Creditor Liability Contingency Insurance
The policy provides protection to the trustee or personal representative against a claimant proving or attempting to prove a legal right of recovery for a liability from the estate where, despite notice being given, the claim is allowable after the statutory notice period and recovery cannot be made from the net estate or the beneficiaries to whom funds have been distributed.
Notice given under Section 27 of the Trustee Act 1925 will, after the expiry of two months, provide a trustee or personal representative with protection against subsequent claims from creditors generally. However, if the personal representative nevertheless has knowledge of a situation or circumstance which could give rise to a claim on the deceased’s estate in the future, he or she may be considered to have had constructive notice and feel that appropriate steps should prudently be taken to safeguard their position.
A professional personal representative may be expected to have knowledge of matters which, whilst not necessarily identifiable or quantifiable at the time, could give rise to claims in the future.
The possibility of a currently unspecified but suspected liability for which the estate may be responsible may lead a trustee or personal representative to retain a proportion of the estate as a contingency fund and, in some cases, this may keep assets tied up for years until they are able to satisfy themselves that the threat has expired.
If the assets of the estate have been dispersed and it is no longer possible to obtain reimbursement of monies paid to beneficiaries, the trustees or personal representatives may find themselves personally liable to the claimant.
- Facilitates distribution of some or all of the residuary estate following satisfaction of all currently ascertainable claims while avoiding any potential personal liability for later claims
- Upon payment of a one-off premium cover is provided in perpetuity
- Allows beneficiaries to receive some or all of their full entitlement sooner than might otherwise be the case
- May facilitate earlier winding-up, thereby saving administration costs
What The Policy Covers
- The amount of the personal representatives’ legal liability to a subsequent claimant (who is not a beneficiary) on the deceased’s estate
- Costs incurred with the consent of the insurer in defending any action brought by the claimant against the personal representative
- Any other costs and expenses incurred with the prior consent of the insurer