Executive Summary: Transparency, Disclosure, and E&O Exposure: The Risks Brokers Carry and the Ones They Should Own
LFP-14.03 — The Broker’s Position#
A broker recommends a level funded plan. In month ten, a member is diagnosed with cancer. At renewal, the stop loss carrier lasers that member at $350,000, effectively excluding the known treatment costs from standard coverage. The employer asks whether the broker explained this risk at original placement. The answer to that question determines the broker’s E&O exposure.
Five specific exposure categories define the level funded broker’s risk profile. Stop loss gaps are the most visible: the broker who places level funded without explaining laser mechanics, the difference between first-year and renewal-year attachment points, and the employer’s options if a laser is applied has created an advisory gap that E&O underwriters recognize as a claims trigger. Aggregate corridor exposure arises when the broker presents the monthly cost without explaining that the employer bears uncapped risk between expected claims and the aggregate attachment point, typically set at 120 to 125 percent of expected. Plan design compliance failures, such as an HRA structure that inadvertently disqualifies employees from HSA contributions, generate tax consequences the employer traces to the broker. TPA performance failure creates exposure when the broker recommended a TPA without documented diligence. Network adequacy failures, reinforced by the Hecht v. Cigna settlement of approximately $6 million in October 2025, establish that ghost network problems can sustain fiduciary breach claims.
Level funded E&O risk exceeds fully insured E&O risk structurally. In a fully insured placement, the carrier assumes claims risk, compliance responsibility, and administrative obligations. In a level funded placement, the broker advises the employer to accept claims risk, rely on a TPA for administration, and depend on a stop loss carrier for catastrophic protection. Each element introduces exposure the employer would not carry in a fully insured arrangement. E&O underwriting questionnaires now probe the broker’s self-funded experience, stop loss evaluation credentials, and TPA vetting processes with increasing specificity.
E&O claims specifically attributed to level funded recommendations are not yet a large category in published data, but the claims cycle lags placement by three to five years. The 155 ERISA fiduciary class lawsuits filed in 2025, with 35 involving health plans, add a second dimension of exposure. The brokers who build documentation and process infrastructure to manage this exposure are positioned. The brokers accumulating exposure without recognizing it will encounter it at renewal, in litigation, or on their next E&O application.