Human error is unavoidable, and it can cause a significant financial loss when employee benefits are concerned. That’s why employee benefits liability (EBL) exists. This type of insurance policy protects businesses from errors and omissions during the administration of employee benefits plans. These mistakes could include failure to accurately explain benefits and eligibility requirements to workers and failure to enroll or terminate employees in a plan.
This coverage can apply to several types of plans, including dental, health, life, and workers’ compensation insurance along with profit-sharing and employee stock plans. You can also often purchase EBL insurance as standalone coverage.
Employee Benefits Liability Scenarios
Suppose an HR manager forgets to sign a new employee up for company-sponsored health insurance. That mistake will have consequences when the same worker later crashes their car and discovers at the hospital that they don’t have health coverage. That’s when EBL insurance kicks in. Your plan will limit any liability resulting from your HR manager’s failure to correctly administer the health plan.
EBL coverage can also offer protection from some ACA-related claims. For example, say independent contractors at your company sue you, claiming that they have been misidentified as independent contractors. Instead, they say that they should be labeled full-time employees and, thus, made eligible for health insurance according to the Affordable Care Act (ACA). An EBL policy could provide your business with a shield as long as the misclassification wasn’t intentional.
Employee Benefits Liability vs. Fiduciary Liability
People tend to confuse EBL coverage with fiduciary liability insurance. The two do have some similarities, but they aren’t interchangeable. EBL insurance protects businesses from errors and omissions in a wide variety of plans.
Fiduciary liability insurance, however, offers protection from Employee Retirement Income Security Act (ERISA) exposures in designated plans that may arise from wrongful acts. This stands in stark contrast to EBL policies, which could specifically omit claims associated with ERISA violations.
In other words, fiduciary liability insurance provides broader coverage. It protects businesses against administrative errors and omissions and covers liability for administrative negligence regarding employee benefit plans.
Employee benefits liability insurance and fiduciary liability policies are great ideas for most businesses. Still, they should never be considered substitutes for proper risk management. For more information on whether EBL insurance is right for your business, contact Morgan, Trevathan & Gunn Insurance, Inc. today.