Fiduciary Liability & EBL - They are not the same

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It is likely that most of your commercial accounts have some form of benefit program for their employees and that you are used to adding Employee Benefit Liability Insurance routinely to the General Liability coverage. What about this coverage called Fiduciary Liability? Do you know the differences between the two and when your insured needs one or the other or both? Come to class and find out.

Marjorie Segale, Director of Education for the Insurance Community. Marjorie brings several decades of insurance experience, from producer, agency owner, educator and consultant.

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  • 1. Fiduciary Liability and EBL What You Need To Know Community Webinar
  • 2. Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. The instructional materials provided by The Insurance Community Center and its authors is intended as a general guideline and any interpretations provided by The Community do not modify or revise insurance policy language. Information which is copyrighted and proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. The Insurance Community Center assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Insight Insurance Consulting laurie@insurancecommunitycenter.com marjorie@insuranceacommunitycenter.com www.insuranceacommunitycenter.com Copyright 2011© www.InsuranceCommunityUniversity.com 2
  • 3.  Presents Monthly Webinars Free to Community Members. Community webinars are archived on the Community homepage under the right hand tab titled: Webinar Archive www.InsuranceCommunityUniversity.com 3
  • 4.  In addition the community has unique business networking opportunities. Enjoy the Weekly Newsletter on a specific topic with a tip of the week; claim; quiz flash and articles www.InsuranceCommunityUniversity.com 4
  • 5.  One Flat Fee per Office includes  Monthly webinars approved for CE in California for a total of 28 hours  Test and Learn  Audio Presentations on insurance topics  Checklists  Power point presentations for client and/or peer training www.InsuranceCommunityUniversity.com 5
  • 6. Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR , CISR Insurance Community Center, LLC6 Director of Education
  • 7. They are not the same
  • 8.  EBL coverage Fiduciary Liability coverage ERISA requirements www.InsuranceCommunityUniversity.com 8
  • 9. Bodily Injury WC / ELDiscrimination / Harassment Benefits EPLI EBL / Fiduciary Theft Employee Dishonesty www.InsuranceCommunityUniversity.com 9
  • 10. No obligation to provide benefitsWhen provided, must do so within the lawMost employers today provide some form of benefits• Group health insurance• Dental insurance• Pension, retirement or profit sharing programs. www.InsuranceCommunityUniversity.com 10
  • 11. Balance need for skilled Employees have little tostaff with risk attached lose by suing to providing benefits• New laws and new • If they win their regulations creating case, lawyer fees are additional unknown almost always risk assigned by the court• Increased # of lawyers entering this field www.InsuranceCommunityUniversity.com 11
  • 12. Employers may • Section 409 of this not be aware of federal law imposes personal liabilitythe risk imposed upon many persons upon them by within the ERISA organizationAll employers face this expensive litigation www.InsuranceCommunityUniversity.com 12
  • 13. The plan sponsor (employing company)The company management• Executive officers or managing employees• Board of directorsInvestment committeesThe plan administrator www.InsuranceCommunityUniversity.com 13
  • 14. Named fiduciariesThe plan trusteeHR administrator/managerInvestment manager(s)Consultants, including Accountants and Attorneys www.InsuranceCommunityUniversity.com 14
  • 15. Settlor Fiduciaryactivities activities www.InsuranceCommunityUniversity.com 15
  • 16. Establishes the Makes changes plans to the plans www.InsuranceCommunityUniversity.com 16
  • 17. Exercises Has discretionary discretionary authority or Gives authority overcontrol over the investment plan plan advice for a fee administrationmanagement or or plan assets or www.InsuranceCommunityUniversity.com 17
  • 18. An individual may have either one or the other or both rolesClass action suits typically name allparties connected to an ERISA plan www.InsuranceCommunityUniversity.com 18
  • 19. The Fiduciary Liability policy requires that aclaim must include a demand for damages arising out of the insured’s breach ofFIDUCIARY duty or administrative duties – does not include settlor duties www.InsuranceCommunityUniversity.com 19
  • 20.  Welfare benefit plan includes  Medical plans  Disability benefit plans  Vacation plans Pension benefit plan is any plan that  Provides retirement income to employee  Defers income to periods beyond termination www.InsuranceCommunityUniversity.com 20
  • 21.  Frequent loss  Denial of benefits  Improper reimbursement  Miscalculation of benefits  Surviving spouse did not receive proper benefits www.InsuranceCommunityUniversity.com 21
  • 22.  Severe loss  Plan fiduciaries imprudently offered employer stock and/or misrepresented risk of investment  Excessive plan fees  Promised benefits were cut  Change in post-retirement medical benefits  Premiums charged for insurance were excess  Fiduciaries failed to scrutinize cost vs. benefit ratio properly www.InsuranceCommunityUniversity.com 22
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  • 25. Errors and Omissions coveragefor negligent errors oromissions in administration ofemployee benefit plansTypically a Claims-Made andReported type of coverage www.InsuranceCommunityUniversity.com 25
