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Fiduciary Insurance: Bankrupt Kodak’s Hit with Lawsuit


In January, an Eastman/Kodak employee filed a lawsuit against Kodak’s board members and other fiduciaries claiming that they breached their duties in handling the company’s retirement plan as it was heading towards bankruptcy. As reported in Reuters in January, the suit alleges that board members and directors of both the Kodak Employee Savings and Investment Plan and the Kodak Employee Stock Ownership Plan continued to sell shares to its workers (including the employee who is suing) and invest in these plans ahead of the bankruptcy.

The suit seeks class-action status, and specifically states: Their fiduciary duties notwithstanding, defendants failed to protect the plans’ participants’ retirement savings from being imprudently invested in company stock, and as a result, the plans, and ultimately their participants, suffered losses. A prudent fiduciary facing similar circumstances would not have stood idly by as the plans lost tens of millions of dollars.”

Furthermore, the complaint stipulates that the board members and other defenders were in breach of their fiduciary duties under the Employee Retirement Income Security Act (ERISA) because they continued to purchase Kodak stock even as the company’s share price, and revenues, plummeted. (Kodak’s stock has lost 99% of its value since 1999, according to the complaint.)

Kodak’s troubles illustrate how Fiduciary insurance is key in an organization’s risk management strategy. Whether the suit has merit (Kodak claims it doesn’t) or not, it will need to be vigorously defended. And if class-action status is granted, the costs to defend such a suit will only escalate. To recap, Fiduciary insurance protect fiduciaries of a pension and benefit plan covered by ERISA from claims that they breached their fiduciary obligations to the plan. For example, coverage would apply if a person in a fiduciary role allegedly provided bad advice to the plan, or made managerial or administrative mistakes, or failed to make prudent investment choices, or failed to calculate the plan benefits correctly.

Axis Insurance provides Fiduciary Insurance in addition to Directors & Officers Liability coverage to protect against alleged internal management and other exposures. Our number is: (877) 787-5258.

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Blogged on: March 13, 2012 by Mike Smith
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