What are constructive trusts and equitable liens?

A constructive trust and an equitable lien can be used to prevent unjust enrichment. Although there are technical differences, both can be very powerful remedies where a person has wrongfully taken your property, since you can prevent the wrongdoer, and the wrongdoer’s creditors, from keeping your property in the event of an insolvency.

In some cases, it is also possible to trace property and claim the fruits of the wrongdoer’s conduct. For example, if the wrongdoer misappropriates your 100 shares of IBM stock, then worth $5,000, and quickly sells the stock and uses the $5,000 to buy shares of a “high-flyer” that are now worth $25,000, using the remedies of constructive trust or equitable lien might enable you to recover the $25,000 in stock, instead of the ordinary compensatory damages of $5,000 (the value of the property at the time it was taken) plus interest.

For further information on constructive trusts, see Trusts.

Protecting Property Rights: Case Studies in Utilizing Insurance for Constructive Trusts and Equitable Liens

Case Study 1: Liability Insurance for Constructive Trusts

In this case study, a property owner discovers that their property has been wrongfully taken by another individual. The property owner intends to pursue a constructive trust remedy to prevent unjust enrichment. Recognizing the potential legal costs and expenses associated with the legal proceedings, the property owner obtains liability insurance specific to constructive trusts.

This insurance coverage provides financial protection by covering legal expenses and potential damages in the event of a lawsuit to establish a constructive trust. It ensures that the property owner can pursue their claim without incurring significant financial burdens and safeguards their rights against any potential insolvency of the wrongdoer.

Case Study 2: Errors and Omissions Insurance for Equitable Liens

In this case study, a creditor seeks to establish an equitable lien on certain property to secure the repayment of a debt. The creditor is aware of the potential risks and challenges involved in enforcing an equitable lien, including potential disputes and legal obstacles. To mitigate these risks, the creditor obtains errors and omissions (E&O) insurance tailored to equitable liens.

The E&O insurance provides coverage for legal expenses and potential damages in the event of disputes or claims related to the enforcement of the equitable lien. It ensures that the creditor is financially protected and can navigate any legal challenges that may arise, safeguarding their rights to the secured property.

Case Study 3: Professional Liability Insurance for Property Tracing

In this case study, a party seeks to trace and recover property that has been wrongfully taken by another individual. The tracing process involves complex legal and financial analysis, with potential risks of errors or omissions in determining the ownership and value of the traced property. To mitigate these risks, the party obtains professional liability insurance specifically for property tracing cases.

This insurance coverage protects against claims of professional negligence or mistakes in the tracing process. It covers legal defense costs and potential damages, ensuring that the party can pursue their claim with confidence and financial security, even in the face of potential challenges or disputes.