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Volume 3, 2006:

Trust Department Errors & Omissions

Sometimes it seems that no matter what you do, in someone’s mind it is wrong.  Administering trusts is an excellent example, particularly in times of a volatile stock market.  BancInsure has paid a claim that clearly illustrates this point.  Our insured bank’s trust department accepted a trust for the benefit of an eight year old girl.  The initial trust’s assets consisted of approximately $900,000 in cash and about $350,000 in real estate.  The trust department actively managed the account through out the life of the trust with periodic reviews and adjustments in light of economic market considerations, including selling most of the real estate and reinvesting in equities and fixed income securities.  The beneficiary’s mother was supplied with periodic reports on the status of the account.  The bank never received any complaints and actually received a letter from beneficiary’s mother praising the trust’s performance.

A few years later, the beneficiary’s mother filed a lawsuit on behalf of the beneficiary alleging that overly aggressive investing in equities in later half of the year 2000 had raised the risk level to an unacceptable level.  This was the claim for approximately six months until an amended complaint completely reversing allegations was filed that substituted the beneficiary as the plaintiff and alleged that the trust department should have been much more aggressive in investing over the life of the trust since the bank knew that the family was wealthy and the funds would not be needed for an extended period of time.  Allegations also included various improper practices and omissions.  The suit claimed damages of $2,000,000.

BancInsure indemnified the bank for over $200,000 in defense costs after the bank had satisfied its self insured retention and paid approximately $400,000 to settle the case.  This is an obvious case of “20/20 hind sight” on the part of the beneficiary, or more likely her attorneys and expert witnesses. The bank appears to have acted responsibly, but acting responsibly does not prevent second guessing resulting in prolonged and extremely expensive litigation. 

BancInsure’s Directors’ and Officers’ Liability Insurance Policy offers protection for a broad range of claims made against directors and officers.  BancInsure also offers entity coverage to the bank for certain claims in the form of endorsements to the Directors’ and Officers’ Policy covering bankers errors and omissions, professional services, employment practices liability, lender liability, trust department errors and omissions, and mutual funds, insurance and annuity sales.  If you would like to learn more about BancInsure’s Directors’ and Officers’ Liability Insurance Policy and its entity endorsements, please contact your local BancInsure agent.