What’s the difference between the “Employee Benefits Liability” coverage under a CGL Policy and coverage under a Fiduciary Liability Policy?
Commercial General Liability (CGL) insurance often include an “Employee Benefits Liability Coverage” endorsement (see, e.g., ISO CG 04 35 03 05). The endorsement grants coverage for damages attributable to any negligent act, error, or omission in the “administration” of an “employee benefit program.” The coverage under this endorsement is similar to, and can overlap, the coverage under Fiduciary Liability Policies. But the coverage under the Fiduciary Liability Policy is generally broader for two reasons.
- First, the Employee Benefits Liability Coverage only applies to liability arising from “administration,” which includes providing information to employees, enrolling or terminating participation, and handling records. In contrast, Fiduciary Liability Policies grant coverage for liability arising from “wrongful acts,” which encompasses all of the items in the “administration” definition plus alleged breaches of duties imposed on fiduciaries of those programs.
- Second, the Employee Benefits Liability Coverage contains an exclusion for claims under the Employee Retirement Income Security Act (ERISA). ERISA is the federal law that governs most employee benefit plans. When it applies, ERISA preempts state law claims that “relate to” such an employee benefit plan. So, in most circumstances, the only legally valid claims would arise under ERISA, which are excluded under the Employee Benefits Liability Coverage endorsement. On the other hand, Fiduciary Liability Policies expressly cover ERISA claims.
There are rare cases in which coverage would apply under the Employee Benefits Liability Coverage endorsement, but not under a Fiduciary Liability Policy. Some employee benefit programs covered by the Employee Benefits Liability Coverage endorsement are not typically covered under Fiduciary Liability Policies. Examples include unemployment, social security and workers’ compensation benefit programs, and “payroll practice”-type plans, including vacation plans, military, family, medical and non-medical leave of absence plans.
In the absence of a review of all employee benefit plan-related exposures and a studied intentional approach to coverage, an employer should not rely exclusively on the Employee Benefits Liability Coverage endorsement. Optimally, an employer would have coverage under a Fiduciary Liability Policy and the Employee Benefits Liability Coverage Endorsement. But forced to pick one or the other, in most cases, the employer would be better served by picking a Fiduciary Liability Policy.