Fiduciary Liability Insurance

Fiduciary Liability Insurance: A Crucial Component to a Comprehensive Risk Management Strategy

As more companies offer a full array of benefits to attract and retain talent, protection from litigation related to health and welfare benefits is an important piece of a company’s risk management strategy. The Employment Retirement Income Security Act of 1974 (ERISA) provides an extremely strict standard of care on plan fiduciaries responsible for managing benefit plans, so plan sponsors and third-party administrators should purchase fiduciary coverages to protect them from both costly litigation and personal liability.

Who is a Fiduciary?

Individuals who make decisions and/or are involved in the management of the plan are considered a fiduciary. Likewise, anyone named in the plan documents, directors, officers, plan trustees, and third-party administrators are also fiduciaries.

Why Fiduciary Liability Insurance is Important?

Litigation related to ERISA claims can be costly. Fiduciary liability insurance provides a level of financial protection for fiduciaries. Even if a company indemnifies a fiduciary, under ERISA regulations, the company cannot pay legal fees or settlements on behalf of the fiduciary. Fiduciaries are held personally liable for breaches in their fiduciary duties and must pay for losses and legal fees from their personal assets.

Because ERISA bonds, Employee Benefits, and Director & Officer liability insurance does not provide protection for breach of fiduciary responsibility claims, fiduciary liability coverage should be another component of a comprehensive risk management program.

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