Understanding Employee Benefits Liability Insurance

Employee benefits liability (EBL) is insurance that covers liability from errors and omissions that occur in connection with the administration of employee benefit plans.  These errors and omissions may include failing to enroll, maintain, or terminate employees in a plan, and failing to correctly describe benefit plans and eligibility rules to employees.

EBL insurance covers a wide range of plans, including health, dental and life insurance, profit-sharing plans, workers’ compensation, and employee stock plans. EBL insurance is typically sold as a standalone policy.

EBL Insurance Scenarios

One example of how EBL insurance could protect your company from financial losses is when an HR manager accidentally fails to enroll a new employee in the company-sponsored health plan. The employee later gets into a car accident and is shocked to find out at the hospital that he or she does not have health insurance. EBL insurance could limit your exposure because the failure to enroll was the result of an error or omission in the administration of the health plan.

In addition, EBL insurance could protect employers from some ACA-related claims. For instance, consider the situation where independent contractors file a lawsuit claiming that they were wrongfully classified as independent contractors. They argue that they are actually full-time employees, and, therefore, eligible for health insurance under the Affordable Care Act (ACA). An EBL insurance policy could shield your business in such a case, assuming the misclassification was not done intentionally.

Employee Benefits Liability vs. Fiduciary Liability

Many people confuse EBL insurance with fiduciary liability insurance. While there are some similarities between the two types of insurance, EBL insurance is designed to protect businesses from errors and omissions in a wide range of plans. Fiduciary liability insurance, on the other hand, covers only those plans subject to Employee Retirement Income Security Act (ERISA).

In some ways, fiduciary liability insurance is broader than an EBL insurance policy because it covers not only administrative errors and omissions, but also liability for a breach of fiduciary duty from negligent acts in the administration of employee benefit plans. In other ways, EBL insurance is broader because it covers plans that are not subject to ERISA.  In fact, many EBL insurers exclude any claims resulting from ERISA violations.

EBL insurance can help protect your business from mistakes made during benefits administration. However, this type of insurance should not be used as a substitute for good risk management.  For more information on whether EBL insurance is right for your business, contact RMC Group today at 239-298-8210.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2016, 2018 Zywave, Inc. All rights reserved.