Many employers offer benefits such as health insurance, dental insurance, vision insurance, and life insurance as a convenience to employees and to help them compete for talent. When benefits aren’t administered properly, your business is exposed to the possibility of lawsuits. This can include both administrative errors, such as forgetting to enroll someone in a benefit they signed up for, and omissions, such as not providing required information about a benefit.
Errors in benefits administration are surprisingly common. Some examples of errors include:
For example:
If your company offers health insurance to employees but due to an administrative error fails to enroll a particular employee, you could be held liable for medical expenses if said employee is ever hospitalized. We all know how expensive health care is, so it stands to reason that these types of seemingly minor clerical errors can have serious financial consequences for a small business.
Similarly, providing misinformation to employees is another error that’s easy to make.
For example:
If your benefits administrator tells an employee that an insurance plan covers their daughter, but their daughter is too old and ineligible for coverage, it’s considered an error.
In today’s digital world, employers also have to be cautious about maintaining employee records digitally. In the case of data loss or accidental deletion, they could be liable for damages resulting from misplaced employee benefits files.
Even an employee who is terminated could be affected by errors in benefits processing or administration, and bring suit.
For example:
If you accidentally fail to provide the proper notification of COBRA coverage options to an employee who leaves the company, that is considered an error.
Employee Benefits Liability Coverage (or EBL) covers employers in the case that they are liable for an error or omission in the administration of an employee benefit program. Your human resources or benefits department is made up of people, and people make mistakes. That’s why many businesses purchase Employee Benefits Liability Coverage.
Not every company needs EBL coverage. If your firm only employs a few people and offers little to no benefits, for example, you won’t need it. As your employee headcount increases and you provide more benefits, your risk increases, too. That is when it's time to consider purchasing a policy.
EBL insurance covers your business when an employee brings a suit against you in the case of the benefits administration errors described above. Benefits that are covered typically include group:
Insurance Plans
Financial Plans
Social Security, Workers Compensation, Disability, and Unemployment.
Other miscellaneous benefits like tuition assistance and maternity or paternity leave may also be covered.
EBL coverage doesn’t extend to claims of financial loss resulting from advice employers gave surrounding investment plans like a 401(k).
For example:
If an administrator strongly advises an employee to invest in a company-sponsored 401(k) plan and over time, the plan loses value, EBL coverage won’t take care of the claim if the affected employee sues.
EBL coverage also doesn’t extend to claims resulting from:
• fraud
• breach of contract
• property damage
• bodily injury
• insufficient funds
Your business also won’t be covered in cases of lawsuits related to employment-related practices, including acts of sexual harassment, discrimination, or wrongful termination.
There are usually two separate limits for Employee Benefits Liability coverage:
• The employee limit
• The aggregate limit
The employee limit represents the most the insurer will pay for any one employee, including their covered family members and beneficiaries.
The aggregate limit represents the amount the insurer will pay for all negligent acts, errors or omissions during benefits administration. Most EBL policies have a deductible defined for each employee who files a claim.