BP 04 98–EMPLOYEE BENEFITS LIABILITY COVERAGE
(September 2019)
INTRODUCTION
This endorsement covers
oversights and errors the named insured makes in administering its various
employee benefits programs. It does not cover improper or inadequate advice
regarding investments or the actual investment decisions the retirement plan or
pension administrator makes. This endorsement should not be used in place of
fiduciary liability coverage. Any business subject to the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA) should have fiduciary
liability coverage.
Related Articles:
Trustees and Fiduciaries Liability Insurance
Satisfying ERISA Bond Requirements with Employee Theft Coverage
Employee benefits liability coverage may not seem important if the insured business does not provide group medical, life benefit, or retirement programs. However, most businesses offer vacation, sick leave, and maternity leave and nearly all businesses must provide workers compensation, social security benefits, and unemployment insurance. Errors in administering any of these could result in lawsuits and coverage would be available only if this endorsement was attached.
Note: This endorsement
provides coverage on a claims-made basis and is subject to a retroactive date.
BP 04 98–EMPLOYEE BENEFITS LIABILITY COVERAGE ANALYSIS
This analysis is of the 07 13 edition of this endorsement. The only changes from the 01 10 edition are editorial in nature and do not change or affect coverage. As a result, this article does not note any changes.
ENDORSEMENT SCHEDULE
The endorsement schedule must be completed. It includes the following information:
Employee Benefits Program
The definition of employee benefits includes most of the standard employee benefits plans. However, benefits may be provided that the definition does not include. Any employee benefit program scheduled on the endorsement is added to the definition of employee benefits.
Limit of Insurance
Limits must be entered in the spaces provided for Each Employee and Aggregate. They are described in the endorsement's limits of insurance section.
Deductible
The each employee deductible must be entered in the space provided. It is described in the endorsement's deductible section.
Premium
The premium for the coverage provided is entered in the space provided.
Retroactive Date
This date is very important. Many insurance companies insist that the retroactive date be the same as the effective date because doing so limits coverage. The best arrangement for the insured is to enter the word NONE. A compromise can be reached at times to establish the retroactive date as the first date the named insured purchased coverage with a particular insurance company. That date would not advance as long as the coverage renews with that company.
A. SECTION II–LIABILITY–EMPLOYEE BENEFITS LIABILITY COVERAGE
a. Insuring Agreement
(1) The insured must be legally obligated to pay damages because of its acts, errors, or omissions in administering the named insured’s employee benefits plans. Coverage applies to the insured and wrongful acts of any other person if the insured is legally liable for their acts.
Note: These other persons can be an employee or an outside service because the named insured is still legally liable to properly administer some government mandated benefits programs, regardless of who performs the service. The legal obligations cannot be sub-contracted away.
Coverage applies to all occurrences that are not excluded. The insurance company determines the claims it investigates and settles. The insured must report any incident that could lead to a claim but the company determines how it handles a claim.
The most paid is the limit on the endorsement schedule. This limit applies to only compensatory damages. This coverage reimburses only for lost benefits and not for bodily injury or pain and suffering from wrongful acts and does not require it to make any retroactive additions to any benefit program. Coverage does not apply to errors made in payroll deductions. These deduction errors are excluded, regardless of whether the deduction was too small or too large. As in all other liability coverage forms, the insurance company's duty to defend ends when the limit of insurance is used up by paying judgments or settlements.
(2) Coverage applies to damages, subject to all of the following:
(a) The negligent act, error, or omission is committed in administering the named insured's employee benefit program
(b) The negligent act, error, or omission was not committed before any retroactive date on the endorsement schedule or after the policy period ends
(c) Claims for damages because of a negligent act, error, or omission are first made against any insured during the policy period or during any extended reporting period provided
(3) The date of the claim is the earliest of either the date any insured or the insurance company receives and records the notice or when the company settles according to coverage terms. This allows the company to promptly settle claims reported. Claims received within 60 days after the expiration date are treated as being received within the policy period. This coverage extension applies only if no other policy covers the claim.
(4) Claims by employees, including claims by their beneficiaries or dependents, that involve acts or a series of acts that took place over time are considered a single claim. They all use the date when that first claim was reported as their claim date.
b. Exclusions
Coverage does not apply to:
(1)
Dishonest, Fraudulent, Criminal, or Malicious Acts
This includes willfully violating statutes.
