BP 0728–COVERAGE E–EMPLOYEE BENEFITS LIABILITY COVERAGE–CLAIMS-MADE BASIS

(May 2025)

INTRODUCTION

This endorsement is applicable only to the American Association of Insurance Services (AAIS) Businessowners Policy. It provides coverage for negligent damages to an employee resulting from the named insured's actions, errors, or omissions in managing its employee benefits program. Coverage is offered on a claims-made basis. If the coverage is terminated, a Basic Extended Reporting Period is automatically included. Additionally, a Supplemental Extended Reporting Period with unlimited duration can be acquired through an endorsement.

Changes are made to the following sections in the Businessowners Policy and apply to only the coverage this endorsement provides:

• Definitions
• Commercial Liability Coverages
• What Must Be Done In Case of Loss
• How Much We Pay
• Other Liability Coverage Conditions

The following section is added for only this endorsement:

• Extended Reporting Periods

SCHEDULE

The endorsement schedule has spaces for the following entries:

• Coverage E–Employee Benefits Liability Coverage–Each Claim and Aggregate Limits
• Deductible: $1,000 Each Claim
• Retroactive Date (Enter "None" if there is no Retroactive Date)

DEFINITIONS

Three definitions in the Businessowners Policies are deleted and replaced.

1. Insured

This definition is significantly shorter and much less inclusive. Insured means:

a. The named insured and any partner, executive officer, director, stockholder, manager, member, or employee who is or was authorized to administer the named insured's employee benefit program.

b. If an individual named insured dies during the policy period, the named insured's legal representative is an insured while acting within the scope of those duties. A person, organization, or employee who is temporarily authorized to administer the named insured's Employee Benefit Program is also an insured, but only until a proper legal representative is appointed. Once appointed, the named insured's legal representative has all the named insured's rights and duties under this coverage.

2. Employee

These are the named insureds:

• Actively employed, disabled, or retired officers and employees
• Prospective employees
• Former employees
• Beneficiaries or representatives of any of the above

· Leased workers are employees, but temporary workers are not

3. Suit

This definition includes civil or administrative proceedings where damages are claimed for covered negligent acts, errors, or omissions. It also applies to alternative dispute resolution and arbitration proceedings, but only if the insured is required to participate in these proceedings or does so with the consent of the insurance company.

4. Additional Definitions

Four definitions are added:

a. Employee Benefit Program

The following types of plans the named insured maintains for the benefit of its employees:

• Group accident and health or group life insurance
• Pension, retirement, employee stock subscription, or profit sharing plans
• Workers compensation or unemployment insurance, salary continuation plans, social security, or disability benefits insurance
• Vacation, savings, and travel plans
• Other types of plans or insurance on the endorsement schedule

NOTE: The endorsement schedule does not have spaces to enter the name of the plan or plans.

b. Administration

The performance of certain acts the named insured authorizes as a part of the employee benefit program. The following are the specific acts:

• Counseling employees
• Interpreting the program
• Records maintenance and handling
• Enrolling, terminating, and cancelling employees
• Determining compensation and service credits
• Determining benefits
• Preparing reports for governmental agencies
• Preparing materials for employees that communicate their benefits
• Claims handling and processing
• Contributions collection and distributing

c. Claim

A demand for services or money. Bringing suits or initiating alternative dispute resolution proceedings against an insured is also considered a claim.

d. Notice of Claim

A claim for damages can be made against an insured party, and it is officially considered received when either the insurance company or the insured party receives it. This differs from the notice that the named insured must provide to the insurance company under What Must Be Done In Case Of Loss, as outlined elsewhere in this endorsement.

COMMERCIAL LIABILITY COVERAGES

This endorsement adds Coverage E–Employee Benefits Liability.

COVERAGE E–EMPLOYEE BENEFITS LIABILITY

1. Insuring Agreement

a. The insurance company will cover all damages an insured is legally required to pay due to an employee's injury caused by an act, error, or omission that the insured negligently committed while administering an Employee Benefits Program.

Example: Zach joins Louie's Longer Ladders in January. Helen in human resources inadvertently forgets to enroll Zach in the employee profit sharing plan. Zach feels cheated when the other employees receive their profit-sharing checks at the annual Christmas Party, so he sues Louie's. This coverage responds to Zach's suit and pays the damages demanded.

