January 22, 2015

Recommended New Year’s Resolution for Plan Fiduciaries: Prompt Notification of Claims, Audits or Investigations

Claims happen. Audits happen. Investigations happen. In Segal Select Insurance’s experience, it is always a best practice for plan fiduciaries to file notices with their insurance carriers as soon as possible for claims, audits or investigations. Depending upon the policy, the definition of a claim may include a lawsuit, a written demand for damages, or an event. Similarly, carriers should be notified right away of the receipt of a notice by any regulatory authority — for example, the Department of Labor (DOL), the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) — indicating the start of an audit or investigation. It is also advisable, with appropriate advice from legal counsel, to give carriers prompt notice about circumstances that have the possibility of resulting in a claim.

Segal Select offers advice about timing notices depending on the type of coverage:

  • Fiduciary Liability Insurance In addition to claims and circumstances that may give rise to a claim, notice of any regulatory action (such as receipt of a “10-day letter” from the DOL identifying actual or potential breaches) should be filed with the fiduciary liability insurance carrier as soon as possible. Failure to provide this notice may result either in a late-notice declination1 or loss of certain defense coverage offered by many policies.
  • ERISA Fidelity Bonds2 Generally, a claims notice should be given as soon as practicable and a proof of loss filed within four months/120 days. Failure to file this proof of loss on a timely basis can be the basis for the denial of the claim, unless there is a waiver or tolling agreement.3
  • Employment Practice Liability Insurance (EPLI) Immediate notice of these claims is recommended because experience shows that the longer an EPLI claim is outstanding, the more expensive it will be to resolve. Moreover, late notice may result in a denial of the claim.
  • Cyber Liability Insurance Notice of a breach event triggers the carrier’s expert team and pays for their services. Consequently, it is in the plan’s best interest to give the carrier notice of a breach as soon as the plan is aware of it.

If you have questions about the value of notifying insurance carriers promptly about claims for any of the types of coverage listed above or concerns about the implications of giving notice of a claim, please contact your Segal Select insurance professional broker. Your Segal Select broker will be able to help you think through some of the coverage issues. In addition, Segal Select can help you explore positions the insurance carrier may take in response to the receipt of a claim.

Segal Select Insurance is not a law firm. Nothing herein is to be considered a binding interpretation of coverage. Only the insurance carrier can provide such an interpretation. Insurance policies are a legal contract and legal counsel should always be consulted.

 

1 Late notice is not a precisely defined term but, generally, will be considered any period of time after that specified in a policy. However, many states also require that the carrier be able to demonstrate that the late notice has caused it financial harm, meaning that the late notice did or will directly affect the amount of the paid loss.

2 Sponsors of public sector plans need to consult legal counsel to determine their specific state employment dishonesty bond requirements.

3 A tolling agreement is a legal document that formally stops any statute of limitations from running, so that a lawsuit could be initiated at a later date.

 

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Brian Smith

Brian Smith

Retired Chief Operating Officer, Segal Select Insurance Services, Inc