Employee Benefits Liability and Fiduciary Liability Insurance


Employee Benefits Liability Insurance covers an employer (and, in some policies, its employees who act on behalf) against liability claims alleging improper advice or other errors or omissions in the administration of the employer's employee benefits plans. The coverage is provided either in an endorsement to the employer's CGL policy, or in a separate policy. Examples of administrative errors include the following.

  • Providing negligent advice on the selection of employees benefits program
  • Failing to enroll an employee in the employer's group health insurance program, with the result that the employee has no health insurance for a condition that would have been covered by the health insurance
  • Improperly calculating a retiree's pension benefits, resulting in wrongful reduction of the retiree's retirement income

What is Fiduciary Liability Insurance?

In addition to facing claims for errors and omissions in carrying out their administrative duties (covered by employee benefits liability insurance), fiduciaries can be sued if they breach fiduciary duties involving discretionary judgements. An example of a duty involving discretionary judgements is using using due care in investing funds accumulated for an employee retirement income plan. If the plan's fiduciaries make negligent investment decisions and thus cause financial harm to the plan's participants, the participants can sue the fiduciaries. Employee benefits liability insurance does not cover liability for such discretionary judgements. Fiduciary Liability Insurance covers the exposure.

Fiduciary liability policies also usually include coverage for administrative errors in the same manner as employee benefits liability coverage. However, many fiduciary liability policies do not include the corporation as an insured, coverage is specifically restricted to the individual fiduciaries themselves. The Corporation can sometimes be added as an insured to the fiduciary liability policy, in which case the employee benefits liability coverage is duplicate insurance. Since the cost of employee benefits liability coverage is usually quite reasonable, some insureds maintain the duplicate coverage in order to obtain higher limits.