Fiduciary Liability Coverage Misunderstandings

In your bank’s management liability insurance program is (should be) coverage for errors made in the administration of YOUR employee benefit plan as described in the federal law, ERISA.  This coverage section is almost always called “Fiduciary Liability.”

The word “fiduciary” refers to your liability under ERISA, as an employer.

This is not insurance for when your bank acts as a fiduciary in wealth-management / investment advisory transactions for customers.

Twice in the past week, I have been told by bankers that they buy large limits of fiduciary liability coverage because of their wealth management business.

No!  If you are sued by a customer for “malpractice” your coverage is under bankers professional liability insurance.  Fiduciary liability is only protecting your bank for mistakes made that violate your obligations under ERISA as an employer.

I understand where the confusion comes from.  Lawyers talk about investment advisor’s fiduciary responsibilities.  It is natural to look at fiduciary liability as offering coverage for that exposure. Frankly, it just does not.  This is another example of my industry making life complicated because of poor word choice.

In my own conversations, I will stop talking about “Fiduciary Liability” and start calling the coverage “ERISA Fiduciary Liability.”