Reading Time: 5 minutes
A board of directors takes on real personal risk when they accept a governance role.
When conflicts surrounding board decisions arise, directors may be held accountable for breaching their fiduciary duties. As such, board members must prioritize the interests of the organization and its stakeholders.
Fiduciary liability insurance exists to protect board members (and the organization) when decisions are challenged or mistakes are made.
This guide explains what fiduciary liability insurance covers, how it differs from directors and officers’ insurance, key considerations for nonprofits, and what boards should prioritize in a policy.
What is Fiduciary Liability Insurance?
Fiduciary liability insurance is a policy that covers claims arising from alleged breaches of fiduciary duty by board of directors and plan administrators.
It protects both individual board members and the organization against claims related to the mismanagement of employee benefits, improper investment decisions, conflicts of interest allegations, and administrative errors.
It is distinct from directors and officers’ insurance, which covers wrongful acts in corporate governance. Fiduciary liability is much narrower, focused specific on Employee Retirement Income Security Act (ERISA) obligations and the management of employee benefit plans.
Fiduciary Liability Insurance vs. D&O Insurance
What Does Fiduciary Liability Insurance Cover?
There are several costs covered under fiduciary liability insurance. Examples include:
- Defense costs, including legal fees regardless of whether a claim has merit
- Settlements and judgements
- Employee benefit plan administration claims
- Investment management decisions, including allegations of imprudent investments
- Conflict of interest allegations
- Failure to properly oversee executives or employees
Knowing what a fiduciary policy excludes helps boards sport coverage gaps before a claim arises. Standard exclusions include:
- Intentional fraud or criminal acts
- Personal profit gain illegally
- Bodily injury and property damage
- Claims arising before the policy period
- Regulatory fines and penalties
How Much Does Coverage Cost?
The cost of fiduciary liability insurance can vary depend on several factors. In general, the cost can range from a few thousand dollars to tens of thousands of dollars.
There are several factors that influence the cost of fiduciary liability insurance:
- Size and Type of Organization: Larger organizations and those with a higher level of risk may require more coverage and pay higher premiums.
- Scope of Coverage: The extent needed can also affect the insurance cost. For example, an organization that manages several employee benefits plans may require more coverage than one that manages only one.
- Insurance Provider: The insurance costs can vary depending on the insurance provider and the specific policy.
In addition, there may be other considerations that affect the cost of coverage, such as the organization’s claim history, risk profile, and deductible chosen. It’s recommended that organizations work with an experienced insurance broker to assess their needs.
Fiduciary Liability Insurance by Board Type
Liability exposure varies depending on how an organization is structured and governed. A fiduciary liability policy should reflect those differences.
Corporate Boards
For corporate boards, some of the most significant fiduciary risks center on employee benefit plans. ERISA exposure and investment liability for pension fund oversight are among the most common claim drivers.
Nonprofit Boards
Nonprofit fiduciary liability insurance needs to account for the added personal risks that volunteers carry. Key coverage areas include volunteer director exposure; grant management and fund stewardship claims; state attorney general oversight of charitable assets, including ensuring donations are used for their intended purpose and that conflicts of interest are avoided.
Healthcare Boards
Healthcare boards carry heightened exposure from clinical quality oversight and medical staff decisions. Directors are held to duty of care, duty of loyalty, and duty of obedience, and are expected to review organizational risk and act in good faith.
What to Look for in an Insurance Policy
Choosing the right fiduciary liability policy means understanding both how much coverage the board needs and how the policy is structured.
Here are the key components to evaluate in a prospective policy:
- Coverage Limits: Boards should estimate their risk exposure and choose limits sufficient to cover potential defense costs and judgements.
- Claims-Made Basis: Fiduciary liability policies are written exclusively on a claims-made basis, meaning coverage applies to claims filed during the active policy period. Understanding the retroactive data is important: claims arising from conduct before that date will not be covered.
- Tail Coverage: Extended reporting period coverage protects directors after they leave the board, ensuring they remain covered for claims during their tenure.
- Conduct Exclusions: Boards should understand precisely what conduct is excluded before binding a policy.
- Individual Director Coverage: Some policies include provisions that protect individual directors personally when the organization cannot or will not provide indemnification. Confirm whether this protection is included and under what conditions it applies.
- Dedicated Limits vs. Shared Limits: Coverage limits can be shared with a directors and officers’ policy or dedicated solely to the fiduciary policy.
How Good Governance Reduces Fiduciary Risk
Fiduciary insurance covers financial losses after a claim is filed.
Good governance reduces the chance a claim gets filed at all. A structured, well-documented decision-making process helps boards meet their legal obligations and creates a record that can be used to defend their conduct if it is ever challenged.
From agenda management and advanced meeting capabilities to collaboration tools and robust security features, the software is designed to streamline board operations, enhance decision-making, and empower boards to uphold their fiduciary duties.
Getting started is easy — schedule a demo.
Board Management Software
The comprehensive blueprint for selecting a results-driven board management vendor.
Frequently Asked Questions
What is fiduciary liability insurance?
Fiduciary liability insurance is a policy that covers claims arising from alleged breaches of fiduciary duty by board directors. It protects both board members and the organizations they serve against claims related to mismanagement of employee benefit plans, improper investment decisions, and administrative errors.
What is the difference between fiduciary liability insurance and D&O insurance?
D&O insurance covers wrongful acts by directors and officers in the course of corporate governance, including shareholder disputes and regulatory compliance claims. Fiduciary liability insurance covers a narrower category: claims arising from the management of employee benefit plans and ERISA-related obligations. The two policies are designed to complement each other, not substitute for each other.
Is fiduciary liability insurance required by law?
Fiduciary liability insurance is not required by law, but ERISA does require plan fiduciaries to carry a fidelity bond covering plan assets against dishonest acts. The fidelity bond is a separate requirement and does not substitute for fiduciary liability insurance, which covers defense costs and judgments from breach of duty claims.
About The Author
- Gina Guy is an implementation consultant who specializes in working with nonprofit organizations get the most from their board meetings. She loves helping customers ease their workloads through their use of OnBoard. A Purdue University graduate, Gina enjoys refinishing furniture, running, kayaking, and traveling in her spare time. She lives in Monticello, Indiana, with her husband.
Latest entries
AI & TechnologyJune 2, 2026School Board Software: 7 Best Solutions in 2026
USJune 1, 2026Q&A: What Percentage is a Quorum?
Risk & ComplianceApril 16, 2026What is a Conflict of Interest Policy? (Overview, Definition, and Template)
Board Management SoftwareMarch 20, 2026Board Member Positions: Titles, Roles, and Responsibilities
