Frequently Asked Questions – Insurance
Trustee Professional Liability Insurance offered to members of The Private Trust Consortium is truly transformative. For the first time, individual trustees have ready access to reasonably priced Trustee Professional Liability Insurance which protects not only their interests but also the – sometimes conflicting – interests of the trust beneficiaries they serve. We say it is transformative because settlors and their advisors can now confidently and safely select the individuals they want to serve as their trustees, knowing that their beneficiaries are protected, and the individual trustees can agree to serve as a trustee without having to worry about the costs they might incur personally if they are accused of making a mistake in the administration of the trust. These costs can include not only the damages they may have to pay but also the attorneys’ fees and costs they may incur in order to defend themselves.
Who is Brown & Brown?
The 6th largest insurance broker worldwide with over 300 locations in the US and Europe. Brown & Brown is a publicly traded company that has negotiated a unique and competitive Professional Liability insurance policy available only to members of the Private Trust Consortium.
Who is Chubb Insurance Group?
What does the Trustee Professional Liability Policy cover?
Who is covered under this policy?
How do I know how much insurance to buy?
Do I need this insurance if I am indemnified by the trust agreement?
Yes. In order to understand the answer to this question, the trustee must understand the difference between insurance and an indemnity agreement contained in a contract such as a trust, and he or she must also understand the different interests of the trustee on the one hand and the trust (beneficiaries) on the other hand. An indemnity agreement is a contract that transfers the responsibility for a loss from one party to the other. An indemnity agreement can exist independent from an insurance policy. Insurance, on the other hand, is the contractual obligation of an insurance company to pay certain amounts (e.g., damages and/or attorneys’ fees and costs) in the event a claim is made against the named insured. In the case of insurance, a premium is paid to the insurance company, and the insurance company delivers an insurance policy to the insured party setting forth the insurance company’s obligations if there is a claim.
An indemnity agreement can be set forth in a trust. The indemnity agreement included in most trusts typically authorizes the trustee to reimburse (or advance) out of the assets in the trust all amounts necessary to defray any attorneys’ fees and costs incurred by the trustee to defend himself or herself against a claim and all amounts (damages) the trustee may have to pay.
If Trustee Professional Liability Insurance offered to members of The Private Trust Consortium is in place when a claim is made against the trustee, the process is relatively straightforward. As soon as the insurance company receives a notice of the claim, the insurance company steps in to defend the claim at its expense, and when the claim is settled or finally resolved, the insurance company pays the damages. Importantly, the insurance company does not have the right to seek reimbursement of these costs and damages from the trustee or the trust.
There are at least 2 big disadvantages when the trustee is relying on the indemnification provisions contained in the trust. First, the process of enforcing the trustee’s rights under the indemnification provisions can be complicated. Under the law governing the administration of trusts, the trustee must balance his or her obligations as a fiduciary who is required to act in the best interests of the beneficiaries against his or her contractual right to withdraw funds from the trust to pay his or her attorneys’ fees and costs to defend against the claim. This can raise some difficult questions, especially when a beneficiary is the person who makes the claim. Obviously, a beneficiary might object if the beneficiary initiates an action to remove the trustee and obtain an accounting because of alleged negligence and/or a breach of fiduciary duty by the trustee. Traditionally, courts have allowed the trustee to get access to the trust’s funds pursuant to the terms of the indemnity provision set forth in the trust agreement. However, the courts in a number of states and the legislatures in other states have limited the trustee’s right to rely on these contractual provisions, especially when there is a showing that the claims against the trustee have a substantial basis. This means the trustee’s access to these funds can be delayed or in some cases denied altogether, especially when the trustee is removed.
Second, in the case of an indemnity agreement, the loss is ultimately borne by the trust and/or the trustee as opposed to an insurance contract where the loss is borne by the insurance company. This second point is usually decisive. In fact, an aggressive plaintiff’s attorney may one day assert that a trustee’s failure to acquire insurance like the insurance which is now available to members of The Private Trust Consortium is in and of itself a breach of the trustee’s fiduciary duty.
Do I need this insurance if I have posted a bond?
Yes. A bond is not insurance. A bond is purchased by a trustee to guarantee that the trustee will properly perform his or her duties. If the trustee fails to perform for any reason whatsoever, the company issuing the bond will pay the trust an amount equal to the losses resulting from the failure of the trustee to perform up to the amount of the bond. If the company issuing the bond pays anything, it is entitled to recover the amounts it paid from the trustee. A bond is designed to protect the trust – not the trustee.
Do I need this insurance if I am already covered under an existing malpractice insurance policy, or a separate trustee professional liability insurance policy purchased by me?
For a variety of reasons, the answer to this question is probably “Yes”. However, in order to understand the answer to this question, the trustee must understand the difference between traditional professional liability insurance covering the actions of an individual trustee and the Trustee Professional Liability Insurance offered by Chubb to the members of The Private Trust Consortium. First, traditional professional liability insurance included in a malpractice insurance policy may have important limitations or in many cases this coverage may be specifically excluded. In addition, these policies may be cancelled or modified without the knowledge of the beneficiaries of the trust since the policy is owned and controlled by the individual trustee or a firm, which employees the individual trustee. Finally, this coverage may be impacted if the trustee retires or leaves the firm. The insurance policy available to members of The Private Trust Consortium is tied to the specific trust named in the policy, and the trustee is a named insured. An insurance company issuing a traditional Lawyers Professional Liability Insurance policy may also have a subrogated claim against the trust pursuant to the provisions of any indemnity agreement included in the trust whereas the insurance policy available to the members of The Private Trust Consortium does not include the right to pursue a subrogated claim against the trust. Finally, the insurance available to members of The Private Trust Consortium is less expensive and can be underwritten faster and more easily than traditional professional liability insurance.
Do I need this insurance if I think the risk of being sued by the beneficiaries is very low?
Yes. You need insurance in this situation for the same reason you need fire insurance to insure your home even though your home has never burned, and you don’t think it ever will. These claims are infrequent, but they can be catastrophic. More importantly, it is very difficult to gauge the likelihood of a claim in the case of trusts. Many trustees – especially individual trustees – assume that administering a trust is simple and that the beneficiaries are not going to sue them. However, neither assumption is necessarily correct. Among other things, trustees have a variety of important duties they must perform. For example, they may have to exercise their best judgment and discretion in cases where there are no clear cut instructions; they have to make sure the assets in the trust are properly titled and invested; they have to properly account for all income and principal, including maintaining separate records that properly track principal and income as well as records that track the calculation of income for tax purposes; they have to distribute the assets in accordance with the instructions in the trust which can sometimes be contradictory and confusing; they have to prepare and circulate periodic reports; and they have to timely file all tax returns and pay all taxes. Finally, most individual trustees do not fully appreciate the profound impact that being a trustee can have on his or her relationship with the beneficiaries, especially when the trustee is required to do something that the beneficiaries do not like. In short, acting as a trustee can be a very risky proposition.
Do I need this insurance if the value of the assets in the trust is low?
Yes. If there is a claim, the potential loss can easily exceed the total value of the assets in the trust, especially when one takes into consideration the potential attorneys’ fees and costs that a trustee may incur in order to defend himself or herself.
How do I apply for this insurance?
It is easy. Simply fill out the short Online Application located here.
How much does this insurance cost?
Each policy is individually underwritten so it is not possible to quote a specific price until the Online Application is reviewed by Chubb. However, the insurance is designed to be very reasonably priced – substantially lower than any other alternative coverage that may be available.
How long will it take to get a quote for this insurance?
In most cases a written proposal can be delivered to the applicant within 48 hours.