Best Practices in Fiduciary Liability

Transcription

1 Best Practices in Fiduciary Liability Laverne Wingfield, Ullico Casualty Group James Martinez, Arthur J Gallagher Timothy Bowen, Mesirow Financial

2 Fiduciary Liability Insurance Protect the board and the fund from liability due to the acts or omissions of the trustees Covers the pension fund, its trustees, and its staff (past, present, and future) Claims include: Breach of Fiduciary duties, violation of the responsibilities, obligations or duties imposed by state or municipal pension codes Any error or omission in the performance of counseling participants, providing interpretations, handling records or effecting enrollment Written demand for monetary and injunctive relief Criminal or civil proceedings commenced by service of complaint, return of an indictment and/or agency or regulatory proceeding Defense costs / indemnity payments

3 Risk Management Recommended ways to help prevent costly and length litigation against your fund: Broad Fiduciary Liability coverage Broker who understands the risks Fair and knowledgeable fund counsel Document due diligence Review service providers frequently Presumptive indemnity Communicate with peers in industry for best practices

4 Claims Trends from Ullico Casualty Group 64% of Governmental Fiduciary Claims Types are Benefits Disputes Remaining types include imprudent investments, IRS CAP penalties, and miscellaneous Average incurred cost per benefits claim is $117,500 Defense costs only CA Teachers Supreme Court Decision

5 Largest Benefits Claim Example Plaintiffs are retired police officers. They filed a lawsuit seeking a temporary restraining order and injunctive relief when the Fund proposed reducing the interest rate on pension benefits. The Plaintiffs claim, that a reduction in the interest rate constitutes a violation of the state constitution. The case is pending at the state Court of Appeals. The issue is whether a change to the interest rate for certain retirement benefits is permissible under the state constitution, which contains a provision that does not allow changes to vested benefits. The fund appears to have a fairly strong argument that a prospective change in interest rate would be permissible. Paid defense costs to date: $700K.

6 Additional Benefits Claims Examples A fund s beneficiaries file suit against the fund for a reduction in benefits that was enacted by the state legislature. Paid over $350K in defense A fund participant sues the pension fund because he claims he is entitled to an increase in benefits that he did not receive. Multiple policies and paid defense amounts A fund participant sues the pension fund for disability benefits. Paid $129K in defense to date

7 Other Claims Examples Regulatory Actions The SEC investigates a municipal pension fund and finds violations of a federal securities law by one of its trustees. Amendment Implementations A municipality filed suit against the Retirement Committee of the Retirement Plan for failure to implement an ordinance which amended terms of the Retirement Plan. Paid $30,000 in defense

8 When a Claim Hits When to report? Incident reports provide notice of potential claim Engage early Counsel Broker Carrier

9 Key Take-Aways Review fund s risk management strategy Follow claims trends Engage insurance broker and carrier early and often

10 Important Risk Management Tip Laverne J. Wingfield Director Professional Lines Ullico Casualty Group, Inc Colesville Road Silver Spring, Maryland Office: Fax: Ask Questions! James Martinez Arthur J. Gallagher & Co S. Fiddlers Green Circle, Suite 200 Greenwood Village, CO p: m: f: Arthur J. Gallagher Risk Management Services, Inc. Timothy J. Bowen Senior Vice President Mesirow Insurance Services, Inc. Mesirow Financial 353 N. Clark Street Chicago, IL v f e tbowen@mesirowfinancial.com