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What Is Fiduciary Liability Insurance and Why Do You Need It?

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What Is Fiduciary Liability Insurance and Why Do You Need It? Not knowing the answer could cost you everything. Fiduciary Liability Insurance Policies (FLIPs) are arguably one of the least Who is Considered a Fiduciary? What is Considered to be a Plan? understood insurance products on the market. However, it may be the Any individual included in the plan Employee benefit plans fall into only coverage that adequately protects document by name or title, along two broad categories - retirement people against liability for managing or with anyone who has discretionary plans and welfare plans. Retirement administering an employee benefit plan decision-making authority over the plans include a wide gamut of plans, - from top corporate executives that hire administration or management of a including but not limited to defined investment managers to payroll clerks plan or its assets may be considered benefit pension plans, profit sharing that process enrollment forms. With the a fiduciary under ERISA. Fiduciaries or savings plans such as 401(k)s, rising frequency of expensive and time commonly include the plan sponsor 403(b) plans, stock purchase plans, consuming litigation and regulatory efforts (which is typically the employer), and employee stock ownership in today’s evolving legal environment, the plan trustee and the plan plans (ESOPs). Welfare Plans include employers and plan fiduciaries are administrator, directors and officers medical, dental, life and disability increasingly being held accountable for (including when they appoint other plans. their actions (or failure to act) with respect fiduciaries or retain third party to employee benefit plans. Thus, FLIPs are service providers) and internal an important part of any comprehensive investment committees. and provide little to no ERISA liability risk management program. coverage, or exclude it altogether. • By law, fiduciaries cannot escape • ERISA prohibits plans from indemnifying their fiduciary duties by delegating Why Your Company Needs Fiduciary plan fiduciaries, which means plans them to third party service providers. Liability Insurance cannot pay defense costs, settlements or Fiduciaries retain the duty to prudently awards on behalf of fiduciaries that have select and monitor these service FLIPs protect plan fiduciaries against breached their fiduciary duties. providers. claims alleging that they mismanaged an • Even if your company wishes to employee benefit plan or plan assets. This indemnify its fiduciaries, it may not As a result, a fiduciary’s personal assets includes, but is not limited to, making bad be financially capable of doing so, or it may be exposed—unless they carry investment decisions, negligently handling may be barred by law from doing so. Fiduciary Liability Insurance. plan records, and negligently selecting plan service providers. In addition to The equation is simple: Highest duty being an effective risk transfer tool for known to law + Personal Liability + Chubb’s Superior Coverage companies, FLIPs are a vital means of Legal and/or Financial Inability to protecting fiduciaries’ personal assets for Indemnify = Exposure of personal Chubb’s Fiduciary Liability Insurance the following reasons: assets policies provide some of the broadest coverage and most favorable terms in the • The Employee Retirement Income • To compound matters, ERISA casts a market: Security Act of 1974 (“ERISA”) imposes wide net of liability that ensnares people the “highest duty known to law” on by deeming them to be fiduciaries • Coverage for all employee benefit employee benefit plan fiduciaries, based on their conduct (i.e. functional plans sponsored by the company for its which is arguably even higher than the fiduciaries), even though they are not employees, including plans that aren’t standard of care placed on corporate named fiduciaries. This means you could subject to ERISA directors and officers. be a plan fiduciary and not even know it. • Coverage for virtually all of the • ERISA Section 409 expressly imposes • FLIPs are the only insurance that offers company’s constituents, including the personal liability on plan fiduciaries who broad protection against fiduciary company and its employee benefit plans, breach their fiduciary duties. This means exposure. ERISA bonds, D&O insurance directors and officers, and employees, that fiduciaries might have to personally and Employee Benefits Liability and members of the company’s pay for any losses they cause out of their coverage(offered under traditional employee benefit committees , own private assets. general liability policies) are inadequate administrative committees, and 2 investment management committees – Flexible defense arrangements in the insurance industry. For more than • Multiple insuring clauses available for under which Chubb provides