Why You Need Family Office Liability Insurance

“Why is family office liability insurance a worthy option?” by Bruce Gendelman, JD, Chairman, and Joseph Gendelman, President and CEO

When a family office is created to manage investments, trusts, household staff, property, legal matters, philanthropic ventures, succession planning and more, the “corporation” itself and the staff take on huge liabilities. Like all directors, officers and professionals, those working for family offices are at high risk of being sued for everything from professional negligence to mismanagement of funds and employment discrimination.

One way to protect the family and family office is to provide family office insurance from a broker who specializes in it and who can draft a highly customized policy that encompasses virtually any of the professionals who service the family/family office.

What are the benefits of sound loss prevention to the family office?

• Reduction in the liability of the executives and professionals in the family office
• Improve family office’s ability to recruit and retain qualified executives and professionals
• Enhance the performance and efficient administration and operation of the family office
• Avoid potential time-consuming and distracting claims and litigation
• Improve the ability to obtain favorable management liability insurance

What do the risks and coverages associated with the family office include?

• Professional liability. Insures the family office and its personnel against claims made by family office clients. Examples include allegations that the family office or its personnel provided inadequate services or made errors while performing or failing to perform professional services.
• Family trust and trustees liability. Insures the trust for acts committed by a trustee employed by the family office, and protects the trustees of all trusts administered, sponsored or advised by the family office.
• Directors and officers liability. Helps protect the personal assets of directors and officers from claims alleging error, misrepresentation, misstatement, omission, neglect or breach of duty. Coverage is available whether the wrongful act occurred while engaged in family office business or while serving for the family office on the board of a nonprofit organization.
• Employment practices liability. Protects against employee-related litigation, including claims for wrongful termination, discrimination or harassment.
• Pension and welfare plan liability. Liability for the administration of benefit plans created for family office employees.
• Private fund coverage for investment entities. Insures limited partnerships, general partnerships, limited liability companies, venture capital funds and offshore investment companies.
• Professional service endorsements for family offices that provide or act as the following: Overseeing philanthropic activities, bookkeeping services, administration, tax preparation, trustee services, business agent, investment advisor, property manager, public relations consulting, etc.

What are some commonly overlooked family office risk-management issues?

• Creation and maintenance of an internal controls and procedures manual
• Development and maintenance of a mission statement
• Professional and vicarious liability exposures to third parties
• Employment practices liability for family office staff and domestic staff
• Segregation and separation of duties
• Family office board composition not diversified
• Family trusts/trustee composition is not represented by disinterested individuals
• Failure to conduct comprehensive background checks on outside man- agers or securities firms

An experienced broker will work with you to determine the level of insurance, as well as the deductible level; the assessment of likely risks and the tolerance for those risks; internal controls; and what the insurance market is willing to provide.

Our personal approach is distinctive and backed by a thorough knowledge of the ultra high net worth insurance market, including family office insurance. Our carrier partners utilize their management teams to provide valuable advice on loss-prevention services, exposures and claims mitigation as they relate to family offices.

Article originally appeared in Worth magazine.