Can a power of attorney obtain errors and omissions insurance to protect against legal liability in North Carolina?
1. Detailed Answer
In North Carolina, a person serving as an agent under a power of attorney (often called an attorney-in-fact) owes strict fiduciary duties to the principal. These duties include acting in the principal’s best interest, avoiding conflicts of interest, and keeping accurate records. If an agent breaches these duties, the agent can face personal liability for any resulting harm.
Errors and omissions (E&O) insurance can help an agent manage the financial risks of unintentional mistakes or oversights. While North Carolina’s Uniform Power of Attorney Act does not explicitly mention E&O insurance, it allows agents to incur expenses and use the principal’s assets to fulfill their duties. Under G.S. 32C-4-406, an agent may be reimbursed for reasonable expenses related to acting under the power of attorney, which can include insurance premiums if the principal authorizes it.
Moreover, a principal may require an agent to provide a bond or other security before the agent begins acting, per G.S. 32C-4-411. Although a bond is a traditional form of security, an E&O insurance policy can serve a similar purpose by ensuring funds are available to compensate the principal for covered losses. Agents may purchase a policy in their own name and seek reimbursement, or the principal may pay premiums directly if consistent with the principal’s instructions.
Key points under North Carolina law:
- Fiduciary duties under Chapter 32C expose agents to personal liability for breaches.
- G.S. 32C-4-406 allows reimbursement of reasonable expenses, including insurance premiums, if the principal permits.
- G.S. 32C-4-411 lets a principal require bond or other security before the agent acts.
- Errors and omissions insurance can function as “other security,” offering broad coverage for negligent acts, omissions, or errors.
In practice, many North Carolina agents secure E&O coverage to protect personal assets and instill confidence in principals and third parties (banks, businesses, or other institutions). Agents should review policy terms carefully to confirm that the scope of coverage aligns with the duties they perform under the power of attorney. They should also verify whether the principal’s estate plan or the power document contains any specific requirements regarding bonding or insurance.
2. Key Considerations for Purchasing Errors and Omissions Insurance
- Scope of Coverage: Ensure the policy covers fiduciary duties, negligence, and errors in financial management.
- Policy Limits and Deductibles: Choose limits that match the size and complexity of the principal’s estate or assets.
- Funding the Premiums: Clarify whether the agent pays out of pocket and seeks reimbursement or the principal’s funds will cover the cost.
- Exclusions and Conditions: Read exclusions carefully (e.g., intentional wrongdoing may not be covered).
- Bond vs. Insurance: Compare the cost and coverage of a traditional fidelity bond under G.S. 32C-4-411 with an E&O policy.
- Principal’s Instructions: Follow any express terms in the power of attorney document about bonding or insurance.
- Regular Review: Update coverage as the principal’s assets or circumstances change.
Conclusion & Call to Action
Errors and omissions insurance provides valuable protection for agents under a power of attorney in North Carolina. It helps safeguard personal assets against unintentional mistakes and reassures principals and third parties. If you serve as an agent or plan to appoint one, consider whether E&O coverage, bonding requirements, or other security measures best suit your needs.
Pierce Law Group’s attorneys have years of experience guiding clients through powers of attorney, fiduciary duties, and bonding requirements. Contact us today to discuss your situation. Email intake@piercelaw.com or call us at (919) 341-7055 for a consultation.
