Understanding Employee Benefits Liability

What is Employee Benefits Liability?

Employee benefits liability is a type of insurance that protects employers from lawsuits related to their employee benefits programs. This coverage is typically included in a general liability insurance policy or can be purchased as a standalone policy. Employee benefits liability insurance covers claims related to errors or omissions in the administration of employee benefits programs, such as:

• Failing to enroll an employee in a benefits program they are eligible for
• Misrepresenting or misleading employees about their benefits coverage
• Failing to provide accurate information about benefits to employees
• Failing to provide benefits in a timely manner
• Failing to provide benefits that were promised in an employment contract

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 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, aims to protect businesses from Employee Retirement Income Security Act (ERISA) exposures for specifically designated plans that result from a wrongful act.

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 addition, many EBL insurers specifically exclude any claims resulting from ERISA violations.

Common Causes of Employee Benefits Liability Claims

There are several common causes of employee benefits liability claims, including:

1. Errors in enrollment or termination of benefits
2. Failure to provide accurate information about benefit options
3. Delay in providing benefits to eligible employees
4. Inadequate communication with employees about their benefits
5. Mishandling of employee contributions or premiums

How to Mitigate the Risks and Responsibilities of Employee Benefits Liability

While employee benefits liability insurance is an important tool for protecting employers, there are steps that employers can take to mitigate the risks and responsibilities associated with this coverage. Here are some best practices for managing employee benefits liability:

1. Review Employee Benefits Programs Regularly

Employers should review their employee benefits programs regularly to ensure that they are up-to-date and comply with applicable laws and regulations. Employers should also review their employee benefits communications to ensure that they are clear, accurate, and complete.

2. Train Human Resources Staff

Human resources staff should be trained on the company’s employee benefits programs and the laws and regulations that govern them. This will help ensure that employees are enrolled in the correct benefits programs and that benefits are administered correctly.

3. Communicate Benefits Information Clearly

Employers should communicate benefits information clearly to employees, including eligibility requirements, enrollment deadlines, and coverage details. This can be done through employee handbooks, online portals, and other communication channels.

4. Keep Accurate Records

Employers should keep accurate records of employee benefits enrollment, coverage, and changes. This can help prevent disputes related to benefits eligibility and coverage.

5. Purchase Employee Benefits Liability Insurance

Employers should purchase employee benefits liability insurance to protect themselves from lawsuits related to their employee benefits programs. This coverage can help cover legal fees, damages, and other costs associated with employee benefits lawsuits.

The Bottom Line

Employee benefits liability is a risk that all employers should take seriously. By understanding the potential liabilities associated with providing employee benefits and taking steps to mitigate these risks, you can protect your business from costly legal and financial damages. As always, consult with legal and insurance professionals to ensure that your risk management strategy is comprehensive and effective.