Coverage for liabilities of a liquidating trust and loss suffered by the trustees and employees of a liquidating trust as a result of claims made against them in their capacity as such.
Liquidating trusts are formed to maximize value and distribute to creditors the proceeds of divested assets of a formerly distressed and now liquidated entity. Liquidating Trustees Liability Insurance addresses the unique exposures facing liquidating trusts and their trustees, who may be subject to scrutiny of already disgruntled beneficiaries or other third parties who disagree with the manner in which the trustee is attempting to liquidate (or has liquidated) otherwise illiquid assets.
Without the benefit of Liquidating Trustees Liability Insurance, a challenge to a trust’s status could lead to the diminution in value of the trust assets, or worse, if the challenge is made after funds have been distributed, there may not be sufficient trust assets to defend such challenge—or to pay any tax, interest, or penalties—and the practical recovery of funds from beneficiaries may be difficult.
Virtually all agreements governing liquidating trusts contain indemnification provisions to protect the trustee. However, Liquidating Trustees Liability Insurance can provide a backstop where the trust may ultimately lack the financial wherewithal to support these obligations.
Liquidating Trustees Liability Insurance policies are custom-tailored to the risk to be insured and an insured’s specific circumstances. Policies can be purchased at the time a trust is established, during the pendency of a trust, or when a trust terminates. In addition to providing liability coverage for individual trustees, policies can be extended to provide additional trust coverage for transaction or event-specific exposures that are commonly covered under transactional insurance policies.
A large family-owned company has recently been subject to declining fortunes. Although management attempted to formulate a plan to restructure the company under Chapter 11 of United States Bankruptcy Code, a combination of weak business prospects in the industry, family infighting and mounting pressure from secured creditors resulted in a decision to formulate a plan of liquidation. The debtor's advisors recommended formation of a liquidating trust, as it would be the most effective method of liquidating the remaining assets. However, the contemplated independent trustee is concerned about the possibility of lawsuits brought against her and the trust, given the disgruntled family members and creditors. A Liquidating Trustees Liability Insurance policy may be obtained to respond to claims against the trustee and the trust, giving the independent trustee sufficient comfort to agree to the appointment.
A liquidating trust was established to maximize the value in the liquidation of certain assets of a reorganized entity. All assets have been sold, and the cost of continuing to operate the trust is significant relative to the size of the assets available for distribution. The trustees have hired a professional consultant to locate all potential beneficiaries and have been advised that no remaining beneficiaries can be located. Given the depletion in the size of the trust, the trustees determine that it is most prudent to make a final distribution and to terminate the trust. However remote the exposure might be, the trustees are concerned that a beneficiary that could not be located could bring a lawsuit against the trustees, alleging that they are personally liable for distributions that it should have received as a result of the final distribution. A Liquidating Trustees Liability Insurance policy may be obtained, allowing the final distribution to be made.
A liquidating trust sells one of its largest assets, a small piece of commercial property. Although the trust was represented by legal and other professional advisors during the sale of the property, one of the trustees (formerly the CEO of the grantor entity) was personally involved in the sale. The building was sold with very limited representations and warranties because the trustees intended to make a final distribution to all beneficiaries and then liquidate the trust. Despite the limited representations made and corresponding indemnity, the trustee is concerned about being personally liable to the purchaser related to the transaction. A Liquidating Trustees Liability Insurance policy may be obtained, allowing the transaction to close.
If you would like to learn more about Liquidating Trustees Liability Insurance:
Please provide us with a completed Liquidating Trustees Liability Insurance application together with all information requested therein. Alternatively, please provide the following information to receive preliminary terms:
- a complete copy of the trust agreement with all attachments
- applicant’s audited financial statements for each of the past three years (if available)
- applicant’s schedule/portfolio of assets for the liquidating trust (if not fully described in the financial statements).
Coverage can be provided for claims against (i) the trustee only, (ii) the trustee, with extension of coverage as to the trust’s indemnification obligation to the trustee, (iii) the trustee and the trust, (iv) members of a trust advisory committee established pursuant to the trust agreement (typically comprised of members of the debtor’s creditor’s committee).
Generally, we can provide terms within 24 hours. Completion of full underwriting is dependent upon how quickly detailed information is provided to Ambridge. Ambridge frequently can offer bindable terms within several days after receipt of the initial submission.
No. Ambridge’s primary underwriting focus is on exposures in the United States.
Each Ambridge Liquidating Trustees Liability Insurance policy will be tailored to the specifics of the risk to be insured and the insured’s specific circumstances. Once an initial proposal has been provided to you, please contact us with any provisions that your client wishes to have removed or amended so that we can consider your request.