Fiduciary Insurance and the Board of Retirement in New York State

Transcription

1 ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM MEMORANDUM DATE: October 7, 2015 TO: FROM: SUBJECT: Members of the Board of Retirement Robert Valer, Chief Legal Officer Fiduciary Insurance Recommendation: Receive and file presentation on fiduciary insurance and/or provide follow-up direction to staff. Background: Mr. Leiderman, fiduciary counsel, will make an educational presentation on 1. Types of claims made against plan, trustees and staff, 2. Statutory rights of immunity, indemnity and defense, 3. Why buy insurance, 4. Insurance as allowed administrative cost, 5. Policy and coverage issues, 6. Self-insurance alternative, and 7. Board decision-making process. Mr. Leiderman s slides are attached. Submitted by: RV Approved Robert Valer, Chief Legal Officer I-7 Fiduciary Insurance Page 1 of 1 Regular Board Meeting, October 19, 2015

2 FIDUCIARY INSURANCE: PITFALLS & PROTECTIONS Board of Retirement Orange County Employees Retirement System October 19, 2015 Harvey L. Leiderman

3 OVERVIEW Types of claims Immunity and indemnity Why buy insurance? Insurance as allowed administrative cost Policy and coverage issues Self-insurance alternative Board decision-making process

4 TYPES OF CLAIMS MADE AGAINST PLAN, TRUSTEES AND STAFF Breach of contract MOUs, investment agreements, software licenses and contracts, vendor contracts Breach of fiduciary duty Calculation and payment of benefits Calculation and collection of contributions Actuarial methodologies and assumptions Due process violations re disability applications Investment decisions and fees Participation on private equity advisory committees

5 TYPES OF CLAIMS, cont d Intentional wrongful acts Employee claims -- wrongful termination, harassment, age/race/sexual orientation discrimination Conflicts of interest and improper personal gain Defalcations Brown Act violations Public Records Act violations Personal torts, misdemeanors, felonies Negligence Failure to supervise staff for delegated duties Failure to maintain safe premises

6 STATUTORY RIGHTS OF IMMUNITY, INDEMNITY AND DEFENSE Plan is immune from certain claims against itself, its trustees and employees Trustees and employees are immune from certain claims against themselves OCERS must indemnify and defend trustees and employees from civil liability for acts within the scope of their duties and employment OCERS may indemnify and defend trustees and employees in other circumstances

7 WHY BUY FIDUCIARY INSURANCE? Shift risk of claims against the Plan, the Board, individual trustees, officers to third party Cover attorneys fees and costs of litigation Cover claims not covered by other insurance or indemnities Attract qualified individuals to serve Degree of comfort avoid risk of OCERS delaying or refusing to indemnify

8 INSURANCE AS ALLOWED ADMINISTRATIVE EXPENSE System may provide fiduciary insurance Government Code secs. 990, 7511 Recourse against individual reserved Waiver of recourse premium must be paid by individual Proper expense of administration Going bare alternative Reserve ( self insurance ) alternative But may not relieve from personal liability for certain breaches of fiduciary duty

9 POLICY AND COVERAGE ISSUES Who are the Insureds? Tail coverage for former trustees What is a covered Claim or Loss? What triggers coverage? Claims made during policy period Occurrence during policy period What is the retention (deductible) amount? Per claim or cumulative? What is the coverage Limitation? Per claim or cumulative?

10 POLICY AND COVERAGE ISSUES What Wrongful Acts are usually covered? Acts in course and scope of duties, employment Negligence in plan administration Ministerial errors What Wrongful Acts are usually not covered? Dishonesty, fraud, criminal conduct, willful violation of statute, fines and penalties Defamation, bodily injury, property damage Errors in calculating and paying benefits Errors in calculating and collecting contributions Obtaining wrongful personal gain

11 POLICY AND COVERAGE ISSUES What are covered Damages? Compensatory damages Non-monetary writs, injunctive relief Not fines, penalties, taxes, punitive damages What Costs of Defense are usually covered? Attorneys fees Costs Burning the Coverage Limit or not? Impact of a reservation of rights Who controls the defense and settlement? Choice of counsel negotiable Authority to settle, and consequences ( hammer clause )

12 SELF-INSURANCE ALTERNATIVE Protection not dependent on the marketplace Establish reserve account on books (verify GASB compliance) Tailor coverages to OCERS unique needs Provide coverage after Board service ends Eliminate risk of political considerations Provide neutral, objective third-party claims evaluator Zero premium, zero deductible ( first dollar coverage)

13 BOARD DECISION-MAKING Trustees personal financial interest in insurance is not a disqualifying conflict of interest Determine what risks you want to cover Determine likely claims, amounts, costs to defend Hire an independent, capable broker Evaluate available coverage, exclusions, retentions, premia Evaluate strength of insurers, underwriting criteria Determine importance of controlling defense, settlement and consequences of settlement

14 QUESTIONS?