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How Employee Benefits Liability Coverage Protects Employers and Employees

29 Aug


Nobody’s perfect. Accidents happen. To err is human. No matter how you say it, one thing is certain: people make mistakes. Unfortunately, in business in general—and employee benefits administration in particular—companies are usually held responsible for their people’s mistakes. Enter employee benefits liability insurance!

But what is employee benefits liability coverage—aka EBL coverage—exactly? It is a specialized form of business insurance that protects employers against legal claims arising from errors and omissions in the administration of their employee benefit plans.

When such mistakes occur, the costs can be high to both employers and employees. If your company already has employee benefits liability protection, good for you. If not, here’s your opportunity to learn more about it.

What Employee Benefits Liability Insurance Covers

In order to reduce an employer’s benefits liability risk, EBL coverage typically applies to a wide range of employee benefits products, including:

  • Health insurance
  • Dental insurance
  • Life insurance
  • Disability insurance
  • Retirement plans
  • Voluntary benefits
  • Unemployment insurance
  • Workers’ compensation 

That means it’s likely to cover your entire employee benefits portfolio—whether the problems are associated with employee benefits claims, enrollment, communication, coverage modifications, or even terminations of coverage. 

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How Employee Benefits Liability Coverage Protects Employers

EBL insurance helps cover the costs of legal defenses, settlements, and/or judgments resulting from claims made by employees and their dependents/beneficiaries. For example, common benefits-related blunders include:

  • Failure to enroll or terminate an employee and/or their dependents as required
  • Misrepresentation of benefits, eligibility rules, enrollment processes, etc.
  • Misclassifying an eligible employee as ineligible
  • Administrative and benefit calculation errors
  • Lost paper or electronic documentation

Sometimes, these are mistakes that can be rectified—i.e., no harm, no foul. However, benefits liability soars when such missteps result in actual financial losses for employees and/or their families.

How Employee Benefits Liability Coverage Protects Employees

EBL coverage protects employees by ensuring that their employer is financially capable of compensating them for potential losses resulting from errors in the administration of their employee benefit plans.

For example, if an employee is wrongly denied coverage for a medical procedure due to an administrative error, the coverage may provide funds to rectify the situation, potentially reimbursing those medical expenses to the employee.

Understanding Employee Benefits Liability Coverage

The specific terms and limits of an EBL policy may vary due to a number of factors, including the insurance provider, number of covered employees, industry, and specific risk factors, such as a history of similar lawsuits.

That said, most employee benefits liability policies have two distinct coverage limits:

  • The per-claim limit, which is the maximum amount the insurance company will pay for a single claim, and
  • The aggregate limit, which is the maximum amount the insurance company will pay for all claims against the employer during a policy period, which is usually one year.

Frequently, EBL coverage is offered in the form of an endorsement to a general liability policy or as part of a professional liability policy.

EBL Coverage and PEOs

If you use a Professional Employer Organization (PEO) like VensureHR, do you still need employee benefits liability (EBL) coverage? Most likely, yes. That’s because, while PEOs generally handle their clients’ day-to-day benefits administration, employers still retain legal liability. Certainly, this is something to discuss with your PEO and benefits advisor.

We invite you to dig deeper into VensureHR’s competitive employee benefit offerings, expert benefits administration, and employment practices liability insurance (EPLI), which includes valuable EBL coverage. Make sure that you’re giving your employees the quality benefits they want and deserve—and make sure that you’re both protected, too.  


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