Employers nationwide are experiencing a new wave of ERISA litigation targeting so-called “tobacco surcharges” on employees enrolled in employer-sponsored health plans. Because these lawsuits are generally brought as putative class actions, the stakes can be significant and some multi-million dollar settlements have already become public. But employers need not face the costs of defending and resolving these ERISA cases alone. Fiduciary liability insurance policies generally require insurers to pay for defense costs incurred in ERISA class actions and, depending on their terms and conditions, fiduciary liability policies may cover most, if not all, of any eventual settlements or judgments. Employers should carefully review reservation of rights letters and resist efforts by fiduciary liability insurers to improperly resist or limit coverage for tobacco surcharge litigation.