  • 26. Pays only the benefits thatshould have been paid hadno error or omission occurred Often provided as a coverage addition to the Commercial General Liability policy www.InsuranceCommunityUniversity.com 26
  • 27. www.InsuranceCommunityUniversity.com 27
  • 28. This is ISO’s language - most insurers’ forms follow similar language 28
  • 29. 1.Insuring Agreement a. We will pay those sums that the insured becomes legally obligated to pay as damages because of any act, error or omission, of the insured, or of any other person for whose acts the insured is legally liable, to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. www.InsuranceCommunityUniversity.com 29
  • 30. b.This insurance applies to damages only if: (1)The act, error or omission, is negligently committed in the "administration" of your "employee benefit program"; www.InsuranceCommunityUniversity.com 30
  • 31. The amount paid shall not exceed, and will be subject to, the limits and restrictions that apply to the payment of benefits in any plan included in the "employee benefit program". This is a critical restriction and can leave a gap between the financial loss to the employee and the coverage amount www.InsuranceCommunityUniversity.com 31
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  • 33. www.InsuranceCommunityUniversity.com 33
  • 34.  Broad definition of insured Broad definition of employees Broad definition of “administration” Broad definition of “employee benefit plan”  Group life and medical expense plans, as well as pension and retirement plans, are within the scope of the law www.InsuranceCommunityUniversity.com 34
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  • 36.  “Insured” is variously defined as a trust or employee benefit plan, any trustee, officer or employee of the trust or employee benefit plan The employer (company) Any other individual or organization designated as a fiduciary www.InsuranceCommunityUniversity.com 36
  • 37.  Definition of employees include  Full-time  Part-time  Temporary  Leased  Volunteers / Interns  Contract employees www.InsuranceCommunityUniversity.com 37
  • 38.  Advising Counseling Giving notice to employees Providing plan interpretations Handling records Effecting enrollment Terminating or canceling employees, participants, or beneficiaries under any plan www.InsuranceCommunityUniversity.com 38
  • 39.  Any benefit plan, whether or not subject to ERISA sponsored for the sole benefit of the “employees” Fringe benefits and excess benefit plans New or proposed plans – automatic coverage All plans – US or foreign www.InsuranceCommunityUniversity.com 39
  • 40.  To include written demand for monetary or non-monetary or injunctive relief A criminal proceeding A formal administrative or regulatory proceedings A fact-finding investigation by the DOL, USPBGC, or any similar authority located outside the US www.InsuranceCommunityUniversity.com 40
  • 41.  Duty to defend  In addition to limit  Some policies include within the limit Twelve-month or longer discovery period  The cost for an ERP should be shown in the policy  The discovery clause should be bilateral www.InsuranceCommunityUniversity.com 41
  • 42.  Specific language extending coverage to managed care liability claims Specific language extending coverage to HIPAA claims, fines and penalties and COBRA claims Punitive damages and exemplary damages where permitted by law www.InsuranceCommunityUniversity.com 42
  • 43.  Automatic coverage for voluntary settlement  Often a sub-limit Pollution coverage extension Waiver of recourse provisions (no provision for recourse by insurer against fiduciary) Non-cancelable except for non-payment of premium 90 Days notice of non-renewal www.InsuranceCommunityUniversity.com 43
  • 44. 44
  • 45. Fiduciary Liability Employee Benefit Covers Liability Covers A mistake, error or Damages and omission in defense costs handling of arising out of a administrative “wrongful act” matters www.InsuranceCommunityUniversity.com 45
  • 46. www.InsuranceCommunityUniversity.com 46
  • 47.  The Federal Code refers to the necessity of a fidelity bond to cover the employee plan assets against fraud or theft An ERISA Bond may be provided separately or the plan may be listed as a Named Insured on the Employee Dishonesty Insurance Policy www.InsuranceCommunityUniversity.com
  • 48.  Federal law requires the plan sponsor to carry employee dishonesty coverage that extends to protect the plan assets from any person handling the plan assets.  A TPA providing employee dishonesty coverage for their employees should be viewed as a contractual obligation and not fulfillment of the above obligations www.InsuranceCommunityUniversity.com
  • 49.  $1,000 minimum limit per plan 10% of plan assets up to $500,000 coverage  $1,000,000 coverage if the plan contains the plan sponsor’s stock No deductible One year discovery period for loss www.InsuranceCommunityUniversity.com
  • 50.  ERISA requires the fidelity coverage to be purchased and reported ERISA does NOT require the purchase of Fiduciary Liability insurance, but the law allows the purchase of this coverage Fiduciary Liability can include the EBL administrative coverage EBL will NEVER include the Fiduciary Liability coverage www.InsuranceCommunityUniversity.com 50
  • 51.  This area is developing law around the country in both state and federal courts Help your client understand that their risk is great and growing ALWAYS offer Fiduciary Liability IN WRITING  Get a rejection signed Give them insurance guidance but don’t step over the line into the area of law www.InsuranceCommunityUniversity.com 51
  • 52.  Laurie Infantino  laurie@insurancecommunitycenter.com  714 803 5830 Marjorie Segale  marjorie@insurancecommunitycenter.com  714 206 9583 www.InsuranceCommunityUniversity.com 52