Recovering Losses Caused by a Deputy Surety Bonds
The Court of Protection appoints Deputies by way of court order to control the property, welfare and finances of people who do not have the mental capacity to manage their own affairs. Deputies can be professional or non-professional, either way they wield a huge amount of power over very vulnerable individuals.
In the majority of cases, this power is used to enhance the lives of the subject (S) of the court order – Deputies are required by law to act in the best interests of the people they work for. The role of Deputy is not an easy one however, funds are expected to be invested wisely and income should be spent with a view to the future and S’s best interests. In some circumstances, through negligence, neglect or intent Deputies mismanage S’s property.
The Court of Protection and the Office of the Public Guardian do try to prevent these losses, but inevitably there will be some cases where the wide powers given to a Deputy are abused. After the problem has come to light and the Deputyship order is revoked, what redress is available for S?
When a Deputyship order is made the court requires the prospective Deputy to take out a surety bond. This is a type of insurance against such losses. The value of the bond is set by the court, largely by reference to the value of S’s assets. Payment for the bond is made by way of a yearly premium payable by S’s estate.
A surety bond has three parties. The ‘principle’, in this case the Deputy, the ‘obligee’ in this case S, and the ‘surety’, in this case the bond provider (an insurance company). If the Deputy breaches his obligations and there is a loss to S then the surety has to cover that loss.
The bond, therefore, ensures that the bond provider protects S from the mistakes of the Deputy.
The Office of the Public Guardian, or the new Deputy can apply to the Court of Protection to invoke the bond to the value of the losses incurred or up to the value of the bond, whichever is the lower. This is different from an insurance claim in that the court has to make a finding against the previous Deputy. Once the court is of the mind that the bond should be invoked, the funds should be ready for the use of S within weeks. This offers maximum protection for S, whose vulnerability requires it so.
Fraud and theft naturally lead to this action being taken; however these are not the only circumstances. If a Deputy has not been acting in the best interests of S and has been spending or investing their funds unwisely – even if they are spending them unwisely on S – then the bond can also be invoked.
Where monetary value is undetermined the court can order that an interim payment is made by the bond provider until the value is calculated. Even where no monetary value can be given to the loss suffered by S, the court can invoke the bond to deal with a problem.
Providers of these bonds are then able to recover the cost of the amount they have had to pay out from the Deputy who is at fault. This however will be a matter for the bond provider to pursue. The Public Guardian and the Court of Protection will play no part. The terms of repaying the bond provider will be set out in the bond document.
Of course, if the Deputy is appointed on a professional basis, then the solicitor’s firm they work for will normally have professional indemnity insurance. This is an alternative source of compensation.
Once the bond has been entered into, neither party can cancel it for any reason without the court’s permission. This means that if the Deputy fails to pay the yearly premium, the bond can still be invoked and the bond provider will be liable. In these circumstances, the bond provider has the option of making an application to the Court of Protection asking it to terminate the Deputyship. On termination of the Deputyship, unless otherwise ordered, the surety bond is not discharged for a further 7 years.
Families who believe that a Deputy is not acting in the best interests of S should notify the Court of Protection, Office of the Public Guardian or the Police. They may want to instruct solicitors to make an application to the Court of Protection asking that the bond is invoked and that a new Deputy is appointed. In these circumstances the court usually wants a Professional Deputy to be appointed, so he is able to look carefully at the actions of the previous Deputy.
We are regularly appointed by families, the Court of Protection or the Official solicitor to replace defaulting Deputies and to undertake inquiries into their actions. If you do have any concerns in this regard please ring me on 0207 940 4060 for a free initial discussion.
This article was written by Thomas Lax. If you require advice please email Imogen Freeman or call 020 7940 4060.