New Insurance Product For Lay Executors - Insurance Laws and Products - Canada (2024)

Earlier this year, a new insurance product, ERAssure waslaunched and is now available in BC. While errors and omissionsinsurance has long been available for directors and officers,professionals and even strata council members, this is the firsttime that such a product has become available in Canada forexecutors and trustees. Similar products are available in theUnited States, United Kingdom and Australia.

The ERAssure product provides coverage to individual (but notcorporate) executors, trustees and administrators for damagesarising out of errors and omissions committed during theadministration of an estate. Defence costs are also covered underthe policy.

Under the policy, the insurer agrees to pay all sums which theinsured becomes legally obligated to pay as damages arising out ofa claim, if the liability is the result of an error, omission ornegligent act in the performance of, or failure to perform, theduties of estate trustee. Like any insurance policy, there aredefinitions, conditions and exclusions which may limit coverage.For example, one of the requirements is that the policy must bepurchased within 60 days of the testator's death. Thisrequirement ensures that executors move to obtain coverage beforesignificant estate decisions are made. There is an initial launchprovision that allows coverage on existing estates, providedcertain requirements are met.

The policy can be written on virtually any size of estate withthe liability capped at three million dollars. With additionalunderwriting, it is possible to offer a liability limit as high asfive million dollars.

One of the most important conditions to note is that the policyis "claims-made", as opposed to "occurrence"based, meaning that coverage is conditional upon the claim beingmade against the insured for the first time during the policyperiod, regardless of when the alleged error, omission or negligentact took place (subject to a number of further conditions). Promptreporting of the claim is therefore absolutely necessary in orderfor coverage to be confirmed.

While the ERAssure product (as with any insurance product) doesnot cover all claims that an executor or trustee might face,individual executors and trustees should be made aware of itsavailability. Given how costly litigation can be, it could provideprotection for the appropriate estate administration.

Note that the policy does not require a trial to triggercoverage. A claim made for monetary damages is sufficient. This isimportant because not every dispute over estate administrationbecomes the subject of a lawsuit. In our experience, the number oflawsuits actually filed against executors and the number of thosethat proceed to trial seems relatively small in relation to all ofthe potential litigation. There may be a number of explanations forthis:

• The cost of carrying legal proceedings through to trial is veryhigh.
• The accepted level of ability and diligence for a lay executoris not a standard of perfection. While the courts emphasize thehigh fiduciary duties required of an executor, clients aresometimes surprised at the reluctance of the court to remove anexecutor for mere delays or poor communication. Lawyers, therefore,are typically reluctant to embroil their clients in protractedlitigation except as a last resort.
• Frequently the dissatisfaction of beneficiaries is played outin the course of determining an executor's compensation. It isoften in this final part of an estate administration thatbeneficiaries raise negligence, delays or poor investment decisionmaking and seek to hold the executor's compensation to thelowest possible level, rather than commencing negligence basedlegal action. While executor compensation may be challenged incourt, frequently this takes place in shorter duration hearings andcan often be resolved before the actual hearing date.
• Despite the restraints on estate administration litigationdiscussed above, there are signs that the landscape may bechanging. First, with the dramatic increase in real estate valuesover the last 10 years, estates are proportionately larger than inprevious decades, making litigation appear worth the costs. Second,the ramifications of a high divorce rate are also beginning toreverberate significantly; second marriages have potential toresult in discord after death and are increasingly reflected inestate disputes.

Additionally, it has been suggested by some observers that thelitigious culture of the United States may be creeping northward.Related to this is the reality of the internet which may also havean impact on increased litigation. Not only does it make thebeneficiary an "expert" on all topics, the fact that anexecutor also has more ready access to information might well raisethe standard of acceptable performance over time. Some lawyers arebeginning to hear that the defence of "how should I haveknown" is being responded with "how could you nothave known".

While it is difficult to anticipate all of the impacts of thisnew type of coverage, we expect that the practical resolutionprocess will not change significantly from the current practice.The change, however, will be in who bears the cost related toallegations of executor negligence. With an insurance policy inforce, the defence and an indemnity is paid for by the insurancecompany and not from estate assets or the executor personally. Thiscould be quite important when a file starts to "get out ofcontrol" and costs begin to escalate quickly. It will be theinsurer who has the liability and not the executor.

While the issue has not yet been determined by the Courts, it ispossible that the insurance premiums would be payable from theestate. We expect that this issue will depend on whether the Courtwill view this type of insurance as a necessary expense of theexecutor. Of course, it is also possible for a testator to provide,in his or her will, that the costs of insurance be borne by theestate.

In estates, there has often been this perceived unfairness thata lay executor must assume various burdens without the benefit ofinsurance coverage such as has been made available to institutionalexecutors either through their own self-insurance or otherpolicies. We expect the availability and use of this coverage willreduce some of the stresses that otherwise engage an estatefile.

ERAssure is only available at the recommendation of legalcounsel. If you or your client is an executor and interested inthis product, members of our Wealth Preservation group are able toassist.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circ*mstances.

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