ELIS GOMER – Property and Private Client, Company and Commercial and Court of Protection Barrister at St John’s Buildings Barristers’ Chambers.

1. I am asked to advise on the DUAL Executor and Inheritance Insurance Policy (hereafter ‘the Policy’) and how its introduction affects the landscape of the professional personal representative, trustee or estate beneficiary. I am also asked to comment whether such a policy could be funded from estate assets as an expense of the administration, whether a solicitor would be under a duty to advise a client falling into one of the aforesaid categories of the existence of such a policy, and the professional liability implications of failing to do so.

2. In doing so, I have been assisted by the documentation kindly provided to me by those instructing me.

THE RELEVANT CONTEXT:

3. Before I examine the terms of the Policy and the benefits that it can provide, it may be apposite to comment on the landscape in which it appears. Estate litigation is a growing sector; if the number of solicitors’ firms that are introducing a specialist estate litigation department can be taken as a reliable bellwether of the amount of work available, it seems that the number of such claims is likely to rise further in future.

4. In many respects, this is not surprising. The generation currently reaching the end of their lives saw a significant widening in the number of people to own capital and to own their own homes. Conversely, the much-publicised difficulties faced by ‘millennials’ in terms of rising living costs and property prices means that, in a great many cases, the expectation of receiving an inheritance takes on a degree of urgency. The tendency towards more complex family dynamics and the generally ageing population (with its concomitant increase in the number of people whose mental capacity is suspect) has also rendered the ground for estate disputes more fertile.

5. Litigation which arises from a beneficiary’s disappointment as to his entitlement under a will hardening into a belief that some foul play is to blame for it is nothing new, but the flames are often fanned by the sudden imperative to revise expectations; it is often easier to argue that “Dad wouldn’t have wanted this” than to accept that it will not be possible to pay off the mortgage or that the pension might have to be smaller than had hitherto been intended.

6. Yet further, the fact that the provisions of the will might throw into stark relief the fact that the disappointed beneficiary’s relationship with the testator was not as close as might have been thought; again, it is all too easy to blame the scheming of a sibling or other family member and their attempts to poison the mind of the testator than to accept that the relationship was not all it could have been.

7. Protecting an estate and its assets from dissipation at the hands of disappointed beneficiaries is therefore a pressing issue for executors and those tasked with the administration of an estate. Whilst it is perfectly true to state that a great many estate disputes (whatever stage they reach) are speculative and have modest prospects of success, this is likely to be of little comfort to those who have an interest in preserving the estate if the putative claimant is a man of straw and that therefore any legal costs incurred in defending the estate are irrecoverable inter partes.

8. I have acted in many estate disputes where the claimant is entirely open about the fact that they have no means with which to satisfy a costs order and that a victory for the estate would be a Pyrrhic one in terms of the expense of achieving it; moreover, it is not at all uncommon to find such a position being used explicitly as a bargaining chip, insofar as the claimant might well say “it will cost you £50,000 to defend this matter to a trial, and you won’t get any of it back even if you win, so you may as well give it to me now as a settlement since you’re spending it one way or another.” Perhaps unsurprisingly, this causes significant resentment amongst those who stand to benefit from the estate, but the economic pressures to reach such ‘nuisance’ settlements is substantial given the expense of defending an estate claim and (in certain circumstances) the uncertainty of the outcome of the litigation.

9. Similarly, beneficiaries are increasingly prepared to challenge the decisions of trustees and personal representatives and to question their administration of trusts and estates. Trustees and personal representatives are frequently in extremely vulnerable positions in such circumstances given their personal liability for breaches of duty and can often find that similar problems to those described above can arise in terms of costs.

