Why Some Plan Sponsors THINK They Have Fiduciary Liability Insurance, But Don’t
In the currently litigation and regulatory environment, hardly a week goes by where I don’t receive a question about fiduciary liability. These questions generally arise when a plan sponsor confuses fiduciary liability insurance with another type of insurance. In a significant number of instances, the plan sponsor believes that they have the proper coverage, but actually does not have any fiduciary liability coverage at all! We’ve listed a couple of steps you can take in order to prevent this undesirable scenario from happening to you:
- READ your policy — Don’t take your risk manager’s word for it. Fiduciary liability insurance (whether as a rider to another policy or a stand-alone policy) is specifically identified as such and the plan’s covered fiduciaries are named as insured under the policy. I cannot tell you how many times I have requested a copy of the plans’ fiduciary liability insurance policy and received a fidelity bond, crime policy, directors and officers policy, or employee benefits liability policy - NONE of which constitute a fiduciary liability insurance policy (though the latter can cover certain plan administrative errors). It is possible that such policies contain an endorsement/rider for fiduciary liability insurance, but the existence of such coverage, in and of itself, does not guarantee protection. Thus, it is extremely important to read the policy/endorsement/rider to make 100% certain that it is a fiduciary liability insurance policy. When in doubt, DON’T guess; arrange for someone who is experienced with such policies to review.
- Keep a copy of the policy in your plan’s permanent file and make certain that it is renewed regularly — Again, do not rely on someone else to ensure that the policy remains in force and that the coverage amounts are sufficient as plan assets grow (see my Ask the Experts column on this subject). At policy renewal time, the plan sponsor will often be required to confirm that certain procedures are in place (e.g., regular due diligence meetings with minutes taken). Therefore, it is important to be involved in the renewal process to make certain that fiduciaries are not denied coverage due to the failure to fulfill policy requirements.
Don’t be the plan sponsor who thought you were protected, but weren’t - review your policy today!
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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