What is Fiduciary Liability?

In today’s ever shifting legal environment, employers are increasingly being held accountable for the benefit options they offer employees. Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries can be held personally liable for losses to a benefit plan incurred as a result of their alleged errors or omissions or breach of fiduciary duties.

By sponsoring a retirement plan, such as 401k, profit-sharing plan, or employee stock option plan, defined benefit plan, or welfare plans, a private company may need protection against errors in plan administration and breaches of duty under ERISA.

What is the importance?

Fiduciary liability insurance is essential for the protection of those individuals acting in a fiduciary capacity for your employee benefit plans. This important coverage protects these individuals against claims for legal liability arising out of their role as fiduciaries, including costs of defending those claims.

Do you need coverage if you have other liability policies?

Even if your business carries other liability policies to protect your company against legal claims, coverage for fiduciary liability is likely not included, or adequate. For example, most Directors & Officers Liability policies specifically exclude coverage of fiduciary liability claims. A different type of insurance policy, called employee benefits liability insurance, provides coverage for employee-plan claims, but is limited to administrative error.

Although you may already carry errors and omissions for your business’ professional services, E & O insurance specifically designed to cover your relations with customers, not your own employees, so fiduciary liability would not be included. General liability policies aren’t broad enough to protect the personal assets of all those you employ who may be hit with a fiduciary liability claim.

Bottom line, all businesses need fiduciary coverage.