1. Community Webinar Fiduciary Liability and EBL What You Need To Know

2. www.InsuranceCommunityUniversity.com Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. The instructional materials provided by The Insurance Community Center and its authors is intended as a general guideline and any interpretations provided by The Community do not modify or revise insurance policy language. Information which is copyrighted and proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. The Insurance Community Center assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Insight Insurance Consulting laurie@insurancecommunitycenter.com marjorie@insuranceacommunitycenter.com www.insuranceacommunitycenter.com Copyright 2011© 2

3. www.InsuranceCommunityUniversity.com  Presents Monthly Webinars Free to Community Members.  Community webinars are archived on the Community homepage under the right hand tab titled: Webinar Archive 3

4. www.InsuranceCommunityUniversity.com  In addition the community has unique business networking opportunities.  Enjoy the Weekly Newsletter on a specific topic with a tip of the week; claim; quiz flash and articles 4

5. www.InsuranceCommunityUniversity.com  One Flat Fee per Office includes  Monthly webinars approved for CE in California for a total of 28 hours  Test and Learn  Audio Presentations on insurance topics  Checklists  Power point presentations for client and/or peer training 5

6. Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR Insurance Community Center, LLC Director of Education 6

7. They are not the same

8. www.InsuranceCommunityUniversity.com  EBL coverage  Fiduciary Liability coverage  ERISA requirements 8

9. www.InsuranceCommunityUniversity.com Bodily Injury WC / EL Benefits EBL / Fiduciary Theft Employee Dishonesty Discrimination / Harassment EPLI 9

10. www.InsuranceCommunityUniversity.com No obligation to provide benefitsWhen provided, must do so within the lawMost employers today provide some form of benefits Group health insurance Dental insurance Pension, retirement or profit sharing programs. 10

11. www.InsuranceCommunityUniversity.com Balance need for skilled staff with risk attached to providing benefits New laws and new regulations creating additional unknown risk Increased # of lawyers entering this field Employees have little to lose by suing If they win their case, lawyer fees are almost always assigned by the court 11

12. www.InsuranceCommunityUniversity.com Employers may not be aware of the risk imposed upon them by ERISA All employers face this expensive litigation Section 409 of this federal law imposes personal liability upon many persons within the organization 12

13. www.InsuranceCommunityUniversity.com The plan sponsor (employing company)The company management Executive officers or managing employees Board of directors Investment committeesThe plan administrator 13

14. www.InsuranceCommunityUniversity.com Named fiduciariesThe plan trusteeHR administrator/managerInvestment manager(s)Consultants, including Accountants and Attorneys 14

15. www.InsuranceCommunityUniversity.com Settlor activities Fiduciary activities 15

16. www.InsuranceCommunityUniversity.com Establishes the plans Makes changes to the plans 16

17. www.InsuranceCommunityUniversity.com Exercises discretionary authority or control over the plan management or plan assets or Has discretionary authority over plan administration or Gives investment advice for a fee 17

18. www.InsuranceCommunityUniversity.com Class action suits typically name all parties connected to an ERISA plan An individual may have either one or the other or both roles 18

19. www.InsuranceCommunityUniversity.com The Fiduciary Liability policy requires that a claim must include a demand for damages arising out of the insured’s breach of FIDUCIARY duty or administrative duties – does not include settlor duties 19

20. www.InsuranceCommunityUniversity.com  Welfare benefit plan includes  Medical plans  Disability benefit plans  Vacation plans  Pension benefit plan is any plan that  Provides retirement income to employee  Defers income to periods beyond termination 20

21. www.InsuranceCommunityUniversity.com  Frequent loss  Denial of benefits  Improper reimbursement  Miscalculation of benefits  Surviving spouse did not receive proper benefits 21

22. www.InsuranceCommunityUniversity.com  Severe loss  Plan fiduciaries imprudently offered employer stock and/or misrepresented risk of investment  Excessive plan fees  Promised benefits were cut  Change in post-retirement medical benefits  Premiums charged for insurance were excess  Fiduciaries failed to scrutinize cost vs. benefit ratio properly 22

23. 23

24. 24

25. www.InsuranceCommunityUniversity.com Errors and Omissions coverage for negligent errors or omissions in administration of employee benefit plans Typically a Claims-Made and Reported type of coverage 25

26. www.InsuranceCommunityUniversity.com Pays only the benefits that should have been paid had no error or omission occurred Often provided as a coverage addition to the Commercial General Liability policy 26

27. www.InsuranceCommunityUniversity.com May be provided as part of the Fiduciary Liability Insurance Policy Will not be part of the Umbrella or Excess layers – therefore, high limits will be needed 27

28. This is ISO’s language - most insurers’ forms follow similar language 28

29. www.InsuranceCommunityUniversity.com 1.Insuring Agreement a.We will pay those sums that the insured becomes legally obligated to pay as damages because of any act, error or omission, of the insured, or of any other person for whose acts the insured is legally liable, to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. 29

