Will umbrella insurance cover against a breach of fiduciary claim?
Yes. In past years, I’ve had several clients sued by members of their own families because the client allegedly had mismanaged or improperly benefited from an estate or trust for which they were named as personal representative or trustee. This past week, one of my clients who was the target as trustee discovered that claims that could be filed against him would be covered by his existing insurance policies.
The client had a $1 million umbrella liability policy. He had taken the policy to protect against risk associated with his cars and real estate. Umbrella policies are designed to cover gaps in underlying insurance. The insurance agent told my client that his and most umbrella policies cover claims against the insured for breach of fiduciary duty. Fiduciary claims against the insured could also result from service, paid or voluntary, on boards of directors for non-profit or charitable organizations. Umbrella insurance does not cover intentional acts. People who embezzle money from a family estate or trust are subject to claims for intentional torts which would not be an insurable risk.
Most people accept appointments of trustees or personal representatives to assist in administering their family’s estate plan. When all family members are on friendly terms, there is a small risk involved.
In some situations, such as second marriages where spouses have separate families, the death of a parent can lead to family squabbles. Anyone who takes on the job (usually unpaid) of serving as a personal representative or trustee should make sure they are insured against claims for mismanagement or negligence by an umbrella insurance policy.
There are separate underlying insurance policies to insure against fiduciary liability.
