We noted in our recent ERISA Fidelity Bonding discussion that fiduciary liability insurance does not satisfy the fidelity bonding requirements. This was reiterated in Field Assistance Bulletin No. 2008-04 – EBSA issues guidance on fidelity bonding for employee benefit plans. FIDUCIARY LIABILITY INSURANCE: A Risk Management Tool for Fiduciaries in a New Retirement Plan Environment discusses what fiduciary liability insurance provides:

This coverage protects plan sponsors and trustees from the defense and penalties if they are sued for fiduciary decisions they make for an employee benefit plan. Plan fiduciaries are open to many types of lawsuits. Plan participants may sue individually or as a class if they feel that benefits were misrepresented or if they believe that different decisions by the trustees could have yielded a higher return. They may even sue over enrollment issues.

ERISA Section 410, 29 U.S.C. Section 1110 - Exculpatory provisions; insurance provides that while a company cannot relieve a fiduciary of their fiduciary responsibilities or liabilities, the company or the fiduciary can purchase fiduciary liability insurance:

(a) Except as provided in sections 1105(b)(1) and 1105(d) of this title, any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.

(b) Nothing in this subpart ^[1] shall preclude—

(1) a plan from purchasing insurance for its fiduciaries or for itself to cover liability or losses occurring by reason of the act or omission of a fiduciary, if such insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by such fiduciary;

(2) a fiduciary from purchasing insurance to cover liability under this part from and for his own account; or

(3) an employer or an employee organization from purchasing insurance to cover potential liability of one or more persons who serve in a fiduciary capacity with regard to an employee benefit plan.

It also explores the potential impact of LaRue v. DeWolff, Boberg & Assoc. Inc., No. 06-856 (Feb. 20, 2008) on fiduciary liability and answers the following questions:

• Is Fiduciary Liability Insurance mandatory under ERISA?
• Doesn't the ERISA/Fidelity Bond cover lawsuit costs?
• Who can file a lawsuit against a fiduciary?
• What does fiduciary liability insurance generally cover?
• What parties are normally covered by the policy?
• What are typical defense costs in a fiduciary lawsuit?