Fiduciary Liability/ERISA

Applying Nevada law, a federal district court has held that a broadly worded securities exclusion does not unambiguously bar coverage for underlying Employee Retirement Income Security Act (ERISA) lawsuits alleging that the insured company breached its fiduciary duties by failing to explain the risks associated with investing in the company via an employee retirement plan.  Int’l Game Tech. Inc. v. Fed. Ins. Co., 2014 WL 4232494 (D. Nev. Aug. 26, 2014)
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The Supreme Court of the United States on Wednesday rejected the so-called “Moench presumption” that investment by an ESOP in company stock is prudent unless the company is on the brink of collapse.  Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (June 25, 2014).  The court determined that ESOP fiduciaries are not entitled to any special presumption of prudence, but are subject to the same duties as other ERSIA fiduciaries, except that they need not diversify the fund’s assets.  Because the Moench presumption has been a powerful tool in defeating stock drop cases at the motion to dismiss stage, this ruling undoubtedly alters the litigation risks and costs facing fiduciaries and their insurers.  Yet, as the Court closed one door, it opened another.
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