Businesses are protected by employee benefits liability insurance (EBL) from mistakes and oversights made in the administration of employee benefit plans. A variety of plans are covered by EBL insurance, including employee stock plans, profit-sharing programs, workers’ compensation, and health, dental, and life insurance.
The handling of all employee complaints and claims should be done in a methodical, expert manner by purchasing an employee benefits liability insurance policy. It would also make sure that any unintentional mistakes made by your legal or HR teams don’t end up costing the business money.
Please continue reading if you’re interested in learning more about employee benefits liability.
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The Definition Of Employee Benefits Liability Insurance
Employee Benefits Liability (EBL)—also referred to as Employee Benefits Liability Coverage and Employee Liability Insurance shield the company that owns the liability policy from mistakes or omissions made in the administration of retirement plans or employee benefit plans. Most claims revolve around clerical errors such as:
- Where the employee is not added to their benefit plans
- The employee is added to the wrong benefits, OR
- The employee is accidentally deleted from coverage altogether
Additionally, it may include coverage for incorrect or misleading information provided to employees by employers regarding specific benefits. Employee benefits liability coverage also includes coverage for errors made in determining the amounts of employer and employee contributions.
An HR department benefits administrator typically commits such mistakes. The trustees, accountants, and your HR manager can all fall under this category.
Types Of Benefits Covered By Employment Benefits Liability Insurance
Despite having some similarities to fiduciary liability insurance, employment benefits liability insurance is not the same thing entirely.
Employers are specifically protected by the Employment Benefits Liability coverage from errors, omissions, miscommunications, or negligence in the administration of various benefit plans.
Unlike a straightforward EBL policy, fiduciary liability coverage is more extensive. It covers all administrative mistakes, omissions, and careless actions that take place when a fiduciary duty is broken.
Inaccurate advice, benefit denial, or a fiduciary’s conflict of interest are all possible causes of this kind of liability. Anyone charged with overseeing the administration of the employees’ benefits could be considered a fiduciary.
There are some additional companies that offer benefits like coaching or even therapy. To find an employee benefits liability coverage plan perfectly suited for all of your business needs, you would need to collaborate with your insurance provider.
What Is Excluded From Employee Benefits Liability Insurance?
Employee Benefits Liability Insurance does not duplicate the coverage provided by Commercial General Liability Insurance; rather, it fills in some of the gaps left by CGL policies. While many different types of errors committed by HR departments in the administration of benefits are covered, there are some scenarios and foolish actions that are not.
Common exclusions for Employee Benefits Liability Insurance include:
Liabilities covered by the commercial general liability policy
- Bodily injury
- Property damage
- Personal and advertising injury
Dishonest, Fraudulent, Criminal, Or Malicious Acts
- Example: To save money, you give your HR manager the order to terminate all of your employees’ life insurance plans covertly.
Insufficient Funds
- Example: Due to a lack of resources, your business is no longer able to afford the premiums for the majority of the insurance plans that your employees are enrolled in. When your employees lose their insurance, they are forced to cover costs that would have been covered by group health, dental, vision, life, and disability insurance on their own dime.
Poor Financial Advice Related To Employee Benefits
- Example: The value of the company’s stock will rise by at least 50% by the end of the year, your HR director tells the staff, encouraging them to take part in the employee stock option program. The stock price does, in fact, decrease by 10% at year’s end.
Erisa-related Liabilities
excludes the fiduciary liability imposed by the 1974 Employee Retirement Income Security Act. People in charge of employee benefit plans are required by ERISA to act in the beneficiaries of the plan’s beneficiaries’ best interests.
Employee Benefits Liability Insurance would not be applicable to breaches of fiduciary duty under ERISA. Instead, fiduciary liability insurance would be required.
Employment-related Practices
excludes business misconduct related to employment, such as wrongful termination, discrimination, harassment, and retaliation, for which an employee may file a lawsuit. Employment practices liability insurance provides coverage for these liabilities.
What Types Of Mistakes Does Employee Benefits Liability Insurance Cover?
An HR department’s ability to administer benefits can be compromised by a variety of mistakes, omissions, or careless actions. For Employee Benefits Liability Insurance, the types of mistakes covered depend on the meaning of “administration.” What types of tasks are included in benefits administration?
Employee Benefits Liability Insurance will typically cover administrative errors that involve failing to enroll or maintain employees in benefits programs, not providing accurate information about benefits and eligibility, and clerical mistakes that have a negative financial impact on employees, although the definition varies among insurers.
Examples:
- Because the benefits administrator misplaces the employee’s file, she unintentionally forgets to re-enroll the employee in the group dental plan offered by the company. The employee must cover the cost of the procedure out of pocket when he needs a root canal.
- The monthly benefit of a pension plan for an employee is overestimated by HR. An employee sues the employer for the error if he retires early with the expectation of receiving a higher pension than he actually does.
- An employee is not informed by the HR manager that her husband is also entitled to healthcare benefits through the company at the group rate. She files a lawsuit, claiming she was misinformed about her benefits, after her husband needs surgery and pays a $50,000 out-of-pocket medical bill.
Limits Of An Employee Benefits Liability Policy
These liability policies usually have two different types of limits:
- Each Employee Limit: The maximum an insurer will pay for each employee, as well as their spouses and families, is this sum.
- Aggregate Limit: For a specific business, this is the maximum sum the insurer will award under a policy.
NOTE: Each occurrence will require a deductible from the business.
Why Do You Need EBL Coverage?
Employee liability insurance is one of the less expensive types of coverage, especially if it is an endorsement. Nevertheless, it should be incorporated into your risk management plan. In the event of mistakes or omissions, it also serves as a way to guarantee that cherished employees won’t be abandoned. Here are some examples of why employee benefits liability insurance is necessary:
Example #1: When a new employee enrolls in the group medical plan, she selects her benefits; however, after she has finished, the paperwork vanishes. The paperwork is lost, but the administration doesn’t realize it until the new employee becomes seriously ill.
Her health plan is inactive, which she discovers after being admitted to the hospital. You are obligated to sign her up for a benefit plan with the health insurance provider and to cover her medical expenses due to mistakes or omissions you made as her employer.
Example #2: One of your employees sustains an occupational injury and is out of commission for two months. Their medical bills and lost wages ought to be partially covered by workers’ compensation insurance.
But the worker feels they weren’t given the full amount of money permitted by this employee benefits scheme. In the event that an employee files a claim for the money they are owed, employee benefits liability insurance may kick in to cover the costs.
Conclusions
The handling of all employee complaints and claims should be done in a methodical, expert manner by purchasing an employee benefits liability insurance policy. Additionally, it would guarantee that the company won’t incur any costs as a result of any unintentional mistakes made by your HR or legal teams.
This is crucial for small businesses that want to offer employee benefits but do not have a staff member who is dedicated full-time to benefits administration. Errors and omissions are straightforward to commit in this situation and fairly typical. It’s also crucial to remember that effective risk management shouldn’t be replaced by employee benefits liability insurance.
