Availability of insurance coverage for lawyers acting as executor or trustee
Estate lawyers will sometimes be called upon by a client to act as executor or trustee as part of their Professional Services. Depending on the complexity of the estate or trust, these appointments can last for years and involve a substantial time investment.
As with other aspects of a legal practice, alleged errors in the administration of an estate or trust can expose the lawyer to professional negligence claims. Even if the lawyer drafted the governing instrument themselves, they may still be exposed to accusation of improper interpretation or misadministration by beneficiaries.
It’s important for lawyers adopting these responsibilities to understand what insurance coverage will be available to them, and whether additional protections may be advisable. While LAWPRO’s Primary Policy (the “Policy”) does cover certain responsibilities associated with estate and trust administration, there are important exceptions and limitations. This article will summarize the Policy coverage and some of its limitations.
I. Coverage is available when appointments are made pursuant to the insured’s professional responsibilities as a lawyer
LAWPRO provides insurance coverage to lawyers in private practice for damages resulting from an error, omission, or negligent act in the performance of “Professional Services” (see Part I (A) of the Policy). These Professional Services are defined in the Policy as expressly including an insured’s activity as a trustee or executor so long as those activities arise pursuant to the insured’s responsibilities as a lawyer (see Part V (gg) of the Policy).
As such, coverage is only available if the insured’s appointment flows from their responsibilities as the client’s lawyer, based on their legal knowledge, judgment, and skill.
II. Services excluded under LAWPRO’s Primary Policy
Even if the appointment flows from legal services provided to the client, and the insured continues to provide legal knowledge, judgment, and skill throughout the appointment, some actions of an executor or trustee may still be excluded under the Policy.
a. Investment advice or services
First, the provision of investment advice or services often falls outside the scope of Professional Services as defined by the Policy.
Claims relating to or arising out of the provision of investment advice or services are expressly excluded under Part III, exclusion (d) of the Policy, unless such advice and services are a direct consequence of the lawyer’s Professional Services. As such, while obligations that would normally fall within a lawyer’s ordinary duties, such as taking inventory of assets and debts, dealing with banks, brokerage and other insurance companies, or arranging for the investment or liquidation of investments, may be covered, any investment advice or services that require a different level or type of expertise beyond that in which lawyers are otherwise trained would not fall within the scope of the Policy.
If an insured expects to be providing investment advice or services beyond those that normally fall within the ordinary course of their Professional Services, it may be advisable to seek additional “executor/trustee” insurance from an excess insurer or on the commercial market to ensure no coverage gaps exist.
b. Intentional wrongs
Second, Claims alleging intentional wrongs on the part of the insured, such as dishonest behavior or fraudulent, criminal, or malicious acts are also excluded under Part III (a) of the Policy. This would include theft or fraud against the estate or beneficiaries.
If a Claim alleges intentional wrongs by another lawyer practising with the insured, coverage is limited to Innocent Parties under the terms of Endorsement No. 5. Lawyers not acting as sole practitioners must purchase the Mandatory Innocent Party Coverage, which covers circumstances where the insured may be vicariously responsibly for the actors or omissions of other parties with whom the insured practises. This coverage has a sublimit of $250,000 per claim and in the aggregate, but may be bought up to $500,000 per claim and in the aggregate, or $1 million per claim and in the aggregate.
c. Fee disputes and punitive damages
Third, Claims arising out of fee disputes or contested passing of accounts are not covered under the Policy, as such fees are expressly excluded under the definition of Damages in Part V(j)(ii). Disputes may arise with respect to executor or trustee compensation that the beneficiaries allege to be excessive. In these circumstances, LAWPRO will deny coverage and provide no defence if a Claim is made only with respect to solicitor fees or compensation as trustee or executor.
As well, insured should take note that a breach of their fiduciary duties as trustee or executor could lead to liability for punitive damages, which would also fall outside the scope of coverage under Part V(j)(iii) of the Policy.
III. Coverage for lawyers winding down their practice
LAWPRO provides run-off coverage to exempt and retired lawyers who previously engaged in the private practice of law. This coverage is provided at no cost, but has a lifetime limit of $250,000 per claim and in the aggregate.
Lawyers appointed to act as estate trustee, a trustee for an inter vivos trust, or an attorney for property prior to leaving practice, and who will continue to act in such a capacity, can apply under exemption (h) of the Policy to maintain coverage for these continuing obligations while exempt. However, this must be residual work from the lawyer’s past practice; this exemption will not apply if the lawyer is appointed during retirement or in a non-practising or exempt status. As well, this exemption would not apply in circumstances where the insured is acting in respect of a family member, which means a “related person” as defined under section 251(2) of the Income Tax Act.
Exemption (h) applies to retired lawyers and lawyers electing a non-practising status or who otherwise qualify for exemption under eligibility rules d-f. As well, exemption (h) is available regardless of whether the lawyer is acting on a single matter or multiple trusteeships or powers of attorney.
Lawyers who qualify for this exemption can apply for increased run-off protections of either $500,000 per claim and in the aggregate, or $1,000,000 per claim and in the aggregate, on a 2–5 year basis.
IV. Acquiring insurance beyond the limits of LAWPRO’s Primary Policy
Lawyers appointed as executor or trustee for high-value estates or trusts may want to consider additional insurance above the standard limits of $1 million per claim and $2 million in the aggregate under the Policy. LAWPRO’s Excess insurance options can provide increased limits up to $9 million per claim and in the aggregate.
Excess insurance is underwritten on a firm basis, where the amount of coverage is the total pool of funds available for defence costs and indemnity payments for all lawyers in the firm. Premiums under the Excess program are underwritten on an individual firm basis, and take into account the nature and size of the firm, individual lawyers’ areas of practice, and practice status and loss exposure of firm members.
V. Know the limits of your insurance coverage
While some potential liability that can arise under a trustee or executor appointment will be covered under LAWPRO’s Primary Policy, lawyers should note that coverage gaps may exist. In circumstances where the appointment is made outside the insured’s Professional Services, where the insured is providing investment advice or services beyond that which would ordinarily fall under the performance of legal services, or where the potential liability exceeds the limits under the Policy, additional insurance may be advisable.
If you suspect a Claim may be made regarding work done as an executor or trustee, contact LAWPRO immediately. If you have additional coverage questions, or would like more information on increased run-off protections or Excess insurance options, please contact LAWPRO’s Customer Service at 1-800-410-1013 or 416-598-5899.