Who Can Pay for Fiduciary Insurance?
ERISA does not require that a benefit fund or trustee purchase fiduciary insurance, but a fiduciary faces significant personal exposure without it. Importantly, ERISA generally prohibits a benefit fund from excusing a fiduciary from liability for breaches of duty or using fund assets to pay such liability, even if the breach was unintentional or in good faith. See ERISA Section 410, 29 U.S.C. section 1110 (Exculpatory Provisions; Insurance). And ERISA further prohibits benefit funds from paying for the defense of trustees who breach their duties to the fund. But the law permits the benefit fund to use fund assets to purchase fiduciary insurance coverage for its trustees and other fiduciaries, with one important limitation. Insurance can be purchased with fund assets only if the insurance policy entitles the insurance carrier to have “recourse” against a breaching fiduciary to recover amounts paid by the insurance carrier under the policy. In other words, the fiduciary insurance policy must provide that if the insurance carrier pays money to a benefit fund to restore losses caused by a trustee’s breach of fiduciary duty to the fund, the insurer can proceed against the trustee to recover from his personal assets the money it paid to the fund. Importantly, the law does not restrict the plan sponsor from paying for the insurance, as the only limitation is on paying from plan assets unless recourse is provided.
This is an excerpt from the Fiduciary Liability Insurance Handbook, The Definitive Guide for Fiduciaries and Advisers of Employee Benefit Plans. To obtain a copy of the Handbook or to view other excerpts, please visit our Handbook website www.fiduciaryliabilityhandbook.com or for additional company information visit www.euclidspecialty.com.
Euclid Specialty Managers specializes in fiduciary and other management liability insurance for multiemployer, governmental and other non-profit employee benefit plans. We are known for our expertise and thought leadership in protecting Insureds from complex liability. In addition to Fiduciary Liability Insurance Coverage, we also offer Directors & Officers Liability, Employment Practices Liability, Cyber Liability and Crime Insurance Coverages to employee benefit plans and plan officials.