Encore Fiduciary is known for its combination of underwriting and claims expertise, while providing thought leadership to those protecting benefit plans trustees from complex liability exposures. The Encore team provides proactive market solutions in an environment today that is seeing unprecedented lawsuits against fiduciaries and benefit sponsors. Our team of experts has more than 100 years of experience in underwriting these complex risks. We’re here to help mitigate the risks responsible in part for the significant spike in class-action lawsuits, as well as provide you with the ability to protect your clients in an increasingly challenging insurance market characterized by rising rates and capacity restrictions.
A fiduciary liability insurance policy is designed to protect plan trustees, other fiduciaries and the employee benefit plan against claims alleging breach of their fiduciary duties to the plan or claims alleging they committed an error in the administration of the plan. The policy provides two important basic benefits: defense and indemnity.
Fiduciary policies pay for the expense of defending fiduciaries accused of violating their duties to the benefit fund, like providing a lawyer to defend you in the case of a lawsuit, and the policy also indemnifies trustees for their alleged violations of duty and negligent administrative acts or omissions in the event of a settlement or judgment of liability, mainly covering damages you owe the complaining party. While fiduciary liability policies provide coverage to the plan itself, the primary purpose of a fiduciary liability insurance coverage is to protect against the individual liability of plan fiduciaries.
The main reason you need fiduciary liability insurance is because of The Employee Retirement Income Security Act, or ERISA. Plan sponsors and fiduciaries may be exposed to significant liabilities, and ERISA Section 409 imposes personal liability on individuals who breach their fiduciary duties, thus putting their personal assets at risk. An employee benefit plan and its fiduciaries, including the plan trustees, can be sued by several different constituencies:
1. Governmental regulators like the Department of Labor “DOL” or the Internal Revenue Service “IRS”
2. Plan participants
3. Another fiduciary, including other current or former plan trustees, of the plan under co-fiduciary liability.
More specifically, and more importantly, under fiduciary liability law, the employee benefit plan cannot use plan assets to defend a fiduciary for claims alleging negligence or wrongdoing. ERISA’s anti-exculpatory clause [ERISA section 410, 29 U.S.C. section 1110] prohibits a plan from paying for or indemnifying a fiduciary for a breach of fiduciary duty.
ERISA permits indemnification of a plan fiduciary by an employer or plan sponsor whose employees are covered under the plan, rather than the plan itself, so long as the fiduciary remains liable for any loss caused by a breach of that fiduciary’s duty. But indemnification is never foolproof, as the employer may not have the assets to indemnify a fiduciary or is prevented by applicable law.
Encore Fiduciary’s fiduciary liability policy is the industry’s gold standard because it provides an excellent scope of coverage to protect the plan and individual fiduciaries from personal fiduciary liability.
Encore’s Fiduciary Liability Insurance policy is a market-leading fiduciary program designed for any employee benefit plan, including defined contribution and defined benefit plans, including single-employer, multi-employer plans and governmental plans.
Encore’s fiduciary liability protects employee benefit plan sponsors and has grown into the choice of many of America’s most sophisticated and complex single-employer plans. Encore provides the scope of coverage, expertise and thought leadership to support single-employer plan sponsors. We are advocates helping to mitigate the litigation trends harming plan sponsors.
Encore is a leading underwriter for multi-employer benefit plans with our market leading Fiduciary Liability Insurance policy written with Hudson Insurance Company. Encore has provided a consistent, reliable and independent fiduciary liability market to protect Multi-employer plans and their trustees. We have been at the forefront of our industry introducing valuable coverage enhancements in our fiduciary policy form. This helps create peace of mind for the Plan Trustees charged with the responsibility to act as Prudent fiduciaries under the law of ERISA.
Encore is the market fiduciary insurance leader for governmental plans. America’s best-run governmental plans choose Encore Fiduciary Product Overview to protect their plans. Our deep fiduciary experience and expertise allow us to provide a better approach for Fiduciary insurance for governmental plans. We provide transparency and choice based on the level of indemnification available to fiduciaries as many plans unsuspectingly purchase insurance that does not offer full coverage. We offer indemnifiable and non-indemnifiable options for government plans including Side A coverage.
For more details about our Fiduciary insurance product, please download our “Encore Fiduciary Product Overview.”
By partnering with Encore, you get access to the experts in fiduciary liability. As the leader in fiduciary liability insurance, you will have the most specialized coverage and consulting in your corner.
