Fiduciary Liability Insurance

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Ten Commonly Asked Questions Regarding Fiduciary Liability Insurance.
Gelburd, Jeffrey S.; ESOP Report; pp 55-57 Dec 2006-Jan 2007; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Fiduciary liability insurance, protecting individual fiduciaries or the plan sponsor's obligation to protect the fiduciary, is important to any company offering an Employee Stock Option Plan. Most fiduciary liability plans cover the plan sponsor, the plan and any trustees employed by the sponsor. Unfortunately, there is no formula for determining policy limit levels. The biggest risk for an ESOP is a fiduciary liability claim when share prices drop, a rare claim but costly to defend against.
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Pension Sponsors Advised to Cover Fiduciary Liability.
Gonzalez, Gloria; Business Insurance; v40 no40 pp 14-15 Oct 2, 2006; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Pension plans in Canada are an increasing source of class action litigation. Plan sponsors should review and consider renegotiating fiduciary liability insurance as court decisions create uncertainty about rules for managing pension plans. Fiduciary responsibilities that can expose defined benefit plan sponsors to legal risk include taking contribution holidays, paying expenses from the fund, management of surplus funds and investment decisions. For defined contribution plans possible fiduciary liabilities include service provider selection and investment options offered to members. Regulatory guidelines that outline fiduciary responsibilities aid risk managers for defined contribution plans.
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On the Hook.
Trahan, Katie; Benefits Canada; v30 no6 pp 25-27, 29 Jun 2006; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Quebec's Supplemental Pension Plans Act requires plan fiduciaries to meet several requirements and responsibilities. Fiduciary liability insurance is strongly advised to protect pension committee members against liability for errors or omissions. Rising claims against pension plans may relate to misunderstanding of plan provisions, not reviewing fund management, taking bad advice and making bad choices. And, under economic stress, plans may cut back on insurance coverage. The need for fiduciary liability protection is stronger than ever, but the most effective protection is striving to reduce the risk of claims of breach of fiduciary duty to begin with.
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Fiduciary Status of Third-Party Health Claims Administrators.
Ferrera, Tess J.; Journal of Pension Benefits; v13 no2 pp 74-78 Winter 2006; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The activities of third party administrators (TPAs) make them likely to being considered fiduciaries. Having control over the assets of a plan, for example through writing and signing checks, confers functional fiduciary status, despite the TPAs' not having discretion over plan funds. To avoid being considered a fiduciary with its attendant risks and liabilities, a TPA should have a good contract that clearly delineates duties. Those duties must implement policies and procedures established by the plan's actual fiduciary and should be reviewed by an attorney to assure compliance with DOL regulatory guidance. The TPA should have a plan fiduciary review all claims before payment and should be covered by fiduciary liability insurance.
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2005 RIMS Benchmark Survey: The Leading Reference Source for Risk Management Professionals.
105 pp 2006; book

Availability :
Abstract : 1,081 organizations totaling more than 52,000 insurance policies with over $20 billion in premiums were surveyed on risk management performance for several categories of liability insurance. Median premiums per $1,000 decreased in 2005. Total cost of risk per $1,000 fell by half for large companies; however, risk for small companies rose by 20 percent. Because of reform measures, workers compensation premiums per $1,000 also decreased. Insurance investigations resulted in increased fee transparency.
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Best Practices for 401(k) Plan Investment Committees.
DiBruno, Rocco; 109 pp 2006; book

Availability : International Foundation of Employee Benefit Plans
Abstract : Forming an investment committee that develops, follows and documents a prudent investment process is one way to mitigate fiduciary risk. Explains how to structure an investment committee, what its role will be and how to establish a prudent investment process. A glossary of investment terms and samples of an investment option evaluation form, meeting minutes, a fiduciary acknowledgment letter, bylaws and operation procedures, and a fiduciary audit checklist are included.
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Link To Full Article
ERISA Facts 2006.
Bitzer, Frank J.; Ferrigno, Nicholas W., Jr.; 763 pp 2006; book

