Frequently Asked Questions

How does claims-made coverage affect my insurance? Claims-made coverage exists when notice of a new claim is accepted in the current policy period, regardless of when the claim actually occurred. This alleviates the need for attorneys to locate the applicable policy for the claim based on the year of the occurrence. The most recent policy in force is the policy that would respond to a newly submitted claim. This is all very clear cut while the policy continues with the same insurance company. But, in the event of a change to another company's claims-made policy, there could be a gap in coverage if the new policy does not cover the prior acts occurring under the old policy.

Also, if there is a known circumstance that could give rise to a claim, it would have to be disclosed on the new company application, and submitted as a claim to the old company, thereby tying the claim to that particular policy indefinitely. The key is knowledge of a circumstance–– any known circumstance definitely should be reported to the old company before changing. All other prior acts should be picked up by the new company. The insurance company's policy wording should be checked carefully before making a change.

Should each fund purchase a separate policy? Each fund that is part of a Taft-Hartley trust, could potentially have a separate fiduciary liability policy. This would ensure that the individual fund does not have to share their insurance coverage with any other fund in the event of a claim. However, if there are similar trustees on each of the funds, they may be combinable on the same insurance policy, as long as it is understood that insurance claims for one fund may use up the coverage limit of the policy in a given year. This would leave the other funds without coverage for that same year. If the trustees are not similar, or if each of the funds is substantial in size, there is a strong case for using separate policies to insure them. This way the individual policies can be tailored with both the coverage limit and policy wording that fits each particular fund.

What limit of insurance coverage should we purchase? There is no formula for figuring out what coverage limit to purchase. However, there are many factors to consider, such as: the starting point for new and small funds is usually a $1,000,000 limit; if multiple funds are insured under the same policy, the coverage limit must reflect an adequate amount to include each of the funds needs for insurance; the size of the fund assets and/or the number of participants is important because the more dollars there are at risk, or number of potential claimants, the higher the risk of a claim; past claim activity is another consideration, as well as choosing the limit of insurance that will provide the decision makers with a restful night's sleep; finally, our legal climate and our tendency to sue in this country has increased the comfort level of the starting point, making it more common to increase the limit upon renewal.

What is severability? A severability clause will allow coverage to apply separately to each insured under the policy. For example, if one trustee commits an act which would trigger the dishonesty exclusion in the policy, and a lawsuit was brought against all of the insureds, the severability clause would allow the other insureds to have defense. Secondly, the severability clause is utilized quite often when one individual intentionally provides false information on an application. The clause protects the other unknowing individuals in the event of a claim.

What is elimination of recourse? If fiduciary liability premiums were not paid from plan assets, but paid instead by the trustees themselves, the insurance companies would not have the ability to subrogate (attempt to recover a paid claim amount) against insureds. It is only because premiums are commonly paid from plan assets, that the subrogation against insureds is possible. This is called the company's right of recourse against insureds. Eliminating this right of recourse prevents the company from subrogating against an insured trustee whose unintentional error causes a loss.

Who has to pay for elimination of recourse? Each individual trustee pays for his/her own elimination of recourse, which is usually handled by endorsement to the policy.

What is IRS CAP Penalty Coverage? Fines and penalties are excluded from the fiduciary liability policy with the exception of 502(i) and 502(l) civil penalties. In the last four years the IRS began sanctioning trustees of pension plans who did not pass a special audit. This audit is conducted for the purpose of confirming that the plan or trust is being run according to its plan documents and/or complying with IRS standards overall. Although the CAP penalties are now only estimated to be approximately $25,000 – $35,000 in a worst case scenario, most companies do offer coverage by endorsement for this.

How does financial rating of the insurance company affect my coverage? Insurance companies are annually rated for their financial performance, and it then becomes public knowledge as to the amount of surplus available for the purpose of paying claims. The higher the financial rating, the better the claims paying ability that the insurance company has.

What are some of the Items to look for in fiduciary liability coverage? Strong financial rating of the insurance company. • Broad definition of who is insured. • Low or no deductible. • No re-warranty on renewal application, or in the policy. • Defense coverage for denial of benefits claims. • Clear, concise severability wording. • Coverage for Administrative Errors & Omissions included.

A&R Associates, Ltd. has been providing insurance for Labor Union Trusts since the passage of ERISA. Insurance Plans & Trusts, Inc. is now our administrative arm for providing this coverage to plans & trusts countrywide. If you would like us to provide an insurance review/quotation please have your agent call us at 1-800-719-6798. The frequently asked questions and answers in this brochure have been discussed on the simplest level. In most cases, there are many facets to each subject, which can be further discussed with your insurance agent. Copyright © 2007 A&R Associates, Ltd.