Lay Trustees Should Protect Themselves Against Claims

Agreeing to become a Trustee is not dissimilar to a marriage contract and perhaps rather like a marriage should not ‘be entered into in-advisedly or lightly but reverently, discreetly, advisedly and soberly’. While it may be easier to walk away from a trusteeship the consequences of making a mistake are serious and you could face potential liabilities that are both personal and unlimited. Lay trustees, involved with private trust funds, are particularly vulnerable because it has not been easy to find suitable indemnity insurance until now.

Trusteeships fall into three main categories: charitable, private and pension. A trustee of a charity has very little exposure to the risk of being sued because the beneficiaries of a charity are not named individuals -making it difficult for an individual to sue a trustee; consequently indemnity insurance is fairly cheap and widely available.

Trustees of pension funds have a far larger exposure to risk through claims from pension holders and creditors. To some extent these risks are often mitigated by exoneration clauses that are incorporated within individual company schemes. Exoneration clauses are not always watertight of course and subject to statutory limits and it is common practice for companies to protect pension trustees with pension trustee liability insurance.

The situation for a lay trustee who manages a private trust fund falls between the two extremes. The risks they are exposed to are greater than those of charitable trustees because of the involvement of individual beneficiaries. The risks seem less onerous than those faced by pension trustees, where much larger assets are involved. Under English Law a suitably worded exemption can help protect a lay trustee if a claim is made against them but as with exoneration clauses they don’t always hold up in court, so lay trustees are recommended to purchase indemnity cover paid by the trust, in line with pension and charitable trustees.

Hugo Johnsen, Director of Castleacre Insurance brokers, says ‘it hasn’t really been a level playing field for lay trustees until now – we have designed a policy which will help protect a lay trustee against claims made against them as a result of any mistakes they have made in this role.’ Castleacre’s Trustee Indemnity policy will protect a trustee for any ‘wrongful act’ which is normally defined as ’an actual or alleged act, error, omission, misstatement, misleading statement, negligent act, negligent error, negligent omission or negligent breach of duty committed or attempted by a trustee acting in his or her capacity as a trustee.’ Hugo Johnsen continues ‘of course this policy does not cover criminal acts but it addresses all the key areas where a trustee might be exposed to risk.’

Trustee Indemnity Insurance

• Cover is provided for defence and investigation costs and if found guilty for any civil liabilities
• Cover is on a ‘claims made’ basis so any mistakes of the past are still covered from the date the claim was first made to the insurer
• Retired trustees may continue to benefit from cover for a certain period, usually 6 years from the time of retirement.