Availability :
Abstract : Discusses the management of ERISA plans and assets. Areas covered include establishing and administrating a plan, health benefit issues, fiduciaries, their duties and fiduciary responsibility, prohibited transactions and exemptions, investments, multiemployer plans, MEWAs, civil compliance and enforcement, and criminal enforcement. Includes information on laws, regulations and court cases.
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ERISA Fiduciary Answer Book.
Ferrera, Tess J.; 1,014 pp 2006 5th ed.; book

Availability : International Foundation of Employee Benefit Plans
Abstract : Explains ERISA's fiduciary duties and responsibilities pertaining to the administration of employee benefit plans and the management of plan assets. Topics covered include allocation and delegation of fiduciary responsibility, prohibited transactions, fiduciary liability, investment issues and plan trusts and assets. Includes checklists and model forms.
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Link To Full Article
Liability Insurance: Split Court Rules Liability Insurer Will Not Have to Indemnify Raytheon.
BNA's Pension & Benefits Reporter; v32 no43 pp 2,384-2,385 Nov 1, 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Prompted by financial underperformance, Raytheon Co. faced a securities class action suit and a later ERISA-based class action suit on behalf of employees. Its fiduciary liability insurer refused to cover the second suit, claiming that it was similar to the first, which had been filed before the policy took effect. The district court agreed with the plaintiff insurer, and the ruling was affirmed by the appeals court. With the exception of one dissenting opinion, the courts found substantial overlap between the allegations of the two cases and supported the right of the insurer not to cover the second case.
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Fiduciary Liability Insurance: An Overview.
Horn, Stephen II; Haslem, Deborah; Benefits & Compensation Digest; v42 no11 pp 22-26 Nov 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Fiduciary liability insurance allows plans to transfer the risk of acting as a fiduciary from the individual to an insurance company. Fiduciary liability policies typically cover wrongful acts and errors in administration with numerous exclusions restricting coverage. The policies have varying limits and deductibles, but purchasers should be aware that limits are usually both per-claim and annual. Endorsements are additional riders that broaden coverage. The most significant endorsement is the waiver of recourse endorsement, necessary for a labor management policy to comply with ERISA. Because fiduciary liability insurance is only offered on a claims-made basis, it is imperative that the policyholders report all potential claims as soon as they are aware of them.
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Link To Full Article
Insurance Policies: Tips on Securing Fiduciary Liability Insurance.
Saxon, Stephen M.; PLANSPONSOR; v13 no8 p 158 Nov 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Fiduciaries under ERISA should have fiduciary liability insurance, especially since they can be held personally liable for plan losses. Since the Department of Labor has interpreted ERISA to ban the use of plan assets to indemnify against personal liability, fiduciary liability policies include nonrecourse riders, paid with nonplan funds, to indemnify the fiduciary personally. In estimating the amount of coverage needed, fiduciaries should account for multiple plans, coverage limits and the period over which the deductible applies. Most policies exclude claims known to the insured when the policy is written. Fiduciary liability policies have either duty to defend clauses, giving the insurer control over the insured's defense, or pay on behalf of clauses, which give the insured the right to select and direct their own defense.
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ERISA: Split Court Rules Liability Insurer Will Not Have to Indemnify Raytheon.
Daily Labor Report; no206 p A-5 Oct 26, 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : On October 21, 2005, the U.S. First Circuit Court ruled on the case of Federal Insurance Co. v. Raytheon Co. The court found in favor of the plaintiff, allowing them to deny coverage under the terms of their fiduciary liability policy. The plaintiff cited a clause in the policy excluding coverage for any suit substantially similar to a lawsuit filed prior to the beginning of coverage. The dissenting opinion argued that the majority finding was both overinclusive and underinclusive.