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Examples:
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(2)
Bodily Injury, Property Damage, or Personal and Advertising Injury
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Example: Harry's Haberdashery neglects to add Erma to the group health plan. Erma has a heart attack. It is determined that the stress of substantial unpaid medical bills caused the heart attack. The heart attack claim for Erma's bodily injury is excluded. |
(3)
Failure to Perform a Contract
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Example: Harry's Haberdashery signs an employment contract with Ernie that provides medical coverage for him and all his family members. It is effective the date he is hired. Harry does not usually provide this benefit and Ernie has a medical claim before it is fully resolved. Ernie's suit for “failure to perform or breach of contract” is excluded. |
(4)
Insufficiency of Funds
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Example: Harry's Haberdashery agrees to fund its employee dental coverage. When Harry learns that he can pay the bill and honor or not honor the dental care obligations, he begins to deny dental claims. This endorsement does not cover this situation. |
(5)
Inadequacy of Performance of Investment/Advice Given with Respect to
Participation
This exclusion has three exclusion sub-sections with respect to administering benefits plans. Coverage does not apply to claims based on:
(a) The investments that fund the retirement benefit do not perform as expected
(b) The information on the past performance of investments was not accurate
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Example: The administrator at Harry's Haberdashery states that the annual investment return in the past has been 10%. The actual return has been 1%. Claims based on this are denied. |
(c) Advice to participate or not participate
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Example: The plan administrator advises Harry's employees to avoid the employee savings plan. Some employees follow this advice and later discover that they have tax issues they would not have had if they had not taken the administrator's advice. The harm or damage that results from the advice given concerning participation is excluded. |
(6)
Workers Compensation and Similar Laws
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Example: Harry at Harry's Haberdashery decides not to purchase workers compensation insurance, even though doing so is mandatory. Employees injured on the job bring claims that are excluded because Harry failed to provide workers compensation. This endorsement does not cover these situations. |
(7)
ERISA
Damages for the employer’s liability imposed by any version of the Employee Retirement Income Security Act of 1974 are excluded.
Note: Employers subject to ERISA have certain fiduciary responsibilities best addressed through Fiduciary Liability and Employee Dishonesty Coverage Forms.
Related
Article:
Trustees and Fiduciaries Liability Insurance
Satisfying ERISA Bond Requirements with Employee Theft Coverage
(8) Available Benefits
Coverage does not apply to claims for benefits available from other funds or other insurance.
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Example: One of Harry's recently hired employees does not enroll in the dental program. This lapse is discovered when he needs an orthodontic procedure. Harry can obtain dental coverage using funds being deducted from the employee’s monthly paychecks but doing so involves a waiting period. This solves the problem quickly and easily and is the reason it is excluded. If there is no alternative available to provide the benefit, the employee benefit liability coverage form could be the solution. |
(9)
Taxes, Fines, or Penalties
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Example: Harry's Haberdashery does not deduct the county income tax because the administrator does not know about the requirement. Fines or additional taxes or claims by employees because of this oversight are excluded. |
(10)
Employment-Related Practices
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Example: An employee is harassed by her immediate supervisor and
makes a claim for her emotional injuries against Harry's Haberdashery. This
coverage does not respond. Employment Practices Liability coverage forms and
policies cover situations like these. |
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Related Article: Overview of the ISO Employment-Related Practices Liability Program
2. Supplementary Payments
This section in the Businessowners Coverage Form is renamed Supplementary Payments and Employee Benefits Liability. There are two changes:
a. The $250 cost of Bail Bonds f. (1) (b) is deleted.
b. The indemnitee defense provisions in f. (2) and f. (3) are deleted. This is because additional insured endorsements do not apply to employee benefits liability coverage.
3. Who is an Insured
This section is revised. All of the Businessowners Coverage Form C. 2.
Who is an Insured as it relates to employees and volunteers is deleted. The following
replaces it:
2. Each of the following is an insured:
(a) Every employee now or ever authorized to administer employee benefit plans
(b) If the named insured dies, and only until a proper legal representative is appointed, employees, organizations, or any person temporarily authorized to administer the plan
(c) With respect to administering the named insured’s employee benefit plan, the proper legal representative when the named insured dies
4. Limits of Insurance
D. Liability and Medical Expenses Limits of Insurance in the
Businessowners Coverage Form is deleted. The following replaces it:
a. Limits of Insurance
(1) This endorsement has its own limits of insurance that are not subject to the Liability and Medical Payments Aggregate on the Businessowners Coverage Form.
