Alleged Errors In Employee Benefits Administration Potentially Trigger Fiduciary Liability Policy

The U.S. Court of Appeals for the Ninth Circuit, applying California law, has held that a fiduciary liability policy potentially provided coverage for a complaint alleging errors in the administration of an employee benefits program.  Erickson-Hall Constr. Co. v. Hartford Fire Ins. Co., 2020 WL 1744338 (9th Cir. Apr. 8, 2020).

An insured company provided its employees with life and disability insurance benefits obtained from third-party providers.  The company administered the employee benefits program.  Some of the plan participants filed suit against the company for, among other things, allegedly failing to counsel them that their plans had lapsed, as well as failing to pay premiums as required.  The company sought coverage from its fiduciary liability insurers for the underlying suit; those insurers denied coverage.

In the ensuing coverage litigation, the fiduciary liability insurers moved to dismiss the insured's complaint for defense and indemnity coverage.  The trial court granted the motion on the grounds that the underlying complaint did not allege a “loss” arising from a claim for a “wrongful act.”  However, the appellate court reversed the trial court's decision.  The court of appeals distinguished the amounts sought in the underlying complaint from amounts that the company would have been obligated to pay its employees independent of any “wrongful act.”  Rather, in this circumstance, the court of appeals reasoned that but for the allegedly negligent acts in plan administration, the third-party providers (and not the insured) would have been obligated to pay the claimed loss amounts.  Viewing the allegations in the light most favorable to the insured, the court held that the complaint potentially sought an insurable “loss” arising from a claim for a “wrongful act.”  Accordingly, the court held that the insured had carried its burden to show that the underlying complaint fell within coverage at the motion to dismiss stage.



Wiley Executive Summary

Sign up for updates

By using this site, you agree to our updated Privacy PolicyTerms & Conditions, and Cookies Policy.