Fiduciary liability covers a variety of situations that financial departments face in managing a company’s funds. A fiduciary is anyone who oversees these funds, whether they are a financial director, employee or even a third party. Profit-sharing, health benefits, pensions and more fall under this category of managed funds.
Fiduciaries may not even be aware that their position exposes them to penalties, fines and lawsuits. Fiduciary liability insurance claim examples include:
- Conflict of interest
- Breach of fiduciary duty
- Not filing the required reports
- Making errors in matters affecting benefit eligibility
- Making reckless investments and failing to diversify them
Congress passed a law in 1974 that attaches personal liability to benefits plan trustees for losses in those funds. The losses must result from a breach of their fiduciary responsibilities or their errors and omissions.
Situations Prompting Claims
Fund trustees are exposed to personal risk in a variety of situations. Some fiduciary liability insurance claim examples include:
- Participants in a stock plan sued their company over excessive executive bonuses
- Employees in a pension/profit-sharing plan sued for failure to diversify investments
- An employee sued for failure to follow his instructions to reallocate funds in his 401 (k) plan
Fiduciary liability is one of several insurance types that can be included in management liability insurance. For fiduciaries themselves, it is a must.