Difference Between Liability & Fidelity Coverage

by Michael Evans

Liability insurance and fidelity coverage both offer financial protection for companies that handle securities, such as stocks and bonds, or employee benefit plans. Fidelity insurance offers protection for companies against criminal acts from which they may suffer, while liability coverage can protect against financial damages policyholders may cause to other parties. Companies that handle financial instruments or benefit plans may face requirements by the federal government to carry certain types of coverage.

Fidelity Coverage

Fidelity coverage protects the policyholder against financial losses caused by crimes such as embezzlement, computer fraud, counterfeiting, forgery, robbery or wire transfer fraud. A comprehensive fidelity policy may cover actual financial losses, such as stolen money or securities, along with costs such as investigative services to catch perpetrators. While fidelity coverage offers financial protection for organizations, it does not cover the personal assets of people within a company, who may face individual liability for losses incurred by owners of securities or employee benefit plans.

Fidelity Insurance Market

The federal Employee Retirement Income Security Act, commonly known by its acronym, ERISA, requires businesses that administer employee benefit plans to purchase fidelity insurance. However, the market for fidelity coverage can include any type of business that faces loss due to dishonesty or fraud. Insurers also offer fidelity coverage for nonprofit organizations, hospitals, homeowners associations, manufacturers and wholesale businesses. Companies that provide services on the premises of other businesses may also purchase fidelity coverage to protect against criminal activity its employees may perpetrate while on service calls.

Liability Coverage

Insurers offer numerous types of liability policies to pay for personal injuries, damage to property or financial damage incurred by people or entities other than the policyholder. Insurance companies offer liability policies to cover physical property damage or injuries incurred by members within an organization, such as employees; nonmembers, such as customers; or both. Companies can also purchase liability policies to protect against damages to securities or employee benefits plans caused by omissions or errors made by administrators. Unlike fidelity coverage, liability policies that cover securities or benefit plans often do not provide protection against crime-related losses. Individuals placed in positions of trust over employee benefit plans or securities, known as fiduciaries, can face individual liability for financial damages caused by their alleged neglect or failure to properly perform their jobs. Insurers offer fiduciary liability insurance policies, which companies or fiduciaries can purchase, to provide protection for individuals with fiduciary responsibilities.

Liability Insurance Market

The ERISA does not require companies administering employee benefit plans, or the fiduciaries within such companies, to purchase fiduciary liability insurance. However, the law does allow parties alleging financial damages to sue fiduciaries for failure to properly administer their benefit plans. For this reason, companies administering employee benefit plans often purchase fiduciary liability insurance for their officers and employees with fiduciary duties. Any type of company that may face lawsuits due to omissions or errors related to financial instruments may purchase liability coverage. Organizations purchasing omissions and error or fiduciary liability insurance may include stock brokerages, mortgage originators or publicly traded companies.

About the Author

Michael Evans was born in Memphis, Tenn. He graduated from The University of Memphis, earning a Bachelor of Arts degree in communication. His primary course of study was photography and film production. He first began writing professionally for iOwn Inc. in 1997, and was published by LensWork Magazine in 2003.

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