For multiemployer health, welfare and pension trust plans, there are numerous pitfalls that could lead to costly and time-consuming litigation. While avoiding exposure is of course the first line of defense, an equally important measure is fiduciary liability insurance. Knowing how to limit exposures and protect the plan with this vital coverage is a must for plan trustees and fiduciaries.
Common Pitfalls Leading to Claims of Fiduciary Duty Breach
If you were to ask multiemployer plan third party administrators what are some of the areas leading to a fiduciary duty breach allegation, the list is likely to include: misleading disclosures, incorrect benefit calculations, violations of plan documents, denial of benefits, and imprudent investment of plan assets resulting in deficient funding, among others. All of these failures in due diligence can and often do lead to a claim that plan fiduciaries had breached their responsibilities as stewards of the plan. Lawsuits against plan fiduciaries can result in mounting legal fees and other financial penalties that could be avoided if a plan has the proper fiduciary liability insurance.
What Does Fiduciary Liability Insurance Cover?
Fiduciary liability insurance offers protection to multiemployer plans for various wrongful acts (e.g., errors or omissions, errors in a plan’s administration, breach of duty under the Employee Retirement Income Security Act of 1974 – ERISA, legal defense costs, fees for an independent fiduciary’s review of a proposed settlement, civil penalties, etc.) What coverage is best for any particular plan depends on different variables including the size, complexity, and demographics of the plan. The cost factor is also a function of which coverage options a plan wants. For instance, there are options for expanded coverage for civil penalties under other laws such as the Health Insurance Portability and Accountability Act (HIPAA), Health Information Technology for Economic and Clinical Health Act, the Patient Protection and Affordable Care Act, as well as Section 4975 of the Internal Revenue Code and Section 203 of the Bipartisan Budge Act. Additionally, fiduciary liability insurance coverage can encompass:
- Compensatory damages
- Punitive, exemplary, and multiplied damages which were permitted to be insurable based on current laws
- Claimant attorney fees awarded by the Court in accordance with Section 502 (g) of ERISA
- Benefit overpayment
- Trustee non-fiduciary defense costs
When determining what is the best and most adequate fiduciary liability insurance coverage, a multiemployer plan should consult with an experienced insurance professional, as well as their third party administrator.