:: Fifth Circuit Holds That ERISA Fiduciary Insurance Coverage Does Not Encompass Alleged COBRA Violations

he relevant Policy provisions, which are expressly described as providing “fiduciary liability coverage,” only insure against claims of “wrongful acts.” The Policy defines “wrongful acts” as  “any breach of the responsibilities, obligations or duties imposed upon fiduciaries of the Sponsored Plan by [ERISA], as amended, . . . or any negligent act, error or omission in the Administration of any Sponsored Plan.” The district court properly found that the COBRA allegations were not covered “wrongful acts” because any alleged failure to offer continuing benefits under its plans rests on Mary Kay as a plan sponsor, and sponsorship acts or omissions are not fiduciary in nature. See 29 U.S.C. § 1161(a); Lockheed Corp. v. Spink, 517 U.S. 882, 890-91, 116 S. Ct. 1783, 135 L. Ed. 2d 153 (1996).

Mary Kay Holding Corp v. Fed. Ins. Co., 2009 U.S. App. LEXIS 2381 (5th Cir. Tex. Feb. 6, 2009)

In this diversity action, the Fifth Circuit construed insurance policy provisions in a dispute over the duty to defend aspect of the insurance coverage.   The Mary Kay organization, as policyholder, filed suit against Federal Insurance Company (”FIC”) in response to FIC’s refusal to indemnify or defend Mary Kay in a suit brought against it by Marketing Specialists Corporation and others (collectively, “MSC”).

The Court held for the carrier, finding that the claims against Mary Kay by MSC related to plan sponsor functions, not “wrongful acts” as an ERISA fiduciary.  This finding was fatal to Mary Kay’s claims