Fiduciary Liability vs. Employee Benefits Liability

Legal Hairsplitting or an Unknown Exposure that Threatens your Ministry?

I am ever impressed with the many exposures that threaten ministries and even more impressed with the determination of trial attorneys to find ways to sue them. One of the lesser known areas of susceptibility of ministries stems from the exposure they create from a benign source: the providing of employee benefits for staff. When ministries mature, they seek to attract and retain their human talent by providing such diverse benefits as health insurance, life insurance, disability income protection and even retirement benefits, such as 403(b) plans. While it is certainly a great benefit to offer such plans for the protection of ministry staff, these offerings also create exposure of errors and litigation from current and past employees.

In order to address these exposures, the insurance community offers two distinct, but similar-appearing, tools that may cause confusion to ministry controllers as well as their insurance counselors: Fiduciary Liability and Employment Benefits Liability insurance. These are designed for different purposes, and their distinctions should be understood so that the correct form is chosen.

The Fiduciary Liability form is designed primarily to provide coverage to fiduciaries who are sued for breaching duties imposed by ERISA. These requirements include discharging their duties solely in the interest of plan participants, defraying expenses in administering plans, acting with the care, skill, prudence and diligence that a prudent person in a similar situation would exercise, exercising the obligation to diversify investments to minimize the risk of large losses, and to follow the terms of the plan document. Fiduciaries can be held personally liable for breaching any of these duties, and the Fiduciary Liability form is designed to provide coverage in these scenarios.

The Employee Benefit Liability form provides coverage for errors in the management and administration of a variety of benefit plans but excludes claims based upon the failure of any investment to perform as represented by an insured, advice given by an insured to participate in any Employee Benefit Plan and insufficient funding. “Management” is defined to include counseling employees, interpreting benefits, handling records, enrollment, and termination or cancellation of employee’s benefits. Typical claims addressed might include such errors as failure to initiate coverage for a new employee after their probationary period ends, or failure to offer COBRA benefits.

While these form distinctions may seem like legal minutia, failure to provide the right insurance coverage form could been seen as negligent employment by your ministry towards its current and past staff. Knowing the right information and initiating the correct coverage before a claim is the key to avoiding the distraction of an uninsured loss. Contact us today to learn more.

Richard Hale