Included or Excluded? Trustee Services, Insured vs. Insured Provisions in a Professional Liability Policy
Professional Services Coverage for a Trustee
Are Trustee Services covered within a Miscellaneous Professional Liability or Errors and Omissions (E&O) Policy for the following roles?
- Trustee, Protective Committee, Investment Trustee, Distribution Committee, Successor Trustee Receiver, Agent of Record, Paralegal, Personal Representative/Executer, Power Of Attorney
The answer is yes, but not by default. For the nature of the services provided by the above roles, these entities should carry Professional Liability specifically for “Trustees E&O.”
Example: Distribution Committee
An endorsement can modify insurance provided under Miscellaneous Professional Liability Coverage, which specifically names the applicable “Trust;” “Named Trustee(s);” and “Trust Agreement.” The Trust Agreement is shown in the Schedule of Professional Services in this Endorsement for Trustee Services.
Definitions
- Professional Services means Trustee Services provided by the Named Trustee(s) to others as designated under the terms of the Trustee Agreement.
- Trustee Services means managing the assets and business affairs of the Named Trust by the Named Trustee, pursuant to the terms and conditions of the Trust Agreement. Beneficiary means any individual or entity designated under the Named Trust or that otherwise has a specified right to receive Trustee Services provided by the Named Trustee.
Insured vs. Insured
- An insured versus insured exclusion is found in directors and officers (D&O) liability policies (and to a lesser extent in other types of professional liability coverage). [1] The exclusion precludes coverage for claims by one director or officer against another. [2]
- The purpose of this exclusion is to eliminate coverage for four types of situations: (1) employment practice claims, (2) internal disputes/infighting, (3) claims involving collusion, and (4) claims by organizations against their directors and officers for imprudent business practices. [3]
- However, in the context of Trustee Services, this exclusion shall not apply to any Claim brought by a Beneficiary arising out of his or her right to receive benefits from the Insured Trust, if such Claim neither relates to nor arises out of any actual or alleged Wrongful Act committed by such Beneficiary.
Likely excluded from coverage:
1) Banking or Investment Advice, Promises or Guarantees based upon, arising out of or attributable to any:
- advice by an Insured in its capacity as, or the selection of, an investment manager, investment advisor or custodial firm;
- advice, promise or guarantee by an Insured as to the future value of investments or property or specified rate of return or interest; or
- advice by an Insured relating to investments, mergers, acquisitions, restructurings, divestitures or other investment banking services by an Insured;
2) Client Funds
- based upon, arising out of or attributable to the Insured’s exercise of any authority or discretionary control with respect to any client’s funds or accounts;
3) Comingling of Funds
- based upon, arising out of or attributable to any actual or alleged commingling or improper use of funds, accounts, premiums, fees, taxes, claims commissions or brokerage monies for which any Insured collected or should have collected on behalf of another person or organization; sums received by any Insured or credited to any Insured’s account which any Insured returned or should have returned to another person or organization; or any claim amount that any Insured paid or should have paid to another person or organization.
4) Investment Performance
- based upon, arising out of or attributable to the failure of investments to perform as expected or desired.
5) Based upon, arising out of or attributable to the rendering or failure to render any:
- legal, financial, auditing, accounting, tax, architectural, actuarial or engineering services; or
- services as a securities broker/dealer or commodities broker/dealer.
6) Transfer of Funds, Monies or Securities
- based upon, arising out of or attributable to the transfer or failure to transfer funds, monies, or securities.
7) Violation of Securities Rules, Regulation or Other Law based upon, arising out of or attributable to:
- any actual or alleged violation of the rules and regulations of the National Association of Securities Dealers
(“NASD”) or the Securities Exchange Commission (“SEC”) or any state securities regulatory agency; or - any actual or alleged use or disclosure of non-public information in violation of any securities or other law;
All other terms, conditions, provisions and exclusions of this policy remain the same.
References
Insured versus insured exclusion. IRMI. (n.d.). https://www.irmi.com/term/insurance-definitions/insured-versus-insured-exclusion
Steadfast Insurance Company / Zurich. (n.d.). Professional Indemnity. Zurich: Commercial Insurance Products. <https://www.zurich.com/commercial-insurance/products/professional-indemnity>