THE POLICY:

10. It is here that the Policy can assist. Provided that the representatives of the estate can satisfy Dual as to certain information requirements set out in the Policy’s accompanying Statement of Fact (for example, that there is no evidence of any subsequent will; that the deceased was not known to be suffering from any mental illness at the time that the will was drafted; that the executor is not aware of any likely challenge to the will by a third party, etc), then Dual will insure the estate against a wide range of potential events, including:

i. Claims against the validity of the will on the grounds of capacity, undue influence or fraud;

ii. Claims for financial provision from the estate pursuant to the provisions of the Inheritance (Provision for Family and Dependants) Act 1975;

iii. The subsequent discovery of a later will which would affect the estate distribution to the beneficiaries;

iv. Proprietary estoppel claims in respect of estate assets;

v. Identity fraud by a beneficiary;

vi. Previously unidentified tax liabilities.

11. The above list is not exhaustive and the list of insured events set out in the Policy covers the majority of problems that an estate could encounter in this regard. The point might fairly be made that Dual requires, as a condition of agreeing to indemnify the estate in the first place, that the estate is given a ‘clean bill of health’; by this, I mean that Dual require there to be no existing claims or any known challenges to the will when the relevant policy is incepted, in line with its status as a ‘before-the-event’ insurance policy.

12. Equally, however, it may be pointed out that this requirement is no different to any other before-the-event policy of insurance; products which indemnify a risk that has already crystallised (after-the-event policies) cater for different needs and tend to attract significantly higher premiums. Whilst the list of matters that must be confirmed to Dual before the inception of the Policy is not a trivial one, the questions seem to me to be the sort of questions that any competent executor would wish to be satisfied about in any event, and provided that no claim has been intimated (or the likelihood of, or grounds for, one identified) prior to the inception of the policy, the indemnity provided would provide substantial peace of mind for the personal representative (and beneficiaries) of the estate.

13. It seems to me that the Policy fills a highly useful niche. There are existing products on the market which might fulfil some of the functions of the Policy – some before-the-event insurance products will indemnify legal costs in certain estate disputes, for example, whilst missing beneficiary insurance policies will allow peace of mind if a beneficiary cannot be traced – but I am not aware of any existing products which provide a prudent executor with a one-stop solution that covers the breadth of the insured events set out in the Policy.

THE POLICY AS AN ADMINISTRATION EXPENSE:

14. Given its likely utility to executors, the obvious question that arises is whether the cost of the Policy can be reasonably incurred as an estate expense. It seems to me that clearly it can provided that the executor is satisfied as to its reasonableness. Whilst there may be some circumstances where such insurance is an unnecessary expense – e.g. where the family circumstances and the terms of the will are clearly uncontentious – it is likely to be reasonable to consider taking out the Policy in most other situations.

15. Sections 19 and 20 of the Trustee Act 1925, as amended by section 34 of the Trustee Act 2000, or their general powers under the Trustee Act 2000 allow a trustee to insure against all risks and obtain insurance cover for all property which is subject to the trust, whether land or chattels. The premium may be taken from either capital or income. The statutory duty of care applies to the trustee’s choice of insurer and the terms of the insurance. These powers do not impose a duty on the trustee to insure but it is likely that a failure to insure in circumstances where a reasonable person would have insured trust property will constitute a breach of the trustee’s paramount duty to act in the best interests of the present and future beneficiaries of the trust.

16. I note that Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (the leading text on this area of law) states that executors are ‘encouraged’ to insure for missing beneficiaries (citing Re Evans [1999] 2 All ER 777 as authority for this proposition). It seems to me highly likely that the extension of the ambit of this cover to the sort of comprehensive indemnity provided by the Policy would be seen as eminently reasonable in light of the development of this area of practice as set out above, and that executors would be acting entirely reasonably in incurring the premium from estate funds as an expense of administration unless it is obvious that the nature of the estate does not warrant it.

SOLICITORS’ LIABILITY:

17. The obvious question that the above points raise is – given that the Policy exists as a product, and its benefits would seem to be clear – what potential liability might be incurred by a professional advisor who neglects to advise a client of its existence and likely benefits.

