What is fiduciary liability insurance

Fiduciaries are individuals or entities entrusted with managing assets or making decisions on behalf of others, such as employees, beneficiaries, or clients.

They are held to a high standard of trust, loyalty, and responsibility in managing these assets or making decisions that impact others’ interests. Common examples of fiduciaries include trustees, investment advisors, plan administrators, and company directors.

Importance of Fiduciary Liability Insurance

Fiduciaries can be held personally liable for breaches of their fiduciary duties, resulting in legal claims, lawsuits, and financial damages. Fiduciary liability insurance is designed to protect these individuals and entities from the financial consequences of such claims. Without this coverage, fiduciaries may be personally responsible for legal defense costs, settlements, and judgments, which can have a significant impact on their personal finances and reputation.

Coverage Details of Fiduciary Liability Insurance

Claims Coverage: Fiduciary liability insurance typically covers legal expenses, settlements, and judgments arising from claims related to alleged breaches of fiduciary duty. This includes claims of mismanagement, errors, omissions, negligence, or wrongful acts in administering employee benefit plans.

Legal Defense Costs: The insurance policy covers legal defense costs, including attorney fees, court fees, expert witness fees, and other expenses incurred in defending against fiduciary claims.

Settlements and Judgments: If a claim results in a settlement or judgment against the fiduciary, the insurance policy provides coverage for the financial damages up to the policy limits.

Exclusions: Fiduciary liability insurance may have certain exclusions, such as intentional wrongful acts, criminal acts, fraud, or acts outside the scope of fiduciary duties. It’s essential to review the policy exclusions carefully.

Common Claims Covered by Fiduciary Liability Insurance

Breach of Fiduciary Duty: Allegations of failure to act in the best interests of beneficiaries, including mismanagement of investment funds, imprudent investment decisions, or failure to monitor plan investments.

Errors and Omissions: Claims related to mistakes, errors, or omissions in administering employee benefit plans, such as errors in plan documents, incorrect calculations, or failure to provide required disclosures.

Negligence: Allegations of negligence in the management or administration of employee benefit plans, including failure to follow plan documents, comply with regulatory requirements, or provide accurate information to participants.

Improper Advice: Claims arising from providing incorrect or misleading advice to plan participants, beneficiaries, or clients regarding their rights, benefits, or investment options.

Considerations for Obtaining Fiduciary Liability Insurance

Assess Risks: Evaluate the nature of fiduciary responsibilities, the complexity of employee benefit plans, and potential risks associated with breaches of fiduciary duty.

Coverage Limits: Determine appropriate coverage limits based on the size of employee benefit plans, assets under management, and potential exposure to fiduciary claims.

Policy Features: Review policy features, including coverage for legal defense costs, settlements, judgments, retroactive coverage for past acts, and coverage for regulatory investigations.

Insurer Reputation: Choose an insurance provider with a strong reputation for fiduciary liability insurance, financial stability, claims handling expertise, and responsive customer service.

Compliance: Ensure that the insurance policy complies with applicable regulatory requirements, such as ERISA (Employee Retirement Income Security Act) compliance for employee benefit plans.


Fiduciary liability insurance is a critical risk management tool for individuals and entities acting in fiduciary capacities. It provides essential financial protection against claims of mismanagement, errors, omissions, and breaches of fiduciary duty related to employee benefit plans. By understanding the coverage details, common claims, and considerations for obtaining fiduciary liability insurance, fiduciaries can mitigate financial risks and fulfill their responsibilities with greater confidence and peace of mind.

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