The limits on the endorsement schedule are the most paid, regardless of the number of claims made, suits brought, insureds, persons, or organizations that make claims or bring suits, benefits in the benefits program, or acts, errors, or omissions.
(2) The aggregate limit is the most paid for all damages because of acts or omissions negligently committed in administering the program.
(3) This endorsement has both an each employee limit and an aggregate limit. The each employee limit is the most paid for all damages any one employee sustains that result from one act or a series of acts committed in administering the program. This includes his or her dependents and beneficiaries. This provision also states that payment does not exceed the amount payable in benefits by any plan in the program.
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Example: Even if Harry's Haberdashery employee benefit liability limit is $100,000, if the life insurance policy benefit in the group plan is $25,000, the most a claim related to the life benefit pays is $25,000. |
The aggregate limit is an annual aggregate for each consecutive annual period. It begins with the effective date of each policy term. If coverage is added mid-term or if the policy term is extended for a period of less than 12 months, the limit is part of that period.
b. Deductible
(1) A deductible is required. Payments are for only amounts that exceed the deductible on the endorsement schedule. It applies for each employee and does not reduce the limit of insurance.
(2) It applies to all damages that any one employee sustains. It includes his or her dependents and beneficiaries.
(3) The terms of this insurance apply regardless of any deductible amounts applied. This includes those that involve the insurance company's right and duty to defend suits that seek damages and the named insured's (and any involved insured's) duties in case of a claim, act, error, or omission.
(4) The insurance company has the right to determine the claims it pays, their amounts, and the timing. If it pays quickly, it may pay the full amount of the claim and require that the named insured reimburse it for the deductible amount.
5. Conditions
Duties in the Event of Occurrence, Offense, Claim, or Suit in the
Businessowners Coverage Form is deleted. The following replaces it:
2. Duties in the Event of an Act, Error, or Omission, or Claim or Suit
a. The named insured must make sure it notifies the insurance company as soon as practicable of any omission, act, or error that could result in a claim. The notification should provide pertinent details involved with the action, including where and when the act occurred and the names and addresses of any and all alleged persons.
b. When a claim is made or a suit is brought, the named insured must immediately record the specifics and the date the claim was received. It must then notify the insurance company in writing as soon as practicable.
c. Both the named insured and any other insured involved must:
(1) Immediately send the insurance company all legal documents it received that relate to the claim or suit.
(2) Give the company authorization to obtain records and other information needed.
(3) Cooperate with the company as it investigates and settles the claim or defends the suit.
(4) When requested, assist the company enforce any rights it has against another person or organization that may be liable.
Note: In other words, the named insured must protect the insurance company's subrogation rights.
d. If any insured enters into any agreement with respect to a claim without the insurance company's written approval, that insured bears the costs of that agreement. The company is not obligated to respond.
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Example: Harry's Haberdashery negotiates an agreement with Velma to pay $20,000 to settle the claim. Harry thinks he is helping and conducts the negotiations without the company's consent. The company is not obligated to reimburse Harry for the $20,000 payment he made. |
Note: This section
is similar to the corresponding section in the Businessowners Coverage Form.
6. Extended Reporting Period
This coverage endorsement has an extended reporting period provision
because this is claims-made coverage.
a. If this endorsement is cancelled or not renewed, the named insured has the right to purchase an extended reporting period. This right extends to circumstances when a renewal is issued with a retroactive date later than the one on the expiring endorsement or when the renewal is not issued on a claims-made basis.
b. The extended reporting period does not extend the policy term or change the coverage. Claims must be reported for acts, errors, or omissions. Those acts, errors, or omissions must have been committed before the end of the policy period but not before the endorsement’s retroactive date. Once in effect, the extended reporting period cannot be cancelled.
c. The named insured has the right to purchase an extended reporting period of five years. However, it has only 60 days after the policy expires to exercise that right. The request must be in writing and the extended reporting period does not go into effect until the named insured pays the premium.
