Administering employee benefit plans comes with responsibility—and risk. Even small clerical mistakes in plan administration can lead to costly consequences for both employers and their employees. That’s where Plan Administrator Liability Coverage, also known as an Employee Benefits Liability Rider, plays a crucial role. At Norbram, we help businesses protect themselves against the risks that come with managing group benefits internally.
What Does Plan Administrator Liability Cover?
Plan administrator liability coverage is designed to shield your business from legal and financial fallout caused by errors or oversights in the administration of employee benefits. Whether it’s health, dental, disability, life insurance, or critical illness coverage, this protection ensures that mistakes in processing or reporting don’t result in unexpected liability.
Without this coverage, your business could be held financially responsible if an employee is denied coverage—or receives reduced benefits—because of an administrative error.
Common Mistakes That Trigger Claims
Administering benefits requires accuracy and attention to detail. Unfortunately, simple human errors can result in employees being under-covered or not covered at all. Here are some examples of mistakes that can expose your company to liability:
Forgetting to enroll a new hire in the group plan
Failing to update an employee’s salary with the insurer
Omitting a dependent or spouse from coverage
Not removing a former employee from the benefits plan
Failing to update or include beneficiary designations
Incomplete or outdated employee records
Real-World Scenarios: When Oversights Become Liability
Let’s consider a situation involving an employee named Raj. After receiving a raise from $55,000 to $75,000 annually, the plan administrator forgets to notify the insurance company of the change.
Scenario 1: Disability Coverage Shortfall
A year later, Raj goes on long-term disability. Unfortunately, his benefit payments are based on the old salary of $55,000, resulting in significantly reduced income at a critical time.Scenario 2: Life Insurance Discrepancy
If Raj had tragically passed away, his life insurance—set at two times his salary—would have paid out only $110,000 instead of the $150,000 his family was entitled to, simply due to an unreported raise.
In both cases, the employer could be held liable for the difference because the error originated from internal plan administration.
The Legal Risks Are Real
If a mistake results in denied or reduced benefits, the impacted employee—or their family—could pursue legal action. Both the business and the individual plan administrator may be named in a lawsuit. Legal fees, settlements, and reputational damage can be costly. With the right coverage in place, your business is protected.
A Simple Solution: Add an Employee Benefits Liability Rider
The good news? This risk can be mitigated. By adding a Plan Administrator or Employee Benefits Liability Rider to your Commercial General Liability (CGL) policy, you’re protecting your business from these types of administrative oversights.
Peace of Mind for You—and Your Team
If you offer group benefits and your HR or management team handles plan administration—even in part—it’s important to evaluate your insurance coverage. Mistakes happen, but the financial consequences don’t have to fall solely on your business.
At Norbram, we guide employers through the process of identifying gaps in their protection and adding the right riders to keep their business and their employees secure.
Interested in learning more?
Reach out to the Norbram team to discuss how Plan Administrator Liability Coverage fits into your broader risk management strategy.
