Monday, July 27, 2009

Madoff's Legacy: The Importance of Fiduciary Liability Insurance

I received the following information from Professional Risk Solutions, my main resource for specialized Professional Liability coverages. PRS's President, Kathleen Zortman, tells how Directors & Officers (D&O) or Errors & Omissions (E&O) policies may not protect you against liability claims from pensions, retirement plans, 401(k) plans, etc.

Individuals and companies who sponsor these types of plans have a Fiduciary Liability under the Employee Retirement Income Security Act (ERISA). If they mishandle or mismanage those funds, then they may be held liable by regulatory agencies and/or the funds' participants.

Fiduciary Liability insurance is a very affordable way to protect yourself against these risks.

Your client who run pensions, 401(k), benefits: A Madoff Lesson

Top line:
If you have clients who sponsor pensions, retirement plans, profit-sharing, 401(k) plans, group life and medical expense plans, it's critical to protect them with Fiduciary Liability coverage.

They could be personally at risk for lawsuits stemming from their managing or administering the assets of others. As a fiduciary, you can not wholly transfer your liability to another party, such as an investment manager or third party administrator. And D&O/E&O will not help.

Fiduciary Liability coverage is generally designed to protect individuals or firms that are responsible for managing the assets of others. This encompasses those who administer retirement plans, pension funds, 401(k), other employee benefits and trusts. The need for Fiduciary coverage is likely to increase as pensioners lose more and more value in the depressed financial markets -- and look for someone to blame.

The background:
A development in the ongoing Madoff mess points out the huge difference between D&O/E&O and Fiduciary Liability

A firm called Austin Capital Management is being sued by the members of a Philadelphia-based hospital pension fund for losing some of the fund’s assets in an ill-fated Madoff feeder fund.

Unlike other suits filed in the Madoff situation, this is an ERISA action, which is specifically excluded from D&O/E&O policies. In this case, a Fiduciary Liability policy could possibly help with defense costs, and any judgment. Without Fiduciary coverage, the principals could be personally liable for any settlement or judgment, as well as the defense costs.

Learn more about Fiduciary Liability coverage on the PRS website. Or if you have questions about when and where the coverage might apply for your clients, or how to structure a plan, just ask us.

Kathleen O. Zortman

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