If you offer a benefits package to your employees, then you need a fiduciary insurance policy. What is fiduciary liability insurance, exactly? It is a type of insurance designed to protect employers and businesses against claims that result from a breach in fiduciary duty.
Fiduciary liability policies typically cover all legal expenses to defend against fiduciary-related claims. This can save businesses a significant amount of money if they were to ever be sued due to mismanagement of benefit plans.
What Is A Fiduciary?
Fiduciaries refer to individuals or entities whose job it is to manage employee benefit plans. A fiduciary essentially acts on behalf of another person to manage assets and does so under good faith and trust.
For example, bankers, financial advisors, money managers, accountants and corporate officers all have some level of fiduciary responsibility. These responsibilities are both ethical and legal and a fiduciary accepts the fiduciary duty knowing that they must act in a person’s best interest.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability insurance is designed to protect a business against any type of fiduciary mismanagement. However, it does not cover all incidents. For example, a fiduciary liability insurance policy would not protect your business against claims of theft or fraud.
A policy may however, protect against wrongful denial of benefits, improper change in benefits, errors or omissions in plan administration, conflicts of interest, and failure to administer the plan based on the plan documents. Many insurance companies also offer extended coverage to help cover the costs of pre-claim defenses and other expenses that may build when plan sponsors change or modify plans for compliance.
Errors Or Omissions In Plan Administration
Errors or omissions occur when a business or its workers are sued for inadequate work or negligent actions. This can sometimes occur when mistakes or errors are made in employee benefit plan administration.
Fiduciary liability insurance can help cover any expenses resulting from errors or omissions in plan administration.
Wrongful Denial Or Change In Benefits
Mistakes can happen in any business, such as when an employee is wrongfully denied benefits or experiences a wrongful change in benefits. When this happens, an employee may suffer as a result and consequently sue your business.
Even if the error is found to be accidental, you could still face the financial repercussions. Fiduciary liability insurance helps ensure that you do not face financial ruin from the mistake.
Conflicts Of Interest
A business may face a conflict of interest if an individual’s personal interests directly conflict with the interests that are owed to their employer or the business in which they are invested. For example, a conflict of interest may occur when an employee disagrees about a decision about a benefit plan that will affect the employee directly.
If the employee and employer are unable to come to a mutual solution, the employee may choose to file a claim against the business. Fiduciary liability insurance often covers these types of situations.
Improper Advice Or Counsel
When most professionals do their best to give employees accurate information or advice, they are not always successful. When a business provides an employee with improper advice or counsel on a subject regarding employee benefits and their advice results in adverse effects, the worker may sue as a result. Fiduciary liability insurance typically covers cases involving improper advice or counsel.
Lack Of Investment Diversity
Businesses can also face lawsuits if they engage in irresponsible investment of assets, as well as a lack of investment diversity. A diversified investment typically consists of various assets that earn the highest return for the lowest amount of risk. This may include a combination of fixed income, stocks, and commodities.
When businesses fail to provide workers with diverse investment options, there could be legal consequences. With fiduciary liability insurance, you can stay protected against these types of suits.
Failure To Monitor Third Party Service Providers
Mismanagement claims can arise when a business is accused of not properly monitoring third party service providers. If a third-party service provider acts in a way that negatively impacts an employee, that worker may have the right to file a lawsuit against your company as you are ultimately responsible for the service providers that you hire.
Speak To The Experienced Business Insurance Agency
Not all businesses require fiduciary liability insurance. For example, if you only have a couple of employees and do not offer employee benefits, then having a fiduciary liability insurance policy is typically not needed. However, if you offer any type of employee benefits to your workers, having the right protections in place is critical.
Of course, not all fiduciary liability insurance policies are the same. To learn more about fiduciary liability insurance or to acquire a comprehensive policy for your business, contact the business insurance professionals at Pro Insurance Group today by calling 833.619.0770 or by requesting a quote online.