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Understanding Employee Benefits Liability Coverage

Posted On: March 6, 2020

Understanding Employee Benefits Liability Coverage

We’re all human. And as humans that means, once in a while, we all make mistakes. So, what are businesses to do when a human-centric department like human resources makes a mistake when enrolling an employee in the benefits plan? That’s where Employee Benefits Liability (EBL) coverage comes in. Check out our #RiskyBusiness video for tips on how to protect and prepare your business from a lawsuit. 



EBL protects businesses from errors and omissions that happen while administering employee benefit plans. This includes a variety of situations from failing to enroll an employee in a plan to not providing an adequate description of the plan and eligibility rules to employees. EBL covers a host of benefit plans (e.g., health, dental, life insurance, profit-sharing, workers’ compensation, and employee stock plans) and is typically sold as a standalone policy.  

Administering employee benefit plans is often a hands-on process, meaning it could only be a matter of time before an issue arises for your business—and even a small clerical error can have serious consequences. Fortunately, EBL can provide the coverage you need and is typically incredibly affordable.

Why You Need EBL

One of the most common situations we see is when an administrator fails to enroll a new employee in the company-sponsored health plan. If that employee has a sudden or unexpected injury, such as a car accident, they’d understandably be shocked to discover that they didn’t have insurance. In this situation, your business could be on the hook for the bill since the issue was caused by a failure in administering the plan.

Another example relates to misclassification of employees. In the past, we’ve seen claims where independent contractors have filed a lawsuit against a company arguing that they have been misclassified and are actually full-time employees. As such, they would be eligible for the company-sponsored health plan.

These are just two examples, but in both cases, EBL acts as a shield, limiting your business’s exposure from honest, human mistakes. And the low cost of EBL makes for a huge return on investment in the event of a claim.

How Does EBL Differ From Fiduciary Liability?

Many often confuse EBL with Fiduciary Liability, and it’s understandable. There are some similarities between the two. However, it’s important to note that, while similar, the two types of insurance do not provide the same coverage.

EBL specifically covers claims caused by errors and omissions in administering a wide range of plans. Benefits administration includes responsibilities such as:

  • Counseling employees
  • Interpreting benefits
  • Handling of records
  • Enrollment, termination, or cancellation of employee’s benefits

On the other hand, Fiduciary Liability is broader, covering not only administrative errors and omissions, but also liability from a breach in fiduciary duty [as imposed by the Employee Retirement Income Security Act (ERISA) or other law] when administering employee benefit plans. It provides protection in claims for damages stemming from situations including improper investments, plan and employee advice, and inadequate funding. It should be noted that EBL insurance explicitly excludes the fiduciary duties described above.

EBL is no replacement for good risk management practices. However, with so many complex tasks needed to adequately administer employee benefit plans, EBL is an effective way to limit your exposure, protecting your business and employees in the event of a claim.

Wondering if EBL coverage is right for you, or need to get a quote? Reach out to your VGM Insurance Account Manager, or contact us today at or 800-362-3363.


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