18. The crucial question, when assessing the question of liability, is whether the solicitor has represented the client with the degree of care and skill that the ‘reasonably competent solicitor’ would have brought to the same task. The test is the same both in tort and in contract under the retainer. It is relatively settled law that a solicitor holding himself or herself out as having specialist knowledge in a particular field is judged against a hypothetical ‘reasonably competent’ solicitor in the same field, as opposed to a general practitioner.

19. It will be appreciated that the question of whether the solicitor has breached this duty is not quite as simple as whether or not he has made a mistake or took a decision which was regrettable in hindsight. The hypothetical ‘reasonable solicitor’ is not omniscient and their actions are judged in light of the general practices of the profession. The duty owed by the solicitor to his client was summarised as follows:

“The obligations of a lawyer are, I think, the following: (1) To be skilful and careful; (2) To advise his client on all matters relevant to his retainer; (3) To protect his client’s interests; (4) To carry out his client’s instructions by all proper means; (5) To consult with his client on all questions of doubt which do not fall within the express or implied discretion left to him; (6) To keep his client informed to such an extent as may be necessary, according to the same criteria.”

20. As such, the issue will turn substantially on whether the advice given to the client fell below the standard of a ‘reasonably competent solicitor’ in the relevant field and whether the solicitor failed to discharge any of the other duties set out above. A solicitor will be found negligent if there is a foreseeable risk attached to a particular event and a simple method of avoiding it. This does not mean, of course, that a solicitor would be negligent for failing to persuade a client not to take out the Policy; however, a solicitor who failed to advise the client of the existence of such insurance and the possibility of availing onself of it would in my view be at risk of being found to be negligent.

21. Of particular importance in this regard is the requirement on the solicitor to “advise his client on all matters relevant to his retainer”. An executor, upon being told about the existence of the Policy and the reasons why he might wish to take out such insurance in respect of the estate which he represents, might elect not to do so. There is nothing wrong with such a step if it is taken in an informed way – the executor might consider that there is no likelihood that such a claim might ever be brought or that – if it was – the beneficiaries of the estate would prefer to indemnify the costs of defending it from the estate.

22. However, an executor who was forced to incur costs in defending a claim which would have been indemnified by the Policy had it been taken out might well ask the question why he was not informed that such insurance existed. It seems to me highly unlikely that a court would find that the notional executor who is being advised by professionals on an estate administration would not have wanted to know that the possibility of taking out insurance such as that provided by the Policy existed, and that there was no likelihood that the same executor would have taken out the Policy had he known about it.

23. The situation has significant parallels with the duties of litigators to advise prospective litigants about the availability of legal expenses insurance (both in terms of the possibility that the client might have existing before-the-event insurance and also as regards the availability of after-the-event insurance). It is well established that a solicitor is highly likely to be considered negligent if he fails to advise a client that they should carry out checks for before-the-event insurance, given that they might have a pre-existing indemnity in respect of legal costs that they incur, and it is becoming increasingly understood that it might constitute negligence not to advise clients as to the availability of after-the-event insurance even if the client may not have availed himself of such a product in any event. It seems to me that a court would take a similar view in respect of the existence of the Policy and its place in the advice given to the client.

24. I therefore conclude that:

i. The Policy provides a prudent executor with a one-stop solution that covers most of the potential threats to an estate from disappointed beneficiaries or fraud. I would be minded to recommend it to any executors administering an estate which is not entirely straightforward.

ii. An executor would be acting entirely reasonably in incurring the premium from estate funds as an expense of administration unless it is obvious that the nature of the estate does not warrant it, indeed, as discussed above, it is entirely probable that it will become the sort of encouraged practice cited in the practitioner texts.

iii. The failure on the part of a professional adviser to appraise executors of the benefits of the Policy would in my view be likely to be thought negligent by a court in the event that a professional negligence claim was brought by an executor or beneficiary of an estate which had been adversely affected by the type of event covered by the Policy, for the reasons set out above.

25. I advise accordingly and hope that the foregoing will assist. Should there be any other matter with which I can assist, those instructing me should not hesitate to contact me in Chambers.