1. Forms
2. MP
3. MP-04-03

What the form is

The MP 04 03, titled "Coverage Extension–Merged, Sold, Spun-Off, or Terminated Plans," is an endorsement to an insurance policy, typically a Management Protection Policy. Its primary function is to extend fiduciary liability coverage to situations involving employee benefit plans that have undergone significant structural changes such as being merged with another plan, sold to another entity, spun-off into a new plan, or altogether terminated. For coverage to apply, these specific plans must be listed on the schedule of this endorsement.

Classes of business it applies to

This endorsement is relevant for any organization that sponsors employee benefit plans and might engage in activities such as mergers, acquisitions, divestitures, or significant restructuring that could lead to the alteration or termination of such plans. Examples include:

• Companies acquiring other businesses and needing to integrate or terminate the acquired company's benefit plans.
• Businesses selling a division or subsidiary, which may involve spinning off or terminating the benefit plans associated with that part of the business.
• Organizations that decide to freeze or terminate existing pension or welfare plans due to changes in business strategy or financial conditions.

In essence, any entity with fiduciary responsibilities for employee benefit plans that could face legacy liabilities from plans no longer actively managed by them would find this endorsement pertinent.

Special considerations

Key considerations for the MP 04 03 endorsement include:

• Scheduled Plans Only: Coverage is not automatic for any merged, sold, spun-off, or terminated plan. The specific plan(s) must be explicitly listed on the endorsement schedule for coverage to apply. This means proactive communication with the insurer is necessary when such events occur or are anticipated.
• Timing of Endorsement: It's crucial to add this endorsement, or update the schedule, promptly when a plan undergoes one of the specified changes to avoid potential coverage gaps for claims that may arise post-transaction or termination related to pre-existing fiduciary duties.
• Retroactive Coverage: The endorsement typically addresses claims arising from wrongful acts that occurred prior to the merger, sale, spin-off, or termination, but are made after the event and during the policy period (or extended reporting period, if applicable).

Key information for agents and underwriters

For insurance agents and underwriters, the MP 04 03 presents several important points:

• Risk Assessment: Underwriters need to carefully evaluate the nature of the plans being added via this endorsement. This includes understanding the type of plan (e.g., defined benefit, defined contribution, welfare plan), its prior administration, funding status (especially for pension plans), and any known or potential fiduciary issues.
• Due Diligence in M&A: Agents should advise clients involved in mergers or acquisitions about the importance of this coverage extension for both their existing plans and any plans being acquired or divested. Failure to secure this coverage can leave a company exposed to significant legacy liabilities.
• Clarity in Scheduling: Ensure that the plans are clearly and accurately identified on the endorsement schedule to prevent any ambiguity regarding which plans are covered.
• Premium Considerations: The addition of plans via this endorsement may impact the premium, reflecting the increased scope of risk being assumed by the insurer. Underwriters will assess the potential for future claims stemming from these plans.
• Interaction with Primary Coverage: This endorsement modifies the primary coverage form (e.g., MP 00 07 Fiduciary Liability Coverage Form). It's essential to understand how its terms interact with the definitions, exclusions, and conditions of the main policy.