The insurance company has both the right and the duty to defend the insured in a lawsuit seeking damages that may be covered by this endorsement. However, this duty does not apply if the endorsement does not cover the injury. Additionally, the insurance company has the right to investigate any acts, errors, or omissions and to settle claims and lawsuits as it deems appropriate.

b. The How Much We Pay section describes the amount of damages the insurance company pays.

c. Once the insurance company has reached a written agreement or a judgment has been rendered for the policy limit, it is no longer obligated to provide defense coverage.

d. This coverage applies only if all the following conditions are met:

• The act, error, or omission takes place in the basic territory.
• The act, error, or omission occurs after the Retroactive Date on the endorsement schedule and before the end of the policy period.
• A notice of claim is first made during either the policy period or the Extended Reporting Period.

e. Coverage applies only if a current employee, a former employee, or a beneficiary or legal representative of such an employee makes a claim for the first time during the policy period.

Example: Continuing the example above, Zach waited to sue Louie until after he filed his income taxes in April 2026. The policy term for Louie's Longer Ladders ran from January 1, 2025, to January 1, 2026. Because the suit was not filed until after the coverage period expired, the insurance company was not obligated to respond to it.

2. Exclusions

NOTE: The following exclusions apply only to the coverage this endorsement provides. The exclusions provided in the Businessowners Policy are not applicable.

The insurance company does not pay for the following:

a. Damages because of dishonest, fraudulent, criminal, or malicious acts, errors, or omissions that either the insured commits or that others commit with the insured’s knowledge and consent.

b. Damages when ordinances, statutes, or regulations are willfully violated.

c. Bodily injury, property damage, or personal and advertising injury.

d. Damages because any insurance company failed to perform a contract. This exclusion applies even if the failure is for a plan in the employee benefit program.

e. Claims because the insured failed to comply with workers compensation, unemployment insurance, social security, disability benefits, or similar laws.

f. Claims based on any of the following:

• Any stock, bond, mutual fund, or investment failing to perform
• Advice an insured gives concerning participating or not participating in the employee benefit program

Example: Mavis is the Human Resources clerk for Melvin Enterprises. She never understood why anyone would want to purchase COBRA coverage because she thought it was overpriced. Whenever she counseled employees, she strongly encouraged them not to purchase COBRA because she was certain they would soon be employed elsewhere and obtain coverage without the extra expense.

Jillian decides to voluntarily leave Melvin Enterprises to pursue a different career path. During the exit interview, she takes Mavis’ advice and declines COBRA. Unfortunately, the very next day, Jillian is involved in an uninsured car accident. Because she did not have health insurance, she filed a claim against Melvin Enterprises and Mavis for her faulty advice. This endorsement does not cover Melvin or Mavis.

• Errors in providing information concerning the performance of investment instruments
• Funds that are or are not invested

g. Damages because a fiduciary violates its obligations, duties, regulations, or responsibilities with respect to the Employee Retirement Income Security Act (ERISA) of 1974

h. Damages due to a plan terminating or not having sufficient funds to meet obligations of any plan in the Employee Benefit Program

i. Claims for benefits if they are available from funds or other collectible insurance to the extent they are available with the insured's reasonable effort and cooperation

Example: Maximillian, Inc.’s procedure is to enroll every employee in its life and disability insurance employee benefits program. Polly is a new clerk in the Human Resources Department. She made an error and did not include Millie on the automatic enrollment form.

Millie is injured and would have been covered under the disability plan except for Polly’s mistake. Maximillian can prove that it intended to cover Millie and that only a clerical error caused her to be left out of the plan. Before the insurance company will pay for this claim, Maximillian is expected to take the steps necessary to retroactively enroll Millie in the disability plan.

j. Damages due to refusing to employ, terminating employment, or any employment-related practice, policy, act, or omission.

Related Article: BP 0623–Employment Practices Liability–Claims-Made Basis

k. Taxes, fines, or penalties

WHAT MUST BE DONE IN CASE OF LOSS

The section titled "What Must Be Done In Case Of Loss" in the Businessowners Policy has been removed regarding the coverage provided by this endorsement. The following text replaces it.

1. Notice

a. An insured must give prompt notice to the insurance company or its agent of any event or incident it becomes aware of that might become a claim under this endorsement's coverage.

NOTE: Notice to the insured's agent is considered notice to the insurance company.

Example: Ellie at Macky Lee, Inc. was confused and informed all terminated employees they should not apply for COBRA because their health insurance would continue for 18 months at no cost. However, when one of the employees called her former boss to thank him for this supposedly generous benefit, he contacted Paul, the vice president of human resources, to confirm the information.

Paul spoke with Ellie, contacted the insurance company, and informed them there could be seven potential claims based on Ellie’s misinformation. He then devised a plan to address the health coverage gap before notifying the employees about Ellie’s mistake and informing them they would need to purchase COBRA.

b. The notice must include the insured’s name and policy number, as well as describe the act, error, or omission. It must also state when and where the event occurred and include the names and addresses of everyone who might file a claim.

