Companies that offer such programs must be aware of the risks they can incur, including the potential for fiduciary liability. This liability stems from an employer’s responsibility to act in staff members’ best interest when handling benefits plans that contain their funds.
Any accusation of mismanagement or mishandling could precede litigation, which makes the need for insurance evident. What is the difference between fiduciary liability and employee benefits liability, though — and are fiduciaries personally liable for errors? See why fiduciary liability insurance can help your business.
Incentivize Risk Mitigation
A fiduciary liability insurance policy should function as a shield between your company and potential litigators, but more importantly, it should incentivize you to minimize risks. Even if you file a claim and your policy covers it, you will likely see consequences if the claim results from negligence. You should view your insurer and partner in preventing claims, and together you can strategize ways to maintain high standards of fiduciary action. It may include identifying and avoiding common mistakes or outsourcing investment accounts to experts.
Cover Costs of Common Mistakes
Unfortunately, many common mistakes could constitute a violation of fiduciary duty. Losses that result from intentional actions such as theft or fraud aren’t covered. Still, errors in plan administration, misguiding employees, or negligent advice come with a fiduciary liability policy. It sets this fiduciary liability coverage apart from employee benefits liability.
The former includes coverage only for an individual representative who acts as a fiduciary, whereas the latter typically covers the whole company. Additionally, employee benefits liability insurance typically only covers specific mistakes regarding benefits management, and fiduciary liability can cover a wider breadth of claims — for example, an employee who claims losses from an underperforming benefits account.
Protect Against Potential Losses
Although your insurance policy should motivate you to minimize risk, it should protect you if the risk becomes a reality. The aforementioned common mistakes may motivate an employee to initiate legal action if the error cost them money or thwarted their access to benefits. In either of these situations, your insurance policy should cover the losses that may follow litigation, including expenses such as a settlement, legal fees, and court fines.
If an insurance policy does cover litigation costs, the insurer may stipulate that they select your company’s counsel. Before your company faces legal action or allegations of fiduciary misconduct, check with your insurer to ensure that you have adequate coverage.
About Provident Protection
For more than 65 years, Provident Protection Plus has served the businesses and residents across several states nationwide. Today, we are a wholly-owned subsidiary of Provident Bank, the region’s premier banking institution. To learn more about our coverage options, contact our specialists today at (888) 990-0526.