Non-Fiduciary Liability Under the Employee Retirement Income
Fiduciary Liability - AP Benefit Advisors, LLC · 3) Fiduciary Liability or Fiduciary Legal...
Transcript of Fiduciary Liability - AP Benefit Advisors, LLC · 3) Fiduciary Liability or Fiduciary Legal...
Fiduciary Liability
CrawfordAdvisors, LLC
Consulting, Brokerage & Administration
November 4, 2010
Patrick C. Haynes, Jr. Today’s presenter
As counsel for Crawford Advisors’ Employee Benefits and Executive Compensation Group,
Mr. Haynes advises employers and plan sponsors in a variety of health and welfare benefit plan
compliance matters, including, but not limited to, tax qualification and other Internal Revenue Code
issues, ERISA, COBRA and HIPAA portability and privacy issues. Mr. Haynes lectures frequently
and has published many articles on health and welfare benefit plan compliance topics.
Practice Areas
Employee Benefits & Exec Comp, ERISA, COBRA, HIPAA, §125, and §§ 105, 106, 129, 132
Education
Temple University School of Law, LL.M.
Rutgers University School of Law, J.D.
Rutgers University School of Business, M.B.A.
Rutgers University College of Arts & Sciences, B.A.
Admitted to Practice
U.S. Supreme Court
Federal and State Courts of
New Jersey
Pennsylvania
Connecticut
District of Columbia
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Agenda
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Basics of Fiduciary Liability under ERISA
The Importance of Fiduciary Liability Insurance
Fiduciary Liability Claim Examples
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Liability Under ERISA
•Under ERISA, an individual/organization is a fiduciary if that entity/
(person) has “any” discretionary control over management.
•Any person that has the responsibility for investment, control, or
disposition of assets held in the plan is a fiduciary.
•ERISA defines “employee benefit plans” as any one plan, fund or
program established or maintained for the purpose of providing to
its participants or beneficiaries employee benefits.
•Fiduciaries are subject to the “prudent man” rule under ERISA (code
404). This rule says that fiduciaries must, when administering a plan,
act prudently and with undivided loyalty to the participants and their
beneficiaries, subject always to the terms of the plan so long as they
are consistent with ERISA. Fiduciaries are personally liable for their
breeches.
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Fiduciary Liability Insurance
Four Types of Coverage:
1) Fidelity Bonds – required by law*. This form of insurance is required
for dishonesty situations. When dishonest administrators or trustees
have financially harmed an employee benefit plan, these bonds are
used, but only for the benefit of the plan and the plan beneficiaries.
2) Employee Benefit Liability (EBL) - this insurance covers many claims
arising out of errors or omissions in the administration of a benefit
plan, including the failure to enroll an employee in the plan and the
administration of improper advice as to benefits.
3) Fiduciary Liability or Fiduciary Legal Liability – bond or insurance
policy that protects a company from allegations of negligence with
regard to the holding of funds on behalf of someone else. (Breach of
Fiduciary Duties including cost of defense, claims etc…)
*See ERISA, Section 412.
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4) By Endorsement - There is more than one type of fiduciary liability coverage.
Since coverage may also be established using directors and officers (D&O)
liability, commercial general liability (CGL), or trust E&O/professional liability
policies as long as those policies have attached an endorsement that is
specifically tailored to cover fiduciary liabilities.
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With ERISA, most D&O policies exclude ERISA claims.
Removal of such an exclusion would provide
coverage to directors and officers in their fiduciary capacity
with respect to employees but would offer far less broad
coverage than a typical endorsement which also protects:
•the plan itself
•the corporate sponsor
•the individual non-officer fiduciaries
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Claim Examples
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Breach of Fiduciary Duty - $80,000
Two EE’s filed suit against a seed
manufacturer, alleging they had been
told they were automatically enrolled in
the company 401(k) plan. The plaintiffs
claimed their ER had a fiduciary
responsibility to inform them of their
non-enrollment and provide them an
opportunity to enroll. An insurer paid
$80,000 in defense costs before
summary judgment was granted in the
insured’s favor.