2. Other Duties

a. Once a claim is made or a suit is brought, the named insured and any other insured involved in the claim or suit have certain duties. They must comply with all of the following:

• Immediately send the insurance company copies of all legal papers, demands, and notices received related to the claim or suit.
• Cooperate with and, when requested, help the insurance company with all of the following:
• Settle the claim.
• Investigate claims, assist with suits, and attend trials, hearings, and proceedings. But remember – only if requested.
• Enforce rights against parties who may be liable to any insured for damages this endorsement covers.
• Secure and give evidence.
• Obtain attendance of all witnesses.
• Provide written authorization to obtain records and other information as legally permitted.

b. The insured is required to record the specific details of any claim it receives and notify the insurance company as soon as practical. The date is particularly important. The named insured must ensure the company receives written notice of the claim as soon as practical.

HOW MUCH WE PAY

The following deletes and replaces the How Much We Pay section in the Businessowners policy for Coverage E—Employee Benefits Liability for this endorsement only.

1. Limits

The limits on the endorsement schedule are the most the insurance company pays for damages. This is regardless of the number of acts, errors, or omissions, benefit plans, claims made (or suits brought), insureds, or persons or organizations that make claims or bring suits.

2. Aggregate Limit

The Aggregate Limit on the endorsement schedule is the most the insurance company pays for the total of all damages due to claims this endorsement covers.

3. Each Claim Limit

The Each Claim Limit on the endorsement schedule is subject to the Aggregate Limit. It is the most paid for the total of all damages due to a single claim this endorsement covers.

4. Aggregate Limit

The Aggregate Limit applies separately to each consecutive 12-month period. It starts with this coverage's inception date. If the policy period is extended for periods of less than 12 months, the aggregate limit applied to the preceding 12 months also applies to the extension period.

5. Deductible

The deductible amount on the endorsement schedule is deducted from the amount of each claim. The insurance company is liable for only damages that exceed the deductible amount. The deductible amount does not reduce the limits of insurance.

OTHER LIABILITY COVERAGE CONDITIONS

This additional condition applies only with respect to the coverage this endorsement provides.

Settlement of Deductible

The insurance company may pay all or part of the deductible amount to settle a claim or suit. If it does, the named insured must promptly reimburse the company when notified.

EXTENDED REPORTING PERIODS

Because this endorsement is provided on a claims-made basis, the following provisions have been added:

1. Provisions Applicable To All Extended Reporting Periods

a. The insurance company provides a Basic Extended Reporting Period and a Supplemental Extended Reporting Period. They apply if:

• The insurance company cancels or does not renew this coverage for reasons other than the named insured not paying the premium.

• The insurance company renews or replaces this coverage with other insurance with a Retroactive Date later than the one on the endorsement schedule (or it provides claims-made coverage).
• The insurance company replaces this coverage with other coverage not on a claims-made basis.

b. Extended Reporting Periods do not amend the coverage provided or extend the policy period. They apply to only claims that take place after any Retroactive Date on the endorsement schedule and before the policy period ends. Claims made within 12 months after the policy period ends are considered made on the last day of the policy period. However, coverage applies only if the covered claim for damages took place after the Retroactive Date and before the end of the policy period.

The decision to purchase this extended reporting period cannot be revoked. Once the extended Reporting Period goes into effect, neither party can cancel it.

c. Extended Reporting Periods do not increase or reinstate the limits that apply to any claim this endorsement covers. The only exception to this is as 3. Provisions Applicable to Supplemental Extended Reporting Period below describes.

2. Provisions Applicable To The Basic Extended Reporting Period

This endorsement automatically includes a Basic Extended Reporting Period without an additional premium charge.

a. The automatic period lasts 12 months for claims due to events reported to the insurance company not more than 60 days after the policy period ends. This complies with the Notice provision under What Must Be Done In Case Of Loss.

b. This automatic reporting period lasts only 60 days after the policy period ends for events not reported to the insurance company as described in a. above.

3. Provisions Applicable To The Supplemental Extended Reporting Period

The Supplemental Extended Reporting Period's duration is unlimited. It must be endorsed and subject to an additional premium charge. It is subject to a separate aggregate limit of insurance that applies to only the limited claims that fall within its provisions. The premium charge can be up to 200% of the most recent annual premium charged for this coverage.

The named insured must request this coverage in writing within 60 days after the policy period ends.

NOTE: BP 0729–Coverage E–Employee Benefits Liability Coverage–Supplemental Extended Reporting Period must be attached.