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Tale of Two Markets for Fiduciary Liability.
Brady, Matt; National Underwriter P&C; v109 no40 pp 14, 16 Oct 24, 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Fiduciary liability insurance has become increasingly popular in the wake of Enron and other scandals. Litigation based on ERISA is most common, and is often attached to a traditional securities suit. Companies with publicly traded stock in their 401(k) plans are at such risk of litigation that they constitute a separate class for insurers. Companies are becoming more aware of the risk as insurers are increasing rates and restrictions. Chubb Specialty Insurance is one company trying to reduce risk by meeting with the Labor Department and trade groups to develop rules to reduce liability or standards to reduce industry risk.
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Liability Insurance: Fiduciary Policy Doesn't Provide Coverage for Arthur Andersen Settlement With Retirees.
BNA's Pension & Benefits Reporter; v32 no31 p 1,727 Aug 9, 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : On August 2, 2005, the U.S District Court for the Northern District of Illinois ruled in the case of Federal Insurance Co. v. Arthur Andersen LLP. The court ruled that the plaintiff did not have to pay the defendant for a claims settlement because the fiduciary liability insurance policy the defendant had purchased from the plaintiff specifically excluded coverage for claims seeking benefits due. The defendant had reached an out of court settlement after being sued over distribution of retirement funds in lump sum payments. The defendant claimed that the plaintiff had failed to adequately defend against the suit, but the court ruled that not only was the claim not covered, but also the wording of the policy meant that the defendant's reaching an out of court settlement would have invalidated the plaintiff's obligation to defend even if the claim was covered.
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Still on the Hook.
St. Goar, Jinny; Institutional Investor; v39 no8 pp 71-72 Aug 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : When the Enron scandal broke in 2002, fiduciary liability insurance premiums went up. After three years of rising premiums, 2005 appears to see a leveling off of these increases. This appears to be due to a combination of a general trend in the management liability market, an increase in the number of vendors and a decrease in the aggressiveness of Department of Labor investigations. Fiduciaries at risk in a 401(k) plan include the plan sponsor, the plan itself and the trustees, officers and employees of the plan. The main source of liability is company stock, but 401(k) fiduciaries also need to be aware of liability risks in determining blackout periods, monitoring plan operations and selecting investments.
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Benefit Plan Overpayments.
Magarik, Larry; Benefits Law Journal; v18 no2 pp 23-38 Summer 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : ERISA requires plan fiduciaries to take reasonable measures to prevent, detect and correct overpayments. However, it also requires fiduciaries not to carry the recovery of overpayments to extremes. In addition to traditional collections strategies, plans can take advantage of the law in cases of willful fraud or negligence. Insurance is one option, but most fidelity insurance policies do not cover negligence, only outright theft.
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Insurance for Fiduciaries of Pension and Benefit Plans.
Aon Consulting: Forum (Canada); pp 1-4 Mar 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Many pension and benefit fiduciaries do not see a need for fiduciary liability insurance. Some are unaware of the benefits it provides or the limitations of other forms of insurance and others feel it is too expensive. Some have a policy but have not examined it closely. In the legal environment of 2005, defined benefit plans suffer from more litigation than defined contribution plans. This is beginning to change as DC plan governance standards rise. Fiduciaries of other benefit plans may not be aware that they are vulnerable, or even that they are considered fiduciaries under the law.
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ERISA Facts 2005.
Bitzer, Frank J.; Ferrigno, Nicholas W., Jr.; 771 pp 2005; book

