EBL Insurance

EBL Coverage Versus Fiduciary Liability

As a leading underwriter for fiduciary liability insurance, we are often asked about the difference between a Fiduciary Liability Insurance policy and an Employee Benefits Liability (EBL) insurance policy.  Namely, some plan sponsors believe that they do not need to spend additional premium dollars to purchase fiduciary liability insurance when they have EBL coverage as part of their commercial package general liability insurance policy.  As discussed more fully below, including an analysis of a recent court case, a fiduciary liability insurance policy provides significantly broader coverage than the limited administration coverage in a standard EBL policy to protect employee benefit plans and its fiduciaries.  Even the defense of routine benefit claims can be excluded from coverage under an EBL policy, which is why plan sponsors need to protect their plans and plan fiduciaries with quality fiduciary liability insurance coverage.

EBL Insurance Coverage

The standard Employee Benefits Liability Insuring Agreement[i] provides that the Insurer “will pay those sums the insured becomes legally obligated to pay as damages because of acts, errors, or omissions arising out of the ‘administration’ of your ‘employee benefit program.’  “Administration” is defined to mean:  “(a) Counseling employees, including their dependents and beneficiaries with respect to the ‘employee benefit program’; (b) Handling records in connection with the ‘employee benefit program’; (c) Effecting or terminating any employee’s participation in a plan included in the ‘employee’s participation in a plan included in the ‘employee benefit program,’; or (d) interpreting the ‘employee benefit program.’  Administration does not mean the selection process of your ‘employee benefit program.’”  “Employee Benefit Program” is defined to “include only the following:  (a) group life, disability or dental, group accident or health insurance; unemployment insurance, social security benefits, workers’ compensation and disability benefits; (b) unemployment insurance, social security benefits, workers’ compensation and disability benefits; (c) The following plans but only if they are self-directed by the employee:  (1) IRS qualified pensions; (2) 401K plans; (3) profit sharing plans only those plans that are IRS qualified and equally available to all full-time employees; and (4) stock subscription plans but only those plans that are IRS qualified and equally available to all full-time employees.”

The Insurance Services Office (ISO) EBL policy contains exclusions that limit the available coverage:

This insurance does not apply to:

(a) Dishonest, Fraudulent, Criminal or Malicious Act. Damages arising directly or indirectly out of any intentional, dishonest, fraudulent, criminal or malicious act, error or omission, committed by any insured, including the willful or reckless violation of any statute . . .
(d)  Insufficiency of Funds.  Damages arising directly or indirectly out of failure of performance of contract by an insured.
(e)  Inadequacy of Performance of Investment/Advice Given With Respect to Participation.  Any “claim” arising directly or indirectly out of:  (1) the failure of any investment to perform; (2) errors in providing information on past performance of investment vehicles; or (3) advice given to any person with respect to that person’s decision to participate or not to participate in any plan included in the “employee benefit program.”
(g)  ERISA.  Damages for which any insured is liable because of liability imposed on a fiduciary by the Employee Retirement Income Security Act of 1974, as now or hereafter amended, or by any similar federal, state or local laws.
(h)  Available Benefits.  Any “claim” for benefits to the extent that such benefits are available, with reasonable effort and cooperation of the insured, for the applicable funds accrued or other collectible insurance.
(i)   Taxes, Fines or Penalties.  Taxes, fines or penalties, including those imposed under the Internal Revenue Code or any similar state or local law.

Although many companies modify the ISO language, the core EBL coverage is usually very similar.  EBL provides coverage for “administration” of a company’s employee benefit plans.  Administration is broadly defined to cover advice to participants, including interpretations of the plan as to whether something is covered, enrollment of employees in a plan, and handling plan records.  The limitations of EBL coverage, however, are found in its multiple broad exclusions.  For example, EBL coverage excludes any breach of fiduciary duty claim under ERISA or any fiduciary law.  This excludes most claims against employee benefit fiduciaries, as even the most generic denial of benefit claims are usually styled as breaches of fiduciary duties against the plan administrator and its fiduciaries or trustees.  The ISO form goes further to exclude any claim for “available benefits,” which excludes both defense and indemnity under the policy.  While this benefits exclusion is not contained in every insurer’s EBL coverage, the ERISA exclusion is universal.  Finally, the EBL policy excludes claims for funding of the plans, claims of dishonesty or malfeasance, and regulatory penalties are also excluded – all crucial liability risks faced by modern employee benefit plans.

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