What is employee benefits liability insurance?

Many companies offer health and vision care to employees as part of their benefits package. Those benefits have a limited window for employees to get on the group benefits plan, and that’s usually a once-a-year situation. In times when employers fail to fulfill their part in enrolling the employee in the company-sponsored group health plan, employees may be able to take legal action against an employer for the omission in some cases. Employee benefits insurance covers the employer from being financially hurt by their mistake.

What does employee benefits insurance cover?

EBL protects companies against acts and errors and omissions (E&O) in insurance administration, which includes the following activities:

• Benefit plan descriptions. Benefits managers discuss the rules of the plans and who are beneficiaries of the plan. If the benefits manager mistakenly tells an employee that their insurance covers someone who is ineligible, EBL may cover that error.
• File maintenance. If a benefits worker accidentally loses or misplaces an employee’s file, it’s typically considered a covered act.
• Enrollment, maintenance and termination. E&O also covers issues such as when an employee completes the necessary paperwork and a clerical error leads to the company failing to enroll them. It also covers similar issues, such as when the employer updates employee information or when an employee is terminated without being removed from the company’s plans within the necessary timeframe.

Benefits that are typically covered include:

• Life, dental and other insurance plans
• Financial savings plans, such as pensions and stock ownership options
• Unemployment benefits, such as Social Security and disability
• Tuition assistance, maternity leave and other benefits

What EBL insurance doesn’t cover

Employee benefits insurance is a claims-made policy, which means that the claims must be made during the policy period. Claims made outside of the policy period may not be covered. Many EBL policies include an extended reporting period (ERP) which is a set time claims can be filed after the policy expires. It acts as a buffer for businesses that are switching providers or are adjusting the services they provide.

Limits

Benefits liability policies include a deductible the business must pay, and after that, policies are bound by one of two limitations:

• By aggregate. This is the maximum amount the insurer will pay out for damages.
• By employee. The insurer will pay out a maximum amount for damages sustained by the employee, eligible family and beneficiaries.

In some cases, the insurer may impose a claim limit instead of an employee limit. This means that claims are only covered for up to a specific amount for each employee during the policy period.

Exclusions

EBL insurance can contain numerous exclusions. However, typically these policies don’t cover:

• ERISA-related breaches. ERISA (Employee Retirement Income Security Act) states that employers are legally obligated to operate plans in the best interests of the plan beneficiaries. Failure to comply with this results in a breach that is not covered by EBL. In this case, the employer would need to deal with their fiduciary liability insurance which covers mismanagement claims.
• Poor financial advice. If the benefits manager provides poor financial advice to the employee and the employee uses that advice, only to have it backfire.
• Insufficient funds. The business is short of funds and can no longer pay the premiums for the group insurance which causes employees to pay out-of-pocket for all of their expenses.
• Criminal and malicious acts. This means that the employers knowingly executed an action that was dishonest, fraudulent or criminal.
• Employment-related issues. In cases where there is discrimination, harassment or any other wrongful act, benefits liability insurance is often not applicable. Employment practices liability insurance is a separate policy that protects businesses against an employee’s wrongful treatment lawsuit.

EBL insurance is an important small business insurance consideration. But not all companies have a dedicated benefits administrator to handle things. In those cases, it can be easier to make the kinds of errors that benefit liability insurance covers. Have a conversation with your insurer to better understand your options.