As trusted advisors, lawyers in private practice are sometimes asked by clients to act as executors or trustees, or in some other similar fiduciary capacity.
Lawyers prepared to accept such roles generally enjoy coverage under the professional liability insurance policy (Part A) for any negligence claims that might arise.
Under the policy, coverage is available to you for mistakes made while acting as an administrator, executor, guardian, trustee or committee or in any similar fiduciary capacity, provided that such services are connected with and incidental to your practice of law. As long as you are not a full-time or professional fiduciary, have been asked to act because of a solicitor’s (rather than, for example, a familial) relationship, and continue to maintain a law practice, your services are generally “connected with and incidental to” your practice of law.1 In these circumstances, any mistake made by you while providing services as a fiduciary will, prima facie, attract coverage under the policy.
Lawyers acting as fiduciaries will want to familiarize themselves with the policy terms, and specifically note the following:
- Before agreeing to act, lawyers will want to recognize and take appropriate steps to manage risks that may be inherent in the role. See Lawyers as executors: Traps and tips and Preventing claims for information and tips.
- Acting as a fiduciary may also present an increased risk of certain claims that do not generally arise in practice, and to which the policy is not intended to respond. For example, allegations that you acted intentionally rather than negligently, or dishonestly or fraudulently, are not covered. Claims for the return or reimbursement of any property or benefit received are also excluded.
- The policy does not provide coverage to a lawyer acting as a trustee of an employee benefit plan or pension plan.
- Exclusion 6 of the policy (the “business exclusion”) may operate to exclude coverage if, for example, you have a separate personal or business (including your law business) relationship with any of the individuals or entities related to the trust or estate. Summary of Exclusion 6 of the Policy.
Sometimes, lawyers are asked to provide both fiduciary and legal services. For instance, a lawyer may act as the executor and trustee of a client’s will and provide, either directly or through their firm, legal services relating to the estate. Before agreeing to provide both types of services, you will want to consider the following:
- Although the policy will protect the lawyer and firm from claims arising out of mistakes made in providing both executor/trustee and legal services to an estate, it will not assist in disputes over compensation. A charging clause in the will works to reduce the risk of a claim that the lawyer profited from the position of trust by charging for legal services provided by the lawyer or firm.
- If Exclusion 6 of the policy operates to exclude cover for claims against you arising out of your fiduciary role (see above), it will also exclude cover for claims against you or, potentially, others at your firm in relation to legal services provided. See Summary of Exclusion 6 of the Policy.
- There may be increased risks as a result of acting, in essence, as both lawyer and client, particularly as the complexity or longevity of any trust or estate increases, and depending on your level of control. For instance, a beneficiary may allege that you, as trustee, acted in a conflict by authorizing unnecessary legal work to benefit your firm. In addition, you may find yourself in an uncomfortable position if, as trustee, you are obliged to claim against your partner for a mistake made in the legal services provided. You will want to ensure that you are meeting your BC Code, rule 3.4 obligations, particularly 3.4-26.1, 26.2, 28, 29 and 30,2 in relation to any potential conflict and, if warranted, refer either the legal or trustee services to a lawyer at another firm.
Of course, coverage is only available for lawyers who pay the annual insurance fee, and other terms and conditions in the policy may limit or preclude that coverage. You will want to make separate inquiries in respect of any excess insurance your firm might carry.
If you would like the Insurer’s position on coverage in a particular set of circumstances, please send a detailed description of the circumstances, in writing, to one of the advance ruling advisors.
* Executors may be referenced as personal representatives under the Wills, Estates and Succession Act.
1. If not, you may wish to consider purchasing errors and omissions insurance for executors, available on the private market.
2. Prior to January 1, 2013, Chapter 7, Professional Conduct Handbook.