Including: Directors & Officers Liability, Employee Practices Liability and Fiduciary Liability
Executive Risk is the term used for those coverages that typically apply to the C Suite. The following describes each:
Directors & Officers Liability (D&O):
The simple explanation is that D&O is a policy to protect corporate directors and officers for mistakes in operation of the business. The types of lawsuits that can be established are never ending. Some of these mistakes cause financial loss to the corporation, even bankruptcy. Investors or debt holders may elect to sue for such losses. Many times, claims or lawsuits are filed for grievances by third parties that are difficult to evaluate financial damages. In addition to the payment of the claim or lawsuit, a D&O policy will respond for legal fees. However, unlike most GL policies, the defense costs directly reduce the limit of coverage to pay the claim or lawsuit. This is called a combined limit of coverage.
Employee Practices Liability (EPL):
EPL policies respond when the business and business employees are sued or a claim made for a wrongful act against and employee. While there are many types of wrongful acts covered by an EPL policy, the most common are : Harassment (including sexual harassment), Wrongful Termination and Discrimination. In recent years, legislation has been passed which puts greater responsibility on employers to manage this exposure. EPL can be covered in a D&O policy as well. The D&O and EPL limit can be shared to save money or have a separate limit for each.
Fiduciary liability insurance is the best form of risk management for protecting the interests of your company and your employees in situations related to benefit plans offered by your company. Fiduciary liability insurance is designed to protect the business from claims of mismanagement and the legal liability arising out of their role as fiduciaries. A fiduciary liability policy covers associated legal costs to defend against claims of errors and a breach of fiduciary duty. One of the reasons why some businesses don’t know much about fiduciary liability is the fact that the ERISA does not legally require it.
There are many different types of employer liability coverages, but only fiduciary liability insurance will protect both the company and the individuals against fiduciary-related claims of negligence, mismanagement, or actions that are not in the best interest of the plan participants.
Who Is A Fiduciary?
Anyone who is cited in a benefit plan document, as well as anyone who is considered to have decision-making power over the management of the plan and its assets, can be regarded as a fiduciary. Typical fiduciaries are employers, the company’s directors, and officers, and plan administrators and trustees.
What Is ERISA?
The Employee Retirement Income Security Act (ERISA) of 1974 is a federal law passed to ensure that employees get the benefits promised in their retirement or welfare plans. Keep in mind that the law doesn’t require the employer to set up such plans – it just guarantees that their provisions will be fully respected.
ERISA also requires the business to take out a fidelity bond equal to a minimum of 10% of an employee benefit plan’s total assets. This bond serves to protect the plan’s assets from fiduciaries misusing or mishandling the funds in any way.
Keep in mind that ERISA bonds are not fiduciary coverage, even though the terms are often used interchangeably. The ERISA bonds will protect the plan itself, while fiduciary liability insurance protects the people in charge of the plan.