Like many employers, your firm may offer employee benefits like health insurance or vision care. Such benefits can help your company compete for qualified workers. Unfortunately, they can also lead to lawsuits against your firm or your benefits employees if they are not administered properly.

Not Covered by Standard Liability Policies

Small clerical errors can have major consequences. For example, suppose your company hires a new employee, and he completes the paperwork to enroll in the company-sponsored health plan. Due to a clerical error by a human resources employee, the employee is not enrolled. Several months later, this employee is hospitalized with a serious illness and discovers that he has no health insurance. When his medical bills begin to pile up, he seeks restitution by suing the HR worker and your firm.

Claims like this are not covered under commercial general liability policies because an administrative error is not an “occurrence” as that term is usually defined. Moreover, such errors typically result in financial losses rather than bodily injury or property damage.

To insure itself against claims resulting from administrative errors, your firm can purchase employee benefits liability (EBL) coverage. EBL coverage is often provided via an endorsement attached to a general liability policy.

Usually Claims-made

EBL endorsements typically cover damages the insured becomes legally obligated to pay because of an act, error, or omission committed to administering employee benefits. EBL coverage usually applies on a claims-made basis, but some insurers do offer occurrence coverage.

Like many claims-made coverages, your EBL insurance may include a retroactive date. This is usually the date your EBL coverage first began. Any act error or omission must occur on or after the specified retroactive date to be covered under your EBL endorsement.

Covered Acts

The definition of the word administration often determines the types of errors covered by a specific EBL endorsement.

This term generally applies to acts, errors, or omissions in:

  • Describing the benefit plans and eligibility rules to employees, other eligible family members, and beneficiaries. Example: A benefits manager mistakenly tells an employee that her live-in boyfriend is eligible for the company-sponsored health insurance plan.
  • Maintaining files and records related to employee benefits, whether the records are electronic or paper. Example: A benefits worker accidentally erases an employee’s electronic file or loses his or her paper file.
  • Enrolling, maintaining, and terminating employees, eligible family members, or beneficiaries in benefit plans. Example: A benefits worker fails to add an employee’s beneficiary to a life insurance plan provided by the employer.

Covered Benefits

What constitutes “employee benefits”? This term generally includes the following:

  • Insurance Life, accident, dental and medical and other types of insurance
  • Plans Pension, profit sharing, stock ownership, and savings, and other plans
  • Benefits Social security, workers compensation, disability, and unemployment benefits
  • Other Tuition assistance, maternity leave, etc.

Limits

Employee Benefits Liability coverage usually includes two separate limits. The Each Employee limit is the most the insurer will pay for any employee, family members, and beneficiaries. The Aggregate limit is the most the insurer will pay for all acts, errors, or omissions. Note that an EBL endorsement may include a deductible. The deductible amount is the employer’s maximum out-of-pocket expense for each employee who files a claim.

Exclusions

EBL coverage typically excludes claims resulting from poor financial advice or predictions of performance. Suppose a benefits worker tells an employee that the company’s 401K plan will generate a 400% return in one year. If the employee subsequently sues the benefits worker because his prediction did not pan out, the claim will not be covered. Other exclusions include Fraud, Breach of Contract, Bodily Injury and Property Damage, Employment-related Practices, and Insufficient Funds (to pay benefits.). This is not a complete list of exclusions. Employment-related practices include acts like discrimination, sexual harassment, and wrongful termination.