When should you purchase pension trustee liability insurance?


July 2023


What is this coverage and why it is relevant to purchase such insurance protection?

Pension trustee liability insurance typically provides cover where a claim is brought alleging a wrongful act which might amount to a breach of trust, breach of duty, breach of statutory provision, negligence, an error or omission, mis-statement, misleading statements, maladministration or any other wrongful act (as shown within the policy’s definition of ‘Wrongful Act’).

The insurance product itself is, in general terms, designed to meet defence costs, awards, damages, and investigation costs of trustees accused of mistakes, failures, or oversights in their duties.

Who is protected?

Broadly speaking, pension trustee liability insurance protects ‘Insured Persons’ which will be defined in the policy but typically includes the following:

  • Trustees;
  • Secretaries; and
  • Administrators.

However, an important observation ought to be made regarding the nature of the trustees themselves. Additional considerations may come into play if there is only a sole professional trustee appointed to the scheme (i.e. no lay employees)as the wrongful actions of that professional trustee may already be contemplated under an existing professional indemnity policy.

The provisions of any pension trustee liability policy you are considering purchasing, may also contemplate cover for the professional trustee while performing trustee services.

This might mean two potentially competing policies and necessitate an examination of each policy’s “Other Insurance Clause” to determine how the two policies will interact and respond to each other. There are several types of Other Insurance Clauses and they operate in various ways but a typical example might include:

“Insurance provided by this policy applies in excess of the amount recoverable from any other more specific, valid and collectible insurance (“Other Insurance”) issued for the benefit of the Insured.”

An understanding of the interplay of such clauses is critical as a failure to appreciate the nuances of the wording, may create unintended consequences.

Taking this into consideration, do you still need pension trustee liability insurance?

This depends and should always be considered on a case-by-case basis. As insurance brokers, we want to ensure that any insurance cover purchased meets your demands and needs. That means we don’t want to unnecessarily over-insure if there is adequate coverage in place. Equally, it is important you are not under-insured. Pertinent questions might include:

1. Is the sole professional trustee’s professional indemnity policy broad enough in coverage, or has it been restricted via exclusions? In short, is there sufficient coverage?

2. Is a sufficient limit of liability purchased? For instance, if the sole professional trustee arranges a GBP 5,000,000 aggregate professional indemnity policy, consider how many schemes are being handled by the sole professional trustee? If there are many, it may mean that if a claim hits another scheme, the GBP 5,000,000 limit of liability may be eroded in part or in whole.

As and when a sole professional trustee is appointed onto a scheme, you should discuss these factors with your insurance broker so they can assess the situation and provide you with suitable advice.

DISCLAIMER: Please note that when discussing coverage, terms and conditions in this article, we are making generalisations which may not apply to your policy wording. You are strongly advised to obtain independent advice and nothing in this article constitutes a legal opinion or is to be construed as legal advice.