(June 2018)
This endorsement is used with only the American Association of Insurance Services (AAIS) Businessowners Policy. It covers damages to an employee caused by the named insured’s act, error, or omission in administering its employee benefits program. Coverage is provided on a claims-made basis. It automatically includes a Basic Extended Reporting Period if coverage is terminated. A Supplemental Extended Reporting Period of unlimited duration is available by endorsement.
Changes are made to the following sections in the Businessowners Policy and apply to only the coverage this endorsement provides:
The following section is added for only this endorsement:
The endorsement schedule has spaces for the following entries:
Three definitions in the Businessowners Policies are deleted and replaced.
The following definitions delete and replace the same definitions in the Businessowners Policy:
1. Insured
This definition is significantly shorter and much less inclusive. Insured means:
a. The named insured and any partner, executive officer, director, stockholder, manager, member, or employee who is or was authorized to administer the named insured's employee benefit program
b. If an
individual named insured dies during the policy period, the named insured's
legal representative is an insured while acting within the scope of those
duties. A person, organization, or employee who is temporarily authorized to
administer the named insured's Employee Benefit Program is also an insured but
only until a proper legal representative is appointed. Once appointed, the
named insured's legal representative has all the named insured's rights and
duties under this coverage.
2. Employee
These are the named insureds:
Leased workers are employees. Temporary workers are not.
3. Suit
This is not limited to only civil or administrative proceedings where damages are alleged for covered negligent acts, errors, or omissions. Alternative dispute resolution proceedings and arbitration proceedings are also considered suit but only if the insured is required to submit to the proceedings or participates with the insurance company’s consent.
Four definitions are added:
a. Employee Benefit
Program
The following types of plans that the named insured maintains for the benefit of its employees:
Note: The endorsement schedule does not have spaces to enter the name of the plan or plans.
b. Administration
The performance of certain acts that the named insured authorize as a part of the employee benefit program. The following are the specific acts:
c. Claim
A demand for services or money. Bringing suits or initiating alternative dispute resolution proceedings against an insured is also considered a claim.
d. Notice of Claim
A claim for damages made against an insured that either the insurance company or the insured receives. It is considered made at the time that either one receives it. It is not the same notice the named insured must give the insurance company under What Must Be Done In Case Of Loss elsewhere in this endorsement.
This endorsement adds Coverage E–Employee Benefits Liability. It does not provide any other coverage.
a. The insurance company pays all amounts an insured is legally obligated to pay as damages due to an employee's injury caused by an act, error, or omission the insured negligently committed in administering an Employee Benefits Program.
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Example: Zach joins Louie's Longer Ladders in January. Helen in human resources inadvertently forgets to enroll Zach in the employee profit sharing plan. Zach feels cheated when the other employees receive their profit-sharing checks at the annual Christmas Party, so he sues Louie's. This coverage responds to Zach's suit and pays the damages demanded. |
The insurance company has both the right and duty to defend the insured in a suit that seeks damages that this endorsement may cover. The duty does not exist if this endorsement does not cover the injury. The insurance company has the right to investigate acts, errors, or omissions and settle claims and suits as it sees fit.
b. The How Much We Pay section describes the amount of damages the insurance company pays.
c. The insurance company is no longer required to defend after it pays amounts that are equal to the limit because of a judgment or a written settlement to which it agreed.
d. This coverage applies only if all the following conditions are met:
e. Coverage applies only if a current, employee, a former employee or a beneficiary or legal representative of such an employee makes a claim for the first time during the policy period.
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Example: Continuing the example above, Zach waited to sue Louie until after he filed his income taxes in April 2017. The policy term for Louie's Longer Ladders ran from January 1, 2016 to January 1, 2017. Because the suit was not filed until after the coverage period expired, the insurance company was not obligated to respond to it. |
Note: None of the exclusions in the Businessowners Policy apply. The following are the only exclusions that apply to the coverage this endorsement provides.
The insurance company does not pay for the following:
a. Damages because of dishonest, fraudulent, criminal, or malicious acts, errors, or omission that either the insured commits or that others commit with the insured’s knowledge and consent
b. Damages when ordinances, statutes, or regulations are willfully violated.
c. Bodily injury, property damage, or personal and advertising injury
Note: The Businessowners Policy provides this coverage.
d. Damages because any insurance company failed to perform a contract. This exclusion applies even if the failure is for a plan that is in the employee benefit program.
