Exclusions Bar Coverage Under Employee Benefits Liability Policy for Claims Arising From Alleged Underfunding of Pension Plan

The United States District Court for the District of Minnesota, applying Minnesota law, has held that certain policy exclusions apply to bar coverage under an employee benefits liability policy for claims arising from the insured’s alleged underfunding of its employees’ pension plan (Plan) and failure to disclose information regarding the funding of the Plan and payment of projected benefits. Publ'g House of the Evangelical Lutheran Church in Am. v. Hartford Fire Ins. Co., 2015 WL 5472730 (D. Minn. Sept. 16, 2015).

The insured, a nonprofit corporation, sought coverage under the employee benefits liability coverage in its general liability policy for the underlying litigation brought by a class of participants and beneficiaries in the Plan. The employee benefits liability insurer denied a duty to defend. After settling the underlying litigation, the insured filed a declaratory judgment action seeking a declaration that the insurer had a duty to defend and indemnify.

In granting the insurer’s motion for summary judgment, the court first held that the underlying complaint triggered the insuring agreement of the employee benefits liability coverage, which provided coverage for “damages” that the insured was obligated to pay because of “injury that arises out of any negligent act, error or omission in the ‘administration’ of your ‘employee benefits programs.’” The court held that, while the allegations in the underlying complaint did “not use negligence or negligence-like language, they also [did] not allege that the conduct was intentional and [did] not foreclose the possibility of negligence,” and thus, “the allegations raise[d] an arguable possibility of negligence.” The court also held that the allegations concerned the “administration” of the Plan in that the allegations “involve[d] non-discretionary acts, such as the handling of Plan-related communications and the calculation of projected benefits.”

Despite concluding that the underlying complaint triggered the employee benefits liability coverage, the court ultimately held that coverage was barred by two exclusions in the policy. The court first held that an exclusion barring coverage for the “failure of any investment or saving program to perform as represented by an insured” applied to preclude coverage based on the “allegations seek[ing] liability based on the fact that the Plan did not turn out to be as secure as [the insured] claimed and did not produce the benefits projected by [the insured].”

The court next held that coverage was barred by an exclusion precluding coverage for claims for “[t]he failure of any insured to: (1) [p]erform any obligation; [or] (2) [f]ulfill any guarantee; with respect to . . . [t]he payment of benefits under any ‘employee benefits program’ . . . [or t]he providing, handling or investing of funds relating to any of these.” The court recognized that “[t]he first two phrases of [the exclusion] are satisfied because the underlying complaint alleges that [the insured’s] failure to disclose was a failure to perform a fiduciary duty” and that a “fiduciary duty is an obligation.” The court next ruled that the “allegations seeking liability for [the insured’s] failure to disclose information regarding contributions, funding, and the payment of benefits fall within the operative language of [the exclusion].”


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