Understanding Executor Liability Insurance

Executor liability insurance is designed to protect estate trustees from personal financial exposure arising from alleged negligence, errors, or omissions in the administration of the estate. It often includes a “duty to defend”, which obligates the insurer to appoint and pay for legal counsel to defend the executor when allegations fall within the scope of the policy.

This is distinct from the duty to indemnify, which only arises if liability is proven. The duty to defend arises earlier and is broader.

General Principles of the Duty to Defend

The leading Canadian case on the duty to defend is Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801. There, the Supreme Court of Canada confirmed:

“The duty to defend arises whenever the allegations in the pleadings, if proven, would require the insurer to indemnify the insured.”

This principle was later expanded in Scalera v. Non-Marine Underwriters, Lloyd’s of London, 2000 SCC 24, where the Court instructed insurers and courts to look past the labels in the pleadings and assess the “true nature” of the allegations.

This principle—confirmed in Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801—holds that the duty to defend arises whenever the pleadings allege facts which, if proven, would require indemnification under the policy, even if no liability is ultimately found. The duty to defend is thus broader than the duty to indemnify and arises at the earliest stages of litigation.

When an insurer wrongfully refuses to defend, the consequences can be significant. In Whiten v. Pilot Insurance Co., 2002 SCC 18, the Supreme Court further clarified that insurers owe a duty of utmost good faith to their insureds. A breach of this duty—particularly where the insurer unreasonably denies coverage or refuses to defend without proper investigation—can lead to an award of punitive damages, in addition to compensatory damages for legal costs and losses arising from the breach.

Applied to executor liability insurance, this means that an insurer who denies a defence to an executor facing allegations of fiduciary misconduct—especially in a context where a no-contest clause has been invoked and litigation ensues—may face not only a breach of contract claim, but also exposure to a bad faith lawsuit. The financial and reputational consequences for both the insured executor and the insurer can be substantial. As such, insurers must tread carefully and fulfill their defence obligations where even a reasonable possibility of coverage exists.

Application to Executor Conduct and No-Contest Clauses

Where a no-contest clause is invoked not to prevent a direct challenge to the will, but to suppress legitimate concerns about the executor’s conduct, the dispute often pivots from testamentary intent to fiduciary accountability—bringing it squarely within the ambit of executor liability insurance.

A no-contest clause, also known as an in terrorem clause, is a provision in a will that purports to disinherit a beneficiary should they contest the will’s validity or challenge its administration. While such clauses are generally enforceable in Ontario, they are subject to strict judicial scrutiny and must be narrowly construed. The courts have consistently held that beneficiaries are not to be penalized for raising legitimate legal concerns or exercising statutory rights. In Bellinger v. Nuytten Estate, 2003 CanLII 2420 (ON SC), the court declined to enforce an in terrorem clause against a beneficiary who applied to remove an executor, holding that such action was not a “contest” of the will itself but rather a request for proper fiduciary conduct. These cases reflect the principle that while testators may attempt to deter litigation, they cannot do so at the expense of a beneficiary’s right to raise serious and reasonable concerns. As a result, an executor who relies on a no-contest clause must tread carefully; misuse of the clause in response to legitimate objections may itself constitute grounds for judicial intervention.

If a beneficiary files a notice of objection—for example, questioning the executor’s interpretation of the will, or alleging a breach of duty—and the executor responds by invoking the no-contest clause, the dispute has clearly turned adversarial. If the beneficiary then commences litigation, alleging bad faith, overreach, or negligence in the executor’s handling of the estate, the insurer’s duty to defend is triggered.

Why? Because the claim now concerns alleged misconduct in the execution of the executor’s fiduciary duties—precisely the kind of risk executor insurance is meant to cover. Executors are held to a high standard of loyalty, prudence, and impartiality, and courts have repeatedly recognized that allegations of breach of those duties—whether in the form of mismanagement, delay, conflict of interest, or overreach—fall squarely within 999the scope of fiduciary liability. In Zimmerman v. McMichael Estate, 2010 ONSC 2947, the Ontario Superior Court held an executor personally liable for failing to account and improperly administering estate funds, underscoring the serious consequences of fiduciary misconduct. Executor insurance is designed precisely to respond to such claims—where the dispute is not about the validity of the will, but rather how the executor has carried out the responsibilities imposed by it. Accordingly, when litigation centers on such alleged misconduct, it triggers the duty to defend under most executor liability policies.

Unless the allegations are entirely outside the scope of coverage, the insurer must provide a defense—typically under a reservation of rights until the scope of coverage can be fully assessed, meaning the insurer will fund the defence while reserving the right to later deny indemnity if the claim proves to be outside coverage.

While no Canadian appellate decision has yet considered executor insurance in the specific context of no-contest clause enforcement, the general principles of the duty to defend, as established in the Nichols and Scalera cases, suggest that insurers are likely obligated to defend executors when their conduct is challenged as part of such disputes. Courts have also emphasized the importance of prompt and fair assessment by insurers. In Hanis v. Teevan, 2008 ONCA 678, the Ontario Court of Appeal reaffirmed that an insurer’s obligations go beyond simply providing a defence—they must act promptly, fairly, and in good faith throughout the claims process.

Why This Matters: Preserving the Estate

Litigation of this kind is expensive, often depleting the estate itself and leaving all parties worse off. Legal costs, valuation disputes, forensic audits, and interim motions can chew through tens or hundreds of thousands of dollars.

By invoking executor insurance, the fiduciary can ensure they are not personally bankrupted by disputes that stem from their good faith administration of a difficult estate.

And by utilizing mediation, parties can often resolve their concerns faster, privately, and at a fraction of the cost of litigation—potentially preserving family relationships and estate assets alike.

Conclusion: Use Caution, Use Coverage, Use Mediation

Executor liability insurance is a powerful safeguard, but its value depends entirely on how well it is understood and strategically applied. When an executor is confronted with a challenge from a beneficiary—or is contemplating invoking a no-contest clause—the first and most important step is to carefully review the terms of the insurance policy and promptly notify the insurer. Any delay can complicate coverage. Executors should recognize that if the claim involves allegations of mismanagement, breach of fiduciary duty, or improper administration, the insurer’s duty to defend will likely be triggered. Acting unilaterally or in a reactive manner can escalate the conflict and jeopardize both the executor’s position and the integrity of the estate. Legal advice should be sought early to assess the merits and risks of the dispute. At the same time, mediation offers a structured, confidential, and cost-effective way to resolve these conflicts without draining the estate or deepening family divisions. In high-conflict estate scenarios, it is not only the prudent choice—it is often the most responsible one.

As estate litigation continues to evolve, so too will the case law on executor insurance. But for now, the message is clear: if there’s a fight, your insurer may be required to help you defend it.

At Patey Mediations, we specialize in navigating the emotionally charged and legally complex terrain of estate disputes. With decades of experience in insurance litigation and a deep understanding of fiduciary obligations, we help parties—beneficiaries, executors, insureds and insurers—reach principled resolutions before costs spiral out of control.

We also offer tailored mediation services for insurance companies offering executor liability coverage, helping them resolve duty-to-defend disputes and underlying estate claims efficiently. Whether you’re managing a policy claim or facing a high-conflict estate dispute, Patey Mediations provides the structure, expertise, and impartiality required to resolve the matter—without draining the estate.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Always consult with an estates lawyer regarding your specific circumstances.