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Failure to Fund Benefits - $200,000 A telecommunications firm maintained a self-insured health
plan. When the company was forced into bankruptcy,
employees sued officers and management of the company
for failure to ensure the company funds would be used to pay
outstanding medical benefits rather than general company
obligations. An insurer defended the case, which resulted in
a summary judgment in favor of the telecom firm.
An insurer paid in excess of $200,000 toward defense fees.
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Breach of Fiduciary Duty - $120,000
The Department of Labor (DOL) investigated a
communications company for the methodology the
company used in determining the allocation of Plan
earnings and expenses between active and non-active
participant accounts.
The DOL initially asserted losses in the range of $317,000
to non-active participants’ accounts. The case was settled
by an insurer for $120,000.
Benefits Communications - $150,000
Six retired employees of a nonprofit consulting firm sued
the firm, alleging entitlement to early retirement benefits.
The plaintiffs alleged they relied on oral and written
representations of the plan administrator, (an EE from HR).
•The plan document was alleged to be ambiguous, preventing
a successful motion for summary judgment.
•An insurer provided defense to its insured and paid $150,000
in resolving the dispute.
Benefits Eligibility - $1 million
A group of independent contractors sued a company,
asserting they were eligible to participate in the insured’s sponsored
employee benefit plans.
•The plaintiffs, who were accountants hired during the tax season, argued
that they met the plans’ eligibility Requirements.
•The plaintiffs sought retroactive benefits, including matching contributions in
the 401(k) plan and earnings on those contributions.
•The court granted summary judgment to the insured.
•An insurer paid more than $1,000,000 in legal defense fees.
Breach of Fiduciary Duty - $100,000
A software manufacturer faced a claim for life insurance
benefits. While the plaintiff was out of work on long-term
disability, the insured made the decision to change life
insurance carriers.
During the transition, the insured neglected to identify the plaintiff as an EE.
The plaintiff subsequently died, and the new life carrier denied coverage,
citing a policy that only covered active employees.
Since the death did not occur during the old policy period, the old carrier
also denied the claim. A claim was subsequently made by the decedent’s
estate against the insured for the life insurance benefits. The ER’s insurer
contributed to a settlement including contributions from both the old and a
new carrier.
Breach of Fiduciary Duty - $250,000
A Midwestern manufacturer failed to submit the
requisite forms for an EE’s life insurance policy,
but continued to deduct a premium from the employee’s
paycheck.
•When the EE died, the life insurer denied the claim.
•The EE’s heirs sued the plan fiduciary, and recovered
$250,000 from the insurer.
Failure to pay health care benefits - $30,000
The parents of a deceased child sued a trucking company
and a TPA for payment of health care benefits by a local
hospital. The TPA, on review of hospital charges, reduced the
charges by more than $100,000.
•The suit alleged the failure to pay violated the insured’s
fiduciary duty under ERISA.
•The insurer defended the suit and the case was dismissed
after incurring $30,000 in legal fees.
Failure to Provide Disability Coverage - $550,000
An EE enrolled in the LTD plan filed suit against a clothing store,
alleging violations of ERISA, the Americans with Disabilities Act,
and Title VII.
Specifically, the plaintiff alleged the insured had wrongfully
terminated her due to disability. The insurer afforded a Defense.
At trial, it was determined that the plaintiff was entitled to LTD
benefits and that the insured had breached its duty in failing to fully
consider all of the medical information. The case was appealed
and was settled prior to a decision.
In addition to significant defense costs of $300,000, the insurer
agreed to pay the plaintiff’s attorney fees in the amount of $250,000.
Questions
Crawford Advisors, LLC
• 200 International Circle, Suite 4500, Hunt Valley, MD 21031
• 555 East Lancaster Ave, Suite 640, Radnor, PA 19087
• 800.451.8519
• www.CrawfordAdvisors.com
Via E-mail to: [email protected]
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