BP 04 98–EMPLOYEE BENEFITS LIABILITY COVERAGE
(September 2022)
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 (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 parental 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 could only be a possibility with the attachment of this
endorsement.
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 which, except for changes that are editorial,
is the same as the predecessor (01 10) edition.
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 particularly important as its use places a limitation in the form of
the earliest date within which a claim may be made. Many insurance companies
insist that the retroactive date be the same as the policy 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, which
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
|
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
|
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
|
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
|
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
|
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
|
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.
|
|
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
|
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
|
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. |
|
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.
|
|
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, which insured bears the costs of that
agreement. The company is not obligated to respond.
|
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.