It’s for your benefit
Employee benefits liability insurance shields a practice when program administrators mishandle a situation.
Attracting and retaining high-quality employees is a challenge for many veterinary practices in today’s competitive, mobile environment. Practice owners and managers continually ask me whether I know any qualified veterinarians or veterinary nurses who are looking for work.
To recruit and keep quality employees, veterinary practices offer an ever-increasing variety of ancillary benefits as part of the compensation package. In many instances, part-time employees are eligible. The most common benefits my clients offer are medical and dental care along with a retirement savings plan. Additional perks often include continuing education, flexible work hours and some combination of insurance such as professional liability, life and disability.
From a risk aspect, the greatest challenge for an employer is ensuring that company-sponsored benefits are managed properly.
Know the Difference
Professional liability insurance is easily built into a practice’s business package, automatically covering all employed veterinarians and licensed veterinary nurses for civil (professional liability) and administrative (license defense) claims. On the other hand, managing the more complex components of an employee benefits program is not as simple. Administrators must outline individual benefit plans and eligibility rules covering not only employees but often family members and beneficiaries. Additionally, they must manage enrollment procedures, handle changes in eligibility and beneficiaries, and maintain timely, accurate records. Mistakes are inevitable. Unfortunately, even small mistakes can generate significant legal exposure and financial hardship for a practice.
What’s important to realize is that much like allegations of workplace harassment, discrimination and unlawful hiring or termination, employee benefits administration claims are not covered under a practice’s standard general liability policy. General liability policies respond to legal exposure associated with bodily injury or property damage involving a third party.
In contrast, a benefits liability claim is considered a financial injury. The good news is you can protect your business by having employee benefits liability coverage. In most instances, the coverage can be endorsed onto a general liability policy.
Employee benefits liability insurance protects the business from damages it is legally required to pay because of errors or omissions arising from the management of a benefits program. Specifically, the coverage pays for benefits an employee would have received had the plan been administered correctly. The coverage applies to a wide range of benefits, from health, dental, life and disability insurance to retirement plans. It does not cover quality-of-life benefits such as free coffee and food, on-site yoga sessions or massages, for example.
In general, “management” refers to:
- Benefits counseling services.
- Interpreting benefits.
- Handling employee records.
- Cancellation or termination of an employee benefits plan and enrollment in one.
Suppose you hire Sally as a new full-time employee. After a standard waiting period, Sally completes the paperwork required to enroll in the company-sponsored medical plan. Unfortunately, the practice administrator is on vacation when Sally becomes eligible to enroll. Overwhelmed with other time-sensitive issues upon his return, the administrator is late in processing Sally’s enrollment paperwork and compounds the problem by making a simple clerical error.
Shortly thereafter, Sally is hospitalized with a serious illness and is shocked to discover that her employer-sponsored medical insurance is not in effect. Sally sues the practice, its owners and the administrator, demanding that all her medical expenses be reimbursed. The damages awarded to Sally cripple the practice’s financial stability.
When purchasing employee benefits liability insurance, make sure the policy covers the benefits plan offered by the practice. Likewise, recheck your coverage any time you offer a new practice-sponsored employee benefit.
I recommend confirming your policy’s definition of “employee benefits program.” It typically includes:
- Life, accident, dental and medical insurance plans.
- Pension, profit sharing, stock ownership and savings plans.
- Social security, disability and unemployment benefits.
- Tuition assistance, vacation and maternity leave.
Employee benefits liability endorsements typically protect on a claims-made basis, meaning coverage is in place only during the period the policy is in effect. Claims brought after the policy’s expiration are not covered. Don’t confuse claims-made policies with occurrence policies, the latter of which cover claims that happen during the period of coverage but are reported after the policy expires.
Check the Coverage Period
Many employee benefits liability endorsements have a retroactive date. This is typically the date when the first employee benefits liability endorsement went into effect. In this case, an error or omission is covered only if it occurred on or after the specified retroactive date and while the coverage remains in effect.
Most employee benefits liability coverage includes an option to purchase an extended reporting period, or tail coverage, if the practice chooses to cancel ongoing coverage for any reason, such as a change in ownership. Tail coverage typically runs from one to five years.
Employee benefits liability often includes two coverage limits:
- Aggregate limit: The maximum amount of money the insurance company will pay for all financial damages arising from errors or omissions related to the administration of a company-sponsored employee benefits program during the policy period.
- Each employee limit: The maximum amount of money the insurance company will pay for all damages sustained by a single employee and his or her family members and beneficiaries during the policy period.
Common exclusions include:
- ERISA (Employee Retirement Income Security Act) fiduciary liability.
- Breach of contract.
- Bodily injury and property damage.
- Employment-related practices.
- Insufficient funds.
- Poor financial advice.
An example of poor financial advice is this: A hospital owner tells an employee that the company’s 401(k) plan has historically performed at a very high level and will do likewise again this year. No coverage is available if the employee sues because the investment results were not what was promised.
In conclusion, the financial status of a business could be at risk in the absence of appropriate employee benefits liability protection. Do your homework and make sure you are adequately protected.
Protect & Defend columnist Dr. Ed Branam is veterinary and animal services program manager for Safehold Special Risk Inc. He serves on the American Veterinary Medical Association’s Legislative Advisory Committee.