21.05.24

Legal Briefing for Solicitors – including Protecting Trustees and PI Renewals

Our briefing for members of the legal profession

Family Trusts: Protecting trustees from wrongful act allegations

It is common practice for lawyers advising their clients on the establishment of private family trusts, to act as trustee on those trusts. As trusteeship is a recognised area of legal practice under a Solicitors Minimum Terms & Conditions PI policy, in the event of a claim alleging negligence on the part of the trustees, that lawyer is covered. It is also common practice for the Settlor of the trust to appoint one or two non-professional, or lay, trustees who tend to be wider family members or long-standing, trusted friends. However, unlike the solicitor, a lay trustee has no automatic protection and could be held personally liable in the event of a claim alleging a ‘wrongful act’.

Historically, it was almost inconceivable that a claim could be brought against a lay trustee, the argument being that this was a long-standing family friend or even a relative, undertaking the role voluntarily and without financial reward, for the benefit of the family concerned. However, times have changed and there is now an expectation on the part of today’s generation of lay trustees that a private, family (non-charitable) trust should maintain Trustees Liability Insurance to protect its trustees, both lay and professional. In addition, for the professionals that are often asked to act as trustee, there is an increasing acceptance that the cost of providing that protection should not be borne by their professional practice, but by the trust itself.

While some trust deeds include an Exoneration clause to the effect that the trustee can’t be held liable for a loss to the trust’s assets, other trusts include no such exoneration, meaning that lay trustees could be held personally liable for a wrongful act and face the prospect of a serious personal financial disaster.

Where a trust deed does include a form of exoneration, the trustee would avoid a personal financial disaster, but the claim may then have to be settled from the trust’s assets.

So, what’s the solution? Although most insurers have an appetite for charity trustees, the pool of markets willing to offer Trustees Liability cover for private family trusts is very small. Nevertheless, there are insurers that will offer such cover, and the broader policy wordings can also include an Exoneration Clause Reimbursement endorsement, to reimburse a trust for the cost of exonerating its trustee. Limits of up to £10m in aggregate are available, subject to underwriting, and on total trust asset values of in excess of £150m.

If your practice includes trusteeship work involving lay trustees, do get in touch! We would be very pleased to help.

Frampton v. MLP Law Ltd H34YY517 – Conveyancing solicitors should be aware

In this recent ground rent claim, the defendants MHP Law Ltd were successfully defended in relation to a 2017 conveyance concerning the advice given to the Claimants in relation to ground rent provisions in a long leasehold property.  The legal profession has long been fighting these claims and this judgment follows two recent judgments that reached similar conclusions on breach and loss (Snow v Bannister Preston Solicitors LLP (unreported) and Edwards v Howells Solicitors (unreported)).

The key issue here focused on what a reasonably competent conveyancing solicitor should have reasonably known at the time it was advising the Claimants. Solicitors’ actions are to be assessed according to professional standards and what was reasonably known by the legal profession at the time of the retainer.  At the time of purchase (mid-2017), the AST Issue was a developing issue.  Solicitors are entitled to refer to the latest version of the Law Society Conveyancing Handbook to set the boundaries on what they should reasonably know when advising clients on the material aspects of a conveyance.  Whilst the AST Issue is more widely known about today, in the absence of contemporaneous Conveyancing Handbook guidance, any Law Society alert or any other readily available information at the time, MLP Law was held not to have breached its duties to the Claimants in not advising them on the AST Issue.

The Claimants’ case also failed on loss grounds.  They sought to claim losses by reference to the adverse impact that the AST Issue had on the saleability, marketability and mortgageability of their property.  However, the Court preferred MLP Law’s expert valuation evidence that there would still be willing buyers to purchase the property, even with today’s greater general knowledge of the AST Issue.  District Judge Lampkin held that, although a leasehold with a ground rent provision of more than £250 may be disadvantageous in the general sense, there was no loss other than to the pride and feelings of the Claimants, which is irrecoverable in law. 

If you’d welcome a fresh conversation about your firm’s PI arrangements, there is no better time, and we would be very pleased to hear from you.     

Article provided by Andrew Kenyon, Director, Cox Mahon

About Cox Mahon

Cox Mahon Ltd is an independent insurance broker specialising in PI Insurance for Solicitors and other professions, in Trustees Liability Insurance, and in Farms, Estates & Private Client Insurance.