a 75 years, Chubb has maintained A.M. a variety of matters, including written defense using expert legal counsel Best Company’s highest ratings – making demands, civil or criminal suits, with extensive experience in ERISA Chubb an easy and wise choice. regulatory proceedings and government litigation • Since 1975, Chubb has pioneered and investigations – Coverage for punitive damages honed fiduciary protection, becoming • Some of the broadest inquiry coverage and certain fines and penalties, one of the leading fiduciary liability available on the market, including including but not limited to civil carriers in the world. Our depth of potential coverage for Interviews penalties under 502(c), 502(i), 502(l), understanding the duties and legal conducted by an the U.S. Securities and the Pension Protection Act (PPA), exposures of fiduciaries, as well as Exchange Commission (SEC) Health Insurance Portability and complicated plan structures, allows us • Coverage for voluntary settlement Accountability Act (HIPAA), and to provide bold, insightful coverage that programs administered by the Internal the Affordable Care Act (ACA), were stands out in the market. Revenue Service (IRS), Department of applicable and where permitted by • When you buy insurance, you’re buying Labor (DOL), Pension Benefit Guaranty law peace of mind, and that’s what you get Corporation (PBGC) or any similar – Enhanced reporting provisions when with Chubb. Chubb is renowned in the program administered by a government renewed with Chubb industry for unparalleled claims service body located outside of the United States with fair, prompt claims handling. • Responsive to a broad array of allegations • Our worldwide expertise and local including but not limited to: Why Chubb? presence combines the best of both – Wrongful denial of or improper worlds, enabling us to solve complex change in benefits Solid financial stability, a long tradition of global protection problems while being – Improper enrollment or advice unparalleled fiduciary expertise, top- mindful of local needs and relationships. – Fiduciaries engaging in a prohibited rated claims service, and access to global • Additional fiduciary educational support transaction and other conflicts of solutions are but a few of the reasons to (complete with Fiduciary FAQs and Loss interest partner with Chubb to provide fiduciary Scenarios) is available at Chubb.com. – Failure to administer the plan protection. Also, view “A Chubb Special Report: according to plan documents Who May Sue You and Why: How to – Imprudent investment of assets or • A promise to pay is only as good as Reduce Your ERISA Risks and the Role lack of investment diversity your Insurer’s ability to pay. Chubb’s of Fiduciary Liability Insurance” for an – Imprudent selection of and failure to financial stability and ability to pay in-depth analysis of fiduciary exposures monitor third-party service providers claims consistently rank among the best and coverages. The Myth of Coverage under ERISA Bonds and EBL Insurance The Fiduciary Liability Insurance Policy (FLIP) is designed to protect fiduciaries against breach of fiduciary duty claims and more. It is the only type of insurance that does so. Contrary to popular belief, ERISA bonds and employee benefits liability (EBL) coverages do not fully cover fiduciary exposures. • ERISA bonds, which are required under Section 412(a) of ERISA, differ from fiduciary liability coverage. ERISA bonds provide first party coverage that is designed to protect the plan and its participants by ensuring that any employee who handles funds or other property of the plan are bonded. This protects the plan from risk of loss due to fraud or dishonesty on the part of the bonded individuals. • EBL coverage, which is provided via an endorsement to a general liability policy, also provides limited protection. It covers errors in plan administration only (e.g. failure to enroll or improper eligibility advice), and not breaches of fiduciary duty (e.g. imprudent investment, negligent selection of service providers, etc.). Moreover, EBL coverage for errors in administration is often more restrictive than the errors in administration coverage afforded under FLIP. 3 Contact Us For more information on Fiduciary Liability solutions, contact your local agent or broker, or visit us at www.chubb.com/us/fiduciaryliability. Chubb is the marketing name used to refer to subsidiaries of Chubb Limited providing insurance and related services. For a list of these subsidiaries, please visit www.chubb.com. Insurance provided by ACE American Insurance Company and its U.S. based Chubb underwriting company affiliates. All products may not be available in all states. This communication contains product summaries only. Coverage is subject to the language of the policies as actually issues. No liability is assumed by reason of the information contained herein. ©2017 Form 17-01-0206 (Ed. 12/17).
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