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Purchasing Fiduciary Liability Insurance in Today’s Market


Purchasing Fiduciary Liability Insurance in Today’s MarketA Fiduciary Liability insurance policy is designed to protect the personal assets of company fiduciaries (trustees, benefits administrators) in addition to the financial assets of the company and employee benefit plans against lawsuits alleging plan mismanagement, and improper investing, insufficient funding, among others. But today’s policies go well beyond breaches of fiduciary duty and administrative errors and omissions; they have been crafted to address the complex and ever-evolving modern risks related to one’s fiduciary responsibility.

Policies are available, for example, to cover voluntary compliance programs, settlor and other non-fiduciary claims, and regulatory penalties not previously covered by insurance. Other policies have expanded to cover liability from recent privacy and health care legislation as well as evolving cyber risks that all employee benefit plans now face.

As a result of the broadened policy options available today, it’s important that benefit funds evaluate their coverage to ensure they have a plan that reflects the risks they face. Speaking to a professional insurance advisor that specializes in Fiduciary Liability insurance is vital in this process.

Let’s take a look at HIPAA/HITECH as an example. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) privacy and security rules were broadened in 2008 by the enactment of the Health Information Technology for Economic and Clinical Health Act (HITECH). Moreover, in January 2013, the Office for Civil Rights (OCR) of the Department Health and Human Services (HHS) issued a final rule under HITECH enhancing a patient’s privacy protections, providing individuals new rights to their health information, and strengthening the government’s ability to enforce the law. One of the significant changes in this final rule was the expanded scope of HHS enforcement authority.

The HHS expanded liability by: subjecting the HITECH Act and implementing regulation violations to a civil monetary penalty (CMP); subjecting business associates and all contractors and subcontractors to direct liability for certain HIPAA violations; and increasing the monetary penalties for noncompliance based on the level of negligence with a maximum penalty of $1.5 million per violation. HHS detailed in the final rule that it will establish penalties based on the degree of culpability for each violation of a given provision. The exact fine will depend on the nature and extent of the violation, including how many people were affected and the time period during which the violation occurred, the nature and extent of the resulting harm, the history of prior compliance with the provision, the financial condition of the covered entity or business associate, and “such other matters as justice may require.”

Insurance companies providing Fiduciary Liability coverage responded to this new risk by making penalty endorsements available to the policy, which are intended to reimburse employee benefit plans faced with HIPAA penalties. The key issue is whether the limit of the HIPAA coverage in a plan’s policy is sufficient to address the HHS’s penalty authority. HIPAA sub-limits range from $25,000 to the statutory maximum of $1.5 million.

At Axis Insurance Services, we specialize in Fiduciary Liability insurance and can review this and other issues that have impact what is available in today’s market. Give us a call at (877) 787-5258 to discuss your insurance program and how we can improve it.

 

Source: Benefits Magazine, HHS

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Blogged on: December 21, 2015 by Mike Smith
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