CLAIMS SCENARIOS

Fiduciary Liability Photo

FIDUCIARY LIABILITY


The following scenarios are provided to show the importance of having the proper coverage. All are real claims that have occurred along with the response from the insurance company; the names have either been changed or omitted to maintain anonymity.

If you would like to know more about how these coverages can help protect you and your business, please contact a Swarts, Manning & Associates representative.


Coverage Denial Results in Demand Letter

Coverage: Fiduciary Liability

Cause of Action: Administrative Error

Type of Organization: Restaurant

Description of Event: An employee at a restaurant submitted her medical insurance plan enrollment forms to the agency's health plan administrator. The agency's health plan administrator erroneously failed to forward the enrollment forms to the insurance company where receipt of the forms was a prerequisite to coverage. A few months later, the employee required surgery, but coverage was denied because she was never enrolled in the medical plan. The employee's attorney sent a letter to the agency complaining about the denial of benefits and demanding payment of medical fees of $250,000, the cost of the surgery and post-operative care, plus reimbursement of attorney fees.

Resolution: Claim Value: $400,000



Failure to Properly Notify the HMO

Coverage: Fiduciary Liability

Cause of Action: Denial of Benefits, Improper Advice

Type of Organization: Chain of Bars

Description of Event: The HMO under a chain of bar’s health plan denied payment of health costs for an employee who was hospitalized following an accident. The HMO claimed that the employee never notified the HMO of her hospitalization, as required under the health plan. In fact, the employee had called her employer's plan administrator, who advised her that because she'd called the employer it wasn't necessary that she call the HMO, forgetting that the notification rules had recently changed. The employee sued her employer and the plan administrator over the benefits denial, alleging that she had received improper advice.

Resolution: The case settled for more than $500,000—the amount of the benefits, plus attorney fees.



Executive Alleges Retirement Fund Negligence

Coverage: Fiduciary Liability

Cause of Action:

Type of Organization: Food supplier

Description of Event: The executive of a food supply company asked the human resources department to roll over the funds in his retirement plan into specific mutual funds. Almost a year later, noticing the poor performance of the retirement fund, he discovered the HR department had mistakenly rolled his retirement funds into money market funds rather than the better performing mutual funds that he selected. Alleging negligence in administration of the plan, the executive demanded that the organization deposit $80,000 into his retirement plan—the amount that the investments would have earned had they been invested as the executive directed.

Resolution: After investigation, it was determined that the investments were not made as directed by the executive. As a result, $80,000 was deposited into the executive's retirement plan. Additionally, $5,000 was incurred in defense expenses.


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