I didn’t want July to pass without commenting on The Fid Guru’s excellent blog post reviewing excessive fee litigation over the first half of the year and the corresponding state of the fiduciary liability insurance market. I particularly appreciated the extensive discussion of the history of the market for fiduciary liability coverage, as it gives excellent context to the commentary that is out there on the internet and elsewhere about changes in the availability and pricing of fiduciary liability insurance. As many of you likely know, there has been much internal discussion among lawyers and plan sponsors concerning the availability of fiduciary liability coverage. The post explains that – subject to exceptions – coverage generally remains available but policy limits have become – pun intended – limited, and the use of substantial retentions or sub-retentions has increased substantially, all to control the level of risk taken on by insurers in light of the dramatic rise in class action litigation against plans.
I have defended a few clients over the years against lawsuits who didn’t have fiduciary liability coverage (either because they chose not to purchase it or tried to but couldn’t obtain it) and who regretted not having the coverage after being sued. Whatever the terms were for the coverage when they could have purchased it, it was less expensive than the cost of fully funding the defense of the litigation itself and the settlement in full, from dollar zero, as they were required to do in the absence of any coverage at all. Even with a high retention, they still would have significantly reduced their liability in each case by having had fiduciary liability coverage in place.