Fiduciary liability coverage came about in response to the Employee Retirement Income Security Act (ERISA) of 1974. ERISA ensures that employees participating in employee benefits plans actually receive the benefits set out in the plans. ERISA defines a fiduciary as any individual mentioned in the plan documentation by name or title as well as anyone who took part in making decisions regarding the management or administration of employee benefit plans and their assets. Under ERISA, a fiduciary can be held personally responsible for the mismanagement of employee benefit plans or assets. A fiduciary liability insurance policy protects fiduciaries against these claims of mismanagement.
Under ERISA, fiduciaries may be held personally liable for the management of employee benefit plans such as retirement plans, welfare plans, employee leave, and more. Fiduciary liability policies cover both administrative errors and omissions and the fiduciary's personal liability for a breach of fiduciary duties.
Since ERISA imposes personal liability on fiduciaries who breach their duties, in the case of this happening fiduciaries may have to pay for any resulting losses out of their own private assets. This means that without a fiduciary liability policy, a fiduciary’s personal assets may be at risk.