e. Claims because the insured failed to comply with workers compensation, unemployment insurance, social security, disability benefits, or similar laws
f. Claims based on any of the following:
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Example: Mavis is the Human Resources clerk for Melvin Enterprises. She never understood why anyone would want to purchase COBRA coverage because she thought it was overpriced. Whenever she counseled employees, she strongly encouraged them to not purchase COBRA because she was certain they would soon be employed elsewhere and obtain coverage without the extra expense. Jillian took her advice but was in an uninsured car accident the very next day. Because she did not have health insurance, she filed a claim against Melvin Enterprises and Mavis for her faulty advice. This endorsement does not cover Melvin or Mavis. |
g. Damages because a fiduciary violates its obligations, duties, regulations, or responsibilities with respect to the Employee Retirement Income Security Act (ERISA) of 1974
h. Damages due to a plan terminating or not having sufficient funds to meet obligations of any plan in the Employee Benefit Program
i. Claims for benefits if they are available from funds or other collectible insurance to the extent that they are available with the insured's reasonable effort and cooperation
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Example: Maximillian, Inc.’s policy is to enroll every employee in its life and disability insurance employee benefits program. Polly is a new clerk in the Human Resources Department. She makes an error and does not include Millie on the automatic enrollment form. Millie is injured and would have been covered under the disability plant except for the mistake Millie made. Maximillian can prove that it intended to cover Millie and that only a clerical error caused her to be left out of the plan. Before the insurance company will pay for this claim, Maximillian is expected to take the steps necessary to retroactively enroll Millie in the disability plan. |
j. Damages due to refusing to employ, terminating employment, or any employment-related practice, policy, act, or omission
Related Article: BP 0623–Employment Practices Liability–Claims-Made Basis
k. Taxes, fines, or penalties
What Must Be Done In Case Of Loss in the Businessowners Policy is deleted with respect to the coverage this endorsement provides. The following replaces it.
a. An insured must give prompt notice to the insurance company, or its agent, of any event or incident it becomes aware of that might become a claim under this endorsement's coverage.
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Example: Ellie at Macky Lee, Inc. was a little
confused and advised all terminated employees that they should not apply for
COBRA because their health insurance would continue for 18 months at no
charge to them. When one of the employees called her former boss to thank him
for this wonderful benefit, he contacted Paul, the vice president of human
resources to verify. Paul talked with Ellie, notified the insurance company,
and informed it that there could be seven potential claims based on Ellie’s
incorrect information. Paul then developed a plan to fill the health coverage
gap before he began notifying the employees of Ellie’s error and of their
need to purchase COBRA. |
b. The notice must include the insured’s name, the policy number, and describe the act, error, or omission. It must also state when and where the act, error, or omission took place and include the names and addresses of everyone who might file a claim.
a. Once a claim is made or a suit is brought, the named insured and any other insured involved in the claim or suit has certain duties. They must do all the following:
b. The insured is required to record the specific details of any claim it receives and notify the insurance company as soon as practical. The date is particularly important. The named insured must make sure that the company receives written notice of the claim as soon as practical.
The following deletes and replaces How Much We Pay in the Businessowners Policy.
The limits on the endorsement schedule are the most the insurance company pays for damages. This is regardless of the number of acts, errors, or omissions, benefit plans, claims made (or suits brought), insureds, or persons or organizations that make claims or bring suits.
The Aggregate Limit on
the endorsement schedule is the most the insurance company pays for the total
of all damages due to claims that this endorsement covers.
The Each Claim Limit on the endorsement schedule is subject to the Aggregate Limit. It is the most paid for the total of all damages due to a single claim that this endorsement covers.
The Aggregate Limit applies separately to each consecutive 12-month period. It starts with this coverage's inception date. If the policy period is extended for periods of less than 12 months, the aggregate limit that applied to the preceding 12 months also applies to the extension period.
The deductible amount on the endorsement schedule is deducted from the amount of each claim. The insurance company is liable for only damages that exceed the deductible amount. The deductible amount does not reduce the limits of insurance.
Note: This deductible applies per claim. This means if multiple claims result from a single error or action, a separate deductible applies to each claim.
This additional condition applies only with respect to the coverage this endorsement provides.
The insurance company may pay all or part of the deductible amount to settle a claim or suit. If it does, the named insured must promptly reimburse the company for the part of the deductible it paid when the company notifies the named insured of its action.
These provisions are added because this endorsement provides coverage on a claims-made basis.
a. The insurance company provides a Basic Extended Reporting Period and a Supplemental Extended Reporting Period. They apply if:
b. Extended Reporting Periods do not amend the coverage provided or extend the policy period. They apply to only claims that take place after any Retroactive Date on the endorsement schedule and before the policy period ends. Claims made within 12 months after the policy period ends are considered made on the last day of the policy period. However, coverage applies only if the covered claim for damages took place after the Retroactive Date and before the end of the policy period.
The decision to purchase this extended reporting period cannot be revoked. Once the extended Reporting Period goes into effect, neither party can cancel it.
c. Extended Reporting Periods do not increase or reinstate the limits that apply to any claim that this endorsement covers. The only exception to this is as 3. Provisions Applicable to Supplemental Extended Reporting Period below describes.
This endorsement automatically includes a Basic Extended Reporting Period without an additional premium charge.
a. The automatic period lasts 12 months for claims due to events that are reported to the insurance company not more than 60 days after the policy period ends. This complies with the Notice provision under What Must Be Done In Case Of Loss.
b. This automatic reporting period lasts only 60 days after the policy period ends for events that are not reported to the insurance company as described in a. above.
The Supplemental Extended Reporting Period's duration is unlimited. It must be endorsed, and an additional premium charged and paid. It is subject to a separate aggregate limit of insurance that applies to only the limited to claims that fall within its provisions. The premium charge is for up to 200% of the most recent annual premium charged for this coverage. The named insured must request this coverage in writing within 60 days after the policy period ends.
Note: BP 0729–Coverage E–Employee Benefits Liability Coverage–Supplemental Extended Reporting Period must be attached.