee benefit plan. This includes pension plans, profit sharing plans, and health plans.
- Corporate directors or board members who make decisions about business expenditures or company operations.
- Agents who act on behalf of principals (for example, employees who have been given authority to enter into financial transactions on behalf of employers).
- Investment advisors who have been given responsibility to manage money on behalf of clients.
Fiduciary liability insurance policies are purchased by companies offering employee benefits plans. This is because, as the Department of Labor explains, a federal law called the Employee Retirement Income Security Act (ERISA) imposes broad liability for problems arising in connection with plan management.
Under ERISA, fiduciaries can even be held legally responsible for acts, errors, and omissions of outside entities providing administrative services. This means that a company could potentially be sued if its 401(k) plan administrator embezzled funds.
If a fiduciary is accused of failing to act with reasonable care with regards to managing an employee benefit plan or carrying out legal obligations, a fiduciary liability policy will provide coverage for resulting costs of defending against legal claims.
What Fiduciary Liability Insurance Covers
Fiduciary liability insurance covers legal claims that arise because of an allegation that an individual or entity has failed to live up to a specific fiduciary duty. You could be covered if you are sued for allegedly mismanaging pension assets or mismanaging a health plan.
Fiduciary liability insurance can cover:
- Legal defense costs
- An investigation into the supposed wrongdoing
- Any settlement award negotiated with those alleging wrongdoing
- Damages awarded by the court when there’s a finding of wrongdoing
Policies pay for costs associated not just with litigation, but also claims against fiduciaries resolved in arbitration. If the complaint arises out of conduct when acting as a fiduciary, a policy should provide coverage for costs and losses.
The Hartford is a very well-established insurance company that offers coverage to help in all of these areas as well as fidelity bonds. Using The Hartford, fiduciaries can get an insurance policy that’s custom-made to meet their specific needs. Visit The Hartford today to get a policy in just a few minutes.
What Fiduciary Liability Insurance Doesn’t Cover
Fiduciary liability coverage is narrowly focused to provide coverage only for claims based on professional misconduct, such as mismanagement of employee retirement plans. It won’t cover lawsuits for other reasons. If a retirement plan administrator invites a client to his office and the client falls, the fiduciary liability policy would provide no coverage for a resulting lawsuit.
Fiduciary liability policies also do not cover intentional wrongdoing or criminal acts. While you would be covered for a defense that you mismanaged company money through carelessness, you would not be covered if you were found to have intentionally embezzled corporate funds. Fidelity bonds, which ERISA requires, do provide coverage in the event of dishonesty and can be purchased from a surety, such as Colonial Surety or SuretyGroup.com.
Fiduciary Liability Insurance Costs
Fiduciary liability insurance can be purchased as a stand-alone policy or as add-on coverage to other bundled policies, such as a Business Owner’s Policy. A policy typically costs around $500 to $2,500. Often, the best way to get affordable coverage is to purchase multiple policies from a single trusted insurance company.
Fiduciary Liability Insurance Costs & Deductible
Many different factors can impact costs, including:
- Risks associated with fiduciary obligations: A fiduciary requiring insurance to cover claims arising out of the management of a small employee profit-sharing plan available to two employees won’t need as much coverage as a fiduciary in charge of managing a substantial portfolio of retirement investment money for 100 employees. In the latter case, the risk of potential loss is much greater.
- The policy limits: The more coverage you have, and the lower the deductible, the more the policy costs. This is because insurers charge more when they assume more of the risks.
- Your experience and professional reputation: Applicants need to provide information on past claims and fiduciary credentials when applying for coverage. With clear expertise and a clean record, a policy should cost less than situations where past claims have been made.
Tips on Getting/Applying for Fiduciary Insurance
Applying for fiduciary liability insurance can be daunting, especially if you are not sure where to start. These tips from experts will help you to get the protection you need at an affordable price.
Consider Bundling Coverage
A fiduciary liability policy doesn’t have to be purchased as stand-alone coverage, but can be chosen as a policy add-on. Taking this approach is often the most affordable and effective solution.
“The most efficient way to obtain Fiduciary Liability coverage is to work with your broker and insurance carrier to add a separate limit for fiduciary liability to your Directors & Officers Liability policy,” advised Cindy Jordan, Assistant Vice President, associate broker in the Management Liability division of The Plexus Groupe. Jordan indicated this bundled approach can result in package discounts.
