Coverage of ERISA Fiduciary Liability Under Standard Errors & Omissions (“E&O”) policies rarely provides coverage for claims made pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”). Most basic E&O policies include language that specifically excludes coverage for any claims involving ERISA violations, including fiduciary liability under ERISA. Accordingly, unless specifically included in an E&O policy, this coverage will not likely protect a fiduciary from a claim arising from administration of an employee benefit plan.
In light of this, many ERISA plan administrators obtain fiduciary liability insurance. Fiduciary liability insurance is essentially a type of E&O liability insurance that provides additional coverage against a breach of duty by a fiduciary of an ERISA plan. Fiduciary liability insurance typically provides coverage for liabilities that can arise in the context of administrating an employee benefit plan or for an investment advisor’s failure to diversify the assets of an employee benefit plan subject to ERISA. For example, in a 401(k) plan, an error in processing an employee’s investment election can result in liability that a traditional E&O policy would not cover unless ERISA-coverage is specifically included. This type of coverage can be provided in an endorsement to an E&O policy or a separate stand-alone fiduciary liability insurance policy.