Third Party Administrators / TPAs Errors & Omissions
The Adequacy of Coverage and Exclusions
When Third Party Administrators / TPA's purchase an errors and omission policy the first concern is that the policy is designed to cover the exposures common to TPA's. Not being an insurance expert, they typically rely on their agent and sometimes marketing information provided by the carrier. Often they will be shown a definition of coverage that seems all encompassing.
However as they say, "the devil is in the details". TPA Errors & Omissions policies must be read in their entirety, including all endorsements, to determine if accurate coverage is provided for your services.
Here is an example of an actual prospective TPA's errors & omissions insurance policy recently reviewed by our office:
The definition of "fiduciary" reads as follows: professional service means acts as a trustee, fiduciary or administrator for others for a fee.
However, reading further into the policy there are two exclusions:
- The first exclusion excludes coverage as an administrator or trustee.
- The second exclusion excludes coverage as a fiduciary under the Employee Retirement Income Security Act of 1974.
This prospect was assured by their previous insurance broker that coverage for their services as a TPA was covered under their policy. In review of their policy it is clear that there are serious coverage concerns.
An insurance policy is a legal contract that includes all of the following: definitions, exclusions, conditions and endorsements. If specific coverage/services (i.e. fiduciary) are not referenced, the policy is considered "silent" relevant to this coverage. In this scenario, a specialty insurance agent may be able to negotiate on your behalf "affirmative coverage" with the insurance carrier.
THE FOLLOWING DEFINITION (negotiated by McGowanPRO) WAS RECENTLY CREATED BY ONE OF OUR CARRIERS TO BE ENDORSED SPECIFICALLY TO TPA POLICIES:
FIDUCIARY For the purposes of this coverage a fiduciary means all of responsibilities, obligations or duties imposed upon you in your capacity as a fiduciary of any Plan, other than a Plan organized for the benefit of you or your employees, by: (i) ERISA; (ii) HIPAA; or (iii) any law of the United States or other jurisdiction;
It is important to remember that there are 25 insurance companies that offer various types of coverage for TPA's, each one with its own policy wording. Buying the wrong one could severely impact your firm if coverage is excluded at the time of the claim.
Don't guess at your coverage, understand the nuisances of your policy and rely on an insurance broker that does more than just tell you your policy provides coverage, but shows exactly how it applies.