Fiduciaries who rely on insurance brokers for an explanation of policy language should think twice before merely paraphrasing that explanation for participants and beneficiaries. Not only do fiduciaries have a duty to understand a policy’s coverage, they also must accurately describe that coverage. If the broker’s summary proves to be inaccurate or incomplete, the fiduciaries may be liable.
At least one court has expressly held that fiduciaries could be held liable for miscommunicating the terms of a life insurance policy in these circumstances. (See Gregg v. Transportation Workers (6th Cir. 2003).) Relying on a summary of the policy’s terms that was provided by their broker, the fiduciaries informed participants that coverage would remain available after their retirement. The fiduciaries failed, however, to disclose that the insurer could terminate the policy after three years if an insufficient number of employees were covered. The insurer did just that, and the participants sued.
The court rejected the fiduciaries’ contention that they were entitled to rely on the statements of the broker, finding that the broker was not independent because it was paid by the insurer. Although fiduciaries may solicit expert advice, the court stated, “requiring that a fiduciary read the policy he signs and that he have a basic understanding of its most important provisions does not ask too much.” Thus, any fiduciary who relies on a broker for advice should carefully review the policy at issue and ask specific questions about its terms.