Fiduciary Liability Insurance Considerations

We have previously discussed the differences between Fiduciary Liability Insurance and ERISA Fidelity Bonding. We have also discussed D&O Insurance Trends. Fiduciary Liability Insurance vs. ERISA Fidelity Bonds – What's the Difference? explains the differences between fidelity bonding and fiduciary liability insurance and uses an excellent illustration of how the two work together. It discusses the various kinds of fiduciary liability coverage that plans can purchase and the coverage that fiduciaries can personally purchase, recommending that fiduciaries negotiate the latter as part of their compensation if it isn't already included:

Several companies offer fiduciary liability insurance designed to cover claims and losses arising out of claimed breaches of fiduciary duty. The coverages provided by those policies, like other policy features, can differ significantly. The plan itself can purchase liability insurance for its fiduciaries as long as the policy allows the insurer to seek recourse against the fiduciary if the fiduciary is determined to have breached his duty to the plan. Otherwise, the employer or the fiduciary himself can purchase insurance. (Executives who are expected to assume some responsibility over the company's benefit plans should consider incorporating fiduciary liability insurance as part of their overall compensation package.)

It also stresses the exposure to personal liability and discusses issues to consider when choosing your fiduciary liability insurance.

There are several issues to think about in considering fiduciary liability insurance. Among them: the annual premium cost; the amount of coverage needed; the amount of any deductible; whether the deductible is charged any time a claim is made or only if there is a settlement or judgment, and; whether the limits of liability under the policy are reduced by attorneys fees and costs incurred in defending against a claim.

Fiduciaries are personally liable for losses incurred by a plan due to their breach. Although it isn't required by ERISA – as is a bond – every fiduciary of an ERISA plan should seriously consider obtaining fiduciary liability insurance.