30. www.InsuranceCommunityUniversity.com b.This insurance applies to damages only if: (1)The act, error or omission, is negligently committed in the "administration" of your "employee benefit program"; 30

31. www.InsuranceCommunityUniversity.com The amount paid shall not exceed, and will be subject to, the limits and restrictions that apply to the payment of benefits in any plan included in the "employee benefit program".  This is a critical restriction and can leave a gap between the financial loss to the employee and the coverage amount 31

32. 32

33. www.InsuranceCommunityUniversity.com Legal liability arising from claims for a “Wrongful Act” or failure to act in a prudent manner in the “administration” of any employee benefit plan 33

34. www.InsuranceCommunityUniversity.com  Broad definition of insured  Broad definition of employees  Broad definition of “administration”  Broad definition of “employee benefit plan”  Group life and medical expense plans, as well as pension and retirement plans, are within the scope of the law 34

35. 35

36. www.InsuranceCommunityUniversity.com  “Insured” is variously defined as a trust or employee benefit plan, any trustee, officer or employee of the trust or employee benefit plan  The employer (company)  Any other individual or organization designated as a fiduciary 36

37. www.InsuranceCommunityUniversity.com  Definition of employees include  Full-time  Part-time  Temporary  Leased  Volunteers / Interns  Contract employees 37

38. www.InsuranceCommunityUniversity.com  Advising  Counseling  Giving notice to employees  Providing plan interpretations  Handling records  Effecting enrollment  Terminating or canceling employees, participants, or beneficiaries under any plan 38

39. www.InsuranceCommunityUniversity.com  Any benefit plan, whether or not subject to ERISA sponsored for the sole benefit of the “employees”  Fringe benefits and excess benefit plans  New or proposed plans – automatic coverage  All plans – US or foreign 39

40. www.InsuranceCommunityUniversity.com  To include written demand for monetary or non-monetary or injunctive relief  A criminal proceeding  A formal administrative or regulatory proceedings  A fact-finding investigation by the DOL, USPBGC, or any similar authority located outside the US 40

41. www.InsuranceCommunityUniversity.com  Duty to defend  In addition to limit  Some policies include within the limit  Twelve-month or longer discovery period  The cost for an ERP should be shown in the policy  The discovery clause should be bilateral 41

42. www.InsuranceCommunityUniversity.com  Specific language extending coverage to managed care liability claims  Specific language extending coverage to HIPAA claims, fines and penalties and COBRA claims  Punitive damages and exemplary damages where permitted by law 42

43. www.InsuranceCommunityUniversity.com  Automatic coverage for voluntary settlement  Often a sub-limit  Pollution coverage extension  Waiver of recourse provisions (no provision for recourse by insurer against fiduciary)  Non-cancelable except for non-payment of premium  90 Days notice of non-renewal 43

44. 44

45. www.InsuranceCommunityUniversity.com 45 Damages and defense costs arising out of a “wrongful act” Employee Benefit Liability Covers Fiduciary Liability Covers A mistake, error or omission in handling of administrative matters

46. www.InsuranceCommunityUniversity.com Fiduciary FidelityEBL 46

47. www.InsuranceCommunityUniversity.com  The Federal Code refers to the necessity of a fidelity bond to cover the employee plan assets against fraud or theft  An ERISA Bond may be provided separately or the plan may be listed as a Named Insured on the Employee Dishonesty Insurance Policy

48. www.InsuranceCommunityUniversity.com  Federal law requires the plan sponsor to carry employee dishonesty coverage that extends to protect the plan assets from any person handling the plan assets.  A TPA providing employee dishonesty coverage for their employees should be viewed as a contractual obligation and not fulfillment of the above obligations

49. www.InsuranceCommunityUniversity.com  $1,000 minimum limit per plan  10% of plan assets up to  $500,000 coverage  $1,000,000 coverage if the plan contains the plan sponsor’s stock  No deductible  One year discovery period for loss

50. www.InsuranceCommunityUniversity.com  ERISA requires the fidelity coverage to be purchased and reported  ERISA does NOT require the purchase of Fiduciary Liability insurance, but the law allows the purchase of this coverage  Fiduciary Liability can include the EBL administrative coverage  EBL will NEVER include the Fiduciary Liability coverage 50

51. www.InsuranceCommunityUniversity.com  This area is developing law around the country in both state and federal courts  Help your client understand that their risk is great and growing  ALWAYS offer Fiduciary Liability IN WRITING  Get a rejection signed  Give them insurance guidance but don’t step over the line into the area of law 51

52. www.InsuranceCommunityUniversity.com  Laurie Infantino  laurie@insurancecommunitycenter.com laurie@insurancecommunitycenter.com  714 803 5830  Marjorie Segale  marjorie@insurancecommunitycenter.com marjorie@insurancecommunitycenter.com  714 206 9583 52