The insurance company determines the additional premium charge based on its rules and rates in force at the time. The insurance company can consider any and all of the following in making the charge:
(1) The number and types of programs insured
(2) The previous amounts and types of insurance coverage
(3) The limits this endorsement available under this endorsement for future claim payments
(4) Any other related factors the company determines
The additional premium charged cannot be more than 100% of the annual premium for the expiring employee benefit liability endorsement.
The extended reporting period establishes the coverage’s terms and conditions and should be consistent with the rest of the endorsement. When this additional coverage applies, the endorsement also states that it applies on an excess basis over any other valid and collectible coverage in force after the extended reporting period.
Note: BP 04 99–Extended Reporting Period for Employee Benefits Liability Coverage is used to extend the coverage.
d. If an extended reporting period is added, an aggregate limit applies for claims first received and recorded during the extended reporting period. The aggregate is equal to the aggregate limit on the endorsement schedule.
Note: If the named insured does not purchase an extended reporting period, the time limit to file a claim ends on the coverage expiration date. There is no provision for any automatic time period or grace period.
7. Additional Definitions
These definitions are added to the Businessowners Coverage Form F.
Liability and Medical Expenses Definitions.
a. Administration
This term has three parts. The first is that
information is provided to employees, dependents, and beneficiaries with
respect to eligibility for and the scope of the named insured’s employee
benefits programs. The next is how employee benefit program records are
handled. The last is commencing, continuing, or terminating an employee’s
participation in any benefit within the employee benefit program.
Note: This definition does not include handling payroll deductions. The situation where an employee is not properly enrolled in a benefit program because of the administrator's negligence is covered. However, if the payroll deduction is not made, that portion of the allegation is excluded. The named insured must understand the limitations of coverage in this area. A common situation is to not properly enroll an employee in a benefit program and to not make the appropriate payroll deductions. In those cases, this endorsement covers only part of the allegation.
b. Cafeteria Plans
These are plans that are authorized by applicable laws. They permit employees to make benefit choices and to pay for them with pre-tax dollars.
c. Claim
This is any demand or suit made by an employee or by his or her dependents or beneficiaries for damages that result from an act, error, or omission.
d. Employee benefit program
Any program that provides one or more of the following benefits under a cafeteria or other plan:
(1) Group life insurance, health, group accident, hearing, vision, dental plans, and flexible spending accounts. The employee is the only one who can subscribe to these benefits and they are usually based on his or her eligibility. While only employees can subscribe or enroll, that does not preclude dependents or beneficiaries from also being included in the plan as eligible dependents or beneficiaries.
(2) Profit sharing, employee savings, employee stock ownership, pension, and stock subscription plans. The employee is the only one who can subscribe to these plans and enrollment is based on his or her eligibility. While only employees can subscribe or enroll, that does not preclude dependents or beneficiaries from also being included in the plan as eligible dependents or beneficiaries.
(3) Unemployment insurance, social security benefits, workers compensation, and disability benefits
(4) Vacation time (including the ability to buy and sell such time) and leave of absence programs that include military, maternity, civil, and family leave. It also includes tuition assistance, transportation, and health club subsidies.
(5) Any other benefits on the endorsement schedule or added by endorsement
8. Revised Definitions
These definitions in the Businessowners Coverage Form F. Liability and
Medical Expenses Definitions are revised:
5. Employee
Any person who is actively employed. It also includes persons on a leave of absence, disabled, retired, or formerly employed. Leased workers are considered employees. Temporary workers are not.
18. Suit
A civil proceeding that alleges damages as a result of an act, error, or omission, or error that this insurance covers. This includes arbitration proceedings where damages are claimed and the insured must submit or does submit with the insurance company's consent. It also includes any other alternative dispute resolution as the arbitration provision stipulates.
B. SECTION III–COMMON POLICY CONDITIONS
The following replaces H. 2. Other Insurance in the Businessowners Coverage Form.
2. This coverage is excess, regardless of any other insurance, if the other coverage was effective before this endorsement’s coverage was effective and if that coverage applied on an occurrence basis and not on a claims-made basis.
However, in order for the other coverage to replace this coverage as a primary provider, this coverage must not have a retroactive date on the endorsement schedule or, if there is a retroactive date, the other insurance must continue beyond the retroactive date on the endorsement schedule.
Note: H.1 and H.3. of the Other Insurance Condition are unchanged.