ERAssure, a Kitchener, Ontario-based insurance provider, recently launched its executor liability insurance product to the broker channel. Canadian Insurance Top Broker spoke with Scot Dalton, CEO of Estate Risk Protection Plan Inc., marketing under the name ERAssure, about executor risk and why this product was necessary.
What is executor risk?
Executor risk is the personal liability that an individual assumes when they manage the administration of the estate of another person. Executors are responsible for their conduct in assembling the assets of an estate, protecting them and determining the actual value of those assets. They also need to determine who’s owed money, including guarantees of debt that mom or dad might have provided for. They have to figure out who is a family member or a descendant and that can be challenging in these days of divorce, re-marriage, extended families, and non-traditional families. They also have to file income tax and they have to account for all of these activities before they distribute the money to the people that are owed money.
If an executor mismanages the task, they’re personally responsible to the beneficiaries, to the creditors and also to third parties that they might be engaged with during the term of the administration. This is a risk area that isn’t covered by traditional bodily injury or property damage insurance that you’d find in your homeowners of your car insurance policy.
What should brokers know about this risk?
The courts were historically pretty lenient in the expectations of an executor doing their duties in the past. Today, the situation is a lot different.
If I were talking to my clients, I’d say to them that even if you haven’t done anything wrong, you might still have to prove your innocence and your conduct when you’re doing an estate administration.
Also, the distribution of assets doesn’t conclude the executor’s personal liability. Here’s a common one that we bump up against. Say that the executor sold mom or dad’s house privately and they distribute the proceeds to the beneficiaries. A year later, the purchaser brings an action against the estate for a grievance that comes out of that property sale. Some people believe that there isn’t going to be any issue because there isn’t any money left in the estate. That’s true; the estate may not have any cash. Now who defends the action and who pays? The executor, just like it was their house.
What is covered in an executor liability policy?
Generally speaking, it’s a very broad policy that for the average, unfortunate family friend or family member that’s charged with the task, it will provide broad scope of defense cost protection plus indemnity in the event that they’re called upon to make good the losses that the estate sustains as a result of their actual or alleged poor management of the assets.