Look into fiduciary liability insurance: this policy fills in a big gap left by D & O insurance.

• Author: Weiss, Stephen J.
• Position: Directors and officers

AS A DIRECTOR or officer, you may be a fiduciary of your company's retirement and other employee benefit plans, even if you have not been designated a "named fiduciary." With the status of fiduciary comes potential personal liability to plan participants--liability generally not covered by D & O insurance policies.

Fortunately, numerous insurers offer a policy that provides the coverage you need to protect your personal assets--fiduciary liability (FL) insurance. FL insurance covers loss arising from claims made against the fiduciaries of a company's employee benefit plans for their acts, errors, or omissions made in connection with such plans.

You might be a fiduciary, if ...

Under ERISA (the Employee Retirement Income Security Act of 1974), a person is a fiduciary "with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." In other words, directors and officers are fiduciaries if they exercise authority over plan management, investment, or administration, regardless of their formal positions with respect to a plan. Courts have even ruled that directors and officers with the authority to appoint fiduciaries are thereby fiduciaries under ERISA.

If fiduciaries do not fulfill their ERISA duties, personal liability may be imposed on them. The dollar amounts involved in ERISA class actions can be very large. For example, the U.S. District Court in Houston recently approved an $85 million partial settlement of the Enron ERISA litigation, which involved alleged breaches of fiduciary duty under ERISA by certain directors and officers and Enron.

How to protect yourself

Make sure your company negotiates the terms and conditions of its FL insurance policies. Given that most of the provisions in an FL policy parallel the general provisions in a D & O policy, you may wish to refer to our previous columns on policy negotiation. Two key provisions to negotiate are the insuring agreement and covered activities.

Insuring agreement

The standard insuring agreement provides that the...