Availability : International Foundation of Employee Benefit Plans
Abstract : Discusses the management of ERISA plans and assets. Areas covered include establishing and administrating a plan, health benefit issues, fiduciaries, their duties and fiduciary responsibility, prohibited transactions and exemptions, investments, multiemployer plans, MEWAS, civil compliance and enforcement, and criminal enforcement. Includes information on laws, regulations and court cases.
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Fiduciary Responsibility for Trustees.
106 pp 2005 2nd ed.; book

Availability :
Abstract : A broad look at fiduciary responsibility for trustees is provided in this collection of materials previously published by the International Foundation. Contains 11 articles and summaries of approximately 136 articles.
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Insurance: Reviewing the Fund's Needs.
Hunt, Lawrence K.; Employee Benefit Issues: The Multiemployer Perspective - 2004; pp 122-127 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Benefit trust funds need several kinds of insurance, including fiduciary liability insurance. Fiduciary liability insurance in the only protection for past and present trustees against the personal financial liability imposed by ERISA. Employee benefit liability insurance is similar, but only applies to errors that do not involve ERISA violations. ERISA bonds protect plan assets against dishonest trustees and employees, but do nothing to protect innocent trustees. Other types of insurance necessary for a benefit fund include ERISA fidelity bonding, property insurance, extra expense insurance to cover the cost of operating if the fund's main offices are rendered unusable, general and umbrella liability insurance, employment-related practices liability insurance, workers compensation insurance, and, if relevant, auto insurance.
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Tough Fiduciary Decisions About Your Plan Professionals.
Mitzner, Ira R.; Employee Benefit Issues: The Multiemployer Perspective - 2004; pp 128-134 2005; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Under ERISA, trustees are responsible for monitoring a fund's service providers, including attorneys, accountants, brokers, investment advisors and third-party administrators. Often, a service provider can be simply fired if the services are not acceptable. However, if the service provider has caused material loss to the plan, the trustee's obligation under ERISA is to recoup that loss if possible. A suit for ERISA violations may be an option. If the service provider exercised discretion or control over fund assets or provided investment advice, it is considered a fiduciary and can be sued for breach of fiduciary responsibility. ERISA also specifies parties in interest, including but not limited to fiduciaries, who may not make any personal transactions with the plan. If no ERISA complaints can be brought, the trustees may be able to sue the service provider in state court. Five case studies are provided demonstrating successful litigation against service providers by trustees.
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Responsibilities Grow Under HIPAA.
Brodzinski, Carrie; National Underwriter P&C; v108 no41 pp 37, 40 Nov 1, 2004; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Health Insurance Portability and Accountability Act (HIPAA) became effective in April 2003. The law requires covered entities to ensure that protected health information remains private and secure. Employers should take necessary steps such as appointing a privacy officer, implementing technical safeguards and training employees who work with protected health information. If employers do not make the changes, they could face penalties enforced by the Department of Health and Human Services Office of Civil Rights. Employers should review their fiduciary liability insurance policies to see if HIPAA claims are covered.
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Fiduciary Insurance for Small Employers Needed Now More Than Ever.
Shaw, Phil; Profit Sharing; v52 no6 pp 9-11 Nov-Dec 2004; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Many small business owners are unaware of the liability risk they face, personally and corporately, in connection with 401(k) plans they sponsor. ERISA does not distinguish between small and larger plan sponsors, assigning them equal fiduciary responsibility. With directors and officers typically indemnified in corporate business charters, the liability defaults to the business owner. Small plan sponsors should have fiduciary liability insurance, available at reasonable cost, provided by a strong insurance carrier with experience in insuring and defending ERISA fiduciary lawsuits.
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Fiduciary Responsibility: Court Approves $47 Million Settlement of WorldCom 401(k) Plan Class Action.
Meyer, Jo-el J.; BNA's Pension & Benefits Reporter; v31 no42 pp 2409-2410 Oct 26, 2004; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : After WorldCom filed for bankruptcy in July 2002, a class action lawsuit was filed alleging that ERISA fiduciary duties were violated by WorldCom's directors, officers and other entities associated with the company. A settlement was reached between WorldCom Inc., its former chief executive officer and several fiduciary liability insurers for $47 million in the lawsuit. Fifteen class members filed oppositions to the settlement, stating that it was insufficient to cover the losses of the participants and was unfairly disadvantageous to those with larger losses. Judge Denise Cote approved the plan, stating the settlement was fair in light of the fact that WorldCom's fiduciary liability insurance policies had a cap of $50 million. Claims against Merrill Lynch are still ongoing, with possible liability as an ERISA fiduciary because Merrill Lynch knew that investment in WorldCom was potentially imprudent, yet they still allowed WorldCom to offer its stock as an investment option.
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Panel Stresses Need for Fiduciary Cover.
Gonzalez, Gloria; Business Insurance; v38 no42 pp 32-33 Oct 18, 2004; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Canadian Risk Management Conference discussed the importance of fiduciary liability insurance for risk managers because the number of claims relating to employee benefit plans has increased steadily. Even though many of the larger legal cases were in the United States, underwriters in Canada are affected as well. In addition, the significant outcome from the Monsanto Canada Inc. v. Ontario case may lead to more fiduciary liability claims. Risk managers can take steps to reduce their liabilities by examining the language of the plan exclusions and checking the severability clauses in their policies.
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