Fiduciary liability insurance

A fiduciary can include anyone who has discretionary authority, decision-making capability, or control of funds.  By law, Trustees are held personally responsible for the acts of others, including third party administrators, accountants, actuaries and fund employees.  Fiduciary liability insurance provides a means to transfer most of the risk of serving as a trustee to an insurance company, so individual trustees do not have to worry about the loss of their personal assets.

Fiduciary liability policies are written to provide protection against claims for wrongful acts, which include intentional or unintentional breaches of fiduciary duty, and errors in fund administration.  Trustees should evaluate existing fiduciary insurance policies to determine the specific items covered under the policy.  The following should be considered when evaluating policies:

  1. Defense costs for responding to most regulatory investigations are not covered under a standard fiduciary policy but, it is possible to include pre-claim investigation coverage and interview coverage to narrow this gap.
  2. Ensure that the policy has an adequate voluntary compliance sublimit to pay expenses involved with utilizing the voluntary compliance program to correct plan violations.
  3. Health plan trustees should ensure that the policy covers against Affordable Care Act violations resulting in the assessment of penalties.
  4. Health and Human Services can assess maximum fines of $1.5 million in the event of HIPAA/HITECH violations. Plans should be sure adequate coverage exists in this event.

Many fiduciaries believe that their ERISA mandated fidelity bond protects personal assets, it does not.  The fidelity bond protects the plan from loss due to dishonest acts, including theft by those who handle plan assets.

Fiduciary policies typically cover trustees – past, present and future and is an important part of the risk management program of a multiemployer trust fund.  Trustees can buy fiduciary coverage appropriate for the fund and at limits that take into account unique fund exposure and the risk profile of the board of trustees.  With the fiduciary coverage in place, trustees can feel comfortable knowing that both the trust fund and their personal assets are generally protected.