Fiduciaries of employee benefit plans governed by the federal Employee Retirement Income Security Act of 1974 (ERISA) often purchase liability policies to insure them against losses incurred in the execution of their fiduciary duties. In CIGNA Corp. v. Amara, the Supreme Court expanded the equitable relief available under ERISA against fiduciaries by allowing reformation and surcharge to be awarded against them.
Unanswered is whether the fiduciaries must pay for these remedies themselves or pass the cost to their insurers. This article addresses whether fiduciaries have insurance coverage for this relief. Although the issue has not yet been decided by any court, case law to date suggests that liability insurance usually should not cover the costs of reformation or certain surcharge ordered in an ERISA case.
ERISA Makes Fiduciaries Subject to Specific Liabilities
ERISA provides a national standard for employee benefits offered anywhere in the country. It governs plan information, fiduciary standards for persons responsible for plan management, and reporting and disclosure requirements. Under ERISA, an employer can sponsor benefit plans by establishing the plans and creating the written instrument that defines their terms and conditions. ERISA requires a written plan and details the mandatory and optional provisions that the plan must or may include. The plan has an administrator, who is a fiduciary to the plan and who must fulfill certain statutory duties. The plan’s administrator—who may or may not be the employer—manages the plan, following the terms of the written plan so long as they do not conflict with ERISA itself.