Employee Benefits Liability
As an employer, it is often difficult to find and retain employees. One thing that can make you stand out from the crowd is to offer employee benefits like health insurance, life insurance, 401(k), and maybe even disability benefits.
Sponsoring an employee benefit plan also means that you or someone authorized by you needs to administer the plan. This could be things like explaining benefits to a new employee, getting an employee enrolled, or terminating coverage for an employee who has left or now has coverage elsewhere.
Because we’re all human, mistakes can happen while administering your employee benefit plan. Typically, your General Liability policy would not respond if you made an error with the administration of your employee benefit plan. However, Employee Benefits Liability can help fill this coverage gap.
Employee Benefits Liability is designed to help protect your business for errors or omissions in the administration of your employee benefits program. The coverage may apply to errors and omissions while administrating life insurance, health insurance, retirement plans, or disability insurance.
It can be written as a separate insurance policy, but Employee Benefits Liability is commonly able to be added to your existing General Liability policy via an endorsement. There are two limits included with this coverage: a per employee limit and an aggregate limit. The per employee limit is the maximum amount that the policy will pay for a single employee benefit liability claim. The aggregate limit is the maximum amount that the policy will pay for all claims experienced during the policy period.
Some common examples of an Employee Benefits Liability claim might arise from things like:
- Failing to enroll an eligible employee in your group health plan – maybe the enrollment application was returned to you by the employee, but it got lost in other paperwork and was never submitted to the insurance company. The employee is injured outside of work and arrives at the hospital, only to learn that they do not have any health insurance coverage.
- Misinterpreting benefits or errors describing benefits to an employee – you advise an employee that because his cousin lives in his household, the cousin is eligible for coverage under the group health plan. You later determine that this is incorrect, but now you may now be financially liable.
- Failing to inform a terminated employee about COBRA coverage – if your group is large enough to be subject to COBRA, you have a duty to inform terminated employees about the ability to continue their health coverage through COBRA.
An important thing to note is that Employee Benefits Liability coverage is usually written on a “claims-made” basis. You might be more familiar with an “occurrence” basis, which is how your General Liability policy might be written. “Occurrence” means you would need to have coverage in place at the time that a claim occurs. Alternatively, “claims-made” means that there must be coverage in place at the time that a claim is made against you, regardless of when the claim actually occurred. Because of this, it is important to consider extending Employee Benefits Liability coverage even after you are no longer in business. There is potential that a claim could be brought against you even after you close your doors. An extension of this coverage might be referred to as “tail liability” or an “extended reporting period.”
If you currently offer benefits to your employees, you should consider checking to see if you currently have coverage for Employee Benefits Liability. The coverage is typically inexpensive to add to your General Liability policy, but depending on the size of your business, it may make sense to look at a standalone policy. Ask your agent if your policy currently includes Employee Benefits Liability, or what your options are to obtain it.