This coverage provides a company with protection against certain forms of mismanagement.
A fiduciary liability insurance policy is what provides a company and its employees against the claims that could arise due to mismanagement of benefits plans and the legal liability that can result from those claims.
That said, while some businesses definitely need this coverage, others simply don’t require it.
A fiduciary liability insurance policy protects a company against fiduciary mismanagement. That said, it will not provide protection to a company in fraudulent cases of theft. It’s important to understand just what is covered, what is not covered, and when it becomes important for a company to make sure that coverage is in place.
The following is covered in a good quality policy:
- Improper advice or counsel
- Improper change in benefits
- Wrongful denial of benefits
- Errors or omissions in plan administration
- Failure to administer the benefits plan according to its documentation
- Conflicts of interest
- Prohibited transactions
- Automatic coverage for the majority of newly created or acquired plans
- Imprudent investment of assets
- Lack of investment diversity
- Imprudent selection and failure to monitor third-party service providers
- Challenges to settlor functions coverage
- Fees and penalties issued by the IRS and DOL under a voluntary settlement program
Broader plans will also cover the cost of defense costs pre-claim and for business expenses accrued when a plan sponsor must change or modify the plan for compliance. A plan will also typically cover all legal defense costs, all damages awarded by court when a wrongdoing finding occurs, investigations into that alleged wrongdoing and all settlements negotiated.
Many very small businesses do not require fiduciary liability insurance coverage.
This type of coverage is typically quite focused. It is meant to protect against the cost of breach of duties relating to benefits mismanagement. As such, according to Embroker, small, mid-sized and large companies with employees who have benefits packages can certainly find it advantageous to include the added coverage from fiduciary liability insurance. On the other hand, very small companies without employees or without benefits packages can typically leave this one out of the list of policies they need.