Should my business get employee benefit liability insurance?
This is a sort of obscure line of insurance that is hardly ever discussed. So, let’s start by talking about what employee benefits are.
An employee benefits plan is a plan put in place and administered by an employer to provide their employees with fringe benefits like medical insurance, vision and dental insurance coverage, group life insurance, and long-term care insurance (if you're not offering a benefits plan, see Employee Benefits: What's in It for the Employer?).
When a company offers these employee benefits programs, they are in a sense managing and administering the employees' money. That makes them, like any other fiduciary, subject to liability and opens them to being sued for damages if they fail to administer the program or commit any errors and omissions in their management of it.
These liability claims are not covered under a typical commercial general liability (CGL) insurance, so insurers created a new type of insurance product to protect employers: employee benefit liability insurance.
Errors and omissions from failing to properly administer an employee benefits plan can arise in a few ways. The most common one is failing to properly advise employees regarding the benefits programs available to them.
Another way I have seen liability arise for employers is after an employee has filled in an application for health insurance and the administrator lost the paperwork, meaning they failed to enroll that employee in the plan. Later in the year, that employee is hospitalized with an injury only to discover that they don't have the health insurance they signed up for. In this case, the employee was able to successfully sue the employer. Thankfully for that employer, they had employee benefit liability insurance in place, and it stepped in and responded to the suit.
If you administer employee benefits, know that it comes with some liability risks that aren't likely to be covered by your existing policies. Look into this specialized coverage to make sure you have the protection you need.
Written by Jacques Wong
Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.
In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.
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