Are your governmental benefit plan clients protected by fiduciary liability insurance?
Euclid Specialty has published an article featured in PRIMA’s Public Risk Magazine – Governmental Fiduciary Liability Insurance: Protecting Trustees – detailing the risks and fiduciary exposures of Trustees faced with personal liability.
While serving on governmental plan boards, many trustees falsely believe sovereign immunity and statutory indemnification provisions provide foolproof protection. As the article explains, the best and only reliable way to protect against personal liability is through the purchase of fiduciary liability insurance.
The article reviews:
- Why governmental trustees have fiduciary exposure despite not being subject to ERISA
- The limits of governmental indemnification, including sovereign immunity and statutory indemnification provisions which, unlike ERISA, are not uniform and vary from state to state
- Increase in claims against governmental plans
- Key features of governmental fiduciary liability insurance
- The need for trustees to purchase fiduciary liability insurance as the best and only reliable way to protect against personal liability
Excerpt from the article*:
In the last decade, the cities of San Diego and Detroit both experienced high-profile insolvencies. Citizens demanded answers and the unfunded liabilities of the respective pension plans represented glaring financial losses. The San Diego City Attorney sued the trustees of the San Diego Employee Retirement System (SDCERS) for violating California conflict of interest laws. Likewise, a class action was filed against the trustees of the Detroit pension plans for allegedly causing the funding gap with imprudent investments.
Why did the Detroit trustees receive a city-provided defense, whereas the San Diego trustees had to sue the city for several years of uncertainty to obtain a defense? The difference was the fiduciary liability insurance purchased by the Detroit plans. Indeed, the San Diego and Detroit ordeals demonstrate the limits of governmental indemnification, and why public risk managers should be protecting their trustee fiduciaries with quality fiduciary insurance coverage.
The San Diego and Detroit experiences demonstrate the fiduciary liability exposure of governmental trustees. Governmental trustees are typically held to an ERISA-like standard of care, but cannot fully rely on sovereign immunity or governmental indemnification because of many gaps in the protection. Consequently, the best and only reliable way to protect against personal liability is through the purchase of fiduciary liability insurance.
Other Fiduciary Liability Resources:
- Governmental Fiduciary Insurance Flyer – Transparency and Choice
- Governmental Fiduciary Insurance – Coverage Checklist
- Governmental Fiduciary Insurance – Application
Please contact Euclid Specialty with any questions at firstname.lastname@example.org. We look forward to working with you to provide fiduciary insurance protection for your governmental benefit plan and other non-profit employee benefit plan clients.
* This article first appeared in the PRIMA Public Risk Magazine March 2017 edition.