However, there are some caveats Jordan warned about when buying bundled coverage. “Make sure that the fiduciary liability part of the policy has its own aggregate limit, leaving the Directors & Officers limit untouched in case of a claim,” she said.
Gather Your Documents Before Applying
A fiduciary liability insurance application requires you to provide extensive information about potential risks, and you’ll need appropriate documentation. Jordan recommends getting your paperwork together before beginning the application process.
“Gather your advisor contact information, your plan audit, and Form 5500s before you begin, as most of the questions can be answered using these tools,” she said.
Form 5500 is the form you’re required to submit with the Department of Labor with details about your employee benefits plan. Insurers need this information if you’re seeking protection from liability under ERISA.
Read Policy Language Carefully
It’s important to make certain you are fully covered for potential claims based on a breach of fiduciary duty, particularly as related to obligations under ERISA. This means both understanding your coverage needs and reading your policy carefully.
“Understand the coverage being offered and how it specifically addresses all your exposures,” advised Damian Caracciolo, Vice President at CBIZ, Inc. “Be sure the limits are adequate and that your broker challenges any specific exclusions the carriers are proposing to ensure the broadest coverage available to protect the plan trustees and fiduciaries.”
Additional Fiduciary Liability Insurance Types
In addition to Fiduciary Liability Insurance, there are some additional types of insurance you may need to purchase to protect against lawsuits and to protect employees. Companies should have a Business Owner’s Policy (BOP) grouping commercial general liability insurance and property damage. Plus, you may need Fidelity Bonds as well as Directors & Officers insurance.
Business Owner’s Policy
A BOP covers your company if someone sues because they were hurt on your premise or if your employees damaged someone else’s property. Property damage provisions of a BOP protect you if your property is harmed, such as when equipment is lost in a fire.
Companies and individuals that purchase fiduciary liability insurance coverage should make certain to purchase Fidelity Bonds if administering an employee benefits plan. Bonds may be required under ERISA, and also help to ensure full protection from loss, including when financial damage occurs due to dishonesty.
Directors & Officers Insurance
Directors & Officers (D&O) coverage is a good idea, as this policy covers reimbursement for legal costs for claims connected to the director’s or officer’s conduct managing the business. If a merger went bad, D&O coverage would protect the executive or organization from a lawsuit by shareholders alleging the decision to merge was a poor one.
Fiduciary Liability Insurance Frequently Asked Questions (FAQ)
Many fiduciaries aren’t sure exactly how to purchase the coverage they need to protect against claims of a breach. If you have questions about getting covered, our forums are a great resource where you can ask for advice. You can also read below to get some answers to frequently asked questions.
Some of the most frequently asked questions about fiduciary liability insurance are:
Who is insured under a fiduciary liability policy?
Fiduciary liability insurance policies typically cover employees and executives of an organization that has purchased coverage. Members of the employee benefits committee and trustees of insured organizations are also covered. Third-party service providers do not have coverage, but should have their own errors & omissions policies.
Does every company offering a benefits plan need a fiduciary liability policy?
If the plan is covered by ERISA, the company should have a policy to protect against legal liability. Almost all employee benefit plans are covered by ERISA, with limited exceptions such as government plans, church plans, and plans—such as a workers’ compensation plan—that have been created solely to comply with state regulations.
Should you add outside service providers onto your fiduciary liability insurance?
Sometimes when you work with outside service providers, such as 401(k) or health plan administrators, it’s possible to add them to your policy. This is usually not advisable because your policy could end up paying to defend the provider. Instead, ensure any service providers you work with have their own Errors & Omissions Coverage.
Buying fiduciary liability coverage is important if there’s a risk you or your company could be sued for breach of fiduciary duty. It’s especially essential to get covered if your business offers a health plan because of ERISA rules. Buying bundled coverage can help you to save money and make the purchase of a policy easier and more efficient.
The Hartford understands the unique needs of fiduciaries and has policies specifically designed to suit these professionals. If you need fiduciary or fidelity bond coverage, be sure to consider The Hartford and see what options they offer. You can visit their website today to get a quote in just a few minutes.