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Why Do I Need Fiduciary Insurance?

By Eastern Insurance, Mar. 11, 2016
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If you owe a duty of care or loyalty to somebody else who places their trust in representations you make to them, you may legally be considered a fiduciary. Individual fiduciaries may be required by a court to use personal assets in order to pay settlements, legal defense costs and other court judgments to make an injured party "whole".

Could you afford to pay the average cost of a fiduciary liability -- $1.2 million -- out of your own personal assets?(1)

What is a fiduciary?____________________________

By definition, a fiduciary is any person or organization that controls, manages or is responsible for the disposition of an employer’s plan assets. Benefits plans include but are not limited to:

401(K) plans Pension Plans
Any Employee Stock Ownership Program (ESOP) Profit Sharing
Any plan regulated by the Employment Retirement Security Act of 1974 (ERISA) Employee Welfare Plans

When you think of a fiduciary, you usually think of:

  • Benefits Administrator
  • Company owners
  • Human Resources
  • Board member
  • Agents/brokers (financial and otherwise)
  • Investment advisers/money management and other financial professionals
  • Corporate directors and officers
  • Lawyers

Over the years, the definition of fiduciary has been broadened by the courts. Because all fiduciaries fundamentally owe a duty of care and duty of loyalty to those they serve, physicians, underwriters, insurance companies, non-profit and charitable organizations, clergymen and union officers have also been implicated as having fiduciary responsibility in recent lawsuits.

Fiduciaries - whether an individual trustee or organization - can be held responsible for any alleged acts, errors or omissions relating to their own administration of an employer’s plan assets.

Fiduciaries are similarly held accountable for the acts, errors or omissions of outside administrative organizations acting on their behalf (i.e. professional administrative entities, accounting firms, investment advisers and investment management companies). Fiduciary liability is not transferable.

Suit can be brought for a host of reasons, including but not limited to:

False, fraudulent or misleading statements about investments or plan benefits

Imprudent investments or lack of plan benefit/investment diversification

Conflict of interest

Non-compliance with written plan documents

Administrative error

Wrongful plan termination

According to the Tillinghast Towers Perrin Fiduciary Liability survey (1), most suits are brought for: "denial of benefits", "misleading representations" and "miscommunication or lack of communication of plan benefits".

Below are some example claims scenarios, based on actual lawsuits, from St. Paul-Travelers (2):

Total Cost

Settlement Cost

Defense Costs

Lawsuit Details




Employees of a company sued an outside plan administrator for improperly delaying a requested transfer of fund balances from one investment option to another.




Employees brought suit against their plan administrator for wrongful elimination of a profitable plan investment option, imprudent selection of an alternative fund and failure to oversee the actions of the third party administrator.

I have a General Liability (CGL) policy, fidelity bonds and a Directors and Officers Liability policy already.

  • General Liability: The Employee Benefit Liability ("EBL") component of the General Liability policy provides some coverage for errors and omissions stemming from the administration of benefit plans. Most situations relating to alleged breach of fiduciary duty are excluded by the EBL endorsements.
  • Fidelity Bonds: Under ERISA, employers are required by law to hold fidelity bonds to cover the plan’s assets. The bonds are only triggered for intentionally dishonest or deceptive practices by plan administrators or trustees. Bonds protect the plan beneficiaries but do not provide coverage for the plan administrators/ trustees or their assets.
  • Directors and Officers Liability ("D & O"): Most D&O policies explicitly exclude EBL ERISA-violation claims.

Fiduciary Insurance covers what the CGL/EBL, D&O policy and fidelity bond coverage do not. Most importantly, fiduciary insurance will pay for the legal costs and expenses associated with litigation and settlement and protect your personal assets.

For more information or to schedule an evaluation of your existing coverage, please call us at 1-800-333-7234 or visit us online at

(1) According to the Tillinghast Towers Perrin Fiduciary Liability survey, the average breach of fiduciary responsibility lawsuit settles for $994,000; the average cost of defense is $365,000. As reported in the Insurance Journal on September 9, 2004.

(2) Fiduciary Liability Plus: Examples of Claims Against Plan Fiduciaries. St. Paul Travelers, July 2004.

The material contained herein is provided for informational purposes only and not for the purpose of providing legal advice. Information herein should not be relied upon or used as a substitute for consultation with legal or other professionals

Eastern Insurance Group LLC is a wholly owned subsidiary of Eastern Bank. Insurance products: not insured by the FDIC or any federal government agency. Not deposits of or guaranteed by any bank. (C) 2016 Eastern Bank. All rights reserved.

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