When companies do have Fiduciary Liability insurance, many buy just a small amount such as $1 million of coverage. In some cases, the legal fees alone to defend these suits can far exceed that total. And many settlements have been much higher: $12 million by Fidelity in 2014, $31 million by Massachusetts Mutual in 2016, and $3 million by New York Life in February 2017.
Over the past two years, similar cases have been brought against more than 20 other money managers, including Morgan Stanley, JP Morgan, and Blackrock. In Crystal & Company’s view, more such litigation is likely. No small factor in this view is the following data point that emerged from an analysis of government filings by Bloomberg BNA: 92 of 100 large investment companies included their proprietary funds in the benefits programs they offered their employees.
Under the Employee Retirement Income Security Act of 1974 (ERISA), companies must design their benefit plans prudently and solely in the interest of participants. Most of these lawsuits charge that by including proprietary funds, these plans engage in improper self-dealing. Some claim that plans hide excessive fees through multi-layering techniques in which one fund invests in another fund managed by the company. Companies can, however, buy Fiduciary Insurance on behalf of employees that will cover the cost of certain ERISA fines, as well as judgments and settlements.
Not all Fiduciary Insurance policies are the same. As always, it is imperative that to check the details of these particular policies as part of an annual review of all insurance coverage.