Fiduciary Liability Insurance
Fiduciary liability insurance is designed to protect both your business and employees from claims of mismanagement and the legal liability arising out of their role as fiduciaries.
Why Do Businesses Need Fiduciary Liability Insurance?
The main reason businesses invest in fiduciary liability insurance is the fact that claims are almost always very costly. Not only are the costs of going to court and defending yourself high, but the chances of losing or having to settle with the plaintiff are significantly high as well. If you’re a growing business, one fiduciary liability claim can cripple your business financially.
Also, as mentioned earlier, employee benefit plans are generally very complex and mistakes can be made at any time, even if you have an entire team working on it. If the fiduciary does not follow the benefits plan exactly as it is laid out, they could be sued.
Furthermore, even if you’re hiring outside vendors to run your employee benefit plans, your employees with fiduciary responsibility or oversight of employee retirement plans will more than likely be named alongside the vendor in an employee’s complaint.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability insurance protects your company against fiduciary mismanagement. However, it will not protect your company from fraudulent cases of theft. We work with the best fiduciary liability carriers to protect against these claims and more:
Expanded insurance coverage is also available to cover the costs of pre-claim defenses costs and business expenses that are accumulated when a plan sponsor needs to change or modify the plan to make it compliant.
Your fiduciary liability policy will usually cover all your legal defense costs, all settlements negotiated, damages awarded by the court when there’s a finding of wrongdoing, and investigations into the alleged wrongdoing.
What Doesn’t Fiduciary Liability Insurance Cover?
It’s important to remember that fiduciary liability coverage is fairly focused and narrow. The focus is clearly on breach of duties related to the mismanagement of benefits. Obviously, fiduciary liability policies will not cover criminal acts and intentional wrongdoing, the intentional embezzlement of fidelity bonds or any other corporate funds.
Highly-Publicized Examples of Fiduciary Liability Insurance at Work
- Wells Fargo faced a lawsuit claiming that it funneled more than $3 billion of employee retirement savings into expensive, underperforming proprietary mutual funds to enrich itself. The employees accused the company in a breach of fiduciary duties to all 401(k) participants over a period of six years.
See: Here’s Why Wells Fargo Employees Are Suing Over Retirement Plans
- Trinity Health hospital paid $107 million to settle a pension mismanagement lawsuit filed by a group of workers who accused the hospital of improperly classifying its pension plans, which resulted in the pension being underfunded by $139 million.
See: Trinity Health hospital to pay $107M to settle pension mismanagement lawsuit
- A lawsuit was filed against Fidelity Investments and its parent company, FMR, accused the company’s 401(k) plan fiduciaries of self-dealing, among other things.
See: Fidelity Faces Another 401(k) Self-Dealing Lawsuit
Fiduciary Liability Insurance Costs
The cost of your plan will largely depend on the type of coverage your business needs and the size of your company and its assets. However, fiduciary liability insurance is usually a fairly affordable product and can also be added to other policies such as D&O and EPLI insurance.
Some of the most common factors that impact fiduciary liability premiums include total plan assets under management, the limits of the policy, and quality of service providers.
Generally, policies can range from $500 to $2,500 per year, depending on the specific needs of your company. Policies can cover as much as $20 million per year.
The scope of fiduciary liability insurance has broadened over the years as claims activity has increased. Although insurance provides the protection your business needs, it’s still a good idea to explore your options in order to find the best rate possible.
Now that you have a better understanding of fiduciary liability insurance, you may be wondering how all of this affects your business and where to go from here. If you need more help or information, you can reach out to our team of expert brokers. If you prefer to get started on intelligent quotes, create your Embroker account today.
Having a quality fiduciary liability insurance policy in place and a broker who can help you navigate the terms and conditions, as well as the claims process, can save you money and, more importantly, time.
Embroker is the easiest way to intelligently insure any business. We’re here to help!