Understanding the Basics of Employee Benefits Liability (EBL) Coverage

A good employee is a valuable asset, and every company must be concerned about retaining and attracting the best possible workers. To do this, a firm may offer special benefits packages that include items such as vision, dental and health care. These benefits are helpful for companies competing for qualified workers, but they have to be administered correctly. If there are errors in administration, this can lead to lawsuits against the firm, workers or both.

Not Covered By General Liability Policies
Even the smallest clerical error can have serious repercussions. For example, if a new employee tries to enroll in a health plan but an office worker fails to complete the paperwork for that individual, that person could have serious problems if he or she is hospitalized months later without coverage. In such a case, the person who discovers there was negligence in registration is now stuck with a huge medical bill and could sue the company. Since administrative errors are not considered occurrences, they are not covered under CGL policies. Firms may purchase employee benefits liability insurance for this purpose. EBL coverage is usually offered as an endorsement for general liability insurance.

Claims Made
Typically, EBL endorsements cover any damages the insured party is required by law to pay due to errors, acts and omissions committed during employee benefit administration procedures. This type of coverage usually applies on a claims-made basis, but there are insurers offering occurrence-based coverage as well.

Covered Acts
The definition of administration is usually what determines the types of errors covered by a certain EBL endorsement. As a rule, it applies to errors, omissions or acts in the following:

– Keeping paper and electronic records and files related to benefits. For example, a benefits worker may accidentally delete the file of an employee or lose a paper file.

– Explaining the eligibility rules and benefits plan to workers, beneficiaries and eligible family members. For example, a manager may mistakenly tell a worker that her boyfriend is eligible for benefits simply because they live together.

– Enrolling, terminating and maintaining plans for family members and beneficiaries. For example, a benefits worker may forget to add a beneficiary to an employee’s plan.

Covered Benefits
Many people wonder how employee benefits are defined. The term usually applies to life, dental, medical and accident insurance. It also applies to other types of coverage such as profit sharing, pension plans, savings accounts, stock ownership and additional plans. For benefits, this includes workers’ compensation, Social Security, unemployment, disability, maternity leave and tuition assistance.

Exclusions
Claims resulting from bad financial predictions or advice are usually excluded. For example, a benefits worker may tell an employee that the 401(k) plan will yield a return rate of 400 percent in one year. If the predictions are not true and the worker sues the company, the claim would not be covered. Breach of contract, fraud, property damage, bodily injury, insufficient funds and employment-related practices are some other exclusions. There may be more depending on the specific insurer. Some of the employment-related practices include wrongful termination, sexual harassment and discrimination.

Limits
There are usually two different limits with EBL coverage. The most the insurer will pay for any employee or his or her family members is the Each Employee limit, and the Aggregate limit is the amount the insurer will pay for all errors, omissions and acts. There may be a deductible with some EBL endorsements. This is usually the employer’s maximum out-of-pocket expense for each employee filing a claim.

EBL Needs
The need for this type of coverage will vary from one company to another based on the number of offered benefits and the number of employees. This coverage offers protection for employers by providing a buffer against large claims any disgruntled workers or their families might make. It should not be a substitute for a good risk management plan. While it is important for large businesses, small companies with only a few workers will likely not need it. To learn more about this type of insurance and whether it is right for business needs, call the experienced team of professionals at ACBI at 203-259-7580 or visit our website. 

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