Our fiduciary claims expertise is second to none. Our claims authority, supported by a strong bench of lawyers with unparalleled legal and claims experience within our defined niche, and a carrier with a solid history of paying claims fairly and responsively, also set us apart in the industry. Our professionals have legal and fiduciary expertise with the authority to act to resolve complex claims.
A fidelity bond is a contract under which the issuer of the bond, typically a surety company or an insurance company, agrees to reimburse a benefit fund for losses caused by theft, fraud, or other dishonest acts covered by the bond. The primary insuring agreement is coverage for employee theft. A fidelity bond covers losses due to intentional acts to deprive a benefit fund of fund assets. By contrast, a fiduciary insurance policy covers losses caused by negligence or other acts or omissions not intended to cause the benefit fund to lose assets. A fidelity bond is required for any
plan covered by ERISA, whereas a fiduciary liability policy is not mandatory.
The term “settlor” refers to the plan sponsor who establishes an employee benefit plan. Settlor functions are the business decisions when creating, amending or terminating a plan that are not considered under ERISA fiduciary law as acting in a fiduciary capacity. Settlor functions include decisions to: choose the type of plan, or options in a plan; amending a plan, including changing or eliminating plan options; requiring employee contributions or changing the level of employee contributions; or terminating a plan, or part of a plan. Settlor coverage in a fiduciary liability policy
is designed to cover these settlor business decisions of the plan sponsor that are not considered fiduciary duties and would otherwise not be covered under a fiduciary policy covering breach of fiduciary duty or negligence in plan administration. Settlor coverage is critical given the frequency of challenges to benefit design changes in a plan.
A waiver of recourse “WOR” provision generally means that the insurance carrier agrees that it will not seek to recover from a fiduciary any payments made by the carrier under the policy to discharge the fiduciary’s liability. The insurance carrier must charge an additional premium for the WOR provision, which cannot be paid with the benefit fund’s assets. Instead, the WOR premium must be personally paid by the fiduciary, or by an employer, the employer association, or a union. Learn more here.
Trustee Claims Expense Coverage is defense coverage for non-fiduciary claims. The typical policy language expands defense coverage to “any negligent act, error or omission by an Insured solely in such Insured’s capacity as a trustee of a Plan”. The purpose of non-fiduciary coverage is a catch-all for the fiduciary policy to defend any unanticipated claim that could be asserted against a plan fiduciary, but that does not allege breach of fiduciary duty or negligence in the administration plan. While claims are rare, non-fiduciary coverage would theoretically cover claims such as a challenge to the fund’s property lease or other non-plan function; or could cover an employment
practices claim in which a plan trustee is named as an additional defendant. For these reasons, such coverage, while broader in scope, is typically restricted to a defense sublimit within the overall limit of liability.
Most fiduciary liability coverage for governmental plans is limited to non-indemnifiable claims (where governmental immunity or indemnification is not permitted or applicable) without clear disclosure to the policyholder. This leaves many claims uncovered. Encore offers options for coverage of non-indemnifiable and also indemnifiable claims that most carriers will not provide. This full coverage approach responds to claims irrespective of governmental indemnification or sovereign immunity.
In certain lawsuits against the plan, such as an imprudent investment challenge, plan fiduciaries may have a conflict in recommending a settlement of the lawsuit, particularly when plan fiduciaries are members of the participant class. When a potential settlement is proposed, the plan may need an independent fiduciary to decide whether to accept the settlement and release parties from liability. The Encore Fiduciary policy will cover the costs of the independent fiduciary to provide the necessary valuation and advice to the plan or participants.
Encore provides expert in-house claims service to its management and professional liability insureds. We have decades of industry experience resolving complex claims and are advocates for clients in which we work proactively to manage claims, reduce claims expense, and drive excellent results. We keep defense lawyers honest to prevent litigation waste, and work with law firms who share our results-oriented values.
The policy is available on a nationwide basis through Hudson Insurance Company, one of the most dedicated carriers for employee benefit plans. Hudson has an AM Best rating of A+ (Superior), Financial Size Category XV ($2 billion or greater).
We’ve put our fiduciary experience and expertise on paper and online in the “Fiduciary Liability Insurance Handbook,” for you to download and gain insight into why it is so critical that coverage is designed to fit an employer’s or entity’s benefit plan. Obtain your complimentary copy here.
Encore Fiduciary, division of Specialty Program Group LLC. Doing business in California as SPG Insurance Solutions License No. 0L09546.
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