Superannuation trustees liability insurance
What is a superannuation trustees liability insurance policy?
Being a trustee of a superannuation fund comes with great responsibility and risk. A trustee must meet common law and legislative duties while still ensuring they are acting in the best interest of the trust fund and its beneficiaries. Failure to comply with these regulations can result in serious penalties.
Superannuation trustees liability insurance covers a trustee for damages associated with an actual or alleged breach of duty. The insurance policy is a mix of professional indemnity, directors’ and officers’ liability and crime insurance. Under the Superannuation Industry (Supervision) Act (SIS), a trustee must exercise due diligence and care, report all negative results to the beneficiaries and ensure the trust can meet current and future liabilities.
A trustee is also prohibited from using the fund to lend or steal money for personal use. If a trustee fails or is alleged to have failed in one or more of these responsibilities, superannuation liability insurance will cover any legal liabilities. Any financial losses caused or allegedly caused by the trustee’s actions will be covered by the insurance policy. This protects the superannuation fund and the trustee from paying any associated compensation.
- What is covered by superannuation trustees liability insurance?
- What are the trustees’ responsibilities and risks?
- What are the benefits of a superannuation trustees liability insurance?
- How do superannuation trustees liability insurance claims arise?
- What protection does a superannuation trustees liability insurance usually provide?
What is covered by superannuation trustees liability insurance?
Superannuation trustees liability insurance is needed for the protection of the trustee and the fund assets. Like a company director or officer, you are personally liable for any financial losses resulting from an alleged or actual breach of your duties.
A superannuation fund is not considered a legal entity. This means if a third-party has suffered financial damage because of your actions or omissions, you will be held responsible for providing compensation. You need superannuation trustees liability insurance to protect you against such legal action.
If you do not have cover, your personal assets and funds will be at risk. Superannuation trustees liability insurance provides legal indemnity to allow you to perform your duties as trustee without this added pressure.
As a trustee you have many legal responsibilities, which can leave you open to legal action should something go wrong. Types of action you may face include actual or alleged breaches of trust, statutory provision or regulation that are in accordance to statutory provision. You are also liable for neglect, error, omission, libel, slander, maladministration, misstatement, misleading statement, or misleading conduct.
Considering all these risks, you need cover to ensure your personal assets are safeguarded from liquidation if you are found to be at fault. Superannuation trustees liability insurance also covers the assets of the trust.
What are the trustees’ responsibilities and risks?
As a trustee, you carry great responsibilities and risk. In your role and functions, you must execute a complex mix of legal duties as outlined by common and legislative law. Depending on the trust, you may also be subject to corporations law.
A trustee’s primary responsibility is to act in the best interest of the beneficiaries while still adhering to their legal duties to the trust. A trustee that fails to comply with these duties is at risk of legal action for neglect and malpractice. A trustee has a responsibility to act with care and without personal bias.
If a trustee is seen to abuse their position for personal financial gain, they may be subject to litigation. Likewise, a trustee that fails to disclose important financial information to the regulator and its beneficiaries risks action for breach of trust and misconduct.
A trustee also has a responsibility to ensure a fund can meet its financial obligations. They must not loan, borrow or steal from the trust. They must not abuse their position by acting within their own personal interest and must openly report all decisions and outcomes with the beneficiaries and regulator.
If you are a trustee and fail in any of these responsibilities, you open yourself open legal action.
What are the benefits of a superannuation trustees liability insurance?
- Asset protection.Superannuation trustees liability insurance safeguards assets from adverse legal action. This includes both the personal assets of the trustee and the assets of the superannuation fund. Without insurance, a trustee may be held personally responsible for financial losses caused by their failure to fulfill their responsibilities as trustee. In this case, the cost of defending the lawsuit and any resulting damage, is born by the trustee and trust.
- Protects members.With superannuation trustees liability insurance, fund members are protected from the cost of litigation. Given a trustee is typically protected by an indemnity when action is taken against them, it is the trust that helps finance the defence and the cost of the losses. Superannuation trustees liability insurance covers these costs. This means members do not bear the expense of funding a loss or defending an action made against a trustee.
- Provides security.Legislation surrounding superannuation is complex and nuanced. It changes subtly between states and is under constant review. Keeping up with the changes in legislation and understanding the responsibilities of your role as trustee is challenging. Superannuation trustee liability insurance gives you and the comfort of an added level of security.
- Mitigates risk of human error. While a trustee may perform their duties with due diligence and care, as with any position, there is always the risk of human error. Confusion over changing regulations, a lack of understanding of specific terms or the influence of bad information may lead a trustee to commit a wrongful act. Superannuation liability insurance mitigates this risk by providing cover in the case that such a situation occurs.
How do superannuation trustees liability insurance claims arise?
A claim can arise for many reasons. Be it human error or criminal intent, a trustee is subject to face a wide spectrum of disputes. An example of a typical claim may include:
- Mishandling customer information. A member requests the fund to transfer their investments but this request is not followed. The lack of action results in a financial loss and the member claims damages for the losses.
- Breach of SIS. The Australian Prudential Regulation Authority (APRA) investigates the fund for breaching in-house asset rules. In this case, the trustees are covered for the cost of the investigation. They will not receive cover if found guilty of criminal charges.
- Identity theft. A member claims damages after their identity is stolen and their funds misappropriated. A fund can cover the losses from fraudulent activity with superannuation trustees liability insurance.
- Breach of trust. A claim may arise if a trustee misrepresents the figures of a predicted superannuation payout. A trustee has a duty to be truthful with a fund and its beneficiaries. Misrepresenting information can result in legal action.
- Conflict of interest. A claim is made against a trustee for a perceived or actual conflict of interest between an employer company and the superannuation fund.
What protection does a superannuation trustees liability insurance usually provide?
Superannuation trustees liability insurance provides broad protection to cover a trustee for the many risks they are exposed to.
If you are insured, you will be provided with the following cover:
Superannuation trustees liability insurance protects a fund from losses caused by a criminal act. If, for example, a trustee has stolen or embezzled funds, the insurance will cover the financial losses to the fund. Property losses resulting from a criminal act are also covered.
If a fund or trustee is found by APRA to be in breach of SIS regulation, superannuation trustees liability insurance will cover the cost of the associated fees and penalties. The investigation is also covered by insurance but if an individual trustee is found guilty of criminal charges they will not be reimbursed.
The cost of replacing lost or damaged official documents is provided for by the insurance policy.
Advanced defence costs
If you are a trustee and face legal action, superannuation trustees liability insurance will help cover the cost of your defence while your application for cover is processed. Depending on the case, a trustee may not eligible for cover. The insurance policy provides cover while this decision is made.
Superannuation trustees liability insurance covers the legal expenses of the trustees and their spouses. If a trustee or their spouse is sued, this policy will bear the associated costs.
Criminal acts investigation expenses
This cover is offered to protect trustees and the fund from the expenses caused by an investigation into a criminal act.
Superannuation trustees liability insurance protects a trustee from claims made against them as they perform their duties to the fund. As a trustee, there is a high risk you may face legal action. In this situation, superannuation trustees liability insurance can provide coverage for the various expenses involved.Back to top
Ask an Expert