According to the American Bar Association, there are more than 92,000 trade and professional associations in the United States. These institutions are made up of many businesses from a certain industry to create networking opportunities and increase political influence. Similar to a business, a trade association is vulnerable to certain risks pertaining to alleged breaches in fiduciary duties. Fiduciary liability insurance is sometimes referred to as management liability insurance and is designed to protect trade associations from these types of claims. Trade associations can enjoy many advantages when they acquire a fiduciary liability insurance policy.
What Is Fiduciary Liability Insurance?
Fiduciary liability insurance helps protect against fiduciary-related claims. If a trade association sponsors an insurance plan for its members, and a person is involved in any way, that person is likely considered a fiduciary. ERISA law states that fiduciaries may be held personally liable for a breach of fiduciary duties.
Fiduciaries have many responsibilities, including selecting advisors and investments, accurately following plan documents and minimizing expenses. Fiduciaries also have a duty to act in the best interest of plan participants and beneficiaries. Failure to meet these standards may make a person liable for any breaches of duty. If a person is found guilty of breach of fiduciary duties, their assets could be at risk and they may face hefty penalties.
A fiduciary liability insurance policy is considered a specialized type of insurance that can protect against claims of mismanaged assets or plans. A policy may help cover any losses that occur when fiduciaries mishandle plan records, make bad investment choices or negligently hire plan service providers. It may also cover legal defense costs.
Benefits Of Fiduciary Liability Insurance
There are many reasons why a trade association may choose to acquire a fiduciary liability insurance policy. One of the biggest reasons for maintaining a policy is to avoid the substantial costs associated with legal claims. Even if a claim is found to be invalid by the court, the defendant is still responsible for any legal defense costs. If the claim is deemed valid, any settlements could be significantly high.
Trade associations are not required by law to acquire fiduciary liability insurance. However, the liability exposure that stems from fiduciary responsibilities can be substantial, making this insurance policy a must-have. Fiduciary liability insurance policies cover a variety of areas, including:
Failure to monitor investments, delayed balance transfers, failure to follow plan documents as requested, lack of plan diversification and similar problems can lead to personal liability lawsuits. A fiduciary liability insurance policy can provide coverage for these types of risks.
Certain administrative errors, such as enrolling or terminating an employee within an ERISA-governed plan, can result in a claim. Fiduciary liability insurance policies can help protect against the financial repercussions of these types of administrative errors.
When a claim is made against a trade association, charges will likely begin to build as the lawsuit progresses. The cost of legal defense can be substantial depending on the unique circumstances of the case. Fiduciary liability insurance can help cover legal defense expenses and any claims for covered risks up to the limits on the policy.
Other commercial business policies, such as most directors and officers (D&O) liability policies, do not cover certain risks, such as those associated with the imprudent investment of funds. A fiduciary liability insurance policy covers many of the areas that other insurance policies miss.
Who Needs Fiduciary Liability Insurance?
Many people can benefit from acquiring a fiduciary liability insurance policy, including people who are considered fiduciaries, people who have personal assets at risk, and people who are subject to fines, lawsuits and penalties.
Anyone that is an owner or officer that makes important decisions on behalf of a company’s benefit plan could be held liable for client losses to the plan due to an alleged error, omission or breach of fiduciary duties. Fiduciary liability insurance is not a requirement by ERISA but is strongly recommended for anyone that is a fiduciary as personal assets are at stake.
Reach Out To A Professional Commercial Insurance Broker Today
In the world of finances, fiduciaries work solely for their clients’ benefit and should never seek personal gain or attempt to sway their clients into purchasing particular products in exchange for payment from businesses.
Charging excessive fees, making poor investment decisions, having a conflict of interest and similar issues can result in a costly lawsuit that puts the association at risk for reputational and financial damage.
Fiduciary liability insurance can help protect against substantial losses due to mismanagement or errors of plans. To learn more about the benefits of fiduciary liability insurance for trade associations or to speak with an experienced insurance professional about acquiring an insurance policy, speak with the insurance brokers at CI Solutions by calling 703.988.3665 or by applying for a trade association insurance policy online. .