Employee Benefits Liability

Do you offer employee benefits for your employees? If so, pay close attention to this subject: Employee Benefits Liability.

Picture this scenario:

Busy Betty, office manager for your small business, functions in countless different job capacities ranging from purchasing agent to human resources manager. One day while dealing with other urgent issues, Betty forgets to enroll a new employee on your firm’s medical insurance plan. The error isn’t discovered until the employee is hospitalized with a life threatening cancerous tumor and the bills started to roll in—over $300,000 in all.

What now?!

Well, in a case like this, it’s safe to assume that busy Betty (your business essentially) will be found liable for the damages. This is when you’re hoping you have an endorsement on your commercial general liability insurance policy known as “Employee Benefits Liability” coverage.

Carrying Employee Benefits Liability coverage means your commercial general liability insurance carrier will pay those sums that the you become legally obligated to pay as damages because of any negligent act, error, or omission committed in the “administration” of your employee benefit program, barring any exclusions. The amount of insurance paid is limited to the amount of liability coverage you carry on your general liability insurance policy.

“Administration” of employee benefit programs is defined as:

• Counseling employees, including their dependents and beneficiaries, with respect to your employee benefit program;
• Handling records in connection with your employee benefit program;
• or, effecting or terminating any employee’s participation in a plan included in the employee benefit program.

Employee benefit programs typically entail group life insurance, group accident or health insurance, profit-sharing plans, and pension plans.

Employee Benefits Liability coverage does not apply to losses arising out of any dishonest, fraudulent, criminal or malicious act or omission, committed by any insured; or claims or suits based upon failure of any investment to perform as represented by any insured; or advice given to any person to participate or not to participate in any plan included in the employee benefit program.  Other exclusions apply, so keep a close eye on your policy forms. Here’s an example of a typical Employee Benefits Liability coverage form.

In most cases, minimal premium charges apply for this important endorsement (as low as $50 to $100 annually). This is a no brainer if you have an employee benefit program in force. Don’t waste time digging up a copy of your policy to confirm. Call your insurance agent today. Also keep in mind that this coverage